Ownership Patterns : Types of Industry Ownership

a. Sole Proprietorship b. Partnership Firm c. Joint Stock Co. d. Co-operatives Ownership Patterns : Choice of a proper form of Org/ownership pattern is crucial for a success of a business enterpises, B'coz it determines risk, responsibility & control of the Entrepreneur awa division of pft. Types of Industry Ownership : Sole Proprietorship / Single Ownership Partnership Firm Joint Stock Company. (1) Private Ltd Co (2) Public Ltd Co Co-operative Society Public Sector Enterprises (1) State Govt Owned (2) Central Govt Owned

Sole Proprietorship
A sole proprietorship is a business owned and operated by one individual. Legally, if you set up your business as a sole proprietorship, your business is considered to be an extension of yourself. Therefore, as a sole proprietor, you are personally responsible for all the liabilities and obligations your business incurs. Advantages : !. Easy to form and wind up: A sole proprietorship form of business is very easy to form. With a very small amount of capital you can start the business. There is no need for any legal formalities. (Except for those businesses which require a license from local authorities or health department of government etc.) It is also very easy to wind up the business. It is the owners decision to form or wind up the business at any time. 2. Direct motivation: The profits earned belong to the sole proprietor alone and he bears the risk of losses as well. Thus, there is a direct link between the effort and the reward. If he works hard, then there is a possibility of getting more profit and he will be the sole beneficiary of this profit. Nobody will share this reward with him. This provides strong motivation for the sole proprietor to work hard. 3.Quick decisions: In a sole proprietorship business the sole proprietor alone is responsible for all decisions. He is free to take any decision on his own. Since no one else is involved in decision making it becomes quick and prompt action can be taken on the basis of the decision. 4. Better control: In sole proprietorship business the proprietor has full control over each and every activity of the business. Since the proprietor has all authority with him, it is possible to exercise better control over business. 5. Maintenance of business secrets: Business secrecy is an important factor for every business. It refers to keeping the future plans, business strategies, etc., secret from outsiders or competitors. In the case of sole proprietorship business, the proprietor is in a very good position to keep his plans to himself since management and control are in his hands.

6. Close personal relation: The sole proprietor is always in a position to maintain good personal contact with the customers and employees. Direct contact helps the sole proprietor to know the individual likes, dislikes and tastes of the customers. It also helps in maintaining close and friendly relations with the employees and thus, the business can run smoothly. 7. Encourages self-employment: Sole proprietorship form of business organization leads to creation of employment opportunities for people. Not only is the owner self-employed, sometimes he also creates job opportunities for others. Thus, it helps in reducing poverty and unemployment in our country. Limitations : !.Limited capital: In a sole proprietorship business, the owner arranges for the required capital for the business. It is difficult for a single individual to raise a huge amount of capital. The owners own funds as well as borrowed funds sometimes become insufficient to meet the requirement of the businesss growth and expansion. Venture capitalists and banks generally do not lend money to sole proprietorships. 2. Unlimited liability: In case the sole proprietor fails to pay the expences arising out of business activities, his personal properties may have to be used to pay for those. This generally discourages the sole proprietor from taking risks. He thinks cautiously while deciding to start or expand the business activities. 3. Lack of continuity: The existence of a sole proprietorship business is dependent on the life of the proprietor. Illness, death etc. of the owner brings an end to the business. The continuity of business operation is therefore uncertain. 4. Limited size: There is a limit beyond which it becomes difficult for a sole proprietor to expand the business activities. It is not possible for a single person to supervise and manage the affairs of the business if it grows beyond a certain limit. 5. Lack of managerial expertise: A sole proprietor may not be an expert in every aspect of management. He/she may be an expert in administration, planning, etc., but may be weak in marketing. Again, because of limited financial resources it is also not possible to employ a professional manager. Thus, the business lacks benefits of professional management.

Partnership Firm
A partnership is an association of two or more persons to carry on, as co-owners, a business and to share its profits and losses. The persons who own the business are individually called partners and collectively called partnership firm. English Partnership Act, 1690: "Partnership is the relation which subsists between persons carrying on a business in common with a view of profits.

