ORGANIZATION

In any business activity, there is always a person who guides and controls its
function. He also coordinates and regulates all the factors which are employed in the
business activity. Apart from monitoring it, he takes the responsibility of the outcome.
We call such a person, an entrepreneur (organizer) and the business activity which he is
doing is called an enterprise or organization.
The performance of organization depends upon the capabilities of the organizer
or entrepreneur. Through proper allocation of resources, the entrepreneur would be in
a position to maximize productivity of the resources that are used. Hence, the success or
failure of enterprise depends on the role of the entrepreneur in any business activity.

FORMS OF BUSINESS ORGANIZATION

The selection of each form of business organization by the entrepreneurs is
influenced by several factors viz., 1)type of business unit contemplated; 2) the care with
which an enterprise can be run; 3) owned funds available with the entrepreneur; 4)
total capital requirements; 5) Possibilities of securing borrowed capital; 6) the risk and
liability aspects which the entrepreneur has to assume; 7) tax aspects of different forms
of business organization; 8) Organizational, managerial and controlling aspects, etc.
Depending upon the ownership patterns of business organisations, there are five
distinct forms viz.,
1) Individual organization or single proprietorship or the sole proprietorship;
2)Partnership;
3) Joint stock company;
4) Co-operative-organization; and
5) State/Public enterprise.

 Individual Enterprise or Single Proprietorship or Sole Proprietorship

The individual enterprise is the most common form of business organization. Many
small business enterprises belong to this form. These enterprises are owned and
operated by a single person who takes all the responsibilities of outcome of the
business. These enterprises are found to be small with a few exceptions here and there.
This is more or less a family proprietorship with all the family members participating in
the business affairs. As far as the size of the business is concerned, it is left to the desire
of the entrepreneur keeping in view of the resources at his disposal.
Merits -

 The owner of the business enjoys absolute freedom without the interference of
anybody in the business.
 The firms are called by the name of the entrepreneurs and sometimes by the
name of Gods.
 The owner or proprietor enjoys all the profits received from the business.
 Capital requirements are less. Capital is supplied from the owner’s funds (equity
funds) and often times there is not much distinction between personal and
business assets.
 This type of business is more flexible allowing changes in various business
decisions like investment, sales, diversifying the business activities, expanding size
of the business, etc.
 There is the possibility of direct contact with the customers, so that the
entrepreneur gets continuous feedback.
 The entrepreneur controls the entire business, unless and otherwise delegated to
somebody else.
 This type of business is very easy to start and easy to terminate.
Demerits
 There would be limited amount of capital for the business to expand.
 Unlimited liability is the negative factor of this type of business. This means that in
the event of failure of the business, creditors (lenders) are empowered to exercise
every right to attach not only the assets of the business, but also the personal
property of owners to make good the unpaid debts.
 Since the power is concentrated in the hands of single owner of the business,
there is no scope for those employees of the firm who are well trained and
motivated to contribute their knowledge to the business growth. This leaves a
situation of discontentment among the employees.
  Employees always will have a lurking fear that their fate depends upon the skill of
one individual.
 The continuity of the business is also questioned, as the death of owner brings
the business to a grinding halt.

 PARTNERSHIP
It is an association of two or more individuals who join together as co-owners to
share profits or losses in agreed proportions. Partnership comes into existence based on
the goals of the co-owners. To safeguard the business interests of the partners, normally
a written partnership agreement is made covering various dimensions of business viz.,
capital contribution, managerial responsibilities, sharing of profit and losses, withdrawal
from the business, termination of the business, etc.
There are two kinds of partnership, viz., general partnership and the limited
partnership. General partnership is the most common in partnership dealings. Every
partner, irrespective of the percentage of capital contributed to the business, has equal
say in the management of business. Each partner has equal rights and liabilities.
In limited partnership, any number of limited partners is allowed, but there should be
at least on general partner. Liability of each member is limited to the extent of
investment made only. Profits are also distributed among the partners according to the
contribution of capital in the business.
Merits-
 Generation of greater financial resources. Partners pool their resources to attract
larger capital to invest in the business.
 It can command great amount of credit from the institutional agencies in view of
its large equity capital.
 Diversified managerial talents as partners possess varied managerial skills.
 Simplicity of the business is also another feature, for it is easy to dissolve as
compared to a joint stock company.
 It also enjoys the freedom from Government control.
 Risk of the business is shared by the partners and hence relatively it has less
business risk.
Demerits-
 Unlimited liability is the major disadvantage of partnership. All the partners are
responsible for the loss arising from the partnership business.
 Partnership has a limited size of business and uncertain life.
 Partnership may vertically split due to disagreement on a particular decision
among the partners.
 The retirement, death of a partner, bankruptcy etc., may bring termination of the
business according to law.
 A dishonest member may spoil the business with his dishonesty activities and
make other partners to be responsible of his actions.
 Since the decisions are taken by the consensus of all the partners, more often it is
difficult to convince all the partners on certain decisions.

 JOINT STOCK COMPANY

The drawbacks of individual enterprise and partnership business gave rise to the
organization of another form called Joint Stock Company. Joint Stock Company has the
limited liability and the involvement of large number of persons. This helps it to have
adequate capital. Limited liability implies that in the event of loss for the company,
shareholder is responsible to the extent of his shares only.
A joint stock company is a corporate body owned by a large number of
shareholders and managed by a Board of Directors elected by the shareholders.
According to Prof. L.H. Hany “A joint stock company is a voluntary association of
individuals for profit, having a capital divide into transferable shares, the ownership of
which is the condition of membership”.
In India, the first Companies Act was passed in 1850 and limited liability was
incorporated in 1857. Broadly there are two types of joint stock companies. These are 1)
Joint stock private limited company and 2) Joint stock public limited company.
To start a joint stock company, two documents, viz., memorandum of association
and articles of association are to be submitted to the registrar of joint stock companies.
Memorandum of association contains the name of the company, the location of the
head office, its aims, share capital particular, kind and value of shares and declaration of
limited liability. Rules and regulations for the establishment of Joint Stock Company are
incorporated in the articles of association.

