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Different Types Of Business/Industrial Ownership Existing In India
There are several types of businesses prevailing around the world. Each business organizations have their own characteristics. They have their own advantages and disadvantages too. some of the major types of business organizations are partnership, joint stock venture, State or central government owned enterprises etc. Here in this article, I am dealing with the types of enterprises, their advantages and disadvantages
The terms industrial ownership, business organization, forms of ownership of industry, types of business enterprise, types of ownership etc convey the same meaning. To start a business enterprise the most important thing required is capital.
- Little capital is provided by single individual it is known as individual ownership, individual entrepreneur organization, single ownership, individual proprietorship etc.
- If the capital is provided by two or more persons, it refers to partnership organization.
- If the capital is provided by many persons in the form of shares to an institute with a legal entity it is called a joint stock company
There are other forms of organizations also. But they are manifestations of the three types mentioned above.
Types of ownership
The different types of ownerships are
- Single ownership (Individual or Sole proprietorship)
- Joint stock companies
- State or central government owned enterprises
One man owns this type of business. The business man invests capital, employs labour and machines. For example 1. Retail-shops. 2. Workshops etc. The single owner invests, maintains and controls the entire business. Hence all gains or loss from business goes to him. It should be noted that he is fully liable for all the debts associated with the business. This type of ownership is easy to establish and simple to run with a minimum of legal restrictions.
- Easy formation: It is very easy to bring the business to existence
- Prompt decision making: Owner is prompt in decision making since there is
to be consulted
- Operational flexibility: The organization is easy to operate and it is extremely flexible
- Maintains secrecy: secrecy in business can be maintained by the owner.
- Easy to dissolve: The business can be dissolved at any time
- No coordination. There is no problem of coordination in the organization
- Coordination of effort and reward: efforts and rewards are directly related in this type of ownership
- Limited Capital: The amount of capital that can be invested will normally be very limited
- Owner is not a Master of All: The owner of the business cannot be a master of all techniques, like management, sales and engineering etc.
- Expanding Business is difficult: It will be difficult to raise capital in order to expand the business
- Sole Responsibility: The owner is liable fore all obligations and debts of the business.
- Limited opportunities for employees: There will be limited opportunities for employees to get profit sharing, bonus etc.
- Limited Life: The firm ceases to exist with the death of the owner
- Unlimited Liability: When the business fails, the creditors take away the personal property as well as business property to settle their claims.
- Partnership has been defined by the Indian partnership act 1932 as the relationship between persons who have agreed to share profit of a business concern carried on by all or any one of them acting for all.
- When 2 and up to 20 persons in the case of non - banking business and up to 10 in case of banking business enter into a contract to carry on a business allowed by law, with the object of making profit, a partnership is said to be formed.
- It should be noted that every partner is liable and responsible for the acts of other partners in that business. To avoid complications at later stages. the constitution of partnership is written in an agreement form. The partnership is usually optimal if the numbers of partners are less than 6. Lesser is always better.
- Usually persons with good ideas and experience in running a business make partnership with people who are financially sound. Thus both money and knowledge are brought together to earn profit
- Partnership comes into existence by means of an agreement. This written agreement is called a partnership deed.
Advantages of Partnership:
- Easy formation: Formation involves less legal formalities. Registration expenditure and stamp duty are considerably less.
- Limited government restrictions: this kind of ownership is not subjected to strict government supervision. Hence, it enjoys more freedom
- More capital: More capital can be raised in comparison with sole proprietorship
- Knowledge or skill: As the abilities and skills of each partner are different, more knowledge is available to run the business.
- Success pays; success of partnership pays high incentive
- Legal status: there is a legal status for the firm and it can borrow money quiet easily from banks.
- Tax advantages: Partnership has tax advantages with it. As the total income is divided among partners. Each partner is assessed separately for income tax
- Losses are shared: for all losses, there is more than one person to share it.
- Consent of all: no major decisions can be taken without the consent of all partners.
Disadvantages of partnership
- Unlimited liability: Each partner has unlimited liability, therefore risk involved is more.
- Limited period of existence after the death or retirement of any partners the partnership comes to an end.
- Limited partners means limited money: As there is a legal ceiling with respect to the number of partners, the total money that can be raised is limited when compared to a joint stock company
- Unstable: If anything happens to a partner, the partnership comes to a halt. Hence, partnership is unstable.
- Misunderstanding: Misunderstanding and friction are common among partners and this affects partnership.
- Mistakes affects all partners; Any mistake of a partner leads to a loss for all the partners
- Lack of public confidence: Partnership usually does not enjoy public confidence as it lacks proper publicity of its affairs.
Joint Stock Company
A joint stock company is an association of individuals, called shareholders, who join together for and agree to supply capital divided into shares that are transferrable for carrying on a specific business other than banking business A joint stock company consists of more than 20 persons for carrying any business other than the banking business.
There are two types of joint stock companies
1. Private limited company
2. Public limited company
A) Private limited company
- The capital is collected from private partners; some of them may be active while others may be sleeping
- Private limited company restricts the right to transfer shares; avoids public to take shares or debentures.
- The number of members is between 2 and 50, excluding employees and ex-employee share holders.
- The company need not file document such as consent of directors, list of directors etc with the Registrar of Joint Stock companies
- The company need not obtain from the Registrar, a certificate of commencement of business.