Advantages :
!. Easy to form: Like sole proprietorships, partnership businesses can be formed easily without any compulsary legal formalities. It is not necessary to get the firm registered. A simple agreement or parnership deed, either oral or in writing, is sufficient to create a partnership. Note: Registration of the parnership is voluntary in most states. However it would be best to check up the rules of your state to be sure. In states like Maharashtra, registration is almost compulsory.

2. Availability of large resources: Since two or more partners join hands to start a partnership business, it may be possible to pool together more resources as compared to a sole proprietorship. The partners can contribute more capital, more effort and more time for the business. 3. Better decisions: The partners are the owners of the business. Each of them has equal right to participate in the management of the business. In case of any conflict, they can sit together to solve the problem. Since all partners participate in the decision-making process, there is less scope for reckless and hasty decisions. 4. Flexibility in operations: A partnership firm is a flexible organization. At any time, the partners can decide to change the size or nature of the business or area of its operation. There is no need to follow any legal procedure. Only the consent of all the partners is required. 5. Sharing risks: In a partnership firm all the partners share the business risks. For example, if there are three partners and the firm makes a loss of Rs.12,000 in a particular period, then all partners may share it and the individual burden will be Rs.4000 only. Because of this, the partners may be encouraged to take up more risk and hence expand their business more. 6. Protection of interest of each partner: In a partnership firm, every partner has an equal say in decision making and the management of the business. If any decision goes against the interest of any partner, he can prevent the decision from being taken. In extreme cases an unsatisfied partner may withdraw from the business and can dissolve it. In such extreme cases the partnership deed is required. In absence of the partnership deed, no legal protection is given to the partners. 7. Benefits of specialization: Since all the partners are owners of the business, they can actively participate in every aspect of business as per their specialization, knowledge and experience. If you want to start a firm to provide legal consultancy to people, then one partner may deal with civil cases, one in criminal cases, and another in labor cases and so on as per the individual specialization. Similarly, two or more doctors of different specialization may start a clinic in partnership.

Limitations :
!. Unlimited liability: All the partners are jointly liable for the debt of the firm. They can share the liability among themselves or any one can be asked to pay all the debts even from his personal properties depending on the arrangement made between the partners. 2. Uncertain life: The partnership firm has no legal existance separate from its partners. It comes to an end with death, insolvency, incapacity or the retirement of a partner. Further, any unsatisfied or discontent partner can also give notice at any time for the dissolution of the partnership. 3. Lack of harmony: In a partnership firm every partner has an equal right to participate in the management. Also, every partner can place his or her opinion or viewpoint before the management regarding any matter at any time. Because of this, sometimes there is a possibility of friction and discontent among the partners. Difference of opinion may lead to the end of the parnership and the business. 4. Limited capital: Since the total number of partners cannot exceed 20, the capital to be raised is always limited. It may not be possible to start a very large business in partnership form.

5. No transferability of share: If you are a partner in any firm, you cannot transfer your share or part of the company to outsiders, without the consent of other partners. This creates inconvenience for the partner who wants to leave the firm or sell part of his share to others.

Joint Stock Company :

In a partnership, there can be a maximum of 20 people. Because of this limit, the amount of capital that can be generated is limited. Also, because of the unlimited liability of partnerships, the partners may be discouraged from taking huge risks and further expanding their business. To overcome these problems a public or a private company may be formed. Private and public companies are much better investments because of Limited liability. This means that if an investor has invested Rs.1000/- in a particular company, and the company goes bankrupt, the investor only looses the money he has invested. To pay of the debt, the investors property, bank accounts etc. are "not" used. Because of this limited liability, many investors are interested in investing in these private or public companies. Hence, a large capital can be generated and a huge business can be run. The major disadvantage of Private and Public companies, is that they have a costly and elaborate process of setting up. They are also closely regulated by the government. So what are Public or Private companies? These companies are also know as joint stock companies. The companies in India are governed by the Indian Companies Act, 1956. The Act defines a company as an artificial person created by law, having a separate legal entity, with perpetual succession and a common seal. What this means is that, the company is different from the investors. The investors put in money and capital is raised. But the company is treated as a virtual person. The company is treated as a person who is different from its investors. The company has an identity of its own. If some one sues the company, he does not sue the investors, he sues the virtual person that is the company. To understand the concept of joint stock (private and public limited) companies, consider the following characteristics: Legal formation: No single individual or a group of individuals can start a business and call it a joint stock company. A joint stock company can come into existence only when it has been registered after completion of all the legal formalities required by the Indian Companies Act, 1956. Artificial person: Just like an individual takes birth, grows, enters into relationships and dies, a joint stock company takes birth, grows, enters into relationships and dies. However, it is called an artificial person as its birth, existence and death are regulated by law. Separate legal entity: Being an artificial person, a joint stock company has its own separate existence independent of its investors. This means that a joint stock company can own property, enter into contracts and conduct any lawful business in its own name. It can sue and can be sued by others in the court of law. The shareholders are not the owners of the property owned by the company. Also, the shareholders cannot be held responsible for any of the acts of the company. Common seal: A joint stock company has a seal, which is used while dealing with others or entering into contracts with outsiders. It is called a common seal as it can be used by any officer at any level of the organization

