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Forms of Entrepreneurial Establishments in India

Debidutta Pattnaik, CFA (ICFAI)MBA, MIFA

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Forms of Entrepreneurial Establishments In INDIA

1. Sole-Proprietorship

2. Partnership

3. Co-operative

4. Company

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1. Sole-Proprietorship

Owned, Managed and Controlled by a single entrepreneur called Sole-

proprietor. The sole-proprietor arranges the finance, manages the business affairs, takes the profits or bears the losses.

Legally, a sole proprietorship is inseparable from its owner i.e. the business and

the owner are one and the same.

The owner of the business reports the business income and losses on his or her

personal tax return and is personally liable to the business debts.

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1.1. Features of Sole-Proprietorship

Single Ownership

Individual Management and Control

Individual Financing

Individual Accountability

Unlimited Liability

Minimum Government Regulations

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1.2. Merits of Sole-Proprietorship

Simple Formation Complete Control Rapid DecisionsFlexible ManagementFull Secrecy and Confidentiality of AffairsSole Receiver of ProfitsSuitable for Small Scale OperationsEasy Dissolution

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1.3. Limitations of Sole-Proprietorship

Limited Financial Resources Limited Managerial Skills Unlimited LiabilityLack of Continuity and StabilityNot Suitable for Large-scale Operations

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2. Partnership

Partnership is an association of persons who agree to combine their financial resources and managerial abilities to carry on a business and share the profits in an agreed ratio.

Section 4 of the Indian Partnership Act, 1932 says that, “Partnership is the relation between two or more persons who have agreed to share the profits of a business carried by all or any of them acting for all.

The Persons who have entered into partnership with one another are called `Partners’ and collectively a `firm’. The name under which their business is

carried on is called the `Name of the Firm’. The Partnership Act specifies the minimum number of persons to form a partnership i.e. 2, but is silent about the maximum number of partners. Companies Acts specifies the maximum limit to 10 for Banking Business and 20

in case of Non-banking Business.

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2.1. Features of Partnership

Two or More PersonsAgreement – There must be an agreement to form a partnership. Business – There must exist a business to form a Partnership.Sharing of Profits – There must be sharing of Profits unless otherwise agreedMutual Agency – It means that a partner is both an agent and a principal. Unlimited Liability – Partners bear unlimited Liability.

Joint Ownership and Control. Non-transferability of Share – A partner cannot transfer his share to others.Duration – The Partnership may or may not have a fixed duration.

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2.2. Types of Partners

Actual or Ostensible Partner

Sleeping or Dormant Partner

Nominal Partner

Partner-in-ProfitSub-partner

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2.3. Merits of Partnership

Easy Formation

More Financial Resources

More Managerial Resources

Flexible Management

Balanced Business Decisions

Sharing of Risks

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2.4. Limitations of Partnership

Uncertainty of ExistenceRisks of Implied AuthorityRisks of Disharmony or ConflictsLack of Institutional ConfidenceLimited CapitalUnlimited LiabilitySuitability

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3. Co-operative Organization

Co-operative Organization is a voluntary association of people who come together to promote their common economic interest through the principle of self-help.

Sec. 4 of Indian Co-operative Society Act, 1912 defines Co-operative Society as a voluntary association of people primarily formed to promote the economic interests of its members.

A minimum of 10 members are required to form an Indian Co-operative Society.

Co-operative Organizations are to be registered with the Registrar of Co-operative Societies of the concerned state in which the society’s registered office is situated.

Co-operative Organizations are also known as cooperatives or coops.

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3.1. Features of Co-operative Organizations

Voluntary AssociationEqual Voting RightsDemocratic ManagementSeparate Legal EntityService MotiveDistribution of Surplus as Dividend and BonusCapital

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3.2. Types of Co-operative Organizations

Consumer’s Cooperative

Producer’s Cooperative

Marketing Cooperative

Credit Cooperative

Farming Cooperative

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3.3. Merits of Co-operative Organizations

Easy Formation Open MembershipPerpetual ExistenceLimited LiabilityEconomic OperationsRelief by GovernmentSocial Services

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3.4. Limitations of Co-operative Organizations

Limited CapitalInefficient ManagementAbsence of MotivationConflicts among membersRigid Government Rules and Regulations

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4. Company

Association of a number of persons formed for some common object(s) is termed as “Company”.

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4.1. Features of Company

An Artificial PersonSeparate Legal EntityPerpetual ExistenceCommon SealLimited/Unlimited LiabilityDistribution of Surplus as Dividend

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4.2. Merits of Company

Large Financial ResourcesLimited/Unlimited LiabilityFree Transferability of SharesStability of ExistenceScope for Expansion and GrowthEfficient ManagementPublic ConfidenceDemocratic ManagementDispersal of OwnershipAssumption of Social Responsibilities

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4.3. Limitations of Company

Lengthy and Expensive Procedure for FormationMore Government RegulationsLack of Personal InterestDelay in Decision-making and ActionConflicts of InterestsOligarchic ManagementSpeculation by DirectorsGrowth of Monopolistic DecisionsInfluencing Government DecisionsSuