Module-5::”Various forms of Organization”
Nature or type of business
Sole proprietorship is best
Requires personal skill and attention
Partnership is best suited for medium scale business
Financial requirement
Requires financial resources at starting
Target at future expansion and also diversification
For expanding business partnership is the best
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Liability
•Every company has to repay its liability to its creditors
•Every entrepreneur liable to creditor at starting of business
•Even in sole proprietorship, the person or company has to
clear his labiality at the time of winding of business
Flexibility
•Sole proprietorship is best for any alterations or decision
making
•In partnership business flexibility is very difficult because it is
depend up on the partners
•So it is maximum in sole proprietorship and minimum in
partnership
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Taxation
•Both sole proprietorship and partnership follows
“PROGRESSIVE TAX SYSTEM (PTS)”
•PTS is defined as tax rate increases with increases of income
and decreases with decrease of income
Control
•Every entrepreneur should has control over his business and
also sacrifice on his returns
•It is possible in sole proprietorship and not easily possible in
partnership because board of directors are existed
Survival or continuity
•Every entrepreneur expects continuity of his business
•Without business the company can’t survive
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Business secrets
•Maintaining business secrets in sole proprietorship is very
easy and safe where as in partnership it is difficulty and
unsafe
Government rules and regulations
•They are mandatory for running of any company or firm
•Sole proprietorship is very free from all rules and regulations
•Joint company is governed by rules and regulations of
government
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Various form of ownership
•Sole proprietorship
•Partnership
•Joint stock company
•Cooperative organisation
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[Link] proprietorship
Definition: - The individual form of business organisation is an
organisation at the head which stands and individual as the one
who is responsible, who directs its operations and he alone runs
the risk of failure.
Various features of role proprietorship are as follows:-
Individual ownership
Unlimited liabilities
Free from legal formalities
Limited scope of operation
Personal interest
Freedom to start and to end
Monopoly on profit
Business secrecy
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Merits of sole proprietorship
Registration of firm is very easy
It does not have any legal formalities
It is costly at initially
It has complete control on entire business
Business secrets is easily preserved
It has maximum tax benefits
It achieves both profits and losses equally
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Merits of sole proprietorship
Registration of firm is very easy
It does not have any legal formalities
It is costly at initially
It has complete control on entire business
Business secrets is easily preserved
It has maximum tax benefits
It achieves both profits and losses equally
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Demerits
Limited resources
Lack or funds
Chance of unlimited liability
High risk
Sometimes returns should be sacrificed
Limited managerial ability
Lack of specialisation
Chance of uncertainty
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Suitability
It is suitable for following cases
Where business is on a small scale
Where capital requirements is very small
Where promptness of decisions is very important
Where customers demand personal attention
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II. Partnership
Definition: - partnership is the relation between
persons who have agreed to share the profits of a
business carried on by all or any of them action for all.
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Various features of partnership are as
follows
Plurality of persons
Contractual relationship
Existence of business
Profit motive
Principal agent relationship
Unlimited liability
Restriction on transfer of interest
Implied agency
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Merits of partnership
Easy formation
More financial resources
Collective decision making
Sharing of risk
Flexibility
Complementary skills
Credit worthiness
Business secrecy
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Demerits of partnership
Unlimited liability
Uncertain existence
Limited funds
Transfer of shares
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Suitability of partnership
Partnership form of business is suitable in the
following cases
Where financial requirement is moderate
When business need persons with complementary
skill
Where business is to be carried on a medium and
large scale
Where collective decisions are required to be taken
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[Link] stock company
Definition:-A company is an artificial person created by
law having a separate entity with a perpetual succession
and a common real.
Various features of joint stock company are as follows:-
An artificial person created by law
Separate legal entity
Perpetual succession
Common seal
Limited liability
Representative management
Right to sue
Transfererability of shares
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Merits of Joint Stock Company:-
Limited liability
Diffused risk
More financial resources
Transferability of ownership
Perpetual existence (separate legal for share holders)
Economies of scale (operating to lead our economy)
Professional management (ruling by best
professionals)
Capital formation (mobilising of funds)
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De Merits of Joint Stock Company:-
Difficulties in formation (promoters has to spend time
& money)
Lack of personal interest (everybody feel other
partner will do work)
Difficult to maintain business secrets
Delay in decision making and execution
Excessive regulations
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Suitability of joint stock company
Joint stock company form of business organisation is
suitable in the following cases:-
When financial requirement is more or business is to
be carried on a very large scale
When project is very risky and promoters are not
prepared to bear the risk
Where due to nature of business professional
management is needed.
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[Link] organisation
Definition:-A society which has as its objectives the
promotion of the interests of its members in
accordance with the principles of cooperation.
Merits of cooperative organisation:-
Economy in cost (goods directly purchased-no
middleman)
Democratic management
Service motive
Government regulations
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De Merits of cooperative
organisation:-
Limited financial resources
Political interference
Lack of personal interest
Lack of professional management
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Suitability of cooperative organisations:-
Cooperative organisations are suitable in the following
cases:-
Where members individually are not in a position to
safeguard their interests
Where there is willingness amongst members to come
together for the promotion of their common interests
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Legal issues
Registration with director of industries:-
It contains two stages for small scale units, they are
Provisional registration
Permanent registration
Registering with SSI Unit
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Benefits of registering:-
Credit prescription, interest rate
Excise exemption scheme
Exemption under direct tax laws
Statutory support like reservation and interest
delayed
Objectives of registration scheme:-
To serve the purpose of collection of statistics
To create nodal centres at the centre, state and district
levels to promote SSI
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Provisional registration certificate
(PRC):-
Given for pre-operative period only
Obtains facilities for accommodation, land, other
approvals etc.
Obtains various necessary NOCs and clearances from
regulatory bodies such as pollution control board,
labour regulations etc.
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Permanent registration certificate (PRC):-
Income tax exemption and sales tax exemption as per
state govt. Policy
Incentives and concessions in power tariff
Price and purchase preference for goods produced
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Licensing
According to section-11 industries development and
regulation act (IDR) no industry is to be established
without a license
According to IDR Act, industrial licence would be
required for:-
Establishment of new undertaking
Substantial expansion
Production of a new product
Changing the location of an industrial undertaking
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Licensing agencies like:-
Memorandum with Secretariat for industrial
assistance (SIA)
Carry on business (COB) Licence
Industrial entrepreneur memorandum (IEM)
Integration of small & large industries
State regulations
Environmental clearance
Regulation of acceptance of loan(accept deposits from
public)
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Factories Act
Objective:- To ensure healthy and safe working
conditions for workers, the act protects the workers
from being subject to undue bodily strain or manual
labour
The main provisions of this act are as follows:-
Definition of factory
Health
Safety of workers
Welfare of workers
Duties of the employer
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