Business is the activity with the object of earning an incomethrough profit. As you know, business activities can be production and sale of goods & services or purchase & sale of goods & services. Now you can group these activities into:

Commerce, Industry and Service.•· Commerce involves the activities in the movement of goods and services from the producer to the consumer. It includes procurement, grading, storing, transporting commodities through the wholesalers, retailers etc.•· Industrial activities involve manufacture or some definite treatment of materials from which marketable commodities can be manufactured.•· ‘Services’ involve intangibles. It can be professional services like in case of doctors, lawyers etc. or it can be other services like transport etc.

Forms of Business OrganizationsForms of Business Organizations

A business unit may start as a sole proprietorship (one A business unit may start as a sole proprietorship (one manman

ownership) and gradually expand into partnership ownership) and gradually expand into partnership firm andfirm and

then into private limited company and into a big then into private limited company and into a big public limitedpublic limited

company and finally into a giant business house company and finally into a giant business house having ahaving a

number of subsidiary companies. A particular form ofnumber of subsidiary companies. A particular form ofbusiness adopted by a business unit at a particular business adopted by a business unit at a particular

point ofpoint oftime depends upon the various factors like tax time depends upon the various factors like tax

advantages,advantages,capital requirements, owners’ preferences etccapital requirements, owners’ preferences etc

MAIN FORMS OF NON-CORPORATE MAIN FORMS OF NON-CORPORATE ENTERPRISESENTERPRISES

Forms of business organisation can be divided into two mainForms of business organisation can be divided into two maintypes on the basis of ownership viz., corporate form and types on the basis of ownership viz., corporate form and

noncorporatenoncorporateform. In the corporate form, the legal entity of theform. In the corporate form, the legal entity of theenterprise is distinct from that of its owners ie., the ownership isenterprise is distinct from that of its owners ie., the ownership isseparated from its management and the owners cannot take separated from its management and the owners cannot take

directdirectcontrol over the business.control over the business.But in a non-corporate form, the enterprise and its ownersBut in a non-corporate form, the enterprise and its ownersare considered as having the same entity ie., the ownership andare considered as having the same entity ie., the ownership andbusiness are not separated. Owners can have direct control overbusiness are not separated. Owners can have direct control overbusiness. Non-corporate business may be organised either as a business. Non-corporate business may be organised either as a

solesoleproprietorship or as a partnership or as a joint hindu family proprietorship or as a partnership or as a joint hindu family

business.business.

Forms of business Forms of business undertakingsundertakings

Private undertakings Public

undertakings

Joint sector undertakings

1.Sole prop.2. Partnership3.Joint hindu family business4. Joint stock co.5. Cooperative societies

Departmental undertakings

Departmental org. Public

corporationGovt companies

It is important to select the right form of It is important to select the right form of organization while setting up a business enterprise. organization while setting up a business enterprise. This is so, because it determines: This is so, because it determines:

• Responsibility, power and control of the entrepreneur Responsibility, power and control of the entrepreneur

on the organization on the organization • Risk of the entrepreneurRisk of the entrepreneur• Method of division of profit and loss Method of division of profit and loss

Therefore utmost care should be taken before Therefore utmost care should be taken before registering the business as a particular form of registering the business as a particular form of organization. organization.

The selection of the form of business is dependent on The selection of the form of business is dependent on several interrelated and interdependent factors several interrelated and interdependent factors including:- including:-

• Nature of the Business:Nature of the Business: Enterprises / professionals providing Enterprises / professionals providing direct services including restaurants, doctors, lawyers, direct services including restaurants, doctors, lawyers, accountants etc are generally formed as sole proprietorship or accountants etc are generally formed as sole proprietorship or partnership firms. Medium and large manufacturing companies partnership firms. Medium and large manufacturing companies are generally formed as public or private limited companies.are generally formed as public or private limited companies.

• Scale of Operations:Scale of Operations: Medium and large scale companies, Medium and large scale companies, catering to domestic and international markets are successfully catering to domestic and international markets are successfully organized as private / public limited companies. Medium and organized as private / public limited companies. Medium and small scaled companies are better organized as sole small scaled companies are better organized as sole proprietorship firms or partnership firms. Similarly companies proprietorship firms or partnership firms. Similarly companies spread across different regions in a particular country are spread across different regions in a particular country are formed as private / public companies. formed as private / public companies.

• Degree of Control Desired:Degree of Control Desired: An entrepreneur who wants a direct and maximum control on the An entrepreneur who wants a direct and maximum control on the organization can set up his company as a sole proprietorship. A company has a separation of organization can set up his company as a sole proprietorship. A company has a separation of ownership and management.ownership and management.

• Capital Requirement:Capital Requirement: A business can be changed from sole A business can be changed from sole proprietorship / partnership to a private public limited proprietorship / partnership to a private public limited company as the capacity increases and also with the growth of company as the capacity increases and also with the growth of the organization. the organization.

• Comparative tax liability .: A Joint stock co. has more liability Comparative tax liability .: A Joint stock co. has more liability than a sole trade or partnership firm. A co is taxed as than a sole trade or partnership firm. A co is taxed as individual first then the profits distributed to shareholders are individual first then the profits distributed to shareholders are again liable for tax as income of the recipientsagain liable for tax as income of the recipients

• Continuity : A sole trading firm may close on the death of the Continuity : A sole trading firm may close on the death of the owner , a partnership may dissolve , but a co. form of org owner , a partnership may dissolve , but a co. form of org ensures stability and continuity.ensures stability and continuity.

