selection of types of ownership organization
TRANSCRIPT
-
8/6/2019 Selection of Types of Ownership Organization
1/26
SELECTION OF TYPES OF
OWNERSHIP ORGANIZATION
-
8/6/2019 Selection of Types of Ownership Organization
2/26
Organizational Structure
Organizational Structure is the formal system of
task and authority relationships that control
how people coordinate their actions and use
resources to achieve organizational goals. The
principal purpose of organizational structure is
one of control: to control the means used to
motivate people to achieve these goals.
- Gareth R. Jones
-
8/6/2019 Selection of Types of Ownership Organization
3/26
Organizational Structure of Small Scale Industries in India
Small-Scale Industry
Private Public (With State Participation)
Individual Collective Ownership
Sole
Proprietorship
Partnership
(One or More)
CooperativeJoint Stock
Company
LimitedUnlimited
-
8/6/2019 Selection of Types of Ownership Organization
4/26
SOLE PROPRIETORSHIP
Sole proprietorship is a form of business
organization in which an individual invests his
own capital, use his own skill and intelligence in
the management of its affairs and is solely
responsible for the result of its operation.
This form of organization is also known as
individual entrepreneurship.
Nearly 61% of the SSIs are proprietary concerns.
-
8/6/2019 Selection of Types of Ownership Organization
5/26
Features of Sole Proprietorship
Sole ownership.
One-man control.
Unlimited risk. Undivided risk.
No separate entity of the firm.
No Government regulations.
-
8/6/2019 Selection of Types of Ownership Organization
6/26
Merits
Easy and simple formation.
Smooth management.
Promptness in decision-making. Direct motivation and incentive to work.
Personal touch with customers.
Secrecy.
Social advantage.
-
8/6/2019 Selection of Types of Ownership Organization
7/26
Limitations
Limited financial resources.
Limited managerial ability.
Unlimited liability. Lac of continuity.
-
8/6/2019 Selection of Types of Ownership Organization
8/26
In spite of the above limitations it is moresuitable for concerns where :
Capital required is small. Risk involved is not heavy.
Goods of artistic nature is to be produced.
Personal touch with customers is necessary.
An individual is able to control the affairs.
Prompt decision is needed.
Sales of production is relatively small. Operation is simple in character not needing
highly skilled management.
-
8/6/2019 Selection of Types of Ownership Organization
9/26
PARTNERSHIP ORGANIZATION
In India such organizations are governed by
the Indian Partnership Act, 1932.
Section 4 of this Act defines a partnership asthe relation between persons who have
agreed to share profits of a business carried
on by all or any of them acting for all.
-
8/6/2019 Selection of Types of Ownership Organization
10/26
Main elements of Partnership
Partnership is the relation between persons,
i.e., at least two persons must be there to
constitute a partnership.
There should be an agreement between them.
They should carry on some business.
The business must be carried on by all or anyof them acting for all.
-
8/6/2019 Selection of Types of Ownership Organization
11/26
Basic Features
Number of persons.
Contractual relationship.
No legal distinction between firm and its partners.
Unlimited liability.
-
8/6/2019 Selection of Types of Ownership Organization
12/26
Advantages
Easy formation.
Flexibility.
Pooling of resources and skill. Division of risk.
Strong credit position.
Less incidence of tax.
Encouragement of mutual trust, personalelement of business.
-
8/6/2019 Selection of Types of Ownership Organization
13/26
Disadvantage
Limited resources.
Unlimited liability.
Instability.
Lack of harmony of interest.
-
8/6/2019 Selection of Types of Ownership Organization
14/26
Joint Stock Company
A joint-stock company (JSC) is a type
of corporation or partnership involving two or
more individuals that own shares of stock in
the company. Certificates of ownership ("shares")
are issued by the company in return for each
financial contribution, and the shareholders are
free to transfer their ownership interest at anytime by selling their shareholding to others.
-
8/6/2019 Selection of Types of Ownership Organization
15/26
Features of Joint Stock Company
Legal formation.
Artificial person.
Separate legal entity.
Common seal.
Perpetual existence.
Limited liability.
Democratic management.
