Forms of Business

Organisation
UNIT-03
FORMS

Various forms of business organisation from which one can choose

the right one include
 Sole Proprietorship
 Partnership
 Joint Stock Companies
 Co-operative Societies
1.Sole Proprietorship
MEANING
A Sole proprietorship is an enterprise owned exclusively by one
natural person and in which there is no legal distinction between the
owner and the business entity.
FEATURES:
 Single Ownership
 Personal Organization or Common Identity
 Capital
 Unlimited Liability
 One Man Control
 Profits and Losses.
 No Special Legislation
 FEATURES OF SOLE PROPRIETORSHIP

A sole proprietorship is the simplest form of business organization. Here are some key features:

1.Single Ownership: The business is owned and operated by one individual.

2.Unlimited Liability: The owner is personally responsible for all debts and obligations of the
business.
3.No Legal Distinction Between Owner and Business: The business and the owner are considered
the same legal entity.
4.Direct Control: The owner has complete control over all decision-making processes.
5.Ease of Formation and Dissolution: There are minimal formalities to start or close a sole
proprietorship.
6.Limited Life: The business typically ceases to exist upon the owner’s death or incapacitation.
7.Sole Beneficiary of Profits: The owner receives all the profits generated by the business.
8.Flexibility: The owner can change business operations and structure without needing approval from
partners or shareholders.
HIDDEN MEANING BEHIND

 If you look closely, you can see that the two curves at the
bottom of the logo are actually in the shape of Levi’s back-pocket
jeans!
2.Partnership

MEANING:
A partnership is a formal arrangement by two or more parties to
manage and operate a business and share its profits.
FEATURES:
 Agreement between Partners
 Two or More Persons
 Sharing of Profit
 Business Motive
 Mutual Business
 Unlimited Liability
 FEATURES OF PARTNERSHIP
A partnership is a business structure where two or more individuals share ownership. Here are the
main features of a partnership:
1.Shared Ownership: The business is owned by two or more individuals, with each partner
contributing capital, skills, or labor.
2.Types of Partnerships: Partnerships can be general (all partners manage and share liability)
or limited (some partners are only investors and do not manage the business).
3.Profit Sharing: Profits (and losses) are shared among the partners according to the partnership
agreement or their share of investment.
4.Joint Decision-Making: Partners collectively make decisions regarding the business
operations, though authority may vary by the partnership agreement.
5.Unlimited Liability (for General Partners): General partners are personally liable for the
debts and obligations of the business. Limited partners’ liability is restricted to their investment.
6.No Separate Legal Entity: In a general partnership, the business is not a separate legal entity
from its owners, meaning the partners are responsible for the debts incurred by the business.
7.Limited Life: A partnership may dissolve if a partner dies, retires, or withdraws unless
otherwise stated in the partnership agreement.
8.Formation: Partnerships are relatively easy to establish through a formal partnership
agreement that outlines the roles, responsibilities, and profit-sharing terms.
Types of Partnerships .

 1. General Partnership
 2. Limited Partnership
 3. Limited Liability Partnership
 4. Public Private Partnership
 Types of Partnership

1.General Partnership (GP)

Meaning: A general partnership is a business structure where two or more individuals share
ownership, profits, and liabilities equally or as per their agreement. Each partner is actively
involved in the business's management and is personally liable for its debts and obligations.

Example: A law firm where two lawyers form a partnership and equally share the profits,
responsibilities, and debts of the firm. If the firm incurs debt, both partners are personally
responsible.

Real Example: Many local accounting or law firms often operate as general partnerships, such as
"Smith & Jones Attorneys.“

2. Limited Partnership (LP)

Meaning: A limited partnership consists of general partners, who manage the business and have
unlimited liability, and limited partners, who invest in the business but have limited liability,
meaning their personal assets are protected beyond their investment.

•Example: A real estate development company where one partner contributes capital but does not
participate in daily operations (limited partner), while another manages the business (general
partner). The limited partner's liability is restricted to their investment.

•Real Example: The Blackstone Group often forms limited partnerships in its real estate
3.Limited Liability Partnership (LLP)
Meaning: An LLP is a business arrangement where all partners have limited liability, meaning
they are not personally liable for the business's debts or for the actions of other partners. Each
partner can participate in the management of the business without losing their limited liability
protection.
•Example: A group of doctors forming a medical practice as an LLP. Each doctor is shielded from
liability for malpractice claims against other doctors in the partnership.

•Real Example: Deloitte operates as a limited liability partnership in many countries, including
the UK, offering protection to its partners against the actions of other partners.

