Business organization forms and structures

Business Organization forms and structures

Dr. Satish Kumar

BUSINESS ORGANIZATION

To carry out any business and achieve its objective of earning profit it is

required to bring together all the resources and put them into action in a

systematic way, and coordinate and control these activities properly. This

arrangement is known as business organization.

BM103 Financial Accounting

CHOICE OF BUSINESS ORGANIZATION DEPANDS ON

Your Vision regarding the size and nature of your business.

The level of control you wish to have.

The level of “structure” you are willing to deal with.

The business’s vulnerability to lawsuits.

Tax implications of the different organizational structures.

Your need for access to cash out of the business for yourself.



FORMS OF BUSINESS ORGANISATION

Sole proprietorship

Partnership

Joint Stock Company


SOLE PROPRIETORSHIP

No Separation of Ownership and Management:

Single Ownership

Less Legal Formalities

No Separate Entity

One-man Control

Unlimited Liability

.

• In Sole proprietorship, the business is carried on by a single individual.•This type of entity is suitable for small businesses. •One person will have the decisive authority and owns all the assets and liabilities of the business owns it. The business is not separate from the Owner who has unlimited liability. Therefore Sole Proprietorship may be the simplest type but it also the riskiest business entity.

FEATURES:


ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIP

ADVANTAGES

Easy to Form and Wind Up Quick Decision and Prompt Action Maintenance of Business Secrets Direct incentive

DISADVANTAGES

Limited resources: Limited managerial ability Unlimited liability Limited life of a business concern.


PARTNERSHIP

‘Partnership’ is an association of two or more persons who pool their financial and managerial resources and agree to carry on a business, and share its profit. Partnership form of business organization in India is governed by the Indian Partnership Act 1932.

FEATURES:

•Two or More Persons

•Contractual Relationship

•Sharing Profits and Business

•Voluntary Registration

•Unlimited Liability


ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP FIRM

ADVANTAGES

Ease of formation and closure Balanced decision making More funds Sharing of risks Benefits of Specialisation

DISADVANTAGES

Unlimited liability Possibility of conflicts Lack of public confidence


JOINT STOCK COMPANY

A company is an association of persons formed for carrying out business activities and has a legal status independent of its members. The company form of organization is governed by The Companies Act, 1956. A company can be described as an artificial person having a separate legal.

FEATURES:

•Artificial person•Separate legal entity•Perpetual succession:•Compulsory registration under The Companies Act, 1956•Limited liability•Capital is divided in to shares•Sharing of profits•The management and control of the affairs of the company is•undertaken by the Board of Directors


ADVANTAGES AND DISADVANTAGES OFJOINT STOCK COMPANYADVANTAGES

Limited liability

Transfer of interest

Perpetual existence

Scope for expansion

Professional management

DISADVANTAGES

Complexity in formation Delay in decision making: Conflict in interests

Comparison of Three Types of Business Entities

Sole Proprietorship Partnership Company

Examples M/s ABC General Store A & company ABC Limited ABC Private Limited

Owner Sole Partners Shareholders

Number of owners/Shareholders

01 Min: 2; Max: 20 Min: 7 Max: No limitMin : 2, Max: 50 in

PVT ltd.

Management Control

Proprietor Partners BOD

Liability Unlimited Unlimited Limited

Legal Registration

No Provision Voluntary Compulsory

Flexibility Maximum Depends on Partners Comparatively less

Source of Equity Funds

Proprietor brings in the funds

Partners bring in the funds

Shareholders bring in the funds.


Documents

Business organization forms and structures