forms of ownership

Forms of ownership

• Types of organisations- Formal and Informal

• Different forms of ownership

• Sole proprietorship, Partnership and Companies- a comparison

• Impact of forms of ownership

Types of organisations

Formal Organisation –

• A group of people work towards a common objective/goal

• The formal groups are a typical part of every organisation

• The groups are given official status and need o operate within the rules and regulations

• The job responsibilities and positions are well defined giving clarity on work to be done by every member of the group

Informal Organisation –

• It is a network of personal and social relations which arise when people associate with each other

• It does not take a conscious effort to build an informal organisation

• It is not governed by any rules and can exist within the formal organisation

• It is formed due to common interests of the members of the group

Different forms of ownership

Sole Proprietorship

Partnership

Companies

Private Ltd. Co.

Ltd. Co.

Sole Proprietorship

Business owned by one individual for the individual’s profit

Advantages

– Ease of formation

– Low start-up costs

– Owner has direct control and responsibility

– All earnings goes to owner

Disadvantages

– Unlimited liability

– Management limitations

– Limited capital

– Uncertain life, lack of continuity

Partnership

Advantages

– Low start-up costs

– More management skills

– Shared responsibility

– More capital available

Disadvantages

– Unlimited liability

– Still limited capital

– Possibility of disagreement

– Divided authority

– Death of partner dissolves the firm

Association of 2 or more who carry on a business

• Separate and distinct legal entity

• Stable and perpetual existence

• Needs to be registered

• Two types

– Private company– Public company

Company

Comparison

Proprietorship Partnership Pvt. Ltd. Co.

Minimum No.

1 2 2

Max. No. 110 for Bank /

else, 2050

Formation No documentPartnership

Deed

Memorandum & Articles of association

Proprietorship Partnership Pvt. Ltd. Co.

Liability Unlimited Unlimited Limited

Financial Strength

Limited Pooled Large

Borrowing Capacity

Limited Better Good

Management Control

Self Partners BOD

ProprietorshipPartnershi

pPvt. Ltd. Co.

Business Secrecy

Perfect Shared Shared

State Control None Very little Moderate

Transferability At willMutual Consent

Restricted

Stability Unstable Less Stable Stable

Winding up At willMutual Consent

Restricted

Impact of Forms of Ownership

• Access to Funds

• Control of business

• Distribution of Earnings/ losses

• The degree of liability

• Potential return and risk