Organizational Form and

Alternative Motives of the

Firm

1
 Every Organization has a
Structure

• But structures can differ

– Due to choice
– Due to national laws
• The words used to describe them also can
differ
– Organization chart, design, structure

2
 The Structural Pattern
• is the framework of the organization
• reflects corporate governance
• is intended to meet organizational
objectives
• arises out of strategic directions
• and causes managers to ask:
– what structure will best aid us in meeting
our strategy and objectives?
3
 Restructuring Occurs for Many
Reasons

• Turnover in top management

• Competitive positioning
• Mergers and/or acquisitions
• Cost-savings
• Even the illusion of managerial control

4
 Structural Choice is Important
Because

• it focuses attention on particular areas

• shapes how resources will be used
• directs communication flows
• defines control and other processes

5
 Types of Organizational Form
 Business
 Private Sector
 Joint Sector
 Public Sector
 Public Sector
 Departmental Organization
 Statutory Corporations
 Govt. Companies

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 Types of Organizational Form
 Private Sector
 Individual Ownership
 Collective Ownership
 Partnership
 Joint-Hindu family
 Cooperatives
 Joint-stock companies
- [Public Ltd. Companies & Private Ltd. companies]

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 Private Sector…
Individual Ownership:
‘Simplest kind of business organization which is owned and
controlled by a single individual’.
 (e.g. Retail trade, service industries, cottage &
small industries)
Merits:
- It is easy to establish
- Entrepreneur puts his best efforts in business
- Independence of control over the business
- Decision-making is very prompt
- Operations become flexible

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 Private sector…
Demerits:
- Limitations both in resource mobilization & managerial
capabilities
- Personally liable for all kinds of risk attached to his business
- The life of a firm having sole proprietorship is uncertain
 Partnership:
 Firm is owned and managed jointly by more than one
person
 Share the profits of the firm
 Minimum number 2 and maximum 20, by Indian
Companies Act 9
 Partnership
• Joint-Hindu family business
• Registration of this business is not necessary
 Types of partnership:
 Active partners
 Sleeping partners
 Secret partners
 Quasi-partners
Merits: - Ease of formation, larger financial resources, combined
managerial abilities, flexibility in operation, mutual
cooperation
Demerits: Unlimited liabilities of each partner, risk from
dishonest copartners, lesser public confidence 10
 Joint Stock Company
• What is joint-stock company?
• What are the characteristics of joint-stock
company?
• What are different types of joint-stock
company?
• Advantages and Limitations

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 Meaning of Joint-stock company
• Joint stock company is a voluntary association of
persons who generally contribute capital to carry on a
particular type of business, which is established by
law and can be dissolved only by law.
• Business organization requires huge amount of
capital investment
• Total capital of a joint-stock company is called Share
capital
• Number of units called shares
• Members are also called shareholders
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Basic characteristics of joint-stock company

 Legal formation
 Artificial person
 Corporate Finance
 Common seal
 Perpetual existence
 Limited liability
 Centralized and delegated management
 Transferability of shares
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 Types of joint-stock company
• Let us classify the different types of companies
on the basis of their ownership and nationality.
• i. Private Limited
• ii. Public Limited
• iii. Government
 On the basis on nationality
• i. Indian
• ii. Foreign

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15
 Joint-stock company
Merits:
(1) Large Financial Resources
(2) Limited Liability
(3) Professional Management
(4) Large-scale of Production
(5) Contribution to the society
(6) Research and Development
Demerits
(1) Difficult to form
(2) Excessive government control
(3) Delay in policy decision
(4) Concentration of economic power in few hands 16
 Cooperative society
• People associate voluntarily for the welfare of their common
economic interest
 Consumer’s cooperative credit societies
 Cooperative farming societies
 Housing cooperatives
 Producers’ cooperative societies
 Objective: To provide maximum service to its member and not
to make profits
 Registered under the Cooperative Act,
 Government will have control over the working and
supervision

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 Public sector companies
 Departmental Organization:
 The company will be managed by a top executive appointed
by the Ministry or Inter-departmental Board
 E.g. Post and Telegraphs, Railways, Broadcasting and Defence
 Statutory Corporations
 Special Act passed by the Parliament or State Legislature is
called statutory corporation
 RBI, SBI, Industrial Financial corporation, LIC etc.
 Government Companies
 A company in which not less than 51% of share capital is
owned by central or state govt.
 HMT, IOC, HAL
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 Business Motives of the Firm
• Profit maximization
 Market side (perfect competition, imperfect competition, state-
owned enterprises)
 Joint-stock company, partnership
 Measurement problem
• Sales maximization
• Maximization of the growth of the firm
-Sales – Profits – Productivity assets
• Maximization of the value of the firm
- Market price of its equity capital – current profit – expected
future profit
• Managerial motivation
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 Business Motives of the Firm

Realism-in-process Theories
 The behaviourial inter-relationships and motivations of the
various groups involved in running of the firm.
- Production goal (target and stability of production)
- Inventory goal
- Sales goal
- Market share goal
- Profit goal
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