Topic: Types of Business organizationSessions-4 (19-05-07)

Question to the class. Identify the following is it a Sole trader/Partnership/Company

1. 200 sq.feet is the area of Ramoji Provisional stores

2. 800 sq. feet is the area of HKL & JKL bros 3. 30000 sq. feet is the area of a newly opened

shopping mall by an Indian Businessman in Hyderabad, Bangalore, Pune, Jaipur, Chandigarh.

4. 25 acres of land has been used by a Indian Businessman to set up a manufacturing unit for Paper.

Learning objective

Learners be able to give any two differentiations between Sole

trader and Partnership firms and Public and Private limited

companies correctly.

Types of Organization

1. SOLE TRADER

2. PARTNERSHIPS

3. COMPANY-PRIVATE Limited & PUBLIC Limited4. COOPERATIVE SOCIETIES

Sole Trader

☻Simple to set up, no special legal procedures☻Complete control over business☻no legal requirements to publish accounts.☻unlimited liability☻difficulty in obtaining finance☻difficulty in competing with large firms

Partnerships

☺Members 2 to 20(max)

☺Unlimited liability

☺Deed of Partnership, cheap and easy to make

☺Capital contribution can increase

☺lacks continuity if one partner leaves, Partnership gets dissolved.

Types of Partners

Actual Partners Sleeping/

Dormant partners

Nominal Partners

Partner by estoppel or holding out

Minor partner

Active Partner Actively engaged in the conduct of the

business He is the agent of the other partners in

the normal course of businesses He binds himself and the other partners-

in transactions with the third party He is equally liable along with the other

partners for all the debts of the firm.

Sleeping/Dormant partner

Does not take active part in the conduct of the business of the firm.

He invests capital and shares the profits of the business.

He is equally liable along with the other partners for all the debts of the firm.

Nominal Partner A Partner who lends his name to the firm,

without having any real interest in it. He does not invest nor does he share the

profits He does not take part in the management of

the business But he along with other partners, is liable to

the outsiders for all the debts of the firm.

Partner by estoppel or holding out

A partner who is not a partner in a firm may, under certain circumstances, be liable for its debts as if he were a partner.

Conditions1. He must have, by words spoken or written or by his

conduct, represented himself to be a partner (active representation)

2. He must have knowingly permitted himself to be represented as a partner to the other person (tacit representation)

3. The other person must have acted on the faith of such representation, and given credit to the firm.

Minor partner

According to sec. 11 of the Indian Contract act, an agreement with a minor is void. He is incapable of entering into a contract of partnership.

But with the consent of all the partners for the time being, a minor may be admitted to the benefits of partnership.

Joint stock company

Į Owned by shareholders

Į Independent legal existence, An artificial person

Į Shareholders have limited liabilityĮ Shareholders elect the board of directors and

ChairmanĮ Shareholders no direct say how the company is

run.Į Two types-Private limited and Public limited

Company Vs. Partnership Company1. Regulated by the

companies act2. Comes into existence

after registration under the companies act 1956

3. A legal personality distinct from that of its members

Partnership1. Governed by the

Indian Partnership act

2. Registration not compulsory

3. Not a person in the eyes of law.

Company Vs. Partnership Company 4. Limited liability 5. Number of

members Min: 2 max: 50 Private

ltd Min: 7 max: Unlimited

Public company 6. Bound by law to

maintain books of account

Partnership 4. Unlimited liability 5. Number of members Min: 2 max: 10

Banking max: 20 any

other Business. 6. No statutory

provision to maintain books of account by law.

Company Vs. Partnership Company7. Share holder

not the agent of the company

Partnership7. Each partner

agent of the firm.

Private vs. Public

Private limited√ Privately held shares

by a few members.√ Shares of the

company are not freely transferable to General Public.

√ Shareholders have limited liability to the extent of share value

Public Limited√ General public holds

shares.

√ Shares are freely transferable.

√ Shareholders have limited liability to the extent of share value

When does a private company become a Public company

Conversion by default: Where a default is made by a private company in complying with the essential requirements of a private company (viz. restriction on transfer of shares, limitation of the number of members to 50 and prohibition of invitation to the public to buy shares and debentures). If the company law board is convinced.

When does a private company become a Public company Conversion by choice or violation: If a private

company so alters its Articles that they do not contain the provisions which make it a private company, it shall cease to be a private company as on the date of alteration. It shall then file with the Registrar, within 30 days.

On the conversion of a Private company into a public company in the above manner, no new company comes into existence and the legal personality of the company is not affected in spite of the conversion. Only the company’s nature and not its identity is changed.

