CHAPTER 2 Forms of Organisation A business undertaking is an institutional arrangement to conduct any type of business Activity It may be run by one person or association of persons. It may be based on formal or informal agreement among persons who undertake to nun the concern. There are a number of forms to run a business. Various forms of private business organisations to run a business may be described ag follows: 1. Sole-Trader 2. Partnership 3. Joint Stock Company 4. Co-operative Society These forms of business organisation are discussed as follows : SOLE-TRADER Meaning of Sole-Trader Sole-trade organisation, also called Individual proprietorship, sole-proprictorship, single entrepreneurship is the oldest form of organisation. It is as old as civilisation. Historically, it appears that business first started with this form of organisation. It is found in every country of the world. A sole trader makes his own investments and bears all the risks. A sole trader is the sole organiser of the business and looks afier every activity of the enterprise. He takes all decisions himself. It is a sort of family business where other members may lend a helping hand. A sole trader may employ servants for his help but decision making and risk taking remains with the owner. So it is a one man business or single ownership business. The success or failure depends upon the intelligence, competence and decision-making capacity of the sole trader Definitions Some important definitions of sole-trade organisation are discussed to clearly understand its meaning and implicationsForms of Organisation ” 1. L.H. Haney. “The individual entreprencurship is the form of business organisation on the head of which stands an individual as the one who is responsible, who dirccts its operations, who alone runs the risk of failure.” 2. J.L. Hanson. “A type of business unit where one person is solely responsible for providing the capital, for bearing the risk of the enterprise and for the management of the business.” 3. Kimball and Kimball. “The individual proprictor is the supreme judge of all matters pertaining to his business subject only to the general laws of the land to such as special legislation as may affect his particular business”. 4. James Stephenson. “A sole-trader is a person who carries on business exclusively by and for himself. He is not only the owner of the capital of the undcrtaking, but is usually the organiser and manager and takes all the profits or responsibility for losses.” Analysis of Definitions A discussion of the above given definitions brings out the following facts : A sole-trade business is owned by the person. It is set up at the initiative of one person. Only the owner invests capital All decision-making lies with one person, All profits or losses from the business belong only to the owner. All risk and responsibility is bore by one person. All activities of the business are guided and controlled by sole trader The liabilities of a sole-trader are unlimited He cannot add persons to his business. Seowmyawevne 10. He can only use the services of salaried persons. _GHARACTERISTICS OR FEATURES OF SOLE TRADE BUSINESS A sole-trade business has the following characteristics :- 1. Individual Ownership. A sole-trade business is owned by one person. There are no business associates or agents cf the solc-trader with whom he has to share his profits. The owner spends his ‘own money as capital. He is not barred from arranging funds from outside but these should not be a part of capital, 2. No Separate Entitiy. A sole trader and his business are not different entities as is the case in joint stock companies. Law does not separate the owner and his business. Both are the same in the eyes of law. 3. Unlimited Liability. In this form of organisation the liability of the owner is unlimited. The owner is responsible for all the losses arising from the business. The liability is not limited only to his investments in the business but his private property is also liable for business obligations. 4, Individual Motivation, Since there are no partners or other associates in sole-trade the owner gets all the profits. There is a direct relationship between efforts and reward. If he works more he will carn more. He will try to expand his business activities so as to increase his profits.30 Business, Maneseney ership a cs hands white 5. Link between Ownership and Control. There is no separation between ow Conirol. “The owner controls the business himself. He prepares various plans and on under his own supervision, In small business ownership and conirol remain in the same this separation is possible in large scale business 6. Individual Risk, All the risks of sole-trade business are borne by the ownier he has no business associate he cannot share his risk keep the owner vigilant and cautious. himseir 'th anybody clse. The risk factor with Pi ‘ays 7 Stability. There isa stability in sole-trade business. Though the present ow mership i 10 the life span of the proprictor but normally the business passes on to hie conn other heirs. continue the same work. TS Who 8. Own Capital. The capital of sole trade business is supplied by the Proprictor hi; Cana eee tds from outside sources too but these will be in the form of loane capital. So entire capital of sole trade business is provided by the proprietor, 2 Ne Government Regulations. Thete are no legal formalities for seting Up @ solouy Pusiness. Any person desirous of starting a small business can do so witha performing wt formalities. No registration ete. is necded for initiating this business, Seme formalities may t, required to set up a particular type of business. For example, to start a chemist’s shop a license i needed from health authorities, So legal formalities are not required for sole-trade business but fr a specific business, imself, Hy d Mot a part of 10. Limited Operations. A sole trade business has gencraly limited operations, The financial resources of the owner and his managerial capabilities are limited. He cannot operate 2 business which he cannot effectively control Legal Position in Sole-Trade Business Following points will explain the legal position of a sole-trade business. 1. There is no specific law under which this business requires registration etc, A Joint stock company has to be incorporated under Companics Act, 1956, a partnership firm is governed by Partnership Act, 1932, a sole trade business is not governed by any such statute. So this business can be started and dissolved at the discretion ofthe owner without reference to any statutory provision 2. The sole-trade business will be subject to the gencral laws of the land. If there is a provision of getting a license for sctting up a particular business, then the sole-trader will also get the license before setting up such a business. A person desirous of starting a wine shop is expected to got a license from the State Government. A sole-trader Wanting to enter this business will certainly be expected to comply with this law. 3. The sole-trader and his business are one and the same thing. The business exists only with the sole trader. If he disappears from the scene due to death or some other reason, then the business will also be dissolved. The proprictor and his business have one personality. 4. The liability of the sole-trader is unlimited. If a business is dissolved then no distinction is made between business and private asscts and business and Private loans of the sole-trader. SUITABILITY OF SOLE-TRADE BUSINESS = ete BUSINESS (a) When capital requirement is limited (6) When market is localForm’ of Organisation gi (c) When contact with customer is essential (@) When goods are of artistic nature (e) When quick decision making is needed SOCIAL DESIRABILITY OF SOLE-PROPRIETORSHIP Sole-trade business is socially desirable duc to the following reasons * (i) Ithas large potential for cmployment (ii) Since establishment expenses are low, consumers are provided goods at cheap rates. (iti) Ithelps in proper distribution of wealth and checks economic concentration in few hands. (iv) Sole traders directy purchase goods from small producers avoiding intermediaries, helping both in the process. (v) Consumers are provided goods at doorsteps (i) Small business provides training to go higher. (vif) It helps in promoting independent living _ ADVANTAGES OF SOLE-TRADE ORGANISATION \ AX. Easy in Formation. Sole-proprictorship is the only form of organisation where no legal formalities are required to be performed. Anybody wishing to start a sole-trade concern can do so without loss of time. This business is absolutely free from legal formalities. On the other hand, if a joint stock company is to be formed it needs the sorvices of experts to get it incorporated, and it involves a lot of labour and moncy. _2@etter Control. In this form of organisation one man is responsible for all types of activities. He controls all functions of the business. He himself takes decisions at appropriate time. The authority and responsibility lies with one man. He cannot afford to be complacent in taking decisions. If the responsibility is divided, then there can be a possibility of shifting obligations to other persons. (Everybody's responsibility becomes nobody's responsibility). In sole-trade business, there is no such difficulty. The owner is all in all and he cannot escape his work. The business is controlled in an effective way. \LA. Flexibility in Operations. A sole-proprictorship concer is generally run on a small scale basis. In case a change in operation is required, it can be possible without involving much expenditure. Even if a new line of production is to be taken up, it will not involve much efforts. On the other hand, if the operations