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While establishing a business the most important task is to select a proper form of
organisation.

This is because the conduct of business, its control, acquisition of capital, extent of
risk, distribution of profit, legal formalities, etc. all depend on the form of
organisation.

The most important forms of business organisation are as follows:

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When the ownership and management of business are in control

of 
, it is known as
  
or



It is seen everywhere, in every country, every state, every
locality.
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       !

"i.e. the individual has got
legal title to the assets and properties of the business.
^ The entire profit arising out of business goes to the sole proprietor.
^ Similarly, he also bears the entire risk or loss of the firm.

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  % he is the sole
decision maker.

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 of a sole proprietorship business
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There is no difference between the business assets and the private assets of the sole
proprietor.
The business ceases to exist in the absence of the owner.

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This means that, in case the sole proprietor fails to pay for the business obligations and
debts arising out of business activities, his personal property can be used to meet those
liabilities.

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The !! !of a sole tradership business is its easy formation.
Anybody wishing to start such a business can do so in many cases without any legal
formalities.

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Full authority of the owner over his business allows prompt decision making & flexibility in
operations and thus ensures effective control.

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Another important advantage of a sole proprietorship business is that the  
   
  regarding his business activities.

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It promotes *
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In sole proprietorship, the liability of business is recovered from the personal assets of
the owner. It restricts the sole trader to take more risk and increases the volume of his
business.

2. 
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The ability to raise and borrow money by one individual is always limited.
The inadequacy of finance is a major handicap for the growth of sole proprietorship.

3.  $(


An individual has limited knowledge and skill.
Thus his capacity to undertake responsibilities, his capacity to manage, to take decisions
and to bear the risks of business are also limited.

4. 3 $ 

The existence of a sole tradership business is linked with the life of the proprietor. Illness,
death or insolvency of the owner brings an end to the business.
The continuity of business operation is, therefore, uncertain.
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^ A Joint Hindu Family business comes into existence as per the (

  $(. The Joint Hindu Family (JHF) business is a form of business
organisation found only in India.

^ In this form of business, 



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  4 
. The affairs of business are managed by the head of the family,
who is known as the ´KARTAµ .

^ In a JHF business 



 get a share in the business by virtue of
their being part of the family. They are called ´  5
The term co-parceners implies that such an individual has got the right to ask for
a partition of the Joint Hindu Family business and to have his separate share.

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  !  . Thus, an
individual, his sons(s), and his grandson(s) become the members of a Joint Hindu
Family by birth.
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   is a 4 
   just like a jointly owned property.
It is governed by Hindu Law. It can enter into partnership agreement with others.

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Inside the family also, it is   only to 
 who are   by
birth.

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In the event of death of any of the co-parcener, his wife can claim share of profit.

4. #!
The management of a joint Hindu family business is in the hands of the senior-most
family member who is known as the .
He has the authority to manage the business and his ways of managing can not be
questioned by the co-parceners.
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The liability of each member of the Joint Hindu Family business is limited to the extent
of his share in the business.
But the

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as, it extends to his personal property.

6. 
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The individual share of each co-parcener keeps on fluctuating.
This is because, every birth of a male child in the family adds to the number of co-
parceners and every death of a co-parcener reduces the number.

7.  
A Joint Hindu Family business continues to exist on the death of any co-parcener.
Even on the death of the karta, it continues to exist as the next senior-most family
member becomes karta.
However, a Joint Hindu Family business can be dissolved any time either through
mutual agreement between members or by partition.
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Every co-parcener is assured a share in the profits irrespective of his contribution to the
successful running of the business.
This , in a way safeguards the interests of some members of the family like minors, sick,
disabled and widows.

2.  !!

The karta enjoys full freedom in conducting the family business. It enables him to take
quick decisions without much interference.

3. ~
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!.
A JHF provides opportunity for the young members of the family to get the benefit
of knowledge and experience of the elder members and also helps in inculcating
virtues like discipline, self-sacrifice, tolerance etc.

4.  . 
A Joint Hindu Family business is not affected by the insolvency or death of any
member including that of karta. Thus it can continue for a long period of time.
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Joint Hindu Family business has generally limited financial and managerial resource.
Therefore, it can not undertake big and risky business.

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Since the karta has unquestionable authority to manage the business, there is scope for
him to misuse it for his personal gains.

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J In a JHF business the male members of three successive generations are involved
which may lead to conflict between generations.
J Also there might be a lack of motivation among the members who work hard as
the benefits of their efforts are shared by all the co-parceners.

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The continuity of business is always under threat. It may be due to a small rift within
the family and if a co-parcener ask for a partition the business is closed.





A partnership form of organisation is one where    persons

are associated to run a business with a view to earn profit.

