Forms of Business Organization

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forms of business organization

A business organization is an institutional arrangement that is set up for conducting business. There are various forms of business organizations when it comes to setting up a business. The Business Studies class 11 syllabus has an entire chapter based on the same so that students can learn about how to start a business along with the mandatory requirements that the entrepreneurs have to comply with. Moreover, you will also study the different statutory compliances of the varied types of businesses. To help you understand this chapter, here we have drafted simple and easy-to-learn notes on Forms of Business Organization.

Forms of Business Enterprises

In the Business Studies Class 11 chapter, businesses are categorized on the basis of ownership under different categories such as Private Enterprises, Joint Stock Enterprises, and Public Enterprises. Let us take a detailed look at each of the following types:

Private Enterprises

These business organizations are owned and administered by private entities. Private Enterprises are classified under the Corporate Form and Non-Corporate Form.

  • In the corporate form of private enterprises, the identity of the business and owner are separate. Some forms of business organizations under corporate form include Joint Hindu Family Business, Partnership, and Sole Proprietorships
  • Under the non-corporate form of private enterprises, both the owner and the enterprise’s identity are the same. These are further grouped under Co-operative Society undertakings and Joint Society ones

Joint Sector Enterprises

Business undertakings controlled jointly by Government offices, private capitalists, and the public at large. 

Public Enterprises

The Business Studies Class 11 chapter defines public enterprises as business functions that government agencies oversee.

Business Organization: Sole Proprietorship

The Business Studies Class 11 chapter on Forms of Business Organizations explains about Sole Proprietorships, which is one of the varied types of organizations. Sole proprietorship firms are solely controlled and managed by a single person; who bears all risks and earns profit (if any). Here are some of the features of sole proprietorship-

  • Sole ownership: Only one person owns the firm
  • Management: The sole proprietor takes all company-related decisions
  • Unlimited Liability: The liability of the sole owner is unlimited. If the company assets cannot pay the debts, then the personal property of the owner is used to clear the debts

Business Organization: Joint Hindu Family Business

The next topic in our forms of business organizations notes is about the Joint Hindu Family Business that is one of the different forms of business organization. The members of an undivided joint Hindu family own the Joint Hindu Family Businesses, which are governed by Hindu law regulations. And Karta, who is the eldest family member, manages the business functions. 

Features

Mentioned below are some of the features of the joint Hindu family business-

  • Registration: The company has to be incorporated under the Companies Act 1956 
  • Continuous Existence: The company ceases to exist only via legal procedures and not by the death or insolvency of the members
  • Limited Liability: The liability of the members is restricted to the nominal values of shares that he owns
  • Transferability of shares: In the case of shares of the public company, the owner can transfer them easily. And for transferring the shares of a private company, the owner has to abide by the stipulated restrictions
  • Separate ownership and management: The Board of Directors collectively manage the company; they are elected by the company shareholders

Partnerships

Partnership firms are forms of business organizations which have an agreement to conduct a business jointly and share business profits and losses.

Features

Here are some of the features of partnerships which you must be familiar with:

  • Two or more partners: To form a partnership, minimum 2 or more persons are needed. For banking business, the upper limit is 10 partners; and 20 partners for non-banking business.
  • Unlimited liability: The partners of a firm have unlimited liability.
  • Lawful business: Partnership firms can pursue only lawful business.
  • Lack of Continuity: In the event of death or insolvency of partners, the firm ceases to exist.

Partners can be of varied types:

  • Active Partner: They participate in firm management activities.
  • Dominant Partner: They do not manage the firm.
  • Secret Partner: Their association is not known to outsiders.
  • Nominal Partner: They only lend their name and reputation to the firm and are not partners in the firm.
  • Partner by Estoppel: They give others an impression that they are partners in the form by way of their conduct.
  • Partner by Holding Out: They are not partners in a firm but act as a representative of the business.

