SummaryWe start our chapter by knowing the different forms of organizations such as
- Sole proprietorship,
- Joint Hindu family business,
- Cooperative societies, and
- Joint stock company.
Sole ProprietorshipSole proprietorship is very popular and is the most suitable form of business organization for small businesses, particularly in their preliminary years of operation. The word "sole" implies "only", and "proprietor" refers to "owner".
Hence, a sole proprietor can be addressed as the only owner of a business.
This form of business is mostly common in areas of personalized services namely, setting up of beauty parlours, hair saloons and small scale activities like operating a retail shop in a locality. There are many features, merits and demerits for sole proprietorship and these were discussed in detail in this chapter.
Joint Hindu Family BusinessIn Hindu religion, Joint family business, a particular form of business organization found only in India which is considered as one of the oldest form of business organization in the country. It refers to the kind of organization in which the business is owned and run by the members of the Hindu Undivided Family (HUF). It is bound by the Hindu Law. The origin of membership in the business is birth in a particular family and falling under three successive generations who can be nominated as members in the business. The business is under the control of the head of the family who is the eldest member named karta.
PartnershipPartnership served an answer to the greater needs of capital investment, wide-ranging skills and the risks were also mutually shared among the partners.
The Indian Partnership Act of 1932 defines Partnership as "the relation between persons who have agreed to share profit of the business carried on by all or any one of them acting for all".
Types of Partnerships: There are two factors that classify partnerships viz., duration and liability. Partnership based on duration, can be two types: 'partnership at will' & 'particular partnership'. Partnership based on liability, are of two types which include namely- 'with limited liability' and 'with unlimited liability'. These types of partnerships are described in the following sections
Partnership DeedA partnership is defined as a voluntary association of people who come together for procuring common objectives. Entering into partnership requires a clear agreement with respect to the terms, conditions and all aspects regarding the partners so that to avoid misunderstanding among the partners in future. This agreement can be oral or written. Although it is not essential to have a written agreement.
RegistrationEntering of the firm's name, along with the relevant prescribed particulars, In the Register of firms kept with the Registrar of Firms is called Registration. It gives conclusive proof of the existence of a partnership firm. Registration of a Partnership firm is optional. However, the firm will be deprived of many benefits.
Cooperative SocietyThe word cooperative suggests working together and with others for a common Objective. The cooperative society can be defined as a voluntary association of persons, who join together with the objective of welfare of the members. They are motivated by the need to protect their economic interests in the face of possible exploitation at the hands of middlemen preoccupied with the desire to earn greater profits. The cooperative society is mandatory required to be registered under the Cooperative Societies Act 1912.
Joint Stock CompanyA company can be defined as an association of persons formed for carrying out business activities wherein it has a legal status independent of its members. This form of organisation is governed by The Companies Act, 1956. A company can also be described as an artificial person possessing a separate legal entity, perpetual succession and a common seal. The owners of the company are the shareholders while the Board of Directors form the chief managing body elected by the shareholders. Generally, the owners exercise an indirect control on the business. The capital of the company is divided into small portions called 'shares' which are transferable freely from one shareholder to another person (this is not applicable in a private company).
Private CompanyA private company is one if it satisfies the following:
- restricts the right to transfer of shares by its members.
- it should have a minimum of two people and a maximum of 50 members which does not include the past and present employees.
- he public is not invited to subscribe to its share capital
- should have a minimum paid up capital of Rs 1 lakh or any amount that has been prescribed regularly.
Public CompanyA company which is not a private company is called a public company. The Indian Companies Act defines a Public Company as follows:
- which has a minimum paid up capital of Rs. 5 lakh or more an which can be recommended from time-to-time.
- a minimum of 7 members and without a limit for the maximum number
- transfer of shares is not restricted
- does not prohibit the public from subscribing to its public deposit or share capital