are on a large scale, then it becomes difficult to change the method of production. A small scale concern can adjust its production according to the changing demand pattern. Itcan increase and decrease its production as per requirements. Moreover, no egal formalitics are required for making changes in operations. A joint stock company cannot go beyond its objective clause. Because of being flexible in opcrations, a sole trade concern is most suitable for industries dealing in fashionable and scasonal goods. en een of Business Secrets. A sole trader can maintain business scercts Being the sole propfictor, he is not expected to share his trade scercts with anybody else. He is not expected to publish his accounts. He can maintain secrecy from his competitors. Secrecy 1s very vital for small- scale concerns.ae ia 32 Business Manag me 5 Easy to Raise Finance, An individual enteprencuris abletocteategoodwillfrhishya This helps him fo establish his creditworthiness in the market. Secondly, the ibility Sole grgamisation being unlimited, the erediors can have a claim over the private property of ye oe The creditors feel secure in extending credit to individual proprietors. Moreover, they ty toe the loans as quickly as possible so that they do not lose goodwill in the market. Once a Sole tae loses his creditworthiness, he will not be able to get much help from the market, 6. Direct Motivation. The sole-proprictor takes keen interest in the working of the business He tries to put his heart and soul in the business to carn as much profits as he can. There jg ditcey relationship in efforts and reward. In other forms of organisation, the profits are shared by more than one person. So everybody may not put in his best efforts 7. Promptness in Decision Making. All important decisions are taken by one person, He can take prompt decisions. He will not let an opportunity slip away. If more than one person ig involved in decision-taking, then delay is bound to occur. 8. Direct Accessibility to Consumers. In sole-proprictorship the scale of operations is smal The owner can have direct contact with customers and employees. He can know the reactions ang Preferences of consumers. It enables him to make necessary changes in the quality and design of ig Products. It will help him to boost his sales. He can also put emphasis on consumer service 9. Inexpensive Management. The sole-trader is the owner, manager and controller of the business. He does not appoint specialists for various functions. He personally supervises variou, activities and can avoid wastage in the business. He does not create managerial paraphernalia. In this way managerial costs are saved to a large extent. 10. No Legal Restrictions, There arc no legal requirements for starting a business. There is no special act governing the work of a sole-proprictor. The proprictor is not required to submit the results of his business to any authority. There is no restriction in changing the nature of business Even dissolution of the business can easily be undertaken. The tax liability on a sole-trade is also low. He is taxed as an individual and not as a business unit. 11. Socially Desirable. One-man business is generally on a small scale basis. Large number of sole-traders have entered all types of businesses. It helps in avoiding concentration of wealth Large scale business leads to wealth accumulation in few hands. Sole-trade business also provides competition to other businesses. The consumers will not be dependent upon big business houses So, sole-trade business is socially desirable. 12. Self-Employment. The sole-proprictorship form of organisation offers the means of self employment to those who do not want to serve others. As everyone cannot get a suitable job to eam hus livelihood in a developing country, the individuals can easily start a small sized businese unit a8 a sole-trader \J3. Healthy Relations with Employces. A sole-trader is in a Position to maintain direct relations with his employees. This enables the employer and the employees to underctand and appreciate the difficulties of each other. Moreover, a sole trader can quickly solve the grievances of lus employees. This results into healthy relations between employer and employees which is of vital importance for the success of the business. oe Repel ee ee pa aier Passes on the business goodwill to his se Tecitiely/ a aa ae el ei the death of the owner but in reality the same business i y goodwill which one person cams during is also passed on to those who continue that business, ee ite tineForms of Organisation a DEMERITS OF SOLE-TRADE ORGANISATION DEMERITS OF SOLE-TRADE ORGANISATION Inspite of various merits of sole-trade business, it suffers from a number of defects, Following are the demerits of this form of organisation \L-Limited Capacity of an Individual. The development of sole-trade business is linked to the personal capacity of the person who controls it, If the owner has unlimited capacity of organising and governing then this will be the best form of organisation. But in reality a person has limited Capacity beyond which he cannot go. One person cannot be an expert of every business function like production, finance, marketing, etc. He may be good in some areas but not in all. A sole trader takes all decisions himself. Any wrong decision can adverscly affect the business. So this form of organisation suffers from the limited capacities of the single owner. 2. Limited Resources. A sole trader entirely depends upon the limited resources of his family. There is a limit to which a single person can invest. He tries to raise funds from relatives and friends. This is not a reliable and adequate source, Another method of raising funds is from financial institutions. These institutions provide loans by getting sccurity of property etc. Since a sole-trader 1s not in a position to offer securities for loans he does not get enough help from this source too. He will not be able to carry out his expansion plans for want of funds. So limitation of finances is a major handicap for sole-trade business. 3. Limited Managerial Ability, One person may not be expert in each and every function of the business. He will not be able to devote sufficient time for all types of activities. He will have to depend upon paid employees. The employees may not take as much interest as the owner himself can take. The managing capacity of the proprictor is limited. In the present competitive world, complexities of managerial jobs are increasing everyday. The sole-proprietor may not be able to use the services of experts for want of resources. So onc person will not be able to supervise effectively. On the other hand, his limited resources will not allow him to use the services of professional people. Limited managerial capacity will hinder the growth of the concern, A. Unlimited Liability. The liability of a sole proprictor is unlimited. His private property can also be assigned for meeting business obligations. A loss in business may deprive him of his private assets also. Unlimited liability also restricts his working. He tries to be cautious in taking risks. It acts as a determinent to the growth of business activitics 5: Uncertain Continuity. The business continues so far as sole proprictor is there. In case of his mobility or death, the business is discontinued. The successors of the sole proprietor may not have an aptitude or ability to continue in the business. The closure of a business will cause inconvenience to the consumers. It will also result in social loss. 6. Limited Scope of Employees. A sole-trader cannot attract trained and qualified persons for reasons of limited carcer opportunitics. Morcover, the continuity of sole trade business being uncertain, the employees also remain under psychological pressure. A sole proprietor cannot offer financial incentive to employees becausc his activities are on a small scale. The employees will try to join good concerns whenever an opportunity arises. 7. No Large Scale Economics. A small scale concern cannot cconomisc in purchase, production and marketing. A large scale enterprise will be able to have favourable terms of purchasing and selling of goods. In a sole-trade concern overhead expenses are also more. So this type of concern cannot enjoy the benefits of large scale economies. (8. More Involved. A sole-proprictor is to take all decisions by himsclf. So there is a Possibility of taking wrong decisions. In other forms of organisation, the decisions arc taken by34 Business Manazen, more than one person. So the possibility of mistakes and wrong decisions is minimiseg a counselling may create difficult situations. of 9. Unsuitable for Large Scale Business. A sole trade business is not suitable for larg g husinecs: This business depends upon the talent, skill and competence of one person only ~ managerial needs of a big business cannot be met by one individual, The decision making ofa jar business requires collective thinking and this is not possible in sole-proprictorship, "Be 10. Difficulty in Maintaining Personal Contact. Though a sole-trader is supposed to mai personal contact with all those people who deal with his business but in fact this is not possible proprictor cannot personally look after every activity and cannot be present at all times ang at al Places where his business activities are carried on. In modem world the business is spreading og large areas and the personal contact of the propreitor is declining with his customers, Suppliers and others. Main PARTNERSHIP FORM OF ORGANISATION ‘A sole trade business depends upon the calibre and skill of one person. He invests his funds and manages the business himself. One person has limited resources and managerial talent. With the expansion of business he may not be able to cope with the work. A sole-trader needs funds and associates who will lend him a helping hand, The addition of persons in solc-trade business makes it a partnership concern. Partnership as a form of organisation has grown out of the limitations of sole trade business. It is the second form of organisation, after sole-proprictorship, which came into existence. Partnership as a form of organisation was casily accepted because of the need for more capita, managerial talent, division of work and concentration of risk. The rapid technological changes, expansion of markets and growing competition necessitated the association of more persons who will not only provide funds and managerial service but will share risk also. It is the simplest mode of expanding the size and scale of business activities. Meaning and Definitions 1. John A. Shubin. “Two or more individuals may form a partnership by making a written or oral agrecment that they will jointly assume full responsibility for the conduct of business”. 