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- Unit-1 Nature of BusinessUnit-1
Unit-1 Nature of Business
Introductory unit for the preparatory course in Commerce.
Explain briefly, the different forms of business organization.
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The main forms of business organization (or ownership) are :
•Sole proprietorship: Sole proprietorship organization is owned by one person. Sole proprietorship is the oldest and most common form of organization for small business.
•Partnership firm: Sometimes, two or more persons come together, combine their capital and skills. and carry on business as partners. Partnership firm is formed by a group of two or more persons by mutual agreement.
•Company: When the funds required for the business are large, company form of business organization is preferred. A company is formed by a group of persons under the Companies Act.
- Sole proprietorship is the oldest and most common form of organization for small business.
- This type of organization is owned by one person.
- It is also called as individual proprietorship or sole trader organization.
- The person owning the organization provides capital for business.
- The owner manages the business himself or with the help of family members.
- The owner may employ people to assist him.
- All the profit is enjoyed by the owner himself.
- In case of loss, the owner has to bear it.
- Sometimes, two or more persons come together, combine their capital and skills. and carry on business as partners.
- A partnership is the relationship between persons who have agreed to share the profits of a business, carried on by all or any of them acting for all.
- Partnership is formed by an agreement.
- In the agreement, all the issues relevant to the partnership are written.
- The issues are name of the business, duration of partnership, proportion in which capital is to be contributed by the partners, proportion in which profits or losses are to be shared by the partners, person(s) who has (have) to manage the business and so on.
- The persons who own the partnership business are individually called 'partners' and collectively known as 'firm' or 'partnership firm’.
- The name under which their business is carried on is called 'firm name’.
- In partnership, there should be at least two persons and the number of partners should not exceed twenty.
- In case of banking business, the number of partners should not exceed ten.
- When the funds required for the business are large, company form of business organization is preferred.
- A company is an association of persons who contribute money or money's worth to a common stock (called capital) and employ it for a common purpose.
- The persons who contribute it or to whom it belongs are called members or shareholders.
- A company has to be registered under the Indian Companies Act, 1956, and function within the framework of the Companies Act.
- There is a large number of shareholders, the company cannot be managed by all the shareholders.
- The shareholders elect their representatives, called the directors.
- Directors guide and direct the destiny of the company. Generally, the day-to-day conduct of business is entrusted to paid or salaried managers.
- Companies can be classified as private limited companies and public limited companies.
Private limited companies:
- The minimum number of shareholders is two and maximum is fifty.
- Examples of private limited companies are- Refco Icematic Company Private Limited, Diners Business Services Pvt. Ltd., Eagle Flask Private Limited, ABC Consultants Private Limited.
Public limited companies:
- In case of public limited company, the minimum number of shareholders is seven and there is no maximum limit.
- Examples of public limited companies are-Crompton Greaves Limited, Graver & Weil (India) Ltd., Bajaj Auto Ltd., Elecon Engineering Company Ltd.