Proprietorship
 Also called sole trade organization is the oldest
form of business ownership in India
 The enterprise is owned and controlled by one
person.
 He sows, reaps, and harvests the output of his
effort
 William R.Basset opines that “the one man control
is the best in the world if that man is big enough to
manage everything
Main features
 One man ownership
 No separate business entity
 No separation between ownership and management.
 Unlimited liability
 All profits or losses to the proprietor
 Less formalities
Advantages
 Simple form of organization.
 Owner’s freedom to take decisions.
 High secrecy.
 Tax advantage.
 Easy dissolution
Disadvantages
 Limited resources
 Limited ability
 Unlimited liability
 Limited life of enterprise form
Partnership
 The 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 features
 More persons
 Profit and loss sharing
 Contractual relationship
 Existence of lawful business
 Utmost good faith and honesty
 Unlimited liability
 Restriction on transfer of share
 Principal and agent relationship
Advantages
 Easy formation
 More capital available
 Combined talent , judgment and skill.
 Diffusion of risk
 Flexibility
 Tax advantage
Disadvantages
 Unlimited liabilty
 Divided authority
 Lack of continuity
 Risk of implied authority
Partnership deed
 The 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
content
Name of the firm
2. Nature of the business
3. Name of the partners
4. Place of the business
5. Amount of the business
6. Profit sharing ratio
7. Loans and advances from the partners and the rate of interest
8. Drawings allowed to partners
9. Amount of salary and commission if any payable to the partners
10. Duties ,powers and obligations of partners
11. Maintenance of accounts and arrangement for their audit
12. Mode of valuation of goodwill
13. Settlement of accounts in case of dissolution
14. Arbitration in case of disputes
15. Arrangement in case of partner becomes insolvent
1.
Registration of the firm
Under 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 follows
The 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
The firm name
II. The name of business place
III. Names of other places if any where the firm is carrying
on its business
IV. Date of commencement of business
V. Date when each partner joined the firm
VI. Full names and permanent addresses of all partners
VII. 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
I.
Dissolution of firm
1.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 unlawful
3.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”
characteristics
1.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. Formation
company-created by law
partnership-result of an agreement
2.Entity
company-separate legal entity
partnership-one and the same.
3.Number of members
company-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. Continuity
company-perpetual succession
partnership-dissolved by death ,insanity,insolvency.
5.Transferablity of interest
company-can transfer his rights by any member (public)
restricts right to transfer the shares(private)
partnership- cannot transfer the interest.
6.Liablity
company-limited
partnership-jointly and severally liable for the debts of the
firm.
7.Management
company-board of directors manage the company
partnership- each and every partners manage the firm
8. Accounts and auditcompany- must maintain the accounts in the
prescribed form and get audited by the chartered
accountant
partnership-rules do not apply.
9.Objects
company-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 up
company-large number legal formalities
partnership-can be dissolved with out legal
formalities
Advantages of companies
1.Separate legal entity
2.Limited liability
3.Permanent existence
4.Transferablity of shares.
5.Seperation of ownership and management.
6. Expert management.
7.Public confidence
8.Social advantages.
Disadvantages of companies
1.Difficult formation
2.Governmental control.
3.Fradulent practices.
4.Neglect of minority.
5. Lack of personal touch.
6 difficult winding up
Formation of the company
A 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) Promotion
It 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.
steps
1.Discovery of idea
2. Detailed investigation
3.Assembling
4. 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 subscription
A 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 business
A 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-operative
 The 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 cooperative principles”
 Main features
1.Voluntary organization-voluntary association of persons desirous of pursuing
a common objective.
2.Democratic management-one man one vote
3.Service motive
4.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 control
6.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.
2.
3.
4.
5.
6.
7.
8.
Easy formation
Limited liability
Perpetual existence
Social service
Open membership
Tax advantage
State assistance
Democratic management
Disadvantages
1.
2.
3.
4.
5.
Lack of secrecy
Lack of business acumen.
Lack of interest
Corruption
Lack of mutual interest
Selection of an appropriate form
1.Nature of business
business requires personal attention and skill-sole trader
pooling of funds and skills-partnership
large scale production-company.
2. Area of operations
confined to an area or locality- sole trader
area of operation are widespread-partnership or company
3.Degree of control
direct control-sole trader or partnership
indirect control-company
4.Capital requirements
small amount of capital-sole trader or partnership
huge capital-company
5.Extent of risk and liability
individual risk-sole trader or partnership
not to bear individual risk-company
6. Duration of business
definite and adhoc –sole trader or partnership
permanent-company
7.Government regulations
no more regulations- sole trader or partnership
more regulation- company