• Ease in formation. : The nature and extent of formalities req Ease in formation. : The nature and extent of formalities req for formation also affect the decision. A joint stok co. requires for formation also affect the decision. A joint stok co. requires lots of formalities for getting registered . But this is not so in lots of formalities for getting registered . But this is not so in sole prop and the formalities are lesser in partnershipsole prop and the formalities are lesser in partnership

• Nature of business activity: For local, seasonal and perishabl;e Nature of business activity: For local, seasonal and perishabl;e goods sole trade is better. But for larger operations co. form is goods sole trade is better. But for larger operations co. form is more suitable. If purpose is to serve members cooperative is more suitable. If purpose is to serve members cooperative is suitablesuitable

Sole proprietorship Sole proprietorship A sole tradership is the oldest form of business organisation.A sole tradership is the oldest form of business organisation.It is easy and simple to organise. It is found in each and every countryIt is easy and simple to organise. It is found in each and every countryin the world. This type of organisation has not lost its utility evenin the world. This type of organisation has not lost its utility eventoday. Sole proprietorship is a form of organisation in which antoday. Sole proprietorship is a form of organisation in which anindividual invests the entire capital, uses his own skill and is solelyindividual invests the entire capital, uses his own skill and is solelyresponsible for the result of his business. He may borrow moneyresponsible for the result of his business. He may borrow moneyand employ assistants. But he alone owns and controls the businessand employ assistants. But he alone owns and controls the businessand bears its profit and loss. The only legal formality is to get aand bears its profit and loss. The only legal formality is to get alicence from the local authority viz, municipality, panchayat etc.,licence from the local authority viz, municipality, panchayat etc.,for running certain type of business. It is also known as individualfor running certain type of business. It is also known as individualproprietorship or one-man business. The person who contributesproprietorship or one-man business. The person who contributescapital and manages the business is called as sole trader or solecapital and manages the business is called as sole trader or soleproprietor.proprietor.

According to P.K. Ghosh and Y.K. Bhushan, “The soleAccording to P.K. Ghosh and Y.K. Bhushan, “The soleproprietorship is a form of organisation in which an individualproprietorship is a form of organisation in which an individualintroduces his own capital, uses his own skill and intelligence, introduces his own capital, uses his own skill and intelligence,

and is entirely responsible for the results of its operations”.and is entirely responsible for the results of its operations”.

Encyclopedia of Business and Commerce defines sole tradingEncyclopedia of Business and Commerce defines sole tradingconcern as, “ a form of organisation, in which an individual concern as, “ a form of organisation, in which an individual

alonealoneinvests his capital, uses his own skill and intelligence in theinvests his capital, uses his own skill and intelligence in themanagement of its affairs and is entitled to enjoy all the management of its affairs and is entitled to enjoy all the

profits asprofits asalso is solely responsible for all the risks of ownership”.also is solely responsible for all the risks of ownership”.

FEATURESFEATURES

The salient features of a sole trading concern are as follows.The salient features of a sole trading concern are as follows.1 One-man Ownership and Control1 One-man Ownership and ControlA sole trading concern is owned by an individual. TheA sole trading concern is owned by an individual. Theproprietor is the sole owner and master of the business. Heproprietor is the sole owner and master of the business. Heindependently manages and controls the business without theindependently manages and controls the business without theinterference of any other person.interference of any other person.2 Capital Contribution2 Capital ContributionIn sole tradership, the capital is employed by the ownerIn sole tradership, the capital is employed by the ownerhimself from his personal resources. He may also borrow capitalhimself from his personal resources. He may also borrow capitalfrom his friends, relatives and financial institutions.from his friends, relatives and financial institutions.3 Unlimited Liability3 Unlimited LiabilityThe liability of the proprietor for the debts of the businessThe liability of the proprietor for the debts of the businessis unlimited. The creditors have the right to recover their dues evenis unlimited. The creditors have the right to recover their dues evenfrom the personal property of the proprietor in case the businessfrom the personal property of the proprietor in case the businessassets are not sufficient to pay their debts.assets are not sufficient to pay their debts.4 Enjoyment of Entire Profit4 Enjoyment of Entire ProfitThe sole trader is entitled to enjoy all profits of the business.The sole trader is entitled to enjoy all profits of the business.Since he is the only person who invested money, he need not shareSince he is the only person who invested money, he need not sharethe profit with anybody else. At the same time, he himself shouldthe profit with anybody else. At the same time, he himself shouldbear the entire loss. So it is said that he owns all and risks all.bear the entire loss. So it is said that he owns all and risks all.

5 No Separate Legal Entity5 No Separate Legal EntityThe sole trader and the business are one and the same. AThe sole trader and the business are one and the same. Asole trading concern has no legal entity separate from its owner.Thesole trading concern has no legal entity separate from its owner.Thesole trader owns the assets and owes the liabilities of the concern.sole trader owns the assets and owes the liabilities of the concern.6. No Special Legislation6. No Special LegislationSole tradership is not governed by any special legislation.Sole tradership is not governed by any special legislation.A partnership firm is governed by the Indian Partnership Act. AA partnership firm is governed by the Indian Partnership Act. Ajoint stock company is governed by the Indian Companies Act andjoint stock company is governed by the Indian Companies Act anda co-operative society by the Co-operative Societies Act. Buta co-operative society by the Co-operative Societies Act. Butsoletrader business is not governed by any Act.soletrader business is not governed by any Act.7. Registration7. RegistrationA soletrader business need not be registered with anyA soletrader business need not be registered with anyauthority as that of partnership and companies. Any person whoauthority as that of partnership and companies. Any person whohas money can start the sole trader business. He is to obtain a licencehas money can start the sole trader business. He is to obtain a licencefrom the local authority like municipality or panchayat.from the local authority like municipality or panchayat.8. Duration8. DurationThe life of sole trader business depends upon the life of theThe life of sole trader business depends upon the life of thesoletrader. If he dies or becomes incapable of doing business or ifsoletrader. If he dies or becomes incapable of doing business or ifhe has no legal heir, the business comes to an end.he has no legal heir, the business comes to an end.