4. Public-Private Partnership (PPP)

Meaning: A public-private partnership is a cooperative arrangement between a government
agency and a private-sector company, typically to finance, build, and operate public projects such
as infrastructure or social services. In PPPs, the private entity usually invests capital and manages
operations, while the government provides support through regulation and oversight.
•Example: A government partners with a private company to build and operate a toll road. The
private company funds construction and maintenance in exchange for a portion of the toll
revenues over an agreed period.

•Real Example: London Underground's Tube Lines PPP, where private companies managed
parts of the London Underground network for a period, helping to modernize the system through
private investment.
Quiz:

 The owner of Apollo Hospital Prathap C. Reddy’s Granddaughter,

Upasana, is married to ________, who is one of the most popular
actor in Telugu cinema

Ram
Charan
3.Joint Stock Companies
MEANING
A joint stock company is an organisation which is owned jointly by all its
shareholders. Here, all the stakeholders have a specific portion of stock
owned, usually displayed as a share.
FEATURES:
 Artificial Legal Person
 Separate Legal Entity
 Incorporation
 Perpetual Succession
 Limited Liability
 Common Seal
 Transferability of Shares
 Features of Joint Stock Companies

•Legal Entity: It is an independent legal entity separate from its

shareholders.
•Artificial Person: This companies is a legal entity that is not a
natural person, but is recognized by law as having certain
rights,protections,responsibilities and liabilities
•Liability: Shareholders have limited liability, meaning their
personal assets are protected.
•Ownership and Control: Ownership is divided into shares, and
shareholders elect a board of directors to manage the company.
•Continuity: A corporation has a perpetual existence, unaffected by
changes in ownership.
•Formation: Requires incorporation with a regulatory body, following
stricter legal requirements.
 TYPES OF JOINT STOCK COMPANIES

1. Private Limited Company (Ltd.)

•Definition: A private limited company is owned privately by a small group of individuals, with
the liability of the shareholders limited to the value of their shares. Shares cannot be freely
traded on the stock exchange.
•Example: IKEA (IKEA Holding B.V.)- IKEA is the name of a popular Scandinavian-founded,
worldwide furniture store. The acronym that makes up the name stands for Ingvar Kamprad
(the founder's name is a privately owned company. Its shares are not publicly traded, and
ownership is retained within a close group.

2. Public Limited Company (PLC)

•Definition: A public limited company is a joint stock company that allows its shares to be
bought and sold by the public on stock exchanges(A stock exchange is a marketplace where
securities, such as stocks and bonds, are bought and sold). It has more regulatory
requirements, and the liability of shareholders is limited to their shareholding.
•Example: Apple Inc. is a public limited company where shares are traded on the NASDAQ.
Investors who own shares of Apple are part owners of the company.
3. Company Limited by Guarantee

•Definition: In this type of joint stock company, members act as guarantors

rather than shareholders. They agree to pay a specific amount in case the
company is wound up, rather than holding shares in the company. These are
often non-profit organizations.
•Example: The Football Association (The FA) in England is limited by
guarantee. Members guarantee to contribute a nominal sum towards its debt if it
is wound up.

4. Company Limited by Shares

•Definition: This is the most common type of joint stock company. The liability of
shareholders is limited to the amount unpaid on their shares.
•Example: Microsoft Corporation is a company limited by shares.
Shareholders are only responsible for the amount they have invested in the
company and no more.
5. Unlimited Company

•Definition: An unlimited company does not limit the liability of its shareholders. If
the company goes bankrupt, shareholders are responsible for the entire debt, not just
their investment.
•Example: These types of companies are less common, but James Stevenson
Unlimited is an example. In such cases, shareholders risk their personal assets if the
company fails.

6. Statutory Company

•Definition: These companies are created by a specific act of parliament or

legislation and usually have specific purposes related to public services or industries.
•Example: BBC (British Broadcasting Corporation) is a statutory corporation created
by a royal charter to provide public service broadcasting.
4.Co-operatives
 Cooperative societies are formed with the aim of helping their
members. This type of business organisation is formed mainly by
weaker sections of the society in order to prevent any type of
exploitation from the economically stronger sections of the
society.
 TYPES:
 Producer Cooperative
 Consumer Cooperative
 Credit Unions
 Marketing Cooperative Society
 Housing Cooperative Society
1.Consumer Cooperative Societies

Purpose: These cooperatives are formed to protect consumer

interests by providing essential goods and services at reasonable
prices.

Members: Consumers who purchase goods from the society.

Functions: Purchase goods in bulk directly from producers or

wholesalers. Sell goods to members and the general public at
reduced prices.

Examples: Supermarkets, retail stores, or neighborhood shops that

are run as consumer cooperatives.Benefits:Avoids middlemen,
reducing the cost of goods.Provides quality goods at reasonable
prices.Distributes profits as dividends among members.
2. Producer Cooperative Societies
•Purpose: These are formed by small producers and artisans to support them in
production, procurement of raw materials, marketing, and distribution.