2. L.H. Haney. “The relationship between persons who agrec to carry on a business in common with a view to private gain.” 3. Kimball and Kimball. “A partnership firm as it is often called, is then a group of men who have joined capital or services for the prosecuting of some enterprise.” 4, William R. Spriegal. “Partnership has two or more members, each of whom is responsible for the obligation of the partnership. Each of the partners may bind the others and the assets of the partners may be taken for debts of partnership,” 5-Section 4 of Partnership Act, 1932, “The relation between persons who have agreed t0 share profits of a business carried on by all or any of them acting for all.” 6. English Partnership Act, 1690. “Partnership is the r : $ ‘clation whic! carrying, on a business in common with a view of profits.” la 7, Uniform Partnership Act, U.S.A, defines i . Partnership as ati Bie a er aa ce oanenstallvies Teen iP aS an association of two or morc ,Forms of Organisation 35 Analysis of Definitions A discussion of the above mentioned definitions brings out the following facts ‘There must be two or more persons to form a partnership It is the outcome of a contractual relationship among partners. The partners contribute capital and/or services. The business may be carried on by one or more persons. The business is conducted on behalf of all the partners. The partners can bind the firm with their acts. The business is carried on to cam pofits. The liability of partners is unlimited. pen aweynr The private property of partners can be taken to mect business obligations. ~~ CHARACTERISTICS OR TESTS OF PARTNERSHIP Following are the essential characteristics of a partnership firm : 1. Two or More Persons. Partnership implies business by a group of persons. There must be atlest two persons to bring partnership into existence. Partnership Act has not prescribed any maximum limit on partners but Companies Act has prescribed a limit of 10 persons if it is a banking business and 20 persons for other busineses. If the number exceeds these limits then the business must be registered as a joint stock company otherwise it will be illegal. 2. Contractual Relation. A partnership is a contractual relationship arising out of an agreement among the partners. A person does not become a partner out of his status as is the case in joint hindu family. Since a contract is essential, persons cntcring in partnership must be competent to enter into contract. The agreement among partners may be oral or in writing. A written agreement or deed is preferred because it helps in resolving some disputes among partners later on. 3. Lawful Business. A partnership agreement must be to run a lawful business. Any understanding to run an unlawful business will be illegal hence no partnership. 4. Sharing of profits. An agreement among partners should provide for sharing of profits and losses. A charitable trust cannot be called partnership because there is no sharing of profits. Profit sharing is only a prima facie test of partnership but not a conclusive proof. The employees of a business may also sharc profits but they are not the partners. 5. Implied Agency. Each and cvery partner is considered to be an agent of the business. Unless otherwise agreed, all partners arc entitled to take part in the management of the business. Every partner can bind the firm for acts undertaken in good faith and on behalf of the firm. The participation of all partners in the managment of business is not essential. 6. No Separate Legal Existence. A partnership firm has no legal entity of its own. The firm and the partners are one and the same. A firm is only a name to the collective name of partners. No firm can exist without partners. The rights and liabilities of the partners arc the rights and liabilities of the firm. Management of the firm vests in partners who are its owners also 7. Unlimited Liability. Each and every partner is liable jointly and severally for the obligations of the partnership firm. If assets of the business arc not sufficient to meet the liabilities of creditors then private property of partners can be used to meet them, The creditors can claim their ducs fromBusiness Managem, "om anyone Fateable equryth® Partners. If these liabilities are met by one partner then he is entitled a A ntnibutions from other partners. Ne oan ean esttiction on Transfer of Shares. No partner can transfer his interest in the firm (excg with the ting parmer) to an ‘outsider without the consent of all other partners. He can do so ar ea oF mous Consent of all other partners. It is based on the principle that a partner being an is ¢ firm cannot delegate his authority unilaterally to outsiders. Each arg tmost Good Faith. The very basis of partnership business is good faith and mutual tras, ree) gPartmer should act honestly and fairly in the conduct of business. A firm cannot be Tun if there is su, : ho business smoouhiy "TORS Partners. Parmers must have faith in each other for running 36 ‘Active Partner Winarasa ‘Sieping Parner Partner sd i io Sub-Partner Jy Kinds of Partners >| Norminal Partner Secret Parmer Partner in Profits Partner by 7 Extoppel / KINDS OF PARTNERS There are different kinds of partners and they may be classified as under : 1. Active Partner. An active partner is one who takes active par. in the day-to-day working of the business. He may act in different capacities such as manager, organiser, adviser and controller of all the affairs of the firm. He may also be called a working partner 2. Sleeping or Dormant Partner. A slecping partner is one who contributes capital, shares Profits and contributes to the losses of the business but does not take part in the working of the concer. A person may have money to invest but he may not be able to devote time for the business such a person may become a sleeping partner. Sleeping partner is liable for the liabilities of the business like other partners. He cannot bind the business, ic, fim, to third parties, by his acts. He is not known to the public as a partner ; so he may be called as a ‘secret partner 3. Nominal Partner. A nominal partner is one who lends his neme to the firm. He does not contribute any capital nor does he shares profits of the business. He is known as a partner tothe third parties. On the strength of his name, the business may got more credit in the market or may promote its sales. A nominal partner is liable to those third partes who give credit to the fm on the assumption of that person being a partner in the firm,Forms of Organisation a 4. Partner in Profit. A person may become a partner for sharing the profits only. He contributes capital and is also liable to third partics like other partners, He is not allowed to take part in the management of the business. Such partners are associated for their moncy and goodwill. 5. Partner by Estoppel or Holding Out. When a person is not a partner but poses himsclf as a partner, either by words or in writing or by his acts, he is called a partner by estoppel or by holding out. A partner by estoppel or by holding out shall be liable to outsiders who deal with the firm on the presumption of that person being, a partner in the business even though he is not a partner and docs not contribute anything to the business 6. Secret Partner. The position of a secret partner lies between active and sleeping partner. His membership of the firm is kept secret from outsiders. His liability is unlimited and he is liable for the losses of the business. He can take part in the working of the business. 7. Sub-Partner. A partner may associate anybody else in his share in the firm. He gives a part of his share to the stranger. The relationship is not between the sub-partner and the firm but between him and the partner. The sub-partner is a non-entity for the partnership. He is not liable for the debts of the firm. 8. Minor as a Partner. A minor is a person who has not yet attained the age of majority. A minor cannot enter into a contract according to the Indian Contract Act because a contract by a minor is void ab initio. However, a minor may be admitted to the benefits of an existing partnership with the consent of all partners. The minor is not personally liable for liabilities of the firm, but his share in the partnership property and profits of the firm will be liable for debts of the firm. A minor has the following rights and liabilitics under the Partnership Act : 1. A minor has a right to such share of property and of profits of the firm as may be agreed upon by all the partners 2. A minor may inspect the accounts of the firm or take note of the accounts. 