9. Simplicity9. SimplicityIt is simple to commence and simple to close a sole traderIt is simple to commence and simple to close a sole traderbusiness. It requires lesser efforts and it is free from complicatedbusiness. It requires lesser efforts and it is free from complicatedlegal formalities.legal formalities.10. Local business10. Local businessMost of the sole trading business confine only to a particularMost of the sole trading business confine only to a particularplace such as a street, a block or a village. A few sole tradingplace such as a street, a block or a village. A few sole tradingbusiness may cover a large area through a network of a branches.business may cover a large area through a network of a branches.11. Self Employment11. Self EmploymentA sole trader uses his own labour to conduct the business.A sole trader uses his own labour to conduct the business.He may employ a few paid servant or use the services of his familyHe may employ a few paid servant or use the services of his familymembers for running the business.members for running the business.12. Small Capital12. Small CapitalA soletrader business can be commenced with a smallA soletrader business can be commenced with a smallamount of capital whereas a partnership firm or a company requireamount of capital whereas a partnership firm or a company requirelarge capitallarge capital

MERITSMERITS

The advantages of a sole trading concern are as follows.The advantages of a sole trading concern are as follows.1. Easy Formation1. Easy FormationSole proprietorship is the only form of organisation whereSole proprietorship is the only form of organisation whereno legal formalities is required. No agreement is required andno legal formalities is required. No agreement is required andregistration of the firm is not essential. Anybody willing to start aregistration of the firm is not essential. Anybody willing to start asole-trading concern can do so immediately and without much legalsole-trading concern can do so immediately and without much legalformalities.formalities.2. Direct Motivation2. Direct MotivationThe entire profit of the business goes to the sole trader.The entire profit of the business goes to the sole trader.Nobody can claim a share in the profit. It motivates him to expandNobody can claim a share in the profit. It motivates him to expandhis business activities.his business activities.3. Flexibility3. FlexibilityIt is a highly flexible type of organization. A soleIt is a highly flexible type of organization. A soleproprietorship concern is generally run on a small scale basis. Inproprietorship concern is generally run on a small scale basis. Incase a change in operation is required, it is possible withoutcase a change in operation is required, it is possible withoutinvolving much expenditure. The proprietor can adapt and adjustinvolving much expenditure. The proprietor can adapt and adjustthe activities of the business to the changing trends and marketthe activities of the business to the changing trends and marketconditions because the sole trader is the sole owner of his business.conditions because the sole trader is the sole owner of his business.

4. Retention of Business Secrets4. Retention of Business SecretsThe maintenance of utmost secrecy is of vital importanceThe maintenance of utmost secrecy is of vital importancefor the success of a business. A soletrader can maintain businessfor the success of a business. A soletrader can maintain businesssecrets. Being the sole proprietor, he is not expected to share hissecrets. Being the sole proprietor, he is not expected to share histrade secrets with anybodyelse. In this form of organisation, theretrade secrets with anybodyelse. In this form of organisation, thereis also no need to disclose accounts or any other material facts tois also no need to disclose accounts or any other material facts tothe public.the public.5. Quick Decision5. Quick DecisionThe sole proprietor is his own boss and need not consultThe sole proprietor is his own boss and need not consultothers while making any decision. He exercises exclusive controlothers while making any decision. He exercises exclusive controlover the affairs of the business. Therefore, he can take quickover the affairs of the business. Therefore, he can take quickdecision and implement them without any delay.decision and implement them without any delay. 6. Higher reward6. Higher rewardThe fear of loss acts as a stimulant for hard work. Besides,The fear of loss acts as a stimulant for hard work. Besides,it makes him very cautious in his approach. Hardwork and cautiousit makes him very cautious in his approach. Hardwork and cautiousapproach bring him more reward and improves efficiency andapproach bring him more reward and improves efficiency andeconony of the business.econony of the business.7. Effective Control7. Effective ControlIn this form of organisation, the business can be controlledIn this form of organisation, the business can be controlledeffectively because business activites are planned and executed byeffectively because business activites are planned and executed bya single man. Since all the decisions relating to purchase and salea single man. Since all the decisions relating to purchase and saleare taken by the soletrader, he can effectively control the businessare taken by the soletrader, he can effectively control the businessif there is any deviation from the original plan.if there is any deviation from the original plan.

8. Increase in Sales8. Increase in SalesA sole trader has direct relationship with the customers.A sole trader has direct relationship with the customers.Direct contact with the customers will enable the proprietor to knowDirect contact with the customers will enable the proprietor to knowthe nature of their tastes, likes and dislikes. It enables him to makethe nature of their tastes, likes and dislikes. It enables him to makenecessary changes in the quality and design of his products. It willnecessary changes in the quality and design of his products. It willboost his sales besides enhancing the reputation of the firm.boost his sales besides enhancing the reputation of the firm.9. Smooth running of Business9. Smooth running of BusinessSince the sole trading concern is a small business theSince the sole trading concern is a small business thesoletrader appoints only a few employees who are personally knownsoletrader appoints only a few employees who are personally knownto him. So he can understand their problems easily and able to solveto him. So he can understand their problems easily and able to solvethem to their satisfaction. The absence of friction with the employeesthem to their satisfaction. The absence of friction with the employeespaves the way for the smooth running of the business.paves the way for the smooth running of the business.10 Inexpensive management10 Inexpensive managementThe soletrader is the owner, manager and controller of theThe soletrader is the owner, manager and controller of thebusiness. He does not appoint specialists for various functions. Hebusiness. He does not appoint specialists for various functions. Hepersonally supervises various activities and can avoid wastage inpersonally supervises various activities and can avoid wastage inthe business. the business. 11. Higher Credit Rating11. Higher Credit RatingThe liability of a sole trader is unlimited. Since, apart fromThe liability of a sole trader is unlimited. Since, apart fromhis business assets, even his private properties are also availablehis business assets, even his private properties are also availablefor satisfying the claims of creditors. Hence, creditors may givefor satisfying the claims of creditors. Hence, creditors may givemore loans because they can get back the loan from the personalmore loans because they can get back the loan from the personalproperties of soletraders. Thus high credit rating helps soletraderproperties of soletraders. Thus high credit rating helps soletraderto borrow more funds from suppliers and banks.to borrow more funds from suppliers and banks.

