Business Studies (Chapter Wise) - Mr. Kailash Gururani
Forms of Business Organization
MEANING :
A business enterprise is an institutional arrangement to perform any business activity.
CLASSIFICATION :
On the basis of ownership business enterprises can broadly be classified into the following categories.
Private Enterprises :
Owned, managed and controlled by private persons Public Enterprises.
Non Corporate Form :
Sole proprietorship
Partnership
Joint Hindu family Business
Corporate Form :
Co-operative society
Joint Stock company
Public Enterprises : Owned, managed and controlled by govt.
Departmental undertaking
Statutory corporation
Govt. Company
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 profits and bearer of all risks. It is suitable in areas of personalized services like beauty parlour, hair cutting saloons and small scale activities like retail shops.
FEATURES :
Single ownership :- It is wholly owned by one individual.
Control :- Sole proprietor has full power of decision making.
No Separate Legal Entity :- Legally there is no difference but business and businessman.
Unlimited 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.
No legal formalities :- are required to start, manage and dissolve such business organization.
Sole risk bearer and profit recipient :- He bears the complete risk and there is nobody to share profit / loss with him.
MERITS :
Easy to start and close: It can be easily started and closed without any legal formalities.
Quick decision making: as sole trader is not required to consult or inform anybody about his decisions.
Secrecy :- He is not expected to share his business decisions and secrets with anybody.
Direct incentive :- Direct relationship between efforts & reward provide incentive to the sole trader to work hard.
Personal touch :- The sole trader can maintain personal contacts with his customers and employees.
Social Utility :- It provides employment to persons with limited money who are not interested to work under others. It prevents concentration of wealth in few hands.
LIMITATIONS:
Limited financial resources :- funds are limited to the owner’s personal savings and his borrowing capacity.
Limited Managerial ability :- Sole trader can’t be good in all aspects of business and he can’t afford to employ experts also.
Unlimited liability :- of sole trader compels him to avoid risky and bold business decisions.
Uncertain life :- Death, insolvency, lunacy or illness of a proprietor affects the business and can lead to its closure.
Limited scope for expansion :- Due to limited capital and managerial skills, it cannot expand to a large scale.
SUITABILITY : Sole propietorship is suitable.
Where the personal attention to customer is required as in tailoring, tailoring beauty parlour.
Where goods are un-standardized like artistic jewellery.
Where modest capital & limited managerial skills are required as in case of retail store.
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 of JHF Business–
DAYABHAGA SYSTEM:
Is prevailing in West Bengal - Both male and female members can become co parceners
MITASKSHARA SYSTEM:
It prevailing all over India, except West Bengal. It allows only male members to become co parceners
FEATURES :
Formation - for a joint hindu family business there should be atleast two members in the family and some ancestral property to the inherited by them.
Membership - is by virtue of birth in the family.
Control - In it, control lies with eldest member of family known as “Karta”. All other members can give only advice.
Liability - of Karta is unlimited but of all other members is limited to the extent of their share in property.
Continuity - The business is not affected by death or incapacity of Karta as in such cases the next senior male member becomes the Karta.
Minor members - A minor can also become full fledged member of Family business.
MERITS:
Effective control - The Karta can promptly take decisions as he has the absolute decision making power.
Continued business existence - The death, Lunacy of Karta will not affect the business as next eldest member will then take up the position.
Limited liability - The liability of all members except Karta is limited. It gives them a relief.
Secrecy - Complete secrecy regarding business decisions can be maintained by Karta.
Loyalty and co operation - It helps in securing better co operation and greater loyality from all the members who run the business.
LIMITATIONS:
Limited capital - There is shortage of capital as it is limited to the ancestral property.
Unlimited liability of Karta - It make him less enterprising.
Dominance of Karta - Karta manages the business and sometimes he ignores the valuable advice of other members. This may cause conflict among members and may even lead to break down of the family unit.
Hasty decisions - As Karta is overburdened with work. So sometimes he takes hasty and unbalanced decisions.
Limited managerial skills - Limited managerial skills of Karta also poses a serious problem.
The joint Hindu family business is on declive because of the diminishing no. of Joint Hindu families in the country.
CBSE Business Studies Class XI ( By Mr. Kailash Gururani )
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