subject: Selection of types of organization [print this page] Selection of types of organization Selection of types of organization
Factors influencing the choice of organization
Nature of business
Size and area of operations
Degree of control desired
Amount of capital required
Degree of risk and liability
Division of surplus
Duration of business
Government regulation and control
Managerial requirements
Flexibility of operations
Tax burden
Choice of a proper form of organization is crucial for the success of a business enterprise.
Sole Enterprise
Partnership
Co-operative Enterprise
Joint Stock Company
Sole Proprietorship
According to wheeler," the sole proprietorship is that form of business organization which is owned and controlled by a single individual. He receives all the profits and bears all the risks in the success and failure of the enterprise.
Salient Features
Single ownership
One man control
No separate legal entity of the firm
Unlimited liability
Undivided risk
Merits:
Ease of Formation
Direct Motivation
Independent Control
4. Quick decisions
5. Business Secrecy
6. Personal Touch
7. Freedom from Government control
8. Flexibility of operations
9. Social utility
Demerits:
Limited funds
Lack of specialization
Unlimited liability
Uncertain life
Limited scope for expansion
Partnership Firm
According to Section 4 of the Partnership Act, 1932 partnership is "the relation between persons who have agreed to share profits of a business carried on by all or anyone of them acting for all."
Characteristics:
1. Two or more persons- maximum 10 in banking business and 20 in non-banking business
2. Agreement-written or oral
3. Lawful business
4. Sharing of profits
5. No separate legal entity of firm
6. Unlimited liability
7. Restriction on transfer of interest
8. Utmost good faith
Formation of Partnership Deed:
A partnership deed usually contains the following details:
Name of the firm.
Names and addresses of all the partners
Nature of the firm's business
Date of the agreement
Principal place of the firm's business
Duration of partnership, if any
Amount of capital contributed by each partner
The proportion in which the profit and losses are to be shared
Loans and advances by partners and interest payable on them
Amount of salary payable to all the partners
The duties, powers and obligations of all the partners
Maintenance of accounts and audit
Procedure for dissolution of the firm and settlement of accounts
Mode of valuation of goodwill on admission, retirement or death of a partner
Any other clause (s) which may be found necessary in particular kind of business
Private Companies:
It is a company which by its Articles of Associations-
Restricts the right of its members to transfer shares, if any;
Limits the number of its members to 50, excluding members who are or were in the employment of the company; and
Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company.
At least two persons are required to form a private company.
Public company
A public company is one which
Lays down no restrictions on the transfer of its shares;
Does not limit the maximum number of its members; and
Can invite public for subscribing to its shares and debentures.
At least seven persons are required to form a public company
