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.


            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 Government of party by Central and partly by State Government.

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:

  1. Types of business
  2. Expected volume of business
  3. Area of operation
  4. Degree of direct control over management
  5. Requirement of capital
  6. Willingness of owners to assume personal liability for business risks
  7. Expected life span of business
  8. Arrangements for sharing profits
  9. Tax advantage
  10. 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.