FORMS OF

BUSINESS

BUSINESS
A business is an organization engaged in the trade of
goods, services, or both to consumers.
MAIN OBJECTIVE OF STARTING A BUSINESS: To earn
profit
Established either by one person or by a group
A business started by only one person is called sole
proprietorship.
The business started by a group of persons can be
either a
Joint Hindu Family
Partnership
Joint Stock Company
Co-operative form of organization
Public Sector Undertakings

DIFFERENT FORMS OF
BUSINESS
There are various forms of business organization:

1.
2.
3.
4.
5.

Sole Proprietorship
Joint Hindu Family Firm
Partnership Firm
Joint Stock Company
Co-operative Society

SOLE PROPRIETORSHIP
One mans business
Owned and managed by a single person
To receive all the profits and bears all risk of
ownership.
FEATURES:
Liability of the owner of the business is unlimited.
No legal formalities are necessary
The proprietor has complete freedom of action.

ADVANTAGES

Ease of formation
Motivation
Freedom of Action
Social Utility
Flexibility
Personal Touch
Business Secrecy
Quick Decision

DISADVANTAGES

Limited resources
No Economies of Large Scale
Unlimited Liability
Lack of Continuity
Limited Managerial Ability

EXAMPLES

Accommodation, food services, and drinking places

Agriculture, forestry, hunting, and fishing
Arts, entertainment, and recreation
Construction
Educational services
Health care and social assistance
Real estate and rental and leasing
Religious, grant making, civic, professional, and
similar organizations
Retail trade
Transportation and warehousing
Utilities
Wholesale trade

EXAMPLES
Ray Croc mortgaged his home to take over a
small fast food location, McDonald's
Corporation.
Sam Walton purchased a Ben-Franklin store
that later grew into WalMart.
James Cash Penney bought out his partner in
1912 and becamesole proprietorof his store,
JC Penney.

JOINT HINDU FAMILY

BUSINESS
Hindu joint family owns the business jointly
Only the male member of the family upto three
successive generation become members.
They are called Co-parceners
The senior most co-parcener is called the karta

FEATURES
Comes into existence by Hindu Law
No outside membership. Male members up to three successive
generations of a family own the business jointly.
The senior most co-parcener, known as KARTA has the implied
authority to run the business.
Even if the co-parceners have equal share, it fluctuates with
every
birth and death of a male in the family.
The liability of the members are limited to the extent of their
share
but the liability of the karta is unlimited.

ADVANTAGES
Assured share in profits
Sharing of knowledge and experience among
members
Co-operative efforts
Unlimited liability of the karta
Continued existence

DISADVANTAGES

Limited resources
Lack of motivation among members
Scope for misuse of power by karta
Scope for conflict and instability

EXAMPLES

Azim Premji (Wipro)

Sunil Mittal (Bharti)
Shiv Nadar (HCL)
Dilip Sanghvi (Sun Pharma)
Birla KM (Hindalco, Grasim)
Bajaj Rahul (Bajaj Auto)
Hamied Y K (Cipla)
Brij Mohanlal Munjal (Hero Moto Corp )
Sashi Ruai (Essar Group)
Anji Reddy (Dr Reddys Labs)

PARTNERSHIP
Two or more enter into contractual agreement
Accordance to governing statutes of the
concerned country to share the profits of the
business carried on by all
Each member of such an organisation is known as
a partner.

FEATURES
Minimum membership 2. Maximum membership
10 for banking business, 20 for other types
Registration is voluntary
Contractual Relationship
Principal-Agent Relationship among partners
Liability, joint and several to an unlimited extent
Relationship of Trust and Faith between partners
Minors, lunatics, insolvent persons are not eligible
to become partners
Restricted Transferability of Shares

ADVANTAGES

Easy formation
Larger resources
Flexibility in operation
Burden of risk shared among partners
Better public relation

DISADVANTAGES
Instability of the firm
Limited resources due to restriction on maximum
membership
Unlimited liability
Scope for friction and quarrel

JOINT STOCK COMPANY

The companies in India are governed by the Indian
Companies Act, 1956.
A company is defined as an artificial person created
by law, having separate legal entity, with perpetual
succession and a common seal.
It is formed for increasing the capital of the business.
Voluntary association of persons who generally
contribute capital to carry on a particular type of
business
Persons who contribute capital become members of
the company
The total capital of a joint stock company is called
share capital and it is divided into a number of units
called shares.

