ProprietorshipAlso called sole trade organization is the

oldest form of business ownership in IndiaThe enterprise is owned and controlled by

one person.He sows, reaps, and harvests the output

of his effortWilliam R.Basset opines that “the one

man control is the best in the world if that man is big enough to manage everything

Main featuresOne man ownershipNo separate business entityNo separation between ownership and

management.Unlimited liabilityAll profits or losses to the proprietorLess formalities

AdvantagesSimple form of organization.Owner’s freedom to take decisions.High secrecy.Tax advantage. Easy dissolution

DisadvantagesLimited resourcesLimited abilityUnlimited liabilityLimited life of enterprise form

PartnershipThe Indian partnership act

1932,section 4 defined partnership as “ the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all”

Main featuresMore personsProfit and loss sharingContractual relationshipExistence of lawful businessUtmost good faith and honestyUnlimited liabilityRestriction on transfer of sharePrincipal and agent relationship

AdvantagesEasy formationMore capital availableCombined talent , judgment and skill.Diffusion of riskFlexibilityTax advantage

DisadvantagesUnlimited liabiltyDivided authorityLack of continuityRisk of implied authority

Partnership deedThe agreement entered in to between

partners may be either oral or written but it is always to have a written agreement so as to avoid misunderstandings and unnecessary litigations in future. When the agreement is in the written form it is called partnership deed

content1. Name of the firm2. Nature of the business3. Name of the partners4. Place of the business5. Amount of the business6. Profit sharing ratio7. Loans and advances from the partners and the rate of

interest8. Drawings allowed to partners9. Amount of salary and commission if any payable to the

partners10. Duties ,powers and obligations of partners11. Maintenance of accounts and arrangement for their audit12. Mode of valuation of goodwill13. Settlement of accounts in case of dissolution14. Arbitration in case of disputes15. Arrangement in case of partner becomes insolvent

Registration of the firmUnder the Indian partnership act 1932,the

registration of the firm is not compulsory. An unregistered firm suffers from certain limitations, hence registration of firm is desirable

The procedure for registration is as followsThe firm will have to apply to the registrar of firms of the respective state government in a prescribed application form. The form should be duly signed by all partners. The application form should contain following information

I. The firm nameII. The name of business placeIII. Names of other places if any where the firm is

carrying on its businessIV. Date of commencement of businessV. Date when each partner joined the firmVI. Full names and permanent addresses of all

partnersVII.The duration of the firm, if any

When the registrar of firms is satisfied that all formalities relating to registration been fully complied with ,he makes an entry in the registrar of firms .thus the firm is considered to be registered . The registrar issues a certificate called ‘registration certificate’ to the firm

Dissolution of firm1.Dissolution by agreement

The partnership firm may be dissolved in accordance with a contract already made between the partners

2.Compulsory dissolution-adjudication of all or any one insolvent.-any such event that makes the business is

unlawful3.Dissolution by contingencies

- on expiry of partnership deed - on completion of the firm’s venture for which

the firm was formed.-death of the partner-adjudication of partner as insolvent

4. Dissolution by court-any partner has become of unsound

mind-any partner has become permanently

incapable of performing his duties- any partner’s misconduct.-any partner wilfuly commits breach of

partnership agreement-any partner transfers his interest to

third party-firm can be carried on at loss only.

Definition of company“ A company is an artificial person created by

law ,having a separate entity with a perpetual succession and a common seal”

According to section 3(I)(i) of indian companies act 1976 “ company means formed and registered under this act or an existing company . Existing company means a company formed and registered under any of the previous company laws”

characteristics1.An artificial person- a company is a creation of law

and is called an artificial person.-right to enter in to contract and own

property -sue others and others can sue the company

2.Independent legal entity- A company is a legal entity quite distinct and separate from its members.

3.Perputual succession-A company has a continuous existence and its life is not affected by the death, lunacy, insolvency or retirement of its members.

4common seal- An artificial person cannot sign the documents for that the seal is used for its signature .Any document bearing the common seal and duly signed by 2 directors will be legally binding on the company

5.Limited liability- Members cannot be asked to pay more than what is unpaid on the shares of the company held by them even though the assets of the company are not sufficient to satisfy the claims of creditors in the event of winding up.

6. Transferability of shares-members of public ltd company are free to transfer the shares held by them to anybody, shares can be sold and purchased through the stock exchange.

7.Seperation of ownership and management- the shareholders are the members of the company are fairly large and all them cannot take part in the management of the company for that the directors are appointed to manage the affairs of the company

Distinction between a company and a partnership

1.Formationcompany-created by lawpartnership-result of an agreement

2.Entitycompany-separate legal entitypartnership-one and the same.