12 Self-Employment12 Self-EmploymentSole proprietorship provides self employment opportunitySole proprietorship provides self employment opportunityto many persons with small resources. It offers a way of life forto many persons with small resources. It offers a way of life forsecuring the means of livelihood to those who do not want to servesecuring the means of livelihood to those who do not want to serveunder others. It makes people self-dependent by providing selfemployment.under others. It makes people self-dependent by providing selfemployment.13 Development of Personality13 Development of PersonalitySole proprietorship facilitates the development of personalSole proprietorship facilitates the development of personalqualities like self-reliance, initiative and independent judgment.qualities like self-reliance, initiative and independent judgment.14. Equal Distribution of Economic Wealth14. Equal Distribution of Economic WealthSole proprietorship provides an equal opportunity to everySole proprietorship provides an equal opportunity to everyone for self development. It promotes decentralisation of businessone for self development. It promotes decentralisation of businessand helps to avoid concentration of economic wealth in a few hands.and helps to avoid concentration of economic wealth in a few hands.15. Easy dissolution15. Easy dissolutionA sole trading concern is very easy to dissolve. Whenever aA sole trading concern is very easy to dissolve. Whenever asole trader wants to close his business, he can do so withoutsole trader wants to close his business, he can do so withoutundergoing any legal formality.undergoing any legal formality.16. Better co-ordination16. Better co-ordinationAs the size of the business is small with limited resources,As the size of the business is small with limited resources,the sole trader can effectively co-ordinate the activities of thethe sole trader can effectively co-ordinate the activities of thebusiness.business.

DEMERITSDEMERITS1. Limited capital1. Limited capitalThe resources of a sole proprietor are limited. He dependsThe resources of a sole proprietor are limited. He dependsonly on his personal resources and his borrowing capacity. Theonly on his personal resources and his borrowing capacity. Theborrowing capacity depends on his assets and credit worthiness. Itborrowing capacity depends on his assets and credit worthiness. Itis obvious that financial resources of a single person will beis obvious that financial resources of a single person will beinsufficient for business expansion. Limitation of finance is a majorinsufficient for business expansion. Limitation of finance is a majorhandicap for sole-trader business. Therefore, the size of the firmhandicap for sole-trader business. Therefore, the size of the firmremains small.remains small.2. Limited Managerial Ability2. Limited Managerial AbilityThe managerial ability of a soletrader is limited because aThe managerial ability of a soletrader is limited because aperson may not be an expert in each and every field of businessperson may not be an expert in each and every field of businesssuch as purchasing, selling, accounting etc. The sole proprietor maysuch as purchasing, selling, accounting etc. The sole proprietor maynot be able to use the service of experts for want of resources. Thenot be able to use the service of experts for want of resources. Thelimited managerial capacity may hinder the growth of the business.limited managerial capacity may hinder the growth of the business.3. Unlimited Liability3. Unlimited LiabilityThe unlimited liability of a sole proprietor may affect hisThe unlimited liability of a sole proprietor may affect hisenthusiasm and restrict introducing novel ideas in business.enthusiasm and restrict introducing novel ideas in business.4. Short Life4. Short LifeAnything which affects the personal life of a soletraderAnything which affects the personal life of a soletraderaffects his business also. Prolonged illness or death of the soletraderaffects his business also. Prolonged illness or death of the soletraderbrings the affairs of his business to a stand- still. If his children arebrings the affairs of his business to a stand- still. If his children areinterested and efficient to run the business, the sole trader businessinterested and efficient to run the business, the sole trader businesscan be continued. Otherwise it will be closed. The closure of acan be continued. Otherwise it will be closed. The closure of abusiness will cause inconvenience to the consumers and may alsobusiness will cause inconvenience to the consumers and may alsoresult in social loss.result in social loss.

5. Hasty DecisionsDecisions arrived at, after deep deliberations and discussionsare sure to be better than that of a decision taken by one man. It isrightly said two heads are always better than one. The chances ofwrong decision-making are quite high in a sole trader business.This is because of the fact that the sole trader takes all decision ofthe business himself without any assistance. This may lead to wrongdecisions. The hasty decisions may result in loss and affect the soletrader.6. Lack of SpecialisationThe sole trader has to undertake all the work relating tobusiness himself such as buying, selling, accounting, financing,advertising etc. He is a jack of all trades but master of none. 7.Uneconomic SizeBecause of limited capital and skill, the sole traders have towork on a small scale basis. Thus he is deprived of economies oflarge scale operation.

8. Lack of Consultation8. Lack of ConsultationHe has no one else to consult before taking any important He has no one else to consult before taking any important

decisions except his family members. This may result in decisions except his family members. This may result in heavy lossheavy loss

if his decisions go wrong.if his decisions go wrong.9. Uncertainty9. UncertaintyThe life of the sole trader business is uncertain and unstable.The life of the sole trader business is uncertain and unstable.The life of business depends upon the changes in taste andThe life of business depends upon the changes in taste andpreferences of customers and changes in fashion, and preferences of customers and changes in fashion, and

technology.technology.If soletrader fails to cope up with the latest development he If soletrader fails to cope up with the latest development he

willwillland in trouble.land in trouble.10. Risk of Entire Loss10. Risk of Entire LossAs the sole trader is the sole owner of the business, he hasAs the sole trader is the sole owner of the business, he hasto bear all losses of his business.to bear all losses of his business.