•Members: Producers of goods, such as farmers, craftsmen, or weavers.

•Functions:
• Help members procure raw materials at lower costs.
• Assist in the sale of products produced by members at better prices.
• Provide technical and financial assistance to improve production.

•Examples: Dairy cooperatives (e.g., Amul in India), farmer cooperatives.

•Benefits:
• Protects small producers from exploitation by middlemen.
• Helps improve production quality.
• Ensures better prices for their products.
3. Marketing Cooperative Societies

•Purpose: These societies help small producers sell their products at favorable
prices by providing marketing assistance.

•Members: Producers who wish to market their products collectively.

•Functions:
• Bulk purchase of goods from members for marketing.
• Eliminate middlemen by selling directly to consumers or retailers.
• Arrange for storage, transportation, and advertising.

•Examples: Agricultural marketing cooperatives, craft producer marketing

cooperatives.

•Benefits:
• Helps members get better prices for their products.
• Reduces the risks and costs involved in marketing.
• Increases the bargaining power of small producers.
4. Credit Cooperative Societies

•Purpose: These cooperatives are formed to provide financial support to their

members by offering loans at lower interest rates.

•Members: Individuals in need of credit, typically small farmers, artisans, or small

business owners.

•Functions:
• Accept savings from members and provide loans at lower interest rates.
• Promote savings habits among members.
• Offer financial services to members who may not have access to traditional
banking.

•Examples: Rural credit cooperatives, savings and credit cooperatives (SACCOs).

•Benefits:
• Protects members from high-interest loans from informal lenders.
• Provides easy access to financial resources for small entrepreneurs and farmers.
5. Housing Cooperative Societies

•Purpose: These cooperatives help members secure affordable housing by pooling

resources for land acquisition, construction, or maintenance of housing properties.

•Members: Individuals who need housing or seek to improve their living conditions.

•Functions:
• Acquire land or buildings and provide housing to members at lower costs.
• Manage the maintenance and repair of cooperative housing.
• Provide financial assistance for housing construction or renovation.

•Examples: Housing cooperatives for low-income groups, cooperative apartment

buildings.

•Benefits:
• Provides affordable housing to members.
• Ensures better maintenance and management of housing facilities.
• Promotes community living and shared responsibility.
QUIZ: WHAT IS Food Safety and
Standards Authority of India

ITS a process for all food business operators (FBOs) to apply for
getting the certificate which states that the food is safe to
consume by the consumers.
 Franchising as a Form of Business

•Definition: Franchising is a business model where a franchisee pays a franchisor for the right to
use its brand, systems, and ongoing support to operate a business. Franchising is an arrangement
where franchisor (one party) grants or licenses some rights and authorities to franchisee (another party). For eg:
Dominos, KFC, PUMA, Mama Earth etc.
•Characteristics:
• Ownership: The franchisee owns and operates the business under the franchisor’s brand.
• Franchise Agreement: This agreement defines the relationship between the franchisor
and franchisee, including fees, rules, and support.
• Control: While the franchisee manages the business, they must follow the franchisor’s
guidelines, including product offerings, marketing strategies, and operating methods.
• Support: Franchisees often receive training, marketing, and ongoing operational support.
•Advantages:
• Lower failure rate due to a proven business model.
• Brand recognition and established customer base.
• Support from the franchisor (training, marketing, etc.).
• Easier access to finance due to lower risk.
•Disadvantages:
• Limited flexibility; franchisees must follow the franchisor’s rules.
• Initial franchise fees and ongoing royalty payments.
• The success of the franchisee is tied to the franchisor’s brand reputation.
• Renewal of the franchise agreement is not always guaranteed.
 Example of Franchising
Kentucky Fried Chicken (KFC) is an American fast
food restaurant
 Emerging Trends in Business Organization
•Digital Transformation: With advances in technology, businesses are increasingly embracing
digital tools for operations, marketing, and customer service (e.g., e-commerce, cloud computing,
AI, automation).

•Gig Economy(short term period): A shift toward freelance(earning money by selling your
services or work to different organization), contract, and temporary work, with platforms like Uber
and Upwork. Businesses are utilizing non-traditional employees to remain flexible and cost-
effective.

•Social Enterprises: Organizations prioritizing social impact alongside financial goals are on the
rise. These companies aim to address environmental, social, and community issues through
business solutions.

•Remote Work and Virtual Teams: Accelerated by the COVID-19 pandemic, remote work has
become a key feature in modern organizations, creating opportunities for global talent and
reducing costs.

•Sustainability and Green Business: Companies are increasingly focusing on environmentally

sustainable practices and corporate social responsibility (CSR) as consumers demand more eco-
friendly and ethical business practices.

•Outsourcing and Shared Services: Companies continue to outsource non-core functions (like