3. The personal property of the minor is not liable for the debts of the firm. But his share in property of the firm and profits is liable for the debts and obligations of the firm. 4. So long as a minor remains a partner he cannot file a suit against other partners for an account or for the payment of his share in the property or profits of the firm. He can do this only when he wants to severe his relations with the partnership firm. 5. At any time within 6 months of his attaining majority (i.e., completing 18 years of age) the minor may give public notice of the fact that he has decided to become or not to become a partner in the firm. In case he docs not give any such notice within six months, it shall be presumed that he has opted to become a partner. 6. Incase a minor decides to become a partner, he will be personally liable to third parties for all acts of the firm, since he was admitted to the benefits of the firm. 7. If a minor decides not to become a partner, his rights and liabilitics continue to be those of a minor upto the date on which he gives public notice. His share will not be liable for any acts of the firm done after the date of the notice. ADVANTAGES OF PARTNERSHIP FORM OF ORGANISATION Partnership form of organisation is suitable for medium size busincsses where personal cfforts of entrepreneurs arc essential. The following are the advantages of partnership : 1. Easy to Form. This is a suitable type of organisation requiring no legal formalities. No formal documents arc required to be prepared as is necessary in case of joint stock company. A> | Manage 3 6 Business simp Men Ple agreement among partners is sufficient to start partnership firm. A partnership deed jg C nee SSSTY though itis advisable to prepare it, Even th registration of firm is optional The) LArRe Resources. The resourees of more than one person are available forthe busing, ca faye ¢an contribute to start a moderately large-scale concern. More partners can be added jp Dia’ needs arc large. The parinership concems can also arrange funds from tho outside S0Urcog Dittereeretter Managerial Talent. The partiors may be assigned dates according to their export functional departments may be managed and controlled by diferent partners, The t it hill ea KHOvledge of pariners in different fields ean be used forthe wellare of the be will help to increase the cfficiency of the business resulting in more profits. ontey A Mote Credit-standing, The pariners may have sufficient contacts in the market, Thy ¢, Able Securities to the financial institutions, The liability of partners being unlimited, they sa crear Za8© more finances AS compared wa soesrade busines, partnership concen a credit-w orthiness, lot ‘alent ‘alent, ness 5. Promptness in Decision-Making. The partners mect frequently and they can take Prompt ons. The firm will not lose any business opportunities because of delay in taking a decision 6. Sharing of Risk. The risk of business is shared by more persons. The burden of every Perr vl be much less as compared tothe burden of sole-rade. Furthermore, the business expansion will not be hampered for fear of risk decisi _® Relationship between Reward and Work. The partners try to put more labour to eam more and more profits, There is a dircct relationship between reward and work. The more they work, the more will they be benefited. 8. More Possibility of Growth and Expansion. As compared to a sole-trade business, Partnership concern has more possibilities for cxpansion and growth of business activities, The Partner can contribute more and manage the activities more systematically. 9. Close Supervision. The partners themselves look after the business 3 so they can avoid Wastages. They have dircct access to the employees and can encourage them for more production, The management of partnership is much cheaper as compared to a joint stock company where experts aro paid higher salaries. 10. Flexibility of Operations. There is no statutory obligation to scck approval from government before making major changes in the business set-up. There can be any change in managerial set-up, capital and scale of operations. These changes can be made easily depending upon the business opportunities. \41. Secrecy. A partnership concem is not expected to publish its profit and loss account and balance sheet as is necessary for a joint stock company. The Partners can keep the business secrets to themselves. The competitors don’t know about the exact position of the business, The scerets of business are very important for a small concern. 12. Protection of Minority Interests. Every partner has aright to participate in the management of the business, All important decisions are taken by the consent of ll pariers Ira majority decision is enforced on minority then effected parincrs can get the business dissolved \13. Easy Dissolution. The partnership can be dissolved on insolvency, lunacy or death of @ partner. If the partnership is at will, then any partner can get the firm dissolved by giving notice to other partners. No legal formalities are required at the time of dissolution: So it is easy to start as well as dissolve a partnership concern.Forms of Organisation 33 14. Democratic Administration. All partners may take active interest in the working of the firm, All the partners are consulted on important decisions. Generally, strategic decisions are taken by concensus only. 15. Saving in Managerial Expenses. There are savings in expenses of a partnership firm, The partners divide all important functions among themselves and look after them. In other forms like joint stock company managerial expenses are huge because they have to depend on hired employees. DISADVANTAGES OF PARTNERSHIP \A- Unlimited Liability. The liability of partners is unlimited. They arc not only liable for their business investments but their private properties can also be taken for business liabilitics. Partners try to avoid risks and it restricts the expansion and growth of the business. \_ 2 Limited Resources. There is a limitation in raising additional resources for expansion | purposes. The business resources arc limited to the personal funds of the partners. Borrowing capacity of the partners is also limited. The number of partners to be added to a business is also limited. A banking company cannot have more than ton partners and in other busineses the number of partners cannot excced twenty. So, there is a limit beyond which partners cannot be added |-3- Instability. The partnership concern suffers from the uncertainty of duration because it can be dissolved at the time of death, lunacy or insolvency of a partner. The lack of trust among partners can also lead to dissolution. The discontinuity of the business is a social loss and it causes inconvenience to the consumers and workers 4, Mutual Distrust. The mutual distrust among partners is the main cause for the dissolution of partnership concerns. It is difficult to maintain harmony among partners because they may have different opinions and may not agree on certain matters. Lack of confidence in cach other can be a cause for quarrels and it may lad to the dissolution of the firm. 5. Limitations on Transfer of Share. No partner can transfer his share to a third party without the consent of the other partners. If a partner wants his share back it will not be possible without the approval of other partners or without dissolution of the firm. In case of a company, any sharcholder can transfer his shares without affecting the working of the business, In partnership, a partner is permanently wedded to it. 6. Burden of Implied Authority. A partner can bind the business by his acts. He can act as an agent of the business. A dishonest partner may lead the business in difficulties. The other partners will have to meet the obligations incurred by the partner. The provision of implied authority may create problems for the business \ Lack of Public Faith. The accounts of partnership concerns arc not published. So public is unaware of the exact position of the business. There is a suspicion in public mind that these concerns carn huge profits at the cost of consumers. There is no legal binding for the publication of accounts. So partnership concerns lack public confidence. \8. Lack of Prompt Decisions. All important decisions are taken by the consent of partners so decision-making process becomes time consuming. There may be a possibility of losing business opportunitics because of slow decision-making. The decisions are generally taken by concensus, it may be difficult to convince all partners for agreeing to a particular decision,40 Business Manageme 9. Cautions Approach. Unlimited linblity of partners leads to cautious approach on the pay of partners. They try to avoid decisions where some sort of risk is involved. A number of b a busines, A opportunities may be lost duc to this type of tendency, Moreover, risk bearing capacity of may also be limited. ent Ke Partners JOINT STOCK COMPANY Introduction With the technological improvements, the scale of operations has increased, ‘The requirementg for finances and managerial resources have gone up. The traditional forms of organis ation such ag sole- proprictorship and partnership could not mect the requirements of business. Th he increase in, business volumes also brings in more liabilities. Under these circumstances the company form of organisation developed as the most suitable alternative, In this form of organisation a large number of persons known as sharcholders join hands to start a bigger business and the liability of memberg 1s also limited to the extent of shares they have subscribed to, Joint stock company form of organisation was first started in Italy in thirteenth century. fn India the first Companies Act was passed in 1850 and the prineple