SUITABILITYSUITABILITY

Sole proprietorship is suitable for the following Sole proprietorship is suitable for the following business:business:

1) Where small amount of capital is required,1) Where small amount of capital is required,e.g., Sweet shops, Bakery shops, Petty shops, etc,e.g., Sweet shops, Bakery shops, Petty shops, etc,2) Where quick decisions are very important,2) Where quick decisions are very important,e.g., Share-brokers, Doctors, etc.e.g., Share-brokers, Doctors, etc.3) Where limited risk is involved,3) Where limited risk is involved,e.g., Automobile repair shops, Small retail stores, etc.e.g., Automobile repair shops, Small retail stores, etc.4) Where personal attention to individual tastes and 4) Where personal attention to individual tastes and

fashions offashions ofcustomers is required,customers is required,e.g., Beauty parlours, Tailoring shops, etc.e.g., Beauty parlours, Tailoring shops, etc.5) Where the demand is local, seasonal or temporary,5) Where the demand is local, seasonal or temporary,e.g., Retail trade, Laundry, Fruit sellers, etc.e.g., Retail trade, Laundry, Fruit sellers, etc.

ROLE OF SOLE PROPRIETORSHIP IN THEROLE OF SOLE PROPRIETORSHIP IN THESOCIETYSOCIETY

Consumers are the kings. They decide the success of aConsumers are the kings. They decide the success of abusiness. Their needs, desires, expectations are to be satisfied bybusiness. Their needs, desires, expectations are to be satisfied bythe businessmen. Sole proprietorship occupies a pivotal role inthe businessmen. Sole proprietorship occupies a pivotal role insatisfying the multifarious needs of consumers regarding goods andsatisfying the multifarious needs of consumers regarding goods andservices. The day to day requirements of the consumers such asservices. The day to day requirements of the consumers such asfood items, cloth, stationaries, laundries, provisions, books andfood items, cloth, stationaries, laundries, provisions, books andnewspapers, medicines etc., are supplied by the soletrader form ofnewspapers, medicines etc., are supplied by the soletrader form oforganisation. The soletrader who supply these goods are respectedorganisation. The soletrader who supply these goods are respectedby the society. Thus the soletraders have a responsibility to promoteby the society. Thus the soletraders have a responsibility to promotethe welfare of the society. Sole proprietorship has its own areas ofthe welfare of the society. Sole proprietorship has its own areas ofactivity and continues to exist inspite of the development of biggeractivity and continues to exist inspite of the development of biggerorganisations. This form of organisation has a social desirabilityorganisations. This form of organisation has a social desirabilityalso. It provides valuable services to the society. Its social necessityalso. It provides valuable services to the society. Its social necessityarises due to the following ways.arises due to the following ways.1. Solution to unemployment problem1. Solution to unemployment problemSole trader business organisation gives large employmentSole trader business organisation gives large employmentopportunities to the less educated and uneducated persons and helpsopportunities to the less educated and uneducated persons and helpsto reduce the unemployment problem in the society.to reduce the unemployment problem in the society.

2. Provides Investment Avenues2. Provides Investment AvenuesSoletrader organisation provides a chance for small investorsSoletrader organisation provides a chance for small investorswho has small amount of capital to utilise their savings in thewho has small amount of capital to utilise their savings in theproductive line.productive line. 3. Provision of goods at low price3. Provision of goods at low priceGoods are sold by soletraders at a price lesser than theGoods are sold by soletraders at a price lesser than themaximum retail price ( MRP ) mentioned on the packages of maximum retail price ( MRP ) mentioned on the packages of

thethegoods. This is possible due to inexpensive management.goods. This is possible due to inexpensive management.4. Helps small producers4. Helps small producersMost of the goods sold by soletraders are procured locallyMost of the goods sold by soletraders are procured locallyfrom local producers. Thus small local producers are from local producers. Thus small local producers are

benefited bybenefited bythe soletraders.the soletraders.

5. Supply of Quality goods5. Supply of Quality goodsSoletraders sell goods of high quality nowadays to maintainSoletraders sell goods of high quality nowadays to maintaintheir reputation. They even accept return of defective goods. Thistheir reputation. They even accept return of defective goods. Thisensures enhancing the welfare of the public.ensures enhancing the welfare of the public.6. Philanthrophic Activities6. Philanthrophic ActivitiesSoletraders form small trading organisation amongSoletraders form small trading organisation amongthemselves and undertake a number of social welfare activities suchthemselves and undertake a number of social welfare activities suchas conducting eye camps, maintaining parks, provision of baricadesas conducting eye camps, maintaining parks, provision of baricadeson the roads, supplying furnitures to schools etc.on the roads, supplying furnitures to schools etc.7. Equal Distribution of Income and Wealth7. Equal Distribution of Income and WealthEqual distribution of income and wealth is ensured as thereEqual distribution of income and wealth is ensured as thereare more entry of sole proprietors in trading activities.are more entry of sole proprietors in trading activities.8. Helpful to consumers8. Helpful to consumersThe soletraders supply the goods to the consumers at theirThe soletraders supply the goods to the consumers at theirdoor steps. So the time and energy of the consumers are saved.door steps. So the time and energy of the consumers are saved.

ONE-MAN CONTROL IS THE BEST IN THE ONE-MAN CONTROL IS THE BEST IN THE WORLDWORLD

William R. Basset has said that one-man control is the bestWilliam R. Basset has said that one-man control is the bestin the world only when the business is small indeed, to allow in the world only when the business is small indeed, to allow

oneoneactually to know and supervise everything in the business.actually to know and supervise everything in the business.Following are some of the points in favour of one man Following are some of the points in favour of one man

controlcontrol1. Easy and quick formation.1. Easy and quick formation.2. Direct control.2. Direct control.3. Efforts and reward are linked.3. Efforts and reward are linked.4. Retaining business secrets.4. Retaining business secrets.5. Close touch with the consumers.5. Close touch with the consumers.6. Enjoying all profits.6. Enjoying all profits.7. Inexpensive management.7. Inexpensive management.8. No legal restrictions.8. No legal restrictions.9. Direct contact with the employees.9. Direct contact with the employees.10 Social desirability.10 Social desirability.