Persons from similar background or persons of different ability and

skills, may join together to carry on a business. Each member of such a
group is individually known as ¶7and collectively the members
are known as a ¶
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These firms are governed by the (

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A  $   are required to start a partnership business.
The .membership limit is G
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types of business.

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The relation between the partners of a partnership firm is created by  .
The partners enter into partnership through an agreement which may be verbal,
written or implied.
If the agreement is in writing it is known as a ¶
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3.   $ 

Since individuals have to enter into a contract to become partners, they must be
competent enough to do so.
Thus,   "
 
persons are  
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to become partners.
However, a  to the benefits of partnership i.e. he can have a
share in the profits.
 






4. !
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Law does not recognise the firm as a separate entity distinct from the partners.

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The business in a partnership firm may be carried on by all the partners or any one of
them acting for all.
This means that every partner is an agent when he is acting on behalf of others and he
is a principal when others act on his behalf.

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The partners can share profit in any ratio as agreed. In the absence of an agreement,
they share it equally.

7. 3


The partners have 


.
Creditors can lay claim on the personal properties of any individual partner or all the
partners jointly.







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ao partner can sell or transfer his interest in the firm to anyone without the consent of
other partners.

9. 9
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0!  of partnership is   
but considered desirable as this entitles
the firm to several benefits.
For example, if it is registered, any partner can file a case against other partners, or
a firm can file a suit against outsiders in case of disputes, claims, disagreements, etc.

10. ,
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Dissolution of partnership implies not only a complete closure or termination of
partnership business, but it also includes any change in the existing agreement among
the partners due to a change in the number of partners.
 


  

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A partnership can be formed 

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Registration is   mandatory.

2. !0  

As compared to sole proprietorship, a partnership firm can pool
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3. #!
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Prompt decision making due to a limited number of partners leads to flexibility of
operation and better management.

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In partnership, risk of loss is easier to bear by individual partners as it is shared by all
the partners.

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Every partner has an equal say in decision making. A dissenting partner may withdraw
from partnership and can dissolve it.



   

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As there is a restriction on the maximum number of partners, the capital which can be
raised is limited.

2. 3


As the liability of partners is joint and several to an unlimited extent, any one of the
partners can be called upon to pay all the debts even from his personal properties.

3. ( 

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. The death, insolvency or
lunacy of a partner may bring about an unexpected end to partnership.

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Since 
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, there are greater possibilities of friction due to
differences of opinion among partners which might ultimately result in disruption
and closure of the firm.
  ~   
A A  ~  form of business organisation is a 
  of
persons who generally contribute money to carry on business.
A company is formed by the initiative of a group of persons known as    

A The money so contributed is the 
of the company.

[The     $
to which each member is entitled is called

,
therefore members of a joint stock company are known as


 and the
capital of the company is known as

. ]
The  


is divided into a  $ known as ¶
 ·.

A The companies are governed by the (  6"G èÿ.

The Act defines a   as an
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A Joint Stock Company is an artificial person in the sense that it is created by law and
does not possess physical attributes of a natural person. However, it has a legal status.

2. ~!
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Being an artificial person, a company has an existence independent of its members.
It can own property, enter into contract and conduct any lawful business in its own name.
It can sue and can be sued in the court of law.
A shareholder cannot be held responsible for the acts of the company.

3.   ~

Every company has a common seal by which it is represented while dealing with
outsiders. Any document with the common seal and duly signed by an officer of the
company is binding on the company.

4. 
*. 
A company once formed continues to exist as long as it fulfils the requirements of law.
It is not affected by the death, lunacy, insolvency or retirement of any of its members.
  ~   




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A company comes into existence only when it has been registered after completing the
formalities prescribed under the Indian Companies Act 19è6.

6. #

A  has a  membership of  persons and
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In case of a 
 , the  is and the .
membership is 


7. #!
Joint Stock Companies have democratic management and control.
Even though the shareholders are the owners of the company, all of the them cannot
participate in the management process.
The company is managed by the elected representatives of shareholders known as
,  
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0. 

A Joint Stock Company generally raises a large amount of capital through issue of
shares.

9.  $
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The members of a company are free to transfer their shares to anyone else.

10. 

The liability of a member of a Joint Stock Company is limited by guarantee or the
shares he owns.
  ~     

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In a Joint Stock Company the liability of its members is limited to the extent of shares held
by them. It helps the company to raise huge capital.
Because of limited liability, a company is also able to take larger risks.

2.   $. 

A company is an artificial person created by law and possesses independent legal status.
It has a 
. 

3. $  $
!

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Only this form of organisation can provide enough capital for large scale operations.