3.Number of memberscompany-minimum=2 and maximum=50(private company),minimum=7 and maximum=unlimited(public ltd company)partnership-minimum=2 and maximum should not exceed 10 in case of banking business ,20 in other business

4. Continuitycompany-perpetual succession partnership-dissolved by death ,insanity,insolvency.

5.Transferablity of interestcompany-can transfer his rights by any member (public)

restricts right to transfer the shares(private) partnership- cannot transfer the interest.

6.Liablitycompany-limitedpartnership-jointly and severally liable for the debts of the firm.

7.Managementcompany-board of directors manage the companypartnership- each and every partners manage the firm

8. Accounts and audit-company- must maintain the accounts in the prescribed form and get audited by the chartered accountantpartnership-rules do not apply.

9.Objectscompany-the power and objects defined in memorandum of association. This cannot be altered.partnership-the objects are defined in partnership deed and it can be change with the consent of other partners.

10.Winding upcompany-large number legal formalities partnership-can be dissolved with out legal formalities

Advantages of companies1.Separate legal entity2.Limited liability3.Permanent existence4.Transferablity of shares.5.Seperation of ownership and management.6. Expert management.7.Public confidence8.Social advantages.

Disadvantages of companies1.Difficult formation2.Governmental control.3.Fradulent practices.4.Neglect of minority.5. Lack of personal touch.6 difficult winding up

Formation of the companyA company comes into existence after going through of processes. These processes grouped in to following stages

(i) promotion(ii)incorporation or registration (iii)capital subscription(iv) commencement of business.

(i)PromotionIt may be defined as the discovery of business

opportunities and the subsequent organization of funds ,property and managerial ability in to a business concern for the purpose of making profits therefrom.steps1.Discovery of idea 2. Detailed investigation3.Assembling4. financing the proposition

ii)Incorporation or registration

The promoter has to take the following steps for registration

(a) to ascertain from the registrar of companies whether the name by which the new company is to be started is available or not

(b) to get license under the industries development and regulation act 1951

(c) to get memorandum and articles of association

The application for registration must be accompanied by the following documents

(i) memorandum of association

(ii) articles of association

(iii) written consent of directors

(iv) the notice of address of registered office of the company.

(v) a statutory declaration

After scrutinizing all the documents and if the registrar gets satisfied he will issue certificate of incorporation

c) Capital subscriptionA private company can commence business

immediately after its incorporation. Hence capital subscription stage and commencement of business stage is relevant only for public company .

After obtaining the approval from controller of capital issues in the form of letter of consent or a letter of acknowledgement the directors file a copy of the prospectus with the registrar and invite public to subscribe to the shares by putting prospectus in circulation.

d)Commencement of businessA public company having share capital and issuing a

prospectus inviting the public to subscribe for shares will have to file the documents with the registrar to secure the certificate of commencement of business.

The registrar will scrutinse all the documents and he will issue certificate of commencement of business

Co-operativeThe Indian cooperatives societies act 1912 ,section 4

defined co-operative as “ a society which has its objective the promotion of economic interests of its members in accordance with co-operative principles”

Main features1.Voluntary organization-voluntary association of persons

desirous of pursuing a common objective.2.Democratic management-one man one vote3.Service motive4.Capital and return thereon-10% of total share capital or

Rs.1000 whichever is higher. The rate of dividends paid to the members is 9%

5.Government control6.Distribution of surplus-the surplus can be distributed among the

members in proportion of business they have done with the co-operative society

Advantages

1. Easy formation2. Limited liability3. Perpetual existence4. Social service5. Open membership6. Tax advantage7. State assistance8. Democratic management

Disadvantages1. Lack of secrecy2. Lack of business acumen.3. Lack of interest4. Corruption5. Lack of mutual interest

Selection of an appropriate form1.Nature of business

business requires personal attention and skill-sole trader

pooling of funds and skills-partnershiplarge scale production-company.

2. Area of operationsconfined to an area or locality- sole traderarea of operation are widespread-partnership or

company3.Degree of control

direct control-sole trader or partnershipindirect control-company

4.Capital requirementssmall amount of capital-sole trader or partnershiphuge capital-company

5.Extent of risk and liabilityindividual risk-sole trader or partnershipnot to bear individual risk-company

6. Duration of businessdefinite and adhoc –sole trader or

partnershippermanent-company

7.Government regulationsno more regulations- sole trader or

partnershipmore regulation- company