Limitations of one-man controlLimitations of one-man control

Though there are many advantages of one-man control, stillThough there are many advantages of one-man control, stillit suffers from many drawbacks. One man is unable to manage allit suffers from many drawbacks. One man is unable to manage allthe affairs by himself. Basset says “ The danger is always presentthe affairs by himself. Basset says “ The danger is always presentthat he thinks, he knows which really he does not know”. that he thinks, he knows which really he does not know”.

FollowingFollowingare some points unfavourable for one-man control.are some points unfavourable for one-man control.1. Limited capital.1. Limited capital.2. Limited managerial ability.2. Limited managerial ability.3. Unlimited liability.3. Unlimited liability.4. Absence of large scale business operation.4. Absence of large scale business operation.5. Risky decisions.5. Risky decisions.6. Uncertainty.6. Uncertainty.In conclusion, one-man control is the best from the point ofIn conclusion, one-man control is the best from the point ofview of profitability and efficiency, provided that one man is ableview of profitability and efficiency, provided that one man is ableto manage everything efficiently.to manage everything efficiently.

PartnershipPartnership

A Partnership is an association of two or more A Partnership is an association of two or more personspersons

(maximum of 10 in case of banking and 20 in (maximum of 10 in case of banking and 20 in case of other businesses) for carrying out a case of other businesses) for carrying out a business as co-owners for a profit.business as co-owners for a profit.

In India, Partnerships are governed by the In India, Partnerships are governed by the provisions of The Indian Partnership Act, 1932 provisions of The Indian Partnership Act, 1932 which defines partnership as “the relation which defines partnership as “the relation between two or more persons who have between two or more persons who have agreed to share profits of a business, carried agreed to share profits of a business, carried on by all or any of them acting forall.”on by all or any of them acting forall.”

The term business includes all trades, occupation andThe term business includes all trades, occupation andprofessions.professions.The owners of a partnership business are individually calledThe owners of a partnership business are individually calledpartners and collectively called as firm. The name of thepartners and collectively called as firm. The name of thebusiness is called ‘firm name’ which has no legal status thoughbusiness is called ‘firm name’ which has no legal status thoughit might accumulate reputation or build image resulting init might accumulate reputation or build image resulting ingoodwill.goodwill.Usually a partnership is formed to combine capital, labour andUsually a partnership is formed to combine capital, labour andvaried specialised skills and abilities through an agreement orvaried specialised skills and abilities through an agreement ordeed called partnership agreement or deed which might set outdeed called partnership agreement or deed which might set outvarious terms including sharing of profit.various terms including sharing of profit.Partners can be sued individually and jointly in respect of thePartners can be sued individually and jointly in respect of thebusiness and the liability is unlimited. So each partner is abusiness and the liability is unlimited. So each partner is aprincipal for the outside world and each partner is an agent toprincipal for the outside world and each partner is an agent toother partners.other partners.

AdvantagesAdvantages1. Increased Capital Raising Power and 1. Increased Capital Raising Power and

Managerial & Technical expertise Managerial & Technical expertise compared to sole proprietorship.compared to sole proprietorship.

2. Easy formation compared to joint stock 2. Easy formation compared to joint stock companies & easy dissolution as agreed by companies & easy dissolution as agreed by all the partners or 14 days notice to other all the partners or 14 days notice to other partners in case of partnership at will.partners in case of partnership at will.

3. Business Secrecy can be maintained since 3. Business Secrecy can be maintained since there is nothere is no

requirement by law for publication of final requirement by law for publication of final accountsaccounts

• DisadvantagesDisadvantages1. Partnership has a less capital raising power and Managerial or1. Partnership has a less capital raising power and Managerial orTechnical expertise as compared to joint stock companies.Technical expertise as compared to joint stock companies.2. Unlimited liability renders the partnership unsuitable to take2. Unlimited liability renders the partnership unsuitable to takeup large scale operations.up large scale operations.3. Absence of separate legal status for the business and3. Absence of separate legal status for the business andcontinuitycontinuity4. The partnership is not transferable unless all the partners4. The partnership is not transferable unless all the partnersagree for the sameagree for the sameIn Europe and America, there is a system of Limited PartnershipIn Europe and America, there is a system of Limited Partnershipwherein two types of partners – General and Limited /wherein two types of partners – General and Limited /Special Partners - will be there. The liability of the Limited /Special Partners - will be there. The liability of the Limited /Special Partners are limited to the extent of their investmentSpecial Partners are limited to the extent of their investmentonly whereas the liability of General partners is unlimitedonly whereas the liability of General partners is unlimitedwhose personal assets are also liable for the actions of thewhose personal assets are also liable for the actions of thebusiness.business.

• Joint Hindu Family Business is a form of Joint Hindu Family Business is a form of organization in existence only in India. It is one of the organization in existence only in India. It is one of the oldest form of organizations and in existence only in oldest form of organizations and in existence only in some parts of the country. This form of organization some parts of the country. This form of organization has ownership in the hands of members of a Hindu has ownership in the hands of members of a Hindu undivided family. undivided family.

The business is under the control of the head of the The business is under the control of the head of the family known as the 'Karta'. The members of the family known as the 'Karta'. The members of the family business are known as 'Co-parceners'family business are known as 'Co-parceners'

FeaturesFeatures

Organization Existence:Organization Existence: A joint Hindu family business exists due to the operation of A joint Hindu family business exists due to the operation of Hindu law and not out of contract. The rights and liabilities of co-parceners are Hindu law and not out of contract. The rights and liabilities of co-parceners are determined by the general rules applicable in the Hindu law. determined by the general rules applicable in the Hindu law.

