selection of types of ownership organization

8/6/2019 Selection of Types of Ownership Organization

1/26

SELECTION OF TYPES OF

OWNERSHIP ORGANIZATION


2/26

Organizational Structure

Organizational Structure is the formal system of

task and authority relationships that control

how people coordinate their actions and use

resources to achieve organizational goals. The

principal purpose of organizational structure is

one of control: to control the means used to

motivate people to achieve these goals.

- Gareth R. Jones


3/26

Organizational Structure of Small Scale Industries in India

Small-Scale Industry

Private Public (With State Participation)

Individual Collective Ownership

Sole

Proprietorship

Partnership

(One or More)

CooperativeJoint Stock

Company

LimitedUnlimited


4/26

SOLE PROPRIETORSHIP

Sole proprietorship is a form of business

organization in which an individual invests his

own capital, use his own skill and intelligence in

the management of its affairs and is solely

responsible for the result of its operation.

This form of organization is also known as

individual entrepreneurship.

Nearly 61% of the SSIs are proprietary concerns.


5/26

Features of Sole Proprietorship

Sole ownership.

One-man control.

Unlimited risk. Undivided risk.

No separate entity of the firm.

No Government regulations.


6/26

Merits

Easy and simple formation.

Smooth management.

Promptness in decision-making. Direct motivation and incentive to work.

Personal touch with customers.

Secrecy.

Social advantage.


7/26

Limitations

Limited financial resources.

Limited managerial ability.

Unlimited liability. Lac of continuity.


8/26

In spite of the above limitations it is moresuitable for concerns where :

Capital required is small. Risk involved is not heavy.

Goods of artistic nature is to be produced.

Personal touch with customers is necessary.

An individual is able to control the affairs.

Prompt decision is needed.

Sales of production is relatively small. Operation is simple in character not needing

highly skilled management.


9/26

PARTNERSHIP ORGANIZATION

In India such organizations are governed by

the Indian Partnership Act, 1932.

Section 4 of this Act defines a partnership asthe relation between persons who have

agreed to share profits of a business carried

on by all or any of them acting for all.


10/26

Main elements of Partnership

Partnership is the relation between persons,

i.e., at least two persons must be there to

constitute a partnership.

There should be an agreement between them.

They should carry on some business.

The business must be carried on by all or anyof them acting for all.


11/26

Basic Features

Number of persons.

Contractual relationship.

No legal distinction between firm and its partners.

Unlimited liability.


12/26

Advantages

Easy formation.

Flexibility.

Pooling of resources and skill. Division of risk.

Strong credit position.

Less incidence of tax.

Encouragement of mutual trust, personalelement of business.


13/26

Disadvantage

Limited resources.

Unlimited liability.

Instability.

Lack of harmony of interest.


14/26

Joint Stock Company

A joint-stock company (JSC) is a type

of corporation or partnership involving two or

more individuals that own shares of stock in

the company. Certificates of ownership ("shares")

are issued by the company in return for each

financial contribution, and the shareholders are

free to transfer their ownership interest at anytime by selling their shareholding to others.


15/26

Features of Joint Stock Company

Legal formation.

Artificial person.

Separate legal entity.

Common seal.

Perpetual existence.

Limited liability.

Democratic management.


16/26

Types of Companies

Private Limited

Public Limited


17/26

Difference between Private Limited and Public Limited Company


18/26

Advantages of Joint Stock Company

Large financial resources:

Limited Liability

Professional management

Large-scale production

Contribution to society

Research and Development


19/26

Limitations of Joint Stock Company

Difficult to form.

Excessive government control.

Delay in policy decisions.

Concentration of economic power and wealth

in few hands.


20/26


21/26

Types of Co-operative Societies

Consumers Co-operative Society.

Producers Co-operative Society.

Co-operative Marketing Society.

Co-operative Credit Society.

Co-operative Farming Society.

Housing Co-operative Society.


22/26

Features of Co-operative Society

Open membership.

Voluntary Association.

State control.

Sources of Finance.

Democratic Management.

Service motive.

Separate Legal Entity.

Distribution of Surplus.

Self-help through mutual cooperation.


23/26

Advantages of Co-operative Society

Easy Formation.

Open Membership.

Democratic Control.

Limited Liability.

Elimination of Middlemens Profit.

State Assistance. Stable Life.


24/26


25/26

Comparative Evaluation ofDifferent Forms ofBusiness Ownership

Basis of

Comparison

Sole

Proprietorship

Partnership Private Company Public Limited

Company

1. Formation Easiest, no legal

formalities

Easy, only an

arrangement required

Difficult, some legal

formalities

Very difficult, several

legal formalities

2. Registration Not necessary Optional Compulsory Compulsory

3. Membership One man show single

membership

Minimum : 2 Maximum :

10 in banking and 20 in

others

Minimum :2

Maximum :50

Minimum :7

Maximum : no Limit

4. Legal status No separate legal

existence

No separate legal

existence

Separate legal entity Separate legal entity

5. Liability of

Members

Unlimited, full risk Unlimited, joint and

several , risk shared

Limited Limited

6. Financial

capacity &

suitability

Limited capital suitable

for small business

Pooling of capital,

suitable for medium size

Large capital, suitable

for medium scale

business

Very large capital,

suitable for large scale

operations

7. Sharing of

profits

All to the owner As per agreement On the basis of shares

held

8. Management

and control

Quick decision, no

specialization,

management and

ownership lie in the

same hands

Unanimous decision,

limited specialization,

management lies where

ownership is

Board decisions,

greater specialization,

ownership and control

go together

Board decision,

specialization, divorce

between ownership

and management


26/26

Basis of

Comparison

Sole

Proprietorship

Partnership Private Company Public Limited

Company

9. Business Secrecy Perfect secrecy no

audits or reports

Secret limited to

partners, no audit or

reports compulsory

Secret shared by

members, audit and

reports compulsory

Secrets shared with

public, audit and

reports compulsory

10. State regulation

and flexibility

Practically none, full

flexibility of

operations

Very little, sufficient

flexibility

Considerably,

limited flexibility,

privileges, and

exemptions

Excessive, no

flexibility

11. Transferability of

interest

At will With mutual

consent

Restricted as Article

of Association

Freely transferable

12. Tax burden Low at small level of

income, progressive

rate

Low at small level of

income, progressive

rate

Low at medium level

of income, flat rate,

double taxation.

Low at high level of

income, flat rate,

double taxation

13. Stability or

continuity

Unstable, life fully

dependent on the

owner

Less stable, may be

dissolved by death,

insolvency, etc. of a

partner

Perpetual existence. Perpetual existence.

14. Winding up At will At will Under the Act Under the Act

15. Governing Act General law The Partnership Act,

1932

The Companies Act,

1956

The Companies Act,

1956

Comparative Evaluation ofDifferent Forms ofBusiness Ownership

selection of types of ownership organization

Documents