working on behalf of the company. Any document, on which the company's seal is put and is duly signed by any official of the company, becomes binding on the company. For example, a purchase manager may enter into a contract for buying raw materials from a supplier. Once the contract paper is sealed and signed by the purchase manager, it becomes valid. The purchase manager may leave the company or may be removed from his job or may have taken a wrong decision, yet, the contract is valid till a new contract is made or the existing contract expires. Perpetual existence: A joint stock company continues to exist as long as it fulfills the requirements of law. It is not affected by the death, lunacy, insolvency or retirement of any of its investors. For example, in case of a private limited company having four members, if all of them die in an accident, the company will not be closed. It will continue to exist. The shares of the company will be transferred to the legal heirs of the members. Limited liability: In a joint stock company, the liability of a member is limited to the amount he has invested. While repaying debts, for example, if a person has invested only Rs.10,000 then only this amount that he has invested can be used for the payment of debts. That is, even if there is liquidation of the company, the personal property of the investor can not be used to pay the debts and he will lose his investment worth Rs.10,000. Democratic management: Joint stock companies have democratic management and control. Since in joint stock companies there are thousands and thousands of investors, all of them cannot participate in the affairs of management of the company. Normally, the investors elect representatives from among themselves known as Directors to manage the affairs of the company. The above discription must have given you an idea about public and private limited companies in general. There are some special charecterstics of Public and Private limited companies that must be understood. There are given below. Special charecerestics of Private Limited Comapnies : These companies can be formed by at least two individuals having minimum paid-up capital of not less than Rupees 1 lakh. As per the Companies Act, 1956 the total membership of these companies cannot exceed 50. The shares allotted to its members are also not freely transferable between them. These companies are not allowed to raise money from the pub-lic through open invitation. They are required to use Private Limited after their names. The examples of such companies are Combined Marketing Services Private Limited, Indian Publishers and Distributors Private Limited etc. Special charectersetics of Public Lmited Companies : A minimum of seven members are required to form a public limited company. It must have minimum paid-up capital of Rs 5 lakhs. There is no restriction on maximum number of members. The shares allotted to the members are freely transferable. These companies can raise funds from general public through open invitations by selling its shares or accepting fixed deposits.

These companies are required to write either public limited or limited after their names. Examples of such companies are Hyundai Motors India Limited, Jhandu Pharmaceuticals Limited etc.

Co-operatives
The co-operative movement has been necessitated to protect the interests of weaker sections of society. The primary objective of this movement is 'how to protect economically weaker sections of society'. In all forms of organisation, be it is a sole trade, partnership or joint stock company, the primary motive is to increase profits.