Membership:Membership: A person born in the family gets an automatic membership of the A person born in the family gets an automatic membership of the business and legality is not affected by the minority of the member. There is no business and legality is not affected by the minority of the member. There is no limit to the maximum number of members in this type of organization. limit to the maximum number of members in this type of organization.

Registration of Organization:Registration of Organization: It is not necessary to get the business registered It is not necessary to get the business registered

Management:Management: The business is manged and controlled by the head or the 'Karta'. He has The business is manged and controlled by the head or the 'Karta'. He has the power to obtain loans against the family property etc. The Co-parceners do not the power to obtain loans against the family property etc. The Co-parceners do not have the power to raise loans or enter into contracts.have the power to raise loans or enter into contracts.

Unlimited Liability:Unlimited Liability: 'Karta ' has unlimited liability and the co-parceners have limited 'Karta ' has unlimited liability and the co-parceners have limited liability to the extent of their individual investment in the family business. liability to the extent of their individual investment in the family business.

• AdvantagesAdvantages • Ease of formation Ease of formation • Continuous operations Continuous operations • DisadvantagesDisadvantages • Applicable to Joint Hindu families Applicable to Joint Hindu families • Limited capital Limited capital • Limited managerial talents Limited managerial talents • Unlimited liability of the Karta Unlimited liability of the Karta

Joint Stock CompaniesJoint Stock CompaniesIf you are wondering how to have limited liability, let me tellIf you are wondering how to have limited liability, let me tellyou that the answer is Joint Stock Companies.you that the answer is Joint Stock Companies.A company is an artificial person (an association of minimum A company is an artificial person (an association of minimum

77natural persons) created by incorporation under law, havingnatural persons) created by incorporation under law, havingcommon seal and perpetual succession. Once it is created bycommon seal and perpetual succession. Once it is created bylaw, a company gets separate identity and it can enter into law, a company gets separate identity and it can enter into

legallegalcontracts under its common seal. An incorporated companycontracts under its common seal. An incorporated companyenjoys perpetual (continuous) life until the law itself winds upenjoys perpetual (continuous) life until the law itself winds upthe company in accordance with law.the company in accordance with law.

The capital is raised in the form of shares and called shareThe capital is raised in the form of shares and called sharecapital. Share means a portion of capital raised by issue ofcapital. Share means a portion of capital raised by issue ofshares. The liability is limited to the amount invested in shares.shares. The liability is limited to the amount invested in shares.The shares are generally transferable except under certainThe shares are generally transferable except under certaincircumstances when the transfer may be restricted. In view ofcircumstances when the transfer may be restricted. In view oflimited liability and transferability of shares, large number oflimited liability and transferability of shares, large number ofpersons may come forward to invest, enabling raising ofpersons may come forward to invest, enabling raising ofenormous capital. Since a company is an artificial person,enormous capital. Since a company is an artificial person,operating powers get vested with the elected board of directorsoperating powers get vested with the elected board of directorsand gets delegated mainly to the managing director and theand gets delegated mainly to the managing director and thecompany secretary. In this way most of the shareholders arecompany secretary. In this way most of the shareholders arekept away from the day-to-day operations of the organization.kept away from the day-to-day operations of the organization.Ultimately, functional experts are employed to manage and Ultimately, functional experts are employed to manage and

carrycarryout the activities. This results in experts doing the respectiveout the activities. This results in experts doing the respectivejob and performance gets enhanced.job and performance gets enhanced.

AdvantagesAdvantages1. Huge capital mobilization1. Huge capital mobilization2. Facility of Transfer of ownership through transfer of 2. Facility of Transfer of ownership through transfer of

sharesshares3. Wide distribution of risk of loss with large membership3. Wide distribution of risk of loss with large membershipand limited liabilityand limited liability4. Comparatively lower tax liability4. Comparatively lower tax liabilityDisadvantagesDisadvantages1. Excessive legal requirements at all stages from the time of1. Excessive legal requirements at all stages from the time offormation.formation.2. In practice fraudulent management and concentration of2. In practice fraudulent management and concentration ofeconomic power & wealth are foundeconomic power & wealth are found3. Slow Decision making3. Slow Decision making4. Double Taxation – once on the profit of the company and4. Double Taxation – once on the profit of the company andanother in the hands of the share holderanother in the hands of the share holder

Private Limited CompaniesPrivate Limited CompaniesA private limited company like partnership should haveA private limited company like partnership should haveminimum of 2 members and ceiling of 50 members is minimum of 2 members and ceiling of 50 members is

therethereunlike no ceiling in public limited company.unlike no ceiling in public limited company.In case of private limited companies, there is no public In case of private limited companies, there is no public

issue ofissue ofshares and the transfer of shares is restricted. The shares and the transfer of shares is restricted. The

name of thename of thecompany will include the words ‘private limited’.company will include the words ‘private limited’.This form of business organization enjoys the benefits This form of business organization enjoys the benefits

ofoflower corporate tax, limited liability and continuitylower corporate tax, limited liability and continuity

Co-Operative OrganisationsCo-Operative Organisations

You are aware of the importance of co-operation and teamYou are aware of the importance of co-operation and teamspirit in every sphere of life. One form of business spirit in every sphere of life. One form of business

organizationorganizationwhich truly practices co-operative efforts is Co-operativewhich truly practices co-operative efforts is Co-operativeorganizations.organizations.

The Co-operative organizations are formed on the basis ofThe Co-operative organizations are formed on the basis ofequality for the promotion and furtherance of commonequality for the promotion and furtherance of commoneconomic interest.economic interest.