4. ~ 
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J A joint stock company offers employment to a large number of people.
J It facilitates promotion of various ancillary industries, trade and auxiliaries to
trade.
J It promotes Research and Development and facilitates innovation.
  ~      

1.      
The formation of a company involves compliance with a number of legal formalities under
the companies Act and compliance with several other Laws.

2. *. !  


A company is expected to comply with the provisions of several Acts. aon-compliance of
these invites heavy penalty.

3. ,

,   

A company has to fulfill certain procedural formalities before making a policy decision.
These formalities are time consuming and, therefore, policy decisions may be delayed.

' 
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Even though the shareholders are the owners of the company, it is controlled by a group of
elected persons known as the   $,  . Minority interest is not always secured.

è. ~ 
  
A JSC being a large scale business organisation, have huge resources and power.
Any misuse of such power creates unhealthy conditions in the society.
  


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^ A co-operative society is entirely different from all other forms of

organisation discussed previously in terms of its objective.
The co-operatives are formed primarily to render services to its members.

^ It functions under the Cooperative Societies Act, 1912 and other State Co-
operative Societies Acts.

^ Any ten persons can form a co-operative society.

^ The main objectives of co-operative society are:

J rendering service rather than earning profit
J mutual help instead of competition and
J self help in place of dependence.
  


~ 
 


On the basis of objectives, various types of co-operatives are formed :

      

These are formed to protect the interests of ordinary consumers of society by making
consumer goods available at reasonable prices.
E.g. Kendriya Bhandar in Delhi, Alaka in Bhubaneswar etc.

b.      

These societies are set up to benefit small producers who face problems in collecting
inputs and marketing their products.
E.g. The Weavers co-operative society, the Handloom owners cooperative society etc.

c. #!   

These are formed by producers and manufactures to eliminate exploitation by the
middlemen while marketing their product.
E.g. Kashmir Arts Emporium, J&K Handicrafts etc.
  


~ 
 


d.  !   

These are formed to provide housing facilities to its members. They are called co-
operative group housing societies.

e.    

These societies are formed to provide financial help to its members.
The rural credit societies, the urban co-operative banks etc. come under this category.

f. !   

These are formed by small farmers to carry on work jointly and thereby share the
benefits of large scale farming.

Besides these types, other co-operatives can be formed with the objective of providing
different benefits to its members, like the construction co-operatives, transport co-
operatives, co-operatives to provide education etc.
  


~ 




1. 9
  
Individuals having common interest can come together to form a co-operative society.
Any person can become a member of such an organisation and leave the same.

2. #

The  membership required to form a co-operative society is  and the
. number is 
.

3.    
0!   of a society under the   ~  6is a  .
Once it is registered, it becomes a body corporate and enjoys certain privileges just
like a joint stock company.
Some of the privileges are:
(a) The society enjoys perpetual succession.
(b) It has its own common seal.
(c) It can own property in its name.
(d) It can enter into contract with others.
(e) It can sue others in court of law.
  


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4. ~# 
The primary objective of any co-operative organisation is to render services to its
members in particular and to the society in general.

è. , ~
Every member has a right to take part in the management of the society.
Generally the members elect a committee known as the *. to look
after the day to day administration.

6. ~   $ 

J A co-operative organisation starts with a fund contribute by its members in the
form of units called shares.
J It can also raise loans and secure grants from the government easily.
J One fourth of the profits are transferred to its fund every year.

7. 0 

The return on capital subscribed by the members is in the form of a fixed rate of
dividend after deduction from the profit.
  


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Any 10 persons can voluntarily form an association and get themselves registered with the
Registrar of Co-operative societies which is society is easy as compared to a company.
2. 

The liability of the members is limited to the extent of capital contributed by them.
3. #

There is no restriction on any individual to be a member of any co-operative.
4. #!
A co-operative functions in a democratic manner. Each member has only one vote.
è. ~

It does not cease to exist in case of death, or insolvency or resignation of a member. It has
thus a fairly stable life.
6. ~6  
Co-operatives get a lot of patronage in the form of exemptions and concessions in taxes
and financial assistance from the State Governments which no other organisation gets.
  


~ 
   

1. 

The amount of capital that a co-operative can generate is limited because of the
membership remaining confined to a locality or region or a particular section of people.
2.  
 #!
At times, co-operative do not function efficiently due to lack of managerial skill and
motivation.
3.  $   
Co-operatives are formed with the very idea of co-operation. However, friction among
the members due to individual interests are quite common.
4.  $~
Maintenance of business secrecy is one of the important factors for the success of
enterprise which the co-operatives always lack.
è. , : 
The inadequacy of capital and various other limitations make co-operatives dependant
on the government for support and patronage and subject themselves to Interference.
Coming next: Pvt. Ltd. Vs Public Ltd.