Joint Stock Private Limited Company

The minimum number of members is two but the number cannot exceed 50.
There is no need for the private limited company to call for a statutory meeting. Similarly,
the company need not submit its annual balance sheet to the registrar of joint stock
companies. The word ‘Pvt. Ltd’ must be used with the name of the company.

Joint Stock Public Limited Company

The business can be started with seven persons and there is no maximum limit
for members. The business shall commence only after getting the certificate of
incorporation from the registrar of joint stock companies. The public limited company
must issue a prospectus inviting the public to contribute to the share capital. A statutory
meeting must be held within a prescribed period and its annual balance sheet must be
submitted to the registrar of joint stock companies. The main sources of finance for the
company are through shares and borrowings.

Merits-
1. Large-scale Resource Mobilization. It facilitates mobilization of large scale resources.
Large sum of capital can be raised from large number of shareholders. There is no
limit as a far as the number of shareholders are considered in a public company. If
more funds are required the number of shareholders can be increased.
2. Efficient Management: The elected board of directors and expert managers provide
the needed business expertise.
3. Limited Liability: Limited liability encourages many individuals to invest in shares.
4. Less Risk for the Shareholder: Because of limited liability even in the event of company
incurring losses, there is less risk for the shareholder.
5. Perpetual Existence: It is an organization with perpetual succession. The shareholders
keep on changing from time to time but do not affect the existence of the company.
 6. Democratic Management: The directors are elected by the shareholders; hence there
is no scope for the continuation of undesirable directors.
7. Social Benefits: The savings of the people which are otherwise scattered are well
mobilized by companies and productively invested. Thus the society gains from the
investment activities in the form of getting the goods and services they need.

Demerits-
1. Concentration of Economic Powers: The owners of the company are shareholders but
management is done by different individuals. The administration is concentrated in a
few hands. The shareholders, who are scattered all over, cannot influence the
management. They are either powerless or not interested to act as per their desires.
2. Fraudulent Management: The management of the company exhibits vested interests
and shows little concern for the shareholders.
3. Delays in Decision-making: Decisions cannot be taken quickly and they are to be taken
in the meeting of board of directors or general body. It is not very easy to convene the
meetings and they are time-consuming.
4. Excessive State Regulation: The companies are governed by a number of rules of the
Government. It is in fact compulsory, because huge public funds are invested in the
companies.
5. Evils of Factory System: The evils of factory system like insanitation, pollution, congestion,
etc., are attributed to joint stock companies.

 CO-OPERATIVE ORGANIZATION
The term, co-operation implies the self-help made effective through mutual help. The
philosophy behind co-operative movement embodies in a slogan called “all for each and
each for all”. The basic objective of co-operation is protecting weaker sections of the
society so that they fulfill their needs.
It is a form economic organization where people work together for a business
purpose on the basis of mutual benefit, it is a voluntary organization designed to
promote economic interests of its members. Members have equal right.
 Merits
1. Membership is open to every person.
2. Management of the co-operatives is democratic. The members among themselves
elect the board of management. Every member has equal right in electing the
members irrespective of the number of shares.
3. The co-operatives purchase goods from producers directly and sell them to
consumers directly. In this process the middlemen are eliminated.
4. The motto of co-operatives is service, but not profits. Cooperatives aim at spreading
the virtues of discipline, integrity, honesty, mutual help, fairness in deali9ngs, etc.

Demerits-
1. They suffer from timely and capital inadequacies.
2. Since there is no bar in entering into a society for anybody, the members are drawn
from different sections of the society. This creates lack of understanding among the
members. The members as a result do not take much interest and leaves everything to
paid workers.
3. The transactions of the society are in cash and no credit sales are allowed. Since the
members come from poorer sections of the society, they cannot always transact
business with cash
4. Societies function under the regulation of the Government.

 STATE OR PUBLIC ENTERPRISE

State enterprise is an undertaking, owned and controlled by the local or State or
central Government. Entire investment or major part of the investment is done by the
Government. The major considerations for the States to undertake the business are
heavy investment requirements, need to protect weaker sections against economically
strong, and when private traders are hesitant to venture into the enterprise.
State enterprises are found in manufacturing, trading and service activities. These
enterprises are managed by the Government.
Merits
 1. Industrial development is possible through State enterprises. Private sector does not
show much concern for initiating projects requiring huge capital and long gestation
periods.
2. Planned and balanced growth is possible through the entry of Government.
3. Government takes over the sick units, and run them as State enterprises in the interest
of the nation.
4. The profits obtained by the State concern are ploughed back into the business for
further expansion and diversification and also for the welfare of the community in
general.
5. Government enterprises encourage socialistic pattern of society which reduce
economic disparities.
6. There is an attraction for the aspiring qualified individuals to join the Government
service. It commands superior talents.
7. The employees feel greatly secured in Government service.

Demerits-
1. The proposed projects by the Government are plagued by undue delays. This is due to
the complicated procedural formalities coupled with non-release of funds in time.
2. High overhead costs. These arise out of large amounts of expenditure on unproductive
items coupled with high investment on amenities for employees even before the profit is
earned.
3. State enterprises when compared to private enterprises are not managed efficiently
resulting in losses.
4. The security of the job of an employee in a State organization makes him not to bother
too much to deliver the goods, for he gets hid pay regularly.
5. Manpower planning is a lacuna in State enterprises and they employ persons
disproportionate to their needs. This results in over staffing leading to inefficiency and
lethargy.