There are various
forms of business organization that a person having money and vision can
start.They are as follows:
·
Sole partnership or Sole Trade
·
Partnership
·
Joint Hindu Family Business
·
Co-operative Societies
·
Joint Stock Company
·
Joint
Stock Company:
This is a form of organization governed by
Companies Act,1956.Company is an artificial person with separate legal entity.Perpetual
succession and a common real share holder are the owners and board of directors
is the decision makingbody.Ownership and management are in different hands.
(Perpetual
Succession-Continuously going on)
1.
Artificial Person:In the eyes of law business
exists independently from its numbers.Like any other person,it can own
property,borrow money,enter into contracts ,sue and be sued.
2.
Separate Legal Entity:The day company
incorporated,it acquires a separate identity.The life of its members does not
affect the company or business and members are not same in the eyes of law.
3.
Formation:The formation of company form of
organization is time consuming and expensive,it involves lot of legal formalities
to be fulfilled and preparation of several documents,registration of a company
is compulsory under Company’s Act,1956.
4. Continuity(Perpetual Succession):Some
people are interested in a long life span of business.They do not want the
business to be disturbed by events such as death,insolvency,bankruptcy,insanity
for such people J.H.F. & Cooperative ,and J.S.C. is the best.
5. Secrecy :
Business ideas and innovations are a key to business success,sometimes
these ideas are stolen.Therefore,some entrepreneurs want to maintain high level
of secrecy in their business for such people Sole Trade , J.H.F. and Partnership form of organization
are the best.Company form can not maintain any secrecy.
6. Nature of Business:The most important
factor is type of business.The trading concerns require direct contact with the
consumer,departmental store,grossary.Hence,Sole Trade or Partnership might be
suitable.The manufacturing concerns direct contact with consumer is not
required.Hence company form of organization is more suitable.
The
resources of a Sole Trader is limited,Partnership firm also have advantage of
combined resources.The J.SC.& Co-operatives can raise large amount of
capital by issuing shares to large no. of inventors.Therefore from the point of
view of expansion,Scale of operation,Company is most advantageous & Sole
Trade and Partnership is least.
Merits of J.S.C.
1.
Limited Liability:The shareholder are liable to
extent of the amount unpaid on the share held by them.Also only the assets of
the company can be used to settle the debts,leaving the owner’s personal
property free from any charge.This reduces the degree of risk borne by an
investor.
2.
Transfer of Interest:The ease of transfer of
ownership odds to the advantage of investing in a company.As the share of a
public limited company can be sell in the market and as such can be sold in the
market and as such can easily converted into cash in case of the need arises.
3.
Perpetual Succession:Existence of a company is not
affected by the death,retirement, resingnation etc. of its members as it has
separate legal entity.
4.
Scope for expansion:As compared to the Sole
proprietorship and partnership forms of organization and a company has large
financial resources.Further,capital can be attracted from the public so well as through loan from bank and
financial institutions.Thus there is greater scope for expansion.
5.
Professional Management:A company can afford to
pay higher salaries to specialists and professionals.It can,therefore employ
people who are experts in their area of specialization.The scale of operations
in a company leads to division of work.
Demerits
1.
Complexity in Formation:The formation of a
company requires greater time,effort and extensive knowledge of legal
requirements and the procedures involved.As compared to Sole Trader and
partnership form of organization.
2.
Lack of Secrecy:The CompaniesAct requires each
public company to provide time-to-time a lot of information to the office as the requests of companies.Such information is available to
the general public also.
3.
Impersonal work environment:Separation of
ownership and management leads to situation in which there is lack of efforts
as well as personal involvement on the part of the officers of a company.The
larges size of company makes it difficult to manage.
4.
Numerical restrictions:The function of a company
is subject to many legal provisions and compulsions.A company is burdened with
numerous restrictions in respect of aspects including audit,voting,licing of reports and preparation of
documents and is required to obtain various.
Promoters
Promoter is a person who conceives a business idea.He undertakes to form a company and give
it a practical shape.So promoters are a group of people who identify a business
idea and undertake to form a
company.They perform many functions:
1.
Identification of business opportunity:These
people have innovative ideas/skills.They identify a business opportunity and
undertake to produce a product,a good or a service.
2.
Feasibility Studies:Once a business idea is discussed
then many feasibility studies will
be carried out.These studies will inform us whether our business idea is
practically possible or not.Following studies will be carried out:
a)
Financial Feasibility:Under this study the funds
required for the business will be estimated.If the required fund is huge then
various sources of finances will be studied.
b)
Technical Feasibility:Sometimes idea(business)
is excellent but required technique is not available.In that case the cost of
importing such technical requirement will be studied.
c)
Economic Feasibility:Business is done to
earn profits so economic feasibility
studies will inform about the profit earning ability of the business.
Demerits of J.S.C.
1.
Delay in decision making:Companies are
automatically managed through the Board of Directors which is followed by the
Board of Manager,Middle management and lower level management and lower level management.
2.
Conflict in interest:These may be conflicts
among the interest of the stakeholders of the company.The employee,for is- may be interested in higher
salaries,cosumers desire good product at low price and shareholders want high
returns etc.These demand pose
problems in managing the company.
What factors should be kept in mind before choosing a form of business
organization?
Before making a choice which
regards to form of organization following factors have to be kept in mind:
1.
Cost and legal formalities in setting up the
business organization.If we have kess cost.-Money is the most important factor
in starting a business.Sole Trade is a form of business which is almost
inexpensive as there are almost no legal formalities to be followed.Partnership
involves less cost of establishment.On the other hand.Cooperatives and Joint
Stock Companies have compulsory registration.Thus involve high initial cost and
more formalities.
2.
Liability:In case of Sole trade and partnership
firms liabilities is unlimited,while Joint Stock Companies,Co-Operatives &
members beside KARTA of J.H.F. have limited liability.Hence,from the point of
view of safety in private property Company and Cooperatives are more suitable.
3.
Degree of Control:If a businessman wants total
control in decision making,Sole Trade may be selected.In all other forms of
business like Cooperative,Partnership,Company etc. have less control in
decision making.Because other members have to be consulted before taking any
decision.
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