FEATURES

Artificial Person
Separate legal Entity
Common Seal
Perpetual Existence
Limited liability of Members
Transferability of Shares
Minimum membership- 2 for Private limited
company 7 for public limited company
Maximum membership - 50 for Private limited
company Unlimited for Public limited company

ADVANTAGES

Limited liability
Continuity of existence
Benefits of large scale operation
Professional management
Contribution to the society through creation of
employment, promoting ancillary industries etc.
Research and Development

DISADVANTAGES
Compliance with several laws and fulfillment of a
number of legal formalities during formation
Management and control by a group
Shares are subject to manipulation and
speculation
Government interference
Scope of misuse of resource power

EXAMPLES
TOP JOINT STOCK COMPANIES IN INDIA:
Reliance Industries Limited (RIL),
Tata Iron and Steel Company Limited (TISCO)
Steel Authority of India Limited (SAIL)
Maruti Udyog Limited (MUL)
TOP JOINT STOCK COMPANIES IN THE WORLD:
General Electric
Royal Dutch Shell
Toyota Motors
Exxon Mobil
HSBC Holdings
AT&T
Wal-Mart

CO-OPERATIVE SOCIETY
Formed to provide services to its members and to
the society in general.
Individuals, producers, consumers, farmers etc.
who are in need and wish to protect themselves
can go for co-operatives.

FEATURES
It is a corporate body that enjoys certain
privileges like a joint stock company.
Its primary objective is to render services to its
members in particular and society in general.
Its management is most democratic in nature as
compared to other forms of business
organizations.
Its major finance is raised through government
loans, grants, subsidies and outside donations.
Members get return on capital at a fixed rate of
dividend from the profit as per the Societies Act.

ADVANTAGES
Formation relatively easy than a Joint Stock
Company.
Democratic management
Assistance from the government
Elimination of middlemens profit
Fairly stable life

DISADVANTAGES

Limited capital
Lack of managerial talent
Lack of motivation
Lack of secrecy
Dependence on the government

EXAMPLES

Aavin
Adarsh Co-operative Bank
Amul
Anyonya Co-operative Bank Limited
Indian Coffee House
Indian Farmers Fertiliser Cooperative Limited

PUBLIC SECTOR
In
India,
a
government-owned
corporation is termed as a Public
Sector Undertaking (PSU). This term is
used to refer to companies in which the
government (either the federal Union
Government or the many state or
territorial governments, or both) own a
majority (51 percent or more) of the
company equity. There are 251 PSU
companies in India as of 2012.

FEATURES
Public Sector Undertakings (PSUs) can be classified
as Public Sector Enterprises (PSEs), Central Public
Sector Enterprises (CPSEs) and Public Sector Banks
(PSBs).
PSEs are run by government in order to optimally
use national resources for nation building activities.
They are owned at both central and state level.
Some are partially owned with share capital raised
from public.
CPSEs are fully owned by Central Government.
They include organisations that formed for national
security
and interest such
as
arms
and
ammunitions, atomic energy, railways etc.
All nationalised banks come under PSBs.

Advantages

Large Investment
National Interest
Non-Profit Motive
Professionally managed
Government Interference
Rural development
Employment opportunities to poor
Regional Development

Disadvantages

Non-enterprising
No competition
Profits shrink
Poor Management
Employees lack commitment
Bureaucracy and Red-tapism
Corruption

Examples

Air India
BSNL
BHEL
Coal India Limited
INDIAN OIL
FCI
BP
HP
Steel authority of India
ONGC
ALL NATIONALISED BANKS