When does a private company become a Public company

1. Statement made in the Memorandum of Association

2. Certain minimum value of shares must be issued (£50,000 in the UK)

3. Accounts made available to the Public4. Listing at the stock exchange making it easy for

the share holders to buy and sell shares.5. Issue Prospectus-an invitation to the public to buy

shares in the company. It is a detailed document giving details of the company’s capital and its plan for the future. The reasons for raising more capital and how it will be spent is fully explained.

Conversion of a Public company into a Private company

By passing a special resolution Special resolution change the Article of

the company. The change in Articles must be

approved by the Central Government. A printed copy of the Articles shall be

filed by the company with the Registrar within 1 month of the date of receipt of approval.

Incorporation of CompanyDocuments to be filed with the Registrar

The Memorandum of Association The Articles of Association The Agreement A list of Directors A Declaration

Memorandum of Association Fundamental document in relation to the

proposed company. It contains the fundamental conditions upon which alone the company allowed to be incorporated It defines the reason for existence of the company.

Contents: Name of the company, Registered office, Limited liability of the members, Share capital, Limited or Private limited in the end name of the company

Articles of Association Are the rules, regulations, bye-laws for the internal

management of the affairs of the company. Must not violate the Memorandum of Association

and the Companies act. Contents: Share capital, rights of shareholders,

variation of these rights, payment of commissions, share certificates, Transfer of shares, Forfeiture of shares, Alteration of Share Capital, General meetings, Voting rights of members, Directors and their appointments, Dividends and Reserves, Capitalization of Profits and Winding up.

Any Questions

Plenary

1. Sole trader & Partnership2. Private limited & Public limited company

Group activity-1refer search engine yahoo.com/google.com

Find out any one of the companies given below:1. Incorporation- year, capital, promoters, type/s of

business, Turnover (Sales) last year (2005-06) and till date, Number of Equity share holders.

2. Last years Trading, profit & loss account and Balance sheet.

3. Objectives and aims of the company4. Future plans of the company5. What have you learnt by this Research?Suggested companies- Private public limited

companies

Group activity-2refer search engine yahoo.com/google.com

Find out any one of the companies given below:1. Incorporation- year, capital, promoters, type/s of

business, Turnover (Sales) last year and till date, number of equity shareholders.

2. Last years (2005-06) Trading, profit & loss account and Balance sheet.

3. Objectives and aims of the company4. Future plans of the company5. What have you learnt by this Research?Suggested companies- Government Public limited

companies.

Cooperatives

Cooperatives Owned jointly by members-private individuals

or other business organizations. Exist for the mutual benefit of members Members share equally in the decision- making

and management of the cooperative. Finance is raised by the members. Members have share in the profits of the

cooperative.

Types of Cooperative Retail Cooperatives: buy goods in bulk at an

advantageous price and re-sell them to members as cheaply as possible.

Trading Cooperatives: Formed to distribute and sell the products or services of their members (usually small businesses).

Worker Cooperatives: business owned and run by employees.

Housing Cooperatives: develop, maintain and manage low-cost housing on behalf of their members.

Any Questions

Other Organizations

Close corporations

Joint ventures

Franchising

Close Corporations

- Does not exist in U.K. - Similar to a Private sector- Quicker to set up, few rules and

regulations.

Joint ventures

Two or more businesses agree to start a new project together,

- Share the Capital- Share the risks and the profits- Share the knowledge of market

and consumer tastes.

Franchising

- A wide spread form of business operation

- Franchisor : Is a business with a product or service idea that it does not want to sell to consumers directly.

- Franchises : Use the idea or product and to sell t to consumers. Example: McDonalds.

The Public sector

- It includes all the businesses owned by the state and local government, public services, such as hospitals, schools and the fire services and government departments.

- Main two types, Public Corporations, Municipal enterprises.

Public Corporations- Are wholly owned by the state or central

government.- Usually have been Nationalized example in India

Banks and Air India.- Objectives: Low prices of the services, reduce

unemployment and Public services in all areas of the country.

- Subsidies are paid by the Government from the taxes received by them.

- Corporatisation : of Public corporations means reduce subsidies and work culture more like private companies.

Advantages of Public Corporations

- Strategic industries like Defence goods and equipments, Infrastructure- Roads and Bridges etc.

- To avoid Private Monopolies to take place.- Take loss making companies and secure

the jobs of the employees.- Television and Radio broadcasting to

broad cast programmes in the interest of the public.

Disadvantages of the Public Corporations

Low efficiency Lack of incentive for profit making Subsidies can reduce the spirit of

competitiveness. Political interference in the working

of the companies.

Any Questions