of limited liability was introduced only in 1857, A comprehensive companies act was passed in 1956 and all undertakings registered under this act are known as ‘companics”, The companies started under state or central legislations are called ‘corporations’, Definitions A company is ‘an association of many persons who contribute money or money’s worth to a commen stock and employ it in some trade or business, and who share the profit and loss (as the case may be) arising therefrom’ —James Stephenson According to Prof. L.H. Haney, “A Joint Stock Company is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership.” “A corporation is an artificial being, invisible, intangible and existing only in contemplation of the law. Being a mere creation of lav, it possesses only the Propertics which the charter of its creation confers upon it either expressly or as incidental to its very istence,” —Chief Justice Marshall Justice Lord Lindley has given an exhaustive definition of the company. According to him, “By a company is meant an association of many Persons who contribute moncy or money’s worth to a common stock and cmploy it for some common purpose. The common stock so contributed is denoted in terms of money and is called the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.” Indian Companies Act does not define company as such. According to Section 3 of Indian Companies Act 1956, “A company means a company formed and registered under this Act” According to clause (i) of Section 3, “Existing Company means a company formed and registered under any of the previous company laws.”Forms of Organisation 4 Analysis of Definitions An analysis of above mentioned definitions brings out the following facts 1. A company is an artificial person under law. 2. It has separate legal entity than its members. 3. It possesses only those properties which have been conferred on it by the character of its ercation IL is a voluntary association of persons. It is created to carn profits, It has a capital which is contributed by the members. The capital is divided into small parts known as shares. wen Awe The persons who own these shares are called members. 9. The shares of a company are casily transferable. 10. The capital of a company is employed for a common purpose. _Sharacteristics The following are the characteristics of a Joint Stock Company 1, Association of Persons. A company is an association of persons joining hands with a common motive. A private limited company must have at least two persons and a public limited company must have at least seven members to get it registered. Furthermore, the number of sharcholders should not exceed 50 in private companies but there is no maximum limit of the members in a public limited company. 2. Independent Legal Entity. The company is created under law. It has a separate legal entity apart from its members. A company acts independently of its members. The company is not bound by the act of its members, and members do not act as agents of the company. A person can. own its share and can be its creditor too. The life of the company is independent of the lives of its members. The company can sue and be sued in its own name. 3. Limited Liability. The liability of its sharcholders is limited to the value of shares they have purchased. In case the company incurs huge liabilities, the shareholders can only be called upon to pay the unpaid balance of their shares. The company being a separate legal entity can incur debts in its own name and the sharcholders will not be personally liable for that. However, sharcholders of an unlimited company have unlimited liability. The liability of members of a company limited by guarantec is limited to the guaranteed amount. 4. Common Seal. A company being an artificial person cannot put its signatures. The law requires every company to have a scal and get its name cngraved on it. The scal of the company is affixed on all important documents and contracts as a token of signature. The directors must witness the affixation of the scal. §. Transferability of Shares. The sharcs of a company can be transferred by its members. Whenever the members want to dispose of the shares, they can do by following the procedure devised for this purpose. Under Articles of Association, the company can put certain restrictions on the transfer of shares but it cannot altogether stop it. However, private companies can put more restrictions on transferability of shares, virtually making it zero.> Business Managemen, 6. Separation of Ownership and Management. The sharesholders of a com; scattered. A sharcholder may like to invest moncy but may not be interested in its companies are managed by Board of Directors. The ownership and manai hands. The sharesholders do not get any’ right to participate in company manage company afTairs is vested in the directors who are elected represent pany are Widely management. The gement are in two separatg management. The right tg latives of the shareholders 7. Perpetual Existence. The company has a permanent existence, The sharcholders come or may go but the company will go on forever. The continuity of the company is not affer” by death, lunacy or insolvency of its sharcholders. The company can be wound a wound up only by operation of law. The shares of the company may change hands a number of times but the exnreg of the company is not affected at all 7 8. Corporate Finance. A Joint Stock Company, generally, raises large amounts of funds. Th capital is divided into shares of small denomination. A large num! : iber of persons purchase sh: ares a contribute to the capital of the company. Since there is no limit on number of maximum enters Public companies, large amounts of sources can be raised from persons in different walks of life 9. Centralised and Delegated Management. A Joint Stock Company is an autonomous and self-governed body. The sharcholders being large in number cannot look after the day-to-day activiticg of the company. They clect Board of Directors in general body mecting for managing the company Alll policies of the company are decided by a majority vote. All important decisions are taken ina democratic way. The centralised management and democratic functioning brings in unity of action, 10. Publication of Accounts. A Joint Stock Company is required to file annual statements with the Registrar of Companies at the end of a financial year. The annual statements arc available for inspection in the office of the Registrar. MERITS OF COMPANY FORM OF ORGANISATION The company form of organisation has been successful in almost all countries of the world This form is suitable where large resources are required and the production has to the carried out on a large scale. The number of joint stock companies has shown a phenomenal increase in the twentieth century. Some of the merits of company form of organisation arc discussed below : 1. Accumulation of Large Resources, The main drawback of the sole-trade and partnership concerns has been the scarcity of resources. The resources of a sole-trader and of partners being limited, these enterprises have always suffered for want of funds. A company can collect large sum of money from large number of sharcholders. There is no limit on the number of sharcholders in @ public company. If need for more funds arises, the number of sharcholders can be increased. Joint Stock Companics are suitable for those businesses where large resources are required. 2. Limited Liability. The liability of mombers in a company form of organisation is limited to the nominal value of the shares they have acquired. If a person has purchased a share of Rs. 100, his liability is limited to Rs. 100 only. If the share is partly paid, then he can be required to pay only the unpaid valuc of the share. In no case the total payment will cxcced Rs. 100. The limited liability encourages many persons to invest in shares of joint stock companies. Many persons will be reluctant to invest in those enterprises where liability is unlimited. 3. Continuity of Existence. When a company is incorporated, it becomes a separate legal entity. It is an entity with perpetual succession. The members of a company may go on changit from time to time, but that does not affect the continuity of a company. The death or insolvency ofForms of Organisation 8 members docs not in any way affect the corporate existence of the company. The continuity of a company is not only in the interests of the members but is also beneficial for the society. The discontinuation of a company may cause wastage of resources and inconvenience to the consumers, 4. Efficient Management. In company form of organisation, ownership is separate from management. It cnables the company to appoint expert and qualified persons for managing various business functions. The availability of large-scale resources enables the company to attract talented Persons by offering them higher salarics and better career opportunities, The efficient management will help the company to expand and diversify its activities. 5. Economies of Large Scale Production, With the availability of large resources, the company can organise production on a big scale. The increase in scale and size of the business will result in economics in production, purchase, marketing and management, ctc, These economies will enable the company to produce goods at a lower cost, thus, resulting in more profits. The company will help consumers by providing them with cheaper goods and will also be able to accumulate more resources for further expansion, 6. Transferability of Shares. The shares of a public company are freely transferable. A sharcholder can dispose off his shares at any time when the market conditions are favourable or he is innced of money. The company does not return share-moncy before its winding up but sharcholders can casily sell their shares through stock exchange markets. Stock exchange provides a ready market for the purchase and sale of shares. The facility of transferring shares encourages many persons to invest. This provides liquidity to the investor and stability to the company. On the other hand, partnership form of organisation docs not provide free transferability of shares. 7. Ability to Cope with Changing Business Environment. The present business enterprises operate under uncertain economic and technological environments. Technological changes arc taking, place every day. The needs of consumers are varied and changing. To cope with the changing economic environment every business is required to invest money on research and developmental programmes. Sole-trade concerns or partnership firms cannot afford to spend money on research work. Joint stock companies can afford to invest money on research projects. It will enable them to cope with changing business conditions, 8. Diffused Risk. In sole-trade and in partnership business, the risk is shared by a small number of persons. Further uncertainties discourage them from taking up new ventures for fear of risk, In company form of organisation, the number of contributorics is large ; so risk is shared by a large number of persons. The burden to be shared by different individuals becomes insignificant. It enables companics to take up new ventures. 9. Democratic Sct up. The valuc of shares is generally small. It enables persons with low incomes to purchase the shares of companies. Sharcholders come from all walks of life. Every individual has an opportunity to become a sharcholder. Secondly, the Board of Directors is clected by the members. So members have a say in deciding the folicics of the company. The company form of organisation is democratic both from ownership and management side. 10. Social Benefits. The company form of organisation mobiliscs scattered savings of the community. These savings can be better used for productive purposes. The companies also cnable financial institutions to invest their money by providing them avenucs. It also cnables the utilization of nautral resources for better productive uses. Large scale production enjoys a number of economies enabling low cost of production, The socicty is supplied with good quality of goods.Business | a Managemen DEMERITS OF COMPANY FORM OF ORGANISATION organisation suffers from the following drawbacks ‘on, Promotion of a company is not an casy task. A number of st bility of a particular type of business is to be decideg ssociate for getting a company incorporated, A joey the time of registration. The shares will have tg yy both expensive and risky The company form of 1. Difficulty in Form: are involved in company promotion. The suital first. A number of persons should be ready to a! legal formalities are required to be performed at sold during the particular time. Promotion of a company 1s 2. Separation of Ownership and Management. The ownership and management of pyby,, company is in different hands. The owners i.e. sharcholders play an insignificant role in the Working of the company, On the other hand, control is in the hands of those who have no stakes in the company. The management may indulge in speculative business activities. There is no dirgo, relationship betwen efforts and rewards. The profits of the company belong to sharcholders and the Board of Directors is paid only a commission. The management docs not take personal intereg in the working of the company as is the case in partnership and sole-trade business. 3. Evils of Factory System. The company form of organisation leads to large scale production The evils of factory system like insanitation, air pollution, congestion of cities are attributed to joint stock companies. Joint stock companies facilitate formation of business combinations which ulumately lead to the monopolistic control and exploitation of consumers 4. Speculation in Shares. The joint stock companies facilitate speculation in the shares at stock exchanges. The prices of shares depend upon both economic and non-economic factors. The speculators try to fluctuate the prices of shares according to their suitability. The stock exchanges will not help the growth of healthy investment when speculative activitics are being carried on. The managements of joint stock companies also sometimes encourage speculation in shares for their personal gains. 5. Fraudulent Management. The promotors and directors may indulge in fraudulent practices. The management is in the hands of those persons who have not invested much in the company. The company law has devised methods to check fraudulent practices but they have not proved enough to check them completely. 6. Lack of Secrecy. The management of companies remains in the hands of many persons Everything is discussed in the meetings of Board of Directors, The trade secrets cannot be maintained. In case of sole trade and partnership concerns such secrecy is possible because a few persons are involved in management. 7. Delay in Decision-making. In company form of organisation no single individual can make a policy decision. All important decisions arc taken either by the Board of Directors or are referred to general house. Decision-taking process is time consuming. If some business opportunity arises and a quick decision is needed, it will not be possible to arrange mectings all of a sudden. So many opportunities may be lost because of delay in decision-making, 8. Concentration of Economic Power. The company form of organisation has helped concentration of economic power in a few hands, Some persons become directors in a number of companies and try to formulate policies, which promote their own interests. The shares of a numbet of companies are purchased to create subsidiary companies. Interlocking of directorship and establishment of subsidiary companies have facilitated concentration of economic power in the hands of a few business houses.Forms of Organisation 2 9. Excessive State Regulation. A large number of rules and regulations are framed for the working of the companies. The companies will have to follow rules even for their internal working The government tries to regulate the working of the companies because large public moncy is involved. The formalities are many and the penalties for their non-compliance are heavy. This often detracts companies from their main objectives for which they have been formed. CO-OPERATIVE ORGANISATION Introduction and Meaning The co-operative movement has been necessitated to protect the interests of weaker sections of society. The primary objective of this movement is ‘how to protect economically weaker sections of society’. In all forms of organisation, be it is a sole trade, partnership or joint stock company, the primary motive is to increas profits. The businessman trics to promote his own interest through all possible means including exploitation of consumers. The co-operative form of organisation is a democratic set up run by its members for serving the interests of themselves. Ws sclf help through mutual help. The philosophy behind co-operative movement is “All for each and cach for all’ Co-operative socictics are voluntary associations started with the aim of service to members. Hubert Calvert says, “Co-operation is a form of organisation wherein persons voluntarily associated together as human beings on the basis of equality for the promotion of the economic intcrest of themselves.” V.L. Mehta defines co-operation as, “One aspect of a vast movement which promotes the voluntary association of individuals having common economic needs who combine towards the achievement of the common economic ends they have in view and who bring into his combination a moral cffort and a progressively developing realisation is the achievement of economic ends. In fact co-operative movement was started to safeguard consumers from the exploitation of capitalism, Dr. HN. Kunzen defines co-operatives as “Co-operative is sclf-help as well as mutual heip. It is a joint enterprise of those who are not financially strong and cannot stand on their legs and therefore come together not with a view to get profits but to overcome disability arising out of the want of adequate financial resources”. This definition suits the Indian context. In India, co-operatives are started by the weaker sections of society for protecting its members from the clutches of profit hungry businessmen. The Indian Co-operative Socictics Act, 1912 defines co-operative in section 4 as “Society which has its objective the promotion of economic interests of its members in accordance with co-operative principle.” : Principles of Co-operatives “Some of the principles of co-operatives are discussed as follows : (i) Voluntary Membership. Everyone is at liberty to enter or leave the co-operative society as and when he likes. Nobody is compelled to join a co-operative socicty. The members are also free to use or not to use the services of the society. Though there is no limit on the membership of the societies sometimes certain limits are imposed to keep the socicty as a workable group Consumer co-operatives do not restrict the membership but marketing co-operatives, producers co-operatives, insurance socictics cic, may limit membership to a number which is properly46 manageable. Voluntary membership is the main ingredient of co-operation. Everybody Join a socicty is allowed to do so. of co-operative movement. (ii) Political and Religious Neutrality. The membership of a co-operative Business Man, hen ‘Y will; Voluntary membership has been responsible for the suse ® Society ig g, 4 Pe {0 all irrespective of religion, caste, creed, colour or political afliliation. The co-operative mod can attract a large membership only Co-operatives represent universal contradictions. There is no place for caste or discrimination in co-operatives of co-operatives is to serve its members. So, co-operative socicties aro neutral and religious affiliations are concerned. (ii) Democratic Management. The man democratic lines. All the members the day-to-day working of the society. executive. The management is clected is conducted by expert persons but the ultimate control lies with the members. stom, it is a condition of its business success. Cox democracy is more than a sy: stands or falls with democracy, (iv) One Man, One Vote. In Co-operative socicties every irrespective of his contribution tow Persons having large number of shares control the organisation. In control the society on the strength of his wealth. All members have eq goods are sold to non-members. (vi) Distribution of Surplus. is not divided according to capital c the members in case of consumer c% by staying out of politics where people have divided gr 4 in brotherhood and it should not lose its path in poling ic The primary 4! 