The International Labour Organisation had defined a CooperativeThe International Labour Organisation had defined a Cooperativeorganization as “an association of persons who haveorganization as “an association of persons who havevoluntarily jointed together to achieve a common economic endvoluntarily jointed together to achieve a common economic endthrough the formation of a democratically controlled organization,through the formation of a democratically controlled organization,making equal contributions to the capital required andmaking equal contributions to the capital required andaccepting a fair share of risks and benefits of the undertaking”.accepting a fair share of risks and benefits of the undertaking”.Service, Co-operative joint action and Self-help are the essenceService, Co-operative joint action and Self-help are the essenceof a co-operative organization. Co-operative Societies mustof a co-operative organization. Co-operative Societies musthave at least ten members and must be registered under have at least ten members and must be registered under

CooperativeCooperativeSocieties Act’. Societies Act’. Examples of Co-operative organizations are Credit Co-operative Examples of Co-operative organizations are Credit Co-operative

societies, Consumers’ Cooperative organizations, Producers’ Co-societies, Consumers’ Cooperative organizations, Producers’ Co-operative organisationsoperative organisations

• AdvantagesAdvantages• 1. This is a democratic and secular form of business1. This is a democratic and secular form of business• organisation. Poor and Persons of limited means canorganisation. Poor and Persons of limited means can• improve their economic conditionsimprove their economic conditions• 2. Co-operative organizations remove the evils of monopoly2. Co-operative organizations remove the evils of monopoly• and concentration of wealth and powerand concentration of wealth and power• 3. The liability can be limited and separate legal status may be3. The liability can be limited and separate legal status may be• enjoyed.enjoyed.• 4. Privileges and exemptions in the form of tax concessions,4. Privileges and exemptions in the form of tax concessions,• lower stamp duty etc., are accorded to this form of businesslower stamp duty etc., are accorded to this form of business• organisations.organisations.• DisadvantagesDisadvantages• 1. Co-operative organizations can not raise capital for large scale1. Co-operative organizations can not raise capital for large scale• operationsoperations• 2. Since the very basis is democratic way of managing, business2. Since the very basis is democratic way of managing, business• secrecy can not be maintained.secrecy can not be maintained.

Public EnterprisesPublic EnterprisesPublic enterprises aim at public service in the public utility Public enterprises aim at public service in the public utility

areas.areas.They are expected to stabilize the supplies of essentials. TheThey are expected to stabilize the supplies of essentials. Thestrategic and basic industries are taken care by Government strategic and basic industries are taken care by Government

only.only.Public sectors are there in the industrial line to have rapid andPublic sectors are there in the industrial line to have rapid andbalanced economic development.balanced economic development.I am sure that you would be able to imagine the evils, if onlyI am sure that you would be able to imagine the evils, if onlynon-governmental organizations whose aim is only profitnon-governmental organizations whose aim is only profitmaximization, are there.maximization, are there.Public Enterprises are managed in the following ways:Public Enterprises are managed in the following ways:1. Government Department1. Government Department2. Public Corporation2. Public Corporation3. Government owned Joint Stock Company3. Government owned Joint Stock Company4. Mixed-ownership Corporations4. Mixed-ownership Corporations

1. Government Department – A separate 1. Government Department – A separate department in the government manages department in the government manages this form of organization which normally this form of organization which normally caters to the public utility. Examples of caters to the public utility. Examples of this type of organizations are Post and this type of organizations are Post and Telegraph, Broadcasting, Railways and Telegraph, Broadcasting, Railways and Defence industries etc. The minister in-Defence industries etc. The minister in-charge of the particular department charge of the particular department controls the enterprise. This form is controls the enterprise. This form is adopted where secrecy and strict control adopted where secrecy and strict control are needed in the areas like defence and are needed in the areas like defence and strategic industries.strategic industries.

Public Corporation – A public corporation is an artificial legalPublic Corporation – A public corporation is an artificial legalperson created by a special Act which sets out the powers andperson created by a special Act which sets out the powers andfunctions. Public Corporations have financial independencefunctions. Public Corporations have financial independenceand clear jurisdiction over a specific area, industry orand clear jurisdiction over a specific area, industry orcommercial activity. A chosen Governing board manages thecommercial activity. A chosen Governing board manages theaffairs of the organization. It enjoys the internal autonomyaffairs of the organization. It enjoys the internal autonomywith no interference from government. Not only itswith no interference from government. Not only itsformation is elaborate, any amendment also to be done byformation is elaborate, any amendment also to be done byamending the Special Act and hence rigid. Publicamending the Special Act and hence rigid. Publiccorporations are presently found in insurance, finance,corporations are presently found in insurance, finance,industry, mining, transport, trade etc.industry, mining, transport, trade etc.

3. Government owned Joint Stock Company – The entire3. Government owned Joint Stock Company – The entirecapital or 51 per cent or more of the share capital is capital or 51 per cent or more of the share capital is

owned byowned bythe Central and/or State Government. The concernedthe Central and/or State Government. The concernedministry performs the functions of shareholders andministry performs the functions of shareholders andexercises control over the operations of the company. All exercises control over the operations of the company. All

orormajority of the directors are nominated by the majority of the directors are nominated by the

Government.Government.One or few shares are in the name of the officials to take One or few shares are in the name of the officials to take

carecareof legal needs. This form of organization is moreof legal needs. This form of organization is moreautonomous than Public Corporationautonomous than Public Corporation

4 Mixed ownership corporations – This is a form of4 Mixed ownership corporations – This is a form of

partnership between public sector and private partnership between public sector and private sector enterprises. These are in the form of Joint sector enterprises. These are in the form of Joint Sector / Venture.It is a partnership among Sector / Venture.It is a partnership among domestic partner, government and public. domestic partner, government and public. Additionally there may be one more player in the Additionally there may be one more player in the form of foreign collaboration. This enables to form of foreign collaboration. This enables to bring together capital, technology and skill from bring together capital, technology and skill from abroad, private sector and government. abroad, private sector and government. Hindustan Machine Tools is an example of Joint Hindustan Machine Tools is an example of Joint Sector.Sector.