To understand the meaning and types of business organizations
Here we understand the factors to be considered in selecting a suitable form of
business organization
The activities of production and distribution of goods
and services are carried out by various organizations in the country. These
organizations may be owned either by a single person or a group of persons. The
owner enjoys the right of possessing business assets, managing and controlling
them in the manner he thinks best and ultimately bearing the gains and losses
arising out of them.
Types of business organisation
Modern business is carried on by the following forms
of business organizations.
Sole Proprietorship
Sole
proprietorship is a form of business organisation in which an individual
introduces own capital, take risk uses his own skill and intelligence in the
management of it affairs and is solely responsible for the results of its
operations.
Partnership firm
Partnership
is the relation between persons who have agreed to share profits of a business
carried on by all or any of them acting for all. The minimum number of persons
required to make a partnership is tow. The maximum number of persons is 20.
Company
A
company is an artificial person recognized by law, with a distinctive’ name a
common seal, limited liability and having a perpetual succession.
A
company may be a private company, public company or a Government company.
Private Limited Company
A
Private Company is defined as a company which limits the number of its members
to fifty, prohibits an invitation to the public for the subscription to its
shares and debentures and restricts the transfer of its shares.
Public Limited Company
A
public limited company is a company which is not a private limited company. In
other words, a public limited company does not limit the number of its members
to fifty, is not prohibited from inviting the general public to subscribe its
shares and does not restrict the right of members to transfer their shares
freely.
Government Company
A
company is called a Government company, if at least 51 per cent of its share
capital is held by the central
Government State
Co-operative Organization
A co-operative organisation is an
association of persons, usually of limited means, who have voluntarily jointed
together to achieve a common economic end through the formation of a
democratically controlled business organisation, making equitable contributions
to the capital required and accepting a fair share of risks and benefits of the
undertaking.
Departmental undertakings
These
types of business organization are run by a
Government department headed by a Minister. It is owned by the State and is
manned by civil servants. These enterprises are financed by annual
appropriation from the budget. It is subject to accounting the audit controls
as application to other Government activities.
Statutory Corporation
It
is owned by the State. It is created by a special law defining its objects,
powers, and privileges. It is usually independently financed. It obtains funds
by borrowing either from the Government or in some cases from the public and
through revenues derived from the sale of goods and services. It has autonomy in
it functioning. The conditions of service of its employees are determined by
the corporation itself.
Characteristics of an ideal form types of business
organization
1.
It
should be easy to form with least expense and a minimum of legal formalities.
2.
There
should be facility to raise the required amount of capital.
3.
His
liability should be limited only up to the amount of capital agreed to be
contributed by the owners.
4.
There
must be flexibility and adaptability in its operations.
5.
The
organisation should have stability over a period of time.
6.
There
must be direct relationship between ownership, control and management.
7.
The
organisation should be such that it does not attract too much state regulation
and control.
Choice of suitable form of organisation
The
choice of a suitable form of organisation is determined by the following
factors:
- Types of business
- Expected volume of business
- Area of operation
- Degree of direct control over management
- Requirement of capital
- Willingness of owners to assume personal liability for business risks
- Expected life span of business
- Arrangements for sharing profits
- Tax advantage
- Degree of Government regulation and control.
The
choice of form, types of business organisation
has to be made by balancing the above considerations and determining the
alternative that will provide the maximum net gain.
