DIFFERENT FORMS OF BUSINESS ORGANISATIONS

Financial Management Group - 1

Presented by
NAME Fidahusen Heti Dave Jeewika Pareek Kushal Bhadani Neha Tiwari Purva Babel Rajat Surana Twinkle Parikh
Subject : Financial Management

ENROLLMENT NO. 11BSP1985 11BSP1246 11BSP0410 11BSP0484 11BSP0611 11BSP1556 11BSP1215 11BSP0673
Submitted to : Prof. Tandon

Content
Introduction Sole Proprietorship Partnership Joint Hindu Family Business Joint Stock Companies Co-operatives Public & Private Companies Indian Companies Act, 1956
Subject : Financial Management Submitted to : Prof. Tandon

Introduction
What are Business Organizations? It refers to all the steps need to be undertaken for establishing relationship between man, machinery and material to carry on business efficiently for earning profits.

Characteristics of Business Organizations

Distinct ownership Lawful Business Separate status and management Dealing in goods and services Continuity of business operations Risk involvement

Subject : Financial Management

Submitted to : Prof. Tandon

Forms of Business Organizations

Sole Proprietorship Partnership Joint Hindu Family Business Joint stock company Co-operative society

Subject : Financial Management

Submitted to : Prof. Tandon

Sole Proprietorship

A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

Characteristics of Sole Proprietorship

No separate entity Unlimited liability Direct relations Better Control Low capital

Subject : Financial Management

Submitted to : Prof. Tandon

Advantages of Sole proprietorship

Easy to form and wind up Direct motivation Quick decisions Better control Maintenance of business secrets Close personal relations Encourages self employment
Subject : Financial Management Submitted to : Prof. Tandon

Disadvantages of Sole Proprietorship

Limited capital Unlimited liability Lack of continuity Limited size Lack of managerial expertise

Subject : Financial Management

Submitted to : Prof. Tandon

Partnership

Organization where two or more persons are associated to run a business with a view to earn profit. Firms- governed by the Indian Partnership Act,1932.

Characteristics of Partnership Firms:

Number of partners Contractual relationship Sharing of profit and loss Unlimited liability Principal-agent relationship Voluntary registration

Subject : Financial Management

Submitted to : Prof. Tandon

Advantages of Partnership Firms:

Easy Formation Larger Resources Sharing of risk Protection of minority interest Better public relations

Subject : Financial Management

Submitted to : Prof. Tandon

Disadvantages of Partnership Firms

Instability Lack of harmony Limited capital

Subject : Financial Management

Submitted to : Prof. Tandon

Joint Hindu Family Business

The joint Hindu family business is the form of organization found only in India . In this form of business, all the member of Hindu undivided family own the business jointly. As per the Hindu Inheritance law of India

Characteristics of a Joint Hindu Family Business

Legal Status Membership Profit Sharing Management Liability Continuity

Subject : Financial Management

Submitted to : Prof. Tandon

Advantages of a Joint Hindu Family Business

Assured share profits Freedom in managing Unlimited liability of the Karta

Subject : Financial Management

Submitted to : Prof. Tandon

Disadvantages of a Joint Hindu Family Business

Limited resources Lack of motivation Scope for misuse of power by the karta Scope for conflict

Subject : Financial Management

Submitted to : Prof. Tandon

Joint Stock Company

A Joint Stock Company is a voluntary association of persons who come together to undertake business activities. It is a unique entity that resembles a corporation and a partnership, having features of both.

Characteristics of Joint Stock Companies

Artificial Person Separate Legal Entity Common Seal Membership Management Formation

Subject : Financial Management

Submitted to : Prof. Tandon

Advantages of Joint Stock Companies

Large Financial Resources Limited Liability Continuity of existence Benefits of large scale operation Professional Management Research &. Development

Subject : Financial Management

Submitted to : Prof. Tandon

Disadvantages of Joint Stock Companies

Complex Formation Speculation and Manipulation Excessive government control Delay in Policy Decisions Concentration of economic power and wealth in few hands

Subject : Financial Management

Submitted to : Prof. Tandon

Co-operative Societies
The co-operatives are formed primarily to render services, promote mutual help and self help Various types of Co-operatives:

Consumer Co-operatives Producers Co-operatives Marketing Co-operatives Housing Co-operatives Credit Co-operatives Forming Co-operatives

Characteristics of Co-operatives
Voluntary association Membership Registration Service Motive Democratic Set up

Subject : Financial Management

Submitted to : Prof. Tandon

Contd..
Sources of Finances Return on capital Liability Managerial talent Lack of Motivation

Subject : Financial Management

Submitted to : Prof. Tandon

Company
A group of persons working together towards a common objective is a company. It represents different kind of associations be it business or non business.

TYPES OF COMPANIES Private company Public company

Advantages of private company

Limited liability Risk in the business minimizes Transfer of the company is easy

Disadvantages of private company

Limited growth Shares cannot be transferred easily

Subject : Financial Management

Submitted to : Prof. Tandon

Advantages of Public Company

Ease of raising funds & capital Liquidity for Shareholders

Disadvantages of Public Company

Disclosure of information Decision takes time

Subject : Financial Management

Submitted to : Prof. Tandon

Private Company Vs Public Company

Basis of differentiation Minimum paid up capital Min & max no. of members Transferability of shares Issue of prospectus Commencement of business

Subject : Financial Management

Submitted to : Prof. Tandon

Indian Companies Act, 1956

Set up under an Act of Parliament, enacted in 1956. Amended in 1956. Contains regulatory provisions. Administered by Federal Government of India. It has undergone several amendments.

Subject : Financial Management

Submitted to : Prof. Tandon

Objectives
The Act contains the mechanism regarding all the relevant aspects of a company. It empowers the Central Government to regulate and launch prosecution for violation of the Act. To enforce proper performance of duties. To promote and protect shareholders legitimate interests. To elicit full and fair disclosure of all reasonable information.
Subject : Financial Management Submitted to : Prof. Tandon

Provisions
A public limited company can issue only two kind of shares. In case of buyback of shares, no further issue within a period of 24 months. Dividends can be declared only out of the profits No company can make intercorporate loans and investments exceeding 60 % OF ITS PAID UP SHARE CAPITAL OR 100 % OF ITS FREE RESERVES, WHICH EVER IS MORE.

Subject : Financial Management

Submitted to : Prof. Tandon

Latest Amendments (2001)

Minimum paid up capital :
For private ltd. Companies : rs. 1,00,000/ For public ltd. Companies : rs. 5,00,000/

Directors responsibility statement :

To highlight the accountability of directors.

Disqualification of auditor :

Clauses , non compliance of which can lead to disqualification of auditor.

Subject : Financial Management

Submitted to : Prof. Tandon

Contd..
CORPORATE GOVERNANCE :
Attaching

reports.

AUDIT COMMITTEES :
To

be constituted in PUBLIC COMPANIES with a paid up capital of Rs. 5 crore or above.

COMPLIANCE CERTIFICATE BY SECRETARY SECRETARIAL AUDIT :

Company

should obtain a certificate from whole time practicing company secretary

Submitted to : Prof. Tandon

Subject : Financial Management