Unit 2 (1)

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  CHAPTER 2- FORMS OF BUSINESS ORGANISATION Meaning A business enterprise is an institutional arrangement to form any business activity Classification On the basis of ownership business enterprises can broadly be classified into the following categories: Forms of Business Enterprise Owned, managed owned, managed owned, managed and controlled by and controlled by and controlled by Private person government private govt. Entrepreneur 1. Sole proprietorships 1. Co-operative society 2. Partnership 2. Joint Stock Company 3. Joint Hindu family business In case of CORPORATE FORM of private enterprises the identity of the enterprise is separate from that of the owner and in case of NON CORPORATE FORM, the identity of the enterprise is not different from that of its owners. Sole Proprietorship Sole proprietorship means a business owned, financed and controlled by a single person who is recipient of all profit and bearer of all risks. It is SUITABLE IN AREAS OF PERSONALISED SERVICE like beauty parlour, hair cutting, saloons & small scale activities like retail shops. Features 1.   Control :    It is wholly owned by one individual    Sole proprietor has full power of decision making. 2.   No separate entity : Forms of Business Enterprise Private Enterprises Public Enterprises Joint Sector Enterprises Non Corporate Form Corporate Form     Legally there is no difference between business & businessmen.    The owner is therefore responsible for all the activities of the business. 3.   Liability :    The liability of owner is unlimited.    In case the assets of business are not sufficient to meet its debts, the personal property of owner can be used for paying debts 4.   Formation and closure:    There is no separate law that governs this type of business.    No legal formalities are required to start, manage and dissolve such business organisation. 5.   Sole risk bearer and profit recipient :    He bears the complete risk and there is no body to share profit/loss with him.    The profits are the reward for his risk bearing. 6.   Lack of business continuity:    There is no continuity in this business.    Death, insanity, imprisonment, bankruptcy etc can lead to closure of the business. Merits 1.   Ease of formation and closure :    There is no separate law which governs this business.    It can be easily started and closed without any legal formalities. 2.   Quick decision making :    Decision making is very prompt.    Sole trader is not required to consult or inform anybody about his decisions. 3.   Confidentiality of information :    He is not expected to share his business decisions and secrets without anybody.    He is not bound by law to publish the firm’s accounts.  4.   Direct incentive :    There is a direct relationship between efforts & profits.    This provides incentive to the sole trader for his work hard. 5.   Sense of accomplishment:    Sole trader gets personal satisfaction for working for himself.    Besides self satisfaction, sense of confidence is also achieved by him. LIMITATIONS 1.   Limited resources :-    Funds are limited to the owner s personal savings and his borrowing capacity.    Banks etc also hesitate in extending loans to sole traders. 2.   Limited Managerial ability  –      Sole trader cannot be good in all aspects of business so decision making is not balanced.    Due to less financial resources he cannot afford to employ experts also. 3.   Unlimited liability :-    If business fails the creditors can recover their dues even from his personal assets    Therefore sole trader avoids risky any bold business decisions. 4.   Limited life of a business concern :-    Businessman and business are one and the same in the eyes of law.     Death, insolvency, lunacy or illness of a proprietor affects the business and can lead to its closure. SUITABILITY: Sole trader-ship is suitable. -Where the personal attention to customer is required as in tailoring, beauty parlour. -Where goods are unstandardized like artistic jewelery. - Where modest capital & limited managerial skills are required as in case of retail store. -Business where risk is not extensive i.e., lesser fluctuation in price and demand i.e. stationery shop JOINT HINDU FAMILY BUSINESS It is owned by the members of undivided joint Hindu family and managed by the eldest member of the family known as KARTA. It is governed by the provisions of Hindu law. The basis of membership is birth in a particular family. There are two systems which govern membership: Dayabhaga System Mitakshara System It prevails in west Bengal and It prevails all over India except West Allows both male and female members to be Bengal and allows only male members coparceners to be coparceners FEATURES 1.   Formation  –      A Joint Hindu family business there should be at least two members in the family and some ancestral property to be inherited by them.    It is governed by the Hindu Succession Act 1956. 2.   Minor Members-    Members are included in the business at the time of birth.    Even minors are the members of the business. 3.   Liability  –      Liability of Karta is unlimited.    All other members is limited to the extent of their share in property 4.   Continuity  –      The business is not affected by death or incapacity of Karta.    The next senior male member becomes the Karta. 5.   Control:    Karta has all the right of control over the business.    He takes all the decisions which all other members have to abide by. PARTNERSHIP ( Depend always on mutual trust ) Meaning: Partnership is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses. FEATURES 1.   Membership :    There must be at least two persons to form a partnership.    The maximum no. of persons is 10 in banking business and 20 in non-banking business. 2.   Formation :     The firm is governed by The Indian Partnership Act, 1932    It is an outcome of an agreement among partners which may be oral or in writing.    It can be formed only for the purpose of carrying on some lawful business.    Firms formed for charitable purpose cannot be partnership 3.   Decision making & control  –      Every partner has a right to participate in management & decision making of the organizations.    Decisions are taken with mutual consent of all the partners.    Day to day activities carried out by the firm is managed through the joint effort of all the partners. 4.   Liability  –      Partners have unlimited liability.    Personal assets can be used to pay off the debts if business assets are insufficient.    Jointly all the partners contribute in proportion of their share in business to pay off the creditors. 5.   Mutual Agency  –      Every partner is an implied agent of the other partners and of the firm.    Every partner is liable for acts performed by other partners on behalf of the firm.    Every partner is both an agent and principal.    Agent as he represents them and binds them through his acts and principal as he is too bound by the acts of other partners. 6.   Continuity  –      F irm’s  existence is affected by the death, Lunacy and insolvency of any of its partner.    It suffers from lack of continuity.    The remaining partners can continue if they desire but on a new agreement. 7.   Risk bearing:    The risks are borne by all the partners.    The profits are shared by all in an agreed ratio.    They also share losses, if any, in the same ratio. MERITS 1.   Ease of formation & closure  –      It can be easily formed.    Only an agreement among the partners is required.    Closure of the firm is also very easy. 2.   More Funds  –      There are more funds as capital is contributed by no. of partners.    Expansion can take place as large funds are available as compared to sole trader. 3.   Balanced Decision making  –      Decisions are taken jointly by partners after consulting each other.    Partners work on different areas, as per their expertise.    This reduces the burden of different activities on one partner.    This leads to more balanced and error free, unbiased decisions. 4.   Sharing of Risks  –      In it, risk gets distributed among partners.    This reduces anxiety, burden and stress on individual partner.
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