-
8/6/2019 Selection of Types of Ownership Organization
16/26
Types of Companies
Private Limited
Public Limited
-
8/6/2019 Selection of Types of Ownership Organization
17/26
Difference between Private Limited and Public Limited Company
-
8/6/2019 Selection of Types of Ownership Organization
18/26
Advantages of Joint Stock Company
Large financial resources:
Limited Liability
Professional management
Large-scale production
Contribution to society
Research and Development
-
8/6/2019 Selection of Types of Ownership Organization
19/26
Limitations of Joint Stock Company
Difficult to form.
Excessive government control.
Delay in policy decisions.
Concentration of economic power and wealth
in few hands.
-
8/6/2019 Selection of Types of Ownership Organization
20/26
-
8/6/2019 Selection of Types of Ownership Organization
21/26
Types of Co-operative Societies
Consumers Co-operative Society.
Producers Co-operative Society.
Co-operative Marketing Society.
Co-operative Credit Society.
Co-operative Farming Society.
Housing Co-operative Society.
-
8/6/2019 Selection of Types of Ownership Organization
22/26
Features of Co-operative Society
Open membership.
Voluntary Association.
State control.
Sources of Finance.
Democratic Management.
Service motive.
Separate Legal Entity.
Distribution of Surplus.
Self-help through mutual cooperation.
-
8/6/2019 Selection of Types of Ownership Organization
23/26
Advantages of Co-operative Society
Easy Formation.
Open Membership.
Democratic Control.
Limited Liability.
Elimination of Middlemens Profit.
State Assistance. Stable Life.
-
8/6/2019 Selection of Types of Ownership Organization
24/26
-
8/6/2019 Selection of Types of Ownership Organization
25/26
Comparative Evaluation ofDifferent Forms ofBusiness Ownership
Basis of
Comparison
Sole
Proprietorship
Partnership Private Company Public Limited
Company
1. Formation Easiest, no legal
formalities
Easy, only an
arrangement required
Difficult, some legal
formalities
Very difficult, several
legal formalities
2. Registration Not necessary Optional Compulsory Compulsory
3. Membership One man show single
membership
Minimum : 2 Maximum :
10 in banking and 20 in
others
Minimum :2
Maximum :50
Minimum :7
Maximum : no Limit
4. Legal status No separate legal
existence
No separate legal
existence
Separate legal entity Separate legal entity
5. Liability of
Members
Unlimited, full risk Unlimited, joint and
several , risk shared
Limited Limited
6. Financial
capacity &
suitability
Limited capital suitable
for small business
Pooling of capital,
suitable for medium size
Large capital, suitable
for medium scale
business
Very large capital,
suitable for large scale
operations
7. Sharing of
profits
All to the owner As per agreement On the basis of shares
held
8. Management
and control
Quick decision, no
specialization,
management and
ownership lie in the
same hands
Unanimous decision,
limited specialization,
management lies where
ownership is
Board decisions,
greater specialization,
ownership and control
go together
Board decision,
specialization, divorce
between ownership
and management
-
8/6/2019 Selection of Types of Ownership Organization
26/26
Basis of
Comparison
Sole
Proprietorship
Partnership Private Company Public Limited
Company
9. Business Secrecy Perfect secrecy no
audits or reports
Secret limited to
partners, no audit or
reports compulsory
Secret shared by
members, audit and
reports compulsory
Secrets shared with
public, audit and
reports compulsory
10. State regulation
and flexibility
Practically none, full
flexibility of
operations
Very little, sufficient
flexibility
Considerably,
limited flexibility,
privileges, and
exemptions
Excessive, no
flexibility
11. Transferability of
interest
At will With mutual
consent
Restricted as Article
of Association
Freely transferable
12. Tax burden Low at small level of
income, progressive
rate
Low at small level of
income, progressive
rate
Low at medium level
of income, flat rate,
double taxation.
Low at high level of
income, flat rate,
double taxation
13. Stability or
continuity
Unstable, life fully
dependent on the
owner
Less stable, may be
dissolved by death,
insolvency, etc. of a
partner
Perpetual existence. Perpetual existence.
14. Winding up At will At will Under the Act Under the Act
15. Governing Act General law The Partnership Act,
1932
The Companies Act,
1956
The Companies Act,
1956
Comparative Evaluation ofDifferent Forms ofBusiness Ownership