8 far as polis agement of a co-operative socio of a society elect a body of persons to conduct and es : Tho members frequently mect and give guideline oie through one man one-vote system. The day-to-day oq, In co-operating Operative busines ty is always member is given one yoy ards their basis of number of shares held by a person %0 @ co-operative, nobody can ual voice in the managemeny The societies carn surplus from their services. This surplus contributed. It is distributed according to purchases made by O-operatives, and according to goods delivered to society for sale in case of producers’ co-operatives, The Indian Co-operative Socicties Act has given guidelins for the distribution of the surplus. A certain Percentage is paid i contributions. At present this rate sh (vii) h Trading. Another Co-operatives flourish only when cash tradin; economy for the co-operatives. It climinates bad debts and coll reduces working capital of the socictics, In granting credit in the form of dividend on capital ould not cxeced 9%. One-fourth of the surplus should be kept 0% of surplus should be spent for the general welfare of the Principle of co-operative socictics is trading on ‘Cash basis’ 8 Principle is strictly followed. Cash trading ensuresForms of Organisation a (v give certain percentage on capital contribution in the form members for kccping moncy with the socicty as deposits. In India, a maximum of 9 per cent per annum can be paid as interest on contributions to the society. This is a first charge on the surpluses of the society. (ix) State Control. The co-operative societies are to follow certain rules and regulations framed by the government. In India, all co-operative socictics are registered under Indian Co- operative Socictics Act or respective state co-opcrative laws. The government gives a number of incentives for the promotion of co-operatives. There is a control of central and state governments on the working of co-operative socictics in India. (x) Co-operative Education and Training, The success of a co-operative will depand upon the awareness of its members towards the principles of co-operation. The members should be properly educated about the aims and objectives of the societies, so that they may work unitedly, The members should be trained to perform various activities of the society. So proper education and training of members will add to the success of co-operative movement. Formation of a Co-operative Society ‘A co-operative society must be formed under the Co-operative Societies Act, 1912 or under the relevant state co-operative socictics law. A co-operative society can be formed by altcast 10 adult members. The members willing to form a society must have common bond among them. They may be the residents of same locality, employes of some organisation, belonging to some group having affinity ctc. The basic idea is that all the persons intending to form a socicty should have some common objectives to achieve Limited Interest on Investment. The pioneers of co-operative movement want to of dividend. This is an incentive to The application for forming a socicty must have the following information : (a) Name and address of the socicty. (6) Aims and objectives of the socicty. (c) Names and addresses of members of the society. (d) Share capital and its division (©) Mode of admitting new members. () A copy of the bye laws of the society. The required documents are filed with the Registrar of Societies. The Registrar scrutinises the documents, if thesc arc as per requirements then the society's name is entered in the register. A certificate of registration is also issued to the society. The society will become a corporate body from the date mentioned in the certificate. Types of Co-operative Societies Various types of co-operatives have been started with different motives. Some are started to help consumers and others to help small producers. There are some socicties which help the farmers in a number of ways. Important types of co-operative socictics arc discussed as follows: Consumers Co-operatives. The consumers’ co-operative socictics arc started to help lower and middle class people. These socictics protect weaker sections from the clutches of profit-hungry’ businessmen, The members contribute capital in the shape of share money. TheBusiness Managemen 48 d and colour caste, cree membership of these socicties is open to everyone irrespective of to-day activities of members clect the office bearers and executive members to supervise eet ealiesclncedts i society. The societies make bulk purchases dircetly from producers f eliminated in the proces, members on retail basis. The commission and profit of middlemen 8 © over are i The societies charge small profit to cover up administrative costs ‘ness is distributed amoq at market rates to non-members. The surplus cared from the mae of mombon members in the shape of bonus. Some of the surplus is spent on Objectives of Co-operatives (® Elimination of middlemen between members and producers: (ii) Making goods available to members at cheap rates (ii) Enhancing the purchasing power of members. (iv) Ending the exploitation by middlemen, (¥) Arranging quality goods for members. (vi) Members sharing profits of the socicty. In India, consumers’ co-operatives are started under the control of government. Government sells essential commoditics to consumers at regulated prices through co-operative socictics. The co-operative stores, as they are called, are working both in urban and rural arcas. Gi) Producers’ Co-operatives. These socictics are established for the benefit of small Producers who find it difficult to collect various factors of production and also face marketing problems. The purpose is to improve economic conditions of small producers by giving them necessary facilities. These socictics are of two types (a) Production Co-operatives. The production of goods is undertaken by the members in their houses or at a common place. The members are treated as employees of the socicty and are paid wages for their services. The members are supplicd raw materials and equipments by’ the Society and output of the members is collected by the society. The society sells these goods in the market. The profits are distributed among members after retaining some profits in the general pool. (6) Industrial Service Co-operatives. The co-operatives are staried to help members in gelting various industrial inputs at reasonable pri (iii) Marketing Co-operatives. for’selling their products at remunerativ : and the society undertakes to sell these products bs warehousing, tran i goods are sold when the market is favourable Tho vndvidea for longer periods because of their limited resources. The socictis sn Ot be able to wai to the members for helping them in mecting tei urgent neog’ The pee ea 7 eds of sales are share’ nce and financing, ct. TheForms of Organisation ” among members according to their contributions, The marketing societies also collect marketing information and supply it to the producers for their benefit (iv) Housing Co-operatives. The low and middle income group people are not able to construct their own houses for want of money. Housing co-operative societies help people to own their house. The housing co-operatives arc of different types. Some societies construct houses and give them on small rent to the members. The members do not become owners but the rent is nominal. These socictics are not popular because the instinct to own a house is not satisfied. The second type of societies acquire land and give the plots to the members for constructing their houses themselves. The socictics also arrange loans for their members from financial institutions and government agencies. These socictics arc helpful in arranging cheap plots and loans for the members. The loans arc advanced against the sccurity of the houses. These type of socicties are very popular in most of the states in India. Third type of societies acquire land and construct houses themselves. The constructed houscs are handed over to the members. The members pay the price in casy instalments spread over a longer period. These societics cconomise by purchasing Construction materials in bulk. These societics are popular among poor families. The purpose of all these societies is to help the members in purchasing land and constructing houses. In addition to housing co-operatives, many government agencies like State Housing Boards help economically weaker scctions of socicty in owning their houses and pay the