Business Organization: Types of Partnerships

As per the chapter on forms of business organizations, there are various types of partnerships. Some of the prominent ones from the chapter are:

Basis of Duration:

  • Partnership at will
  • Stipulated period partnership
  • Particular partnership 

Basis of Liability:

  • General Partnership
  • Limited Partnership

Partnership Deed

A written agreement by the firm partners on stamped paper, which contains the partnership’s terms and conditions, is referred to as a partnership deed. A partnership deed includes:

  • Basic particulars of the firm like Name and Address
  • The period of business
  • Investment of each partner
  • The profit-sharing proportion of partners
  • Conditions such as interest on capital, salaries, interest rates, the amount that can be drawn
  • Various responsibilities of the different partners
  • Terms relating to admission, expulsion, the retirement of partners
  • Ways of settling disputes

Registration of Partnership

The registration of companies is optional and not mandatory. However, the general recommendation is to register the firm. If the firm is not registered, then the consequences are as follows:

  • Partners cannot file suit against each other in cases of disputes
  • The firm cannot file lawsuits against third parties
  • The firm cannot file suits against the partners

Business Organization: Types of Companies

The types of companies constitute an important part of the Business studies Class 11 chapter on Forms of Business Organizations. Under the different types of business organizations, comes both the Private Companies and Public Companies. Let’s go through them in detail:

Private Company

  • Member strength ranges from 2 to 50 
  • Cannot invite the general public to purchases its shares and debentures
  • Particular restrictions on the transfer of shares
  • Cannot commence business after registration
  • They have to mention ‘Private Limited’ after the company name
  • The minimum capital to be invested is pegged at Rs 1 lakh

Public Company

  • The minimum number of members has to be seven, and no maximum limit is specified
  • The company can invite the public to procure its shares and debentures
  • The company shares are transferable
  • They have to obtain Certificate of Commencement of Business for commencing business
  • The word ‘Limited’ has to follow the company name
  • The minimum capital that the owner/s have to invest is Rs 5 lakh

Business Organization: Formation of a Company

The chapter on forms of business organizations also includes a concept about creating a company, which refers to taking the necessary steps for starting a business activity. The different steps in the formation of a company are:

Promotion
Is concerned with having a business idea and taking measures to start a company.

Incorporation
Relates to registering a company as a corporate body as per the Companies Act 1956 and obtaining the Certificate of Incorporation.

Capital Subscription
Public companies can collect funds through the issuance of shares and debentures. For the same, they are required to issue Prospectus and comply with the given guidelines.

Commencement of Business
To commence business operations, a public company needs to get a Certificate of Commencement of Business. They have to submit the below-listed documents to the Registrar of Companies-

  • A declaration stating that 90% of the issued amount is under subscription
  • A declaration mentioning that all directors have paid as per the allotment of shares
  • A statutory declaration affirming that all the mandatory requirements have been met; also, the company’s Director has to sign the declaration

Documents Required for the Formation of a Company

The relevant documents for the formation of a company include:

  • Memorandum of Association: According to the chapter forms of business organization, Memorandum of Association is the principal document of the company. This document contains the Name Clause, Situation Clause, Object Clause, Liability Clause, and Capital Clause
  • Articles of Association: The Articles of Association mentions the rules for managing the company’s internal affairs. This document also defines the duties and responsibilities of the officers and the Board of Directors
  • Prospectus: The document that invites deposits from the public for purchasing the shares and debentures of a company is called Prospectus
  • Statement in Lieu of Prospectus: In cases of a public company having a share capital decides to raise funds privately and not approach the public, they have to apply for the Statement in Lieu of Prospectus from the Registrar of Companies

Thus, we hope that this blog provided you with the insightful study notes on forms of business organisations. Are you sceptical about choosing the right career field? Reach out to our career experts at Leverage Edu and they will help you shortlist the best course and university as per your interests. Hurry Up! Book an e-meeting!

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