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Business and Forms of Business Ownership

This document discusses different forms of business ownership including sole proprietorships, partnerships, joint stock companies, cooperative societies, and government business entities. It provides details on the key characteristics and legal structures of each form of ownership. The purpose is to help the reader understand the different options for organizing a business and factors to consider when choosing an appropriate structure.

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38 views17 pages

Business and Forms of Business Ownership

This document discusses different forms of business ownership including sole proprietorships, partnerships, joint stock companies, cooperative societies, and government business entities. It provides details on the key characteristics and legal structures of each form of ownership. The purpose is to help the reader understand the different options for organizing a business and factors to consider when choosing an appropriate structure.

Uploaded by

sweetsabina
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Business and Forms of

Business Ownership
Learning Objectives
After studying this chapter you should be able to:

 Understand what is business?


 Explore purpose and characteristics of business organization.
 Understand makes a business organization excellent?
 Understand characteristics, advantages & disadvantages of
different forms of business organizations.
 Explore the process for formation and winding up of a
company
 Understand the most important factors to be considered
while choosing form of ownership
Business
 An institution organized and operated to
provide goods and services to the society,
under the incentive of private gain.

 It is an economic activity or system in which


there is exchange, sale or transfer of goods or
service on the basis of their perceived worth for
purpose of making profit or creation of wealth.

 These are the economic entities that employ


resources with a motive to earn profit for its
shareholders as a return on capital invested by
Scope of Business
 Includes some form of investment that is provided by the
investor(s) with intent to make a profit from it.

 Effective and efficient operations to produce and distribute


products or services, which can be served as a solution to the
needs of the customers.

 It requires a sufficient number of customers to whom its


output can be sold at profit on a consistent basis.

 An appropriate network for customer care and after sales


service to serve the different needs of existing customers.
Activities Excluded from Business:

 Social Service Activities

 Personal Consumption Activities

 Religious and Spiritual Activities

 Illegal Activities
Purpose of Business
 To generate profit as a return on investment in a socially
acceptable manner.
 Drucker said “purpose of the business is to create and keep
customers”.
 In Germany, two-tier board system brings together management
and labour on same platform and ensures the involvement of
employees in the governance of corporation.
 In Japan, company and its employees are treated like a family &
shareholders often treated in role of poor relations.
 GE’s CEO, Ralph Corinder, called its top management a ‘Trustee’
responsible for managing the enterprise “in the balanced interest
of shareholders, customers, employees, suppliers, & plant
community cities.”
Characteristics of Business
 Economic Activity
 System
 Motive to earn profit or generate surplus
 Risks and Uncertainty
 Creation of Utility
 Commerce:
a. Trade
b. Aids to Trade
Characteristics of an Excellent
Business Organization
 A bias for action (taking the initiative)
 Close to the customer for learning their needs
 Promote autonomy and entrepreneurship
 Strive for productivity through people
 Hands-on, value driven leadership
 Stay close to the business activity that they know
the best
 Simple organization structure and form, lean staff
 Central core values combined with decentralized
organization.
Forms of Business Ownership
 Sole Proprietorship
 Joint Hindu Family Business
 Partnership
 Joint Stock Company
 Cooperative Society
 Government undertakings
Sole Proprietorship
 Business organization where a single
individual makes his/her own investment with
an objective of generating profit and takes
the risk to bear all the losses, in case they
arise with unlimited liability.

 It is a type of business unit where one person


is solely responsible for providing the capital,
for bearing of risk of the enterprise and for
the management of the business.
Partnership
 Business organization where two or more than two
individuals (not more than twenty) voluntarily come
together and combine their capital to undertake a
lawful business activity with a profit motive by oral or
written agreement.

 Association between two or more persons who agree


to carry on a business in a common with a view to
private gain.

 Partnership Act 1932, defines partnership as a


relationship between persons who have agreed to
share profit of a business carried on by all or any of
them acting for all.
Joint Stock Company
 The Companies Act, 1956 defines a company as an
artificial person created by law, having a separate legal
entity, with perpetual succession and common seal.
 A corporation is an artificial being, invisible, intangible &
existing only in contemplation of law. It possesses only
the properties which the charter of its creation centers
upon it either expressly or as incidental to its very
existence.
 It is a voluntary association of person created under the
law for the purpose of some business for profit with
common capital, divisible into transferable share with a
common seal.
Classification of Joint Stock Company
On the basis of Incorporation:
a. Chartered Companies
b. Statutory Companies
c. Registered Companies:
According to the Liability:
a. Companies Limited by Shares
b. Companies Limited by Guarantee
c. Unlimited Companies
According to Transferability of Shares:
a. Private Limited Company
b. Public Limited Company
According to Nationality:
a. Indian Companies:
b. Foreign Companies
On the Basis of Ownership:
a. Government Companies or Public Sector Companies
b. Private Sector Companies
- Holding Companies
- Subsidiary Companies
Memorandum of Association
It comprises of following different clauses that define the
nature and scope of the organization

 Name Clause
 Registered Office (RO) Clause
 Object Clause
 Liability Clause
 Share Capital Clause
 Association or Subscription Clause
Articles of Association (AoA)
It includes the following provisions, rules, regulations and guidelines
for the internal working of a company:

 Information about shares, certificates and variations of rights of the


shareholders.
 Procedure and frequency of meetings of the board.
 Guidelines about the accounting records of a company.
 List of Directors of the company and appointment of management of
the company.
 Policy with respect to issue of dividends and maintenance of
reserves by the company.
 Postal and physical address of the company.
 Registration-fee receipts and payment of annual duty.
 Undertaking of directors to take shares of the company.
Cooperative Societies
 These organizations are run by the members from a common
background for protecting or enhancing their interest through
a cooperative effort.
 Co-operative societies are the voluntary foundations where
different people combine their capital in order to serve the
members of the society rather than to create profits, as there
is inadequate amount of capital with the individual members
of the society. And they are likely to share the benefits like
limited liability and perpetual succession by coming together
as cooperative.
 According to the Indian Co-operative Societies Act 1912,
‘Cooperative Society is an association of people, which has its
objective the promotion of economic interest of its member in
accordance with co-operative principles’.
Government Business Entities

 Departmental Organizations

 Public Organization

 Government Companies

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