Advantages :
(1) Easy Formation: It is very easy to form co-operative society as compared to a joint stock company. The simple requirement is ten or more members have to make written application to the Registrar with four copies of Bye-laws. (2) Open Membership: The co-operative societies work on the principle of open membership, therefore many persons can become the members. The membership is not restricted to a few persons only. (3) Democratic Management: All the members of the society are jointly known as general body, whereas the members who manage the co-operative society are jointly known as managing committee. They manage co-operative society in a democratic way. "One member one vote" is the rule and thus members can have voice in management. (4) Limited Liability: The liability of members remains limited to the extent of capital contributed by them. He is not personally liable to pay the liability of co-operative society. Generally, his liability is limited up to the face value of shares. (5) Stability & Continuity: The co-operative society has perpetual succession because it is not affected due to death, insolvency or lunacy of any member. As it is voluntary association the old members may go, new members may come, but the life of society is not affected. (6) Low Prices: A co-operative society can make goods and services available at reasonable cost as the profit margin of the society is very less other reason for low price at a co-operative society is that it eliminates the middleman from chain of distribution i.e. goods are directly purchased from the manufacturers or producers and sold to the customers. (7) Mutual Help: The basic aim of the co-operative society is mutual help. Some of the members realizing this principle may offer their services on honorary basis this bring the reduction in management expenses. (8) Social Advantage: A co-operative society discourages monopoly, bring better distribution of wealth, works on principle of service and controls exploitation. It also uses its surplus profit for the social advantages by way of establishing charitable hospitals, schools, etc. So it increases social welfare. (9) Mobilization of Savings: Basically co-operative society is a thrift institution. It provides an effective means of pooling together the resources of the weaker sections of the society. By checking extravagance, it inculcates the habit of savings among the people. Such mobilized financial resources are used for constructive purposes. (10) Remove Defects of Capitalism: This form of organization removes certain basic defects of capitalism. For example, monopoly, undue concentration of wealth in few hands, profiteering, blackmarketing, exploitation of workers and consumers, etc. These glaring defects of capitalism have no place under co-operative organization. Through the process of integration, it removes middlemen.

(11) Cash Trading: The co-operative society follows the principles of "cash and carry". As a result of this there are no bad debts and they can enjoy the benefit of various discounts and concessions. This also inculcates the habit of saving among these members. (12) Government Support: Co-operative society is basically people's movement. Moreover, promotes moral, social and educational values. It also helps the economic enlistment of the people. That is why government gives many concessions and privileges to this organization.

Limitations :
(1) Limitation of Capital: In co-operative organization there is a limitation on capital because the membership of the society is indirectly limited only up to local people. The members also generally, belong to the poor class and the face value of the share is very much nominal generally up to Rs.10 & so on. (2) State Control: A co-operative organization is governed by the provisions of the Co-operative Society Act, 1912. The compulsion of maintaining records, submission of audited returns and inspections by Government, are the ways through which the state exercises control over societies. (3) Inefficient Management: The management of co-operative society is inefficient because the working members of managing committee may not show keen interest in the working of the society. The members my also lack the managerial skill and intelligence because they generally belong to the lower class. (4) Absence of Business Secrecy: The officers of co-operative societies are generally so much exposed to the members that it becomes difficult for them to maintain proper secrecy and it is compulsory to advertise the annual account and annual reports in newspapers. (5) Lack of Motivation: There is a lack of motivation for the managing committee and another staff members because there is no relation between efforts and rewards. The rate of dividend is also restricted to 15%, this discourages the public to join co-operative society. (6) Political Interference: The co-operative organization acts as platform for political activities at the time of election of managing committee, some of the political parties get involved in it due to which the basic principle of the co-operation comes to an end. This also leads to corruption of power and money in the society and may result in quarrels and disputes amongst the members. (7) Limited Scope: Like capitalism, the co-operative system cannot be extended to embrace the whole economic system. It has limited scope in the sense that it cannot cover the entire economic system. The principles of co-operation cannot be successfully applied to organize all types of economic activities. For example, co-operative organization is not suitable for organizing big industrial enterprises. It is also not suitable where the element of speculation plays a predominant role and where finer varieties with maximum skill are to be produced. (8) Internal Quarrel and Rivalries: Internal quarrels and rivalries among members is another limitation of co-operative organization. As a result of these internal quarrels, rivalries and tensions, general body members cease to take any interest in the working of the organization. All this ultimately brings the cooperative organization to ruin. (9) Lack of Public Confidence: Generally, people do not have faith and confidence in the co-operative society. Since, many co-operatives have failed especially in India; the people are reluctant to become members of co-operative organizations. The general apathy and indifference of people comes in the way of development of co-operative organization. (10) Absence of Economics of Scale: This organization is very small in size. It does not have financial, managerial and technical resources. As a result of this the advantages of large-scale operation like Joint Stock Company are not available to this organization. (11) Restriction of Number; As per the prevailing legislation, co-operative society cannot be formed unless and until minimum 10 adult members are available. As a result of this, its growth is checked because less than 10 members cannot form the society.