price in easy instalments. : (¥) Credit Co-operatives. The credit co-operative societies are formed to give financial help to small farmers and other poor sections of the society. The village moncy-lenders charge exhorbitant interest rates and exploit innocent poor people. The credit co-operative socicties may be distinguished as follows : (a) Rurai credit co-operative societies. (6) Urban credit co-operative societies. The rural credit co-operatives can be formed with at least 10 members. The members purchase shares of the societies so as to raise capital. These socictics get loans from state co-operative banks. These socicties provide only short-term loans. The rate of interest charged is very low. The loans are recovered from the members after every six months or one year and the loans from the co- operative banks are returned. The procedure is repeated every time. The area of the socicty is gencrally one village. At present multi purpose societies are working for helping villagers in different spheres. The societies are also arranging agricultural inputs like fertilizers, seeds, ete. for the members. These socictics are also entrusted with the job of arranging commodities like salt, sugar, tea, matches, dals, etc. The object of these socicties is ‘better farming and better living,” The Urban Co-operative Credit Societies or Urban Banks are run on Scoulze-Delitz, model. The idea of the socictics is to help small traders. workers, artisans and other classes of people. The members are provided with short-term loans on lower rates of interest. The control is contributed by the members and financial help is sought from government agencies too. The liability of members is limited only to the extent of shares held by them (vi) Co-operative Farming Societies. Co-operative farming societies arc voluntary associations of farmers formed to reap the benefits of large scale farming on scientific lines Better farming increases production and improves the economic position of members. Small farmers will not be able to use improved technology for want of resources and small holdings.oY 50 Business Managemen The a Ait patel advantage of agricultural technology. The farming co-operatives may or ta), Commperative Beer Farming Societies, The societies are formed to improve methods farming and to arrange facilities connected with the use of machinery, harvesting of crops ang marketing. of the products. The members cultivate their lands independently. The socicty provides only services. The members pay charges for the services rendered by the society. ‘Societies. The land of members is pooled in these societies dividual members. The members are paid by the society and profits are divided also paid to members on the basis of their lands from the society. (6) Co-operative Joint Farming The ownership rights of the land are retained by the in wages for their work on the land. The produce is sold according to wages carned by members. Some interest is their land values. The members have a right to withdraw Societies. These socictics are formed to help tenants. The society d also on frechold basis. The land is distributed to the members for independent cultivation. The society also arranges various inputs like sceds, fertilizers, ete Financial help too is arranged for the members. The members pay rent for the use of land; ngs to the tenants and not to the socicty. So these socictics are formed to help (©) Tenant Farming acquires land on Icaschold basis an the produce belot small tenants (d Collecti collectively on the land. No member wages for their labour. The profits are distril The land ownership in these socicties is collective. ‘All these socictics are formed with a view to help small farmers and tenants to use advanced farm technology’ for raising their produce. These socictics endeavour to raise economic position Farming Societies. The land is owned by the socicty and members work has ownership right on the land. The members are paid daily butcd among members in proportion to their wages of their members. Advantages of Co-operatives (i) Open Membership. The membership of co-operative socicties is open to cach and every person. Nobody is barred from joining socictics on the basis of economic position, caste, colour or creed. Anybody wishing to enjoy the fruits of a co-operative can join it. The number of members of a socicty is limited to make it a workable group but members are not discriminated in any way (ii) Service Motto. The co-operativ« socictics try to promote the interests of cheap rates and financial help is also given at concessional created among members (iii) Supply of Goods at Cheape! producers and sell them to the members at cheap rates. The channel of distribution, The consumer co-operatives supply & time when there is scarcity of goods in the market. Even capital goods (like machinery cts. procured directly from producers and are supplied to the members. So co-operative societies cnsure regular supply of goods at cheap rates : (iv) Democratic Management. The management o! from among themselves. All members are given equal voting rights i of shares held by them. Every member has cqual say in formulating po! these associations are run on democratic principles. ¢ socicties are started not for profits but for service. ‘The he members. The members arc provided with goods at | ratcs A fecling of co-operation is + Rates, The societies purchase goods dircetly from ‘middlemen are climinated from the ssential goods to the members at a ) are a co-operative is elected by the members. respective of the number licics of the society. SOForms of Organisation a (¥) Low Management Costs, The management of @ co-operative socicty is in the hands of persons clected by the sharcholders. Some persons are employed to look after day-to-day Working of the societies Members take active interest in the working of the society. So the socictics need not spend large amount on management personnel. (vi) Surplus Shared by Members. The societies sell goods to the members on a normal profit to cover up administrative costs. Non-members are charged at market rates. The surplus camed by the society is distributed among members on the basis of their purchases. Some part of the surplus is spent on the welfare of the members. Some profits of the socicty are cither distributed among members or arc spent on their welfare. (vii) Check on the Business, All other forms of business are started with a profit motive but co-operatives arc started with service motive. When businessmen try to exploit consumers by raising prices of their commodities, then co-opcratives supply goods at reasonable prices. The co- operatives are a check on other forms of organisation, Other enterprises will have to lower their prices when co-operatives are providing those goods at lower prices. Consumers are not at the mercy of businessmen. Limitations of Co-operatives (i) Lack of Capital. The co-operatives are started by economically weaker sections of society. The shares are generally of lower denomination (face value) so that more and more persons may associate with these socictics. The resources of members arc not enough to start a large-scale enterprise. They cannot undertake production of goods for want of funds. So co-operative socictics suffer from lack of capital. (ii) Lack of Unity among Members. The members are drawn from different sections of the society. There is a lack of harmony among thom, The members do not understand the working of the societies so they start suspecting cach other. The members do not take much interest in the affairs of the socicty and leave everything to the paid officials. (iii) Cash Trading. The cash trading business has both advantages and disadvantages. The members of societies are generally from poor sections of the socicty. These persons necd credit facilities. On the other hand, private traders extend credit facilities to the consumers. Though the socicties scll goods at lower prices but absence of credit facilities compel them to go to traders for mecting their requircments, (iv) Political Interference. The socictics are generally under the regulations of the government, As cooperative socictics stand in India, government even nominates members to the managing committees. Every government tries to send their own party members to these socicties. The socictics are governed on political considerations rather than on business lines. Political interference has adversely affected socictics movement in India. Questions A. SHORT ANSWER TYPE 1. Define sole trade business. 2. State five features of sole trade business. ats52 Dew Pas 9. 10. a Business Managemen State the legal position of sole trade business. Define partnership. State five features of partnership form of organisation. Can a minor become a partner ? : State the meaning of company form of organisation, Give the characteristics of a company. State the principle of voluntary membership of a co-operative socicty. State two aims of starting a co-operative organisation, B. Essay Type Questions 1. 2. 3. 4. ner ee What are the essential characteristics of sole-trade form of business? State the merits of sole-trade business. Explain the demerits of sole-trade form of business. Define partnership. Discuss the characteristics of partnership. Discuss various types of partners. State the advantages and disadvantages of partnership form of organisation. What is a joint stock company ? Explain its sailent features. Discuss the advantages and disadvantages of joint stock company form of organisation What do you mcan by a co-operative socicty ? State the principles of a co-operative socicty. Discuss various types of co-operative socictics. State the advantages and limitations of co-operative socictics.