- The company need not circulate the Balance Sheet, profit or loss account
- A private company must get its account audited.
- A private company has to send certificate along with annual returns to the Registrar of Joint stock companies stating that it does not have shareholders more than 50 excluding the employees and ex employee share holders.
B) Public Limited Company:
- In public limited company, the capital is collected from the public by issuing shares having small face value. (Rs .50, 20,100)
- The number of shareholders should not be less than seven but there is no limit to their maximum number
- A public limited company has to file with the Registrar of joint Stock companies, documents such as consent of directors, list of director directors contract etc. along with memorandum of association of articles.
- A public company has to issue a prospectus to the public
- It has to allot shares within 180 days from the date of prospectus.
- It can start only after receiving the certificate to commence business
- It has to hold statutory meeting and to issue a statutory report to all members and also to the registrar within a certain period.
- There is no restriction on the transfer of shares.
- Directors of the company are subject to rotation.
- The public company must get the account audited every year
Memorandum of Association
This is the main document of a company which defines its objective and lays down its fundamental conditions as per which the company is allowed to be formed.. It is the character of the company. The company cannot act outside the scope of the powers given to it by the memorandum. It gives information to the shareholders, creditors etc regarding the permitted range of activities of the enterprise, it cannot be changed except by following all the prescribed procedures.
If liabilities of the company become much more than the assets and when creditors press for the payment of loans it becomes difficult to run the company. At this time the company has to dissolve and this is known as liquidation .Liquidation may be voluntary or compulsory or under the supervision of the court the resources available do not permit the payment, the assets of the company are sold and the amount left after the payment is distributed among the shareholders.
The industrial revolution gave birth to private capitalism. Since consumers and workers were exploited there arose the need for state intervention in the industrial field. This intervention led to the evolution of public sector or public enterprise. in India prior to independence there no public sector barring the field of transport and communication. Railways, Post and telegraph etc were managed by central government since pre independence period .Since independence a large number of public enterprises have been established by both central and state government. The Hindustan ship yard, the Hindustan steels, Hindustan Machine tools Bharat Heavy Electricals Indian Telephone Industries; Indian airlines Life Insurance Corporation of India etc are few examples of Public Sector.
A public sector enterprise is one that is owned by the state or managed by the state or owned and managed by the state. Public sector enterprises are controlled and operated by the state to producer and supply the goods and services required by the society. Unlimited control of public enterprises remains with the state and the state runs it with a service motto. But a public enterprise is seldom as efficient as a private enterprise. Waste and inefficiency are very common with public enterprises
A corporation is very similar to a joint stock company. They are brought into existence by state or central government by special law of the country defining the powers, functions and forms of management and relationship to other government departments. Corporations are fully owned by the Government and are financially self supporting .Chief executive members of the board are nominated by the government. Corporations are formed due to the changed industrial policy of India in April 1948. The manufacture of arms and ammunitions, atomic energy, railway services post and telegraph, iron and steel production, aircraft manufacturing ship building etc. have fully come under Government control and ownership.
Types of Corporations
- Government departments: Railways, defense, post and telegraph dooradarshan etc.
- Public Corporations: LIC of India, state power corporations, Indian airlines, State Road transport corporations etc.
- Government companies. HMT, BHEL, Hindustan Steel Etc.
- It is an autonomous body and therefore it has the freedom of finance, management and flexibility of operation.
- Enjoys prompt attention and quick decisions as red tape and bureaucracy of departmental organization are avoided
- Ministerial directions and control ensures that the corporation is not run against public interest.
- Financial autonomy enables the firm to raise the required funds economically and conveniently
- Autonomy and flexibility are only in name sake as ministers and politicians often interferer in the day today functioning of the organization
- As the chief officers are from the government they do not take much interest in improving the functioning of the enterprise.
This is the most democratic form of business organization for the betterment of the general public. These cooperative societies help to protect the interest of the customers, small and independent producers and of the workers while fighting against monopolists and capitalists. The members of society supply the capital through shares; they manage the business and share the profit or loss.
The forms of cooperative societies are listed below.
- Customer cooperative societies: Its main objective is to eliminate the middleman's profit by directly purchasing things at cheaper rate and then distributing among the members at reasonable price
- Producers' Cooperative society: This is a society for manufactured goods .The society supplies raw materials tools and other things to the producers and takes up the output for sale and for the distribution among the members
- Marketing Cooperative society: These are voluntary organizations of independent producers organizes for the purpose of arranging for the sale of their output.
- Housing Cooperative societies: These are association of persons who are interested in securing the ownership of the house of obtaining accommodation at a reasonable rate.
- Credit Cooperative societies: These are voluntary associations of people with an objective of extending short term loans and habit of saving among them. The funds of these societies consist of share capital contributed by members.
Management is a big head ache in case of a government organization. Industrial unrest, strikes and lockouts are the outcome s of ineffective management. Joint sector concept is one means to overcome these difficulties
- Joint sector means participation of both the government and private industry with respect to the share capital and management of the unit.
- Joint sector aims at achieving optimal use of the resources .the government finances and the private enterprises maintains the effective working of the industry. Ex. Indian Oil Company.
- The share capital is usually in the ratio of 51:49 and in all cases the government holds
51% of the shares.
- In this set up government nominates the chairman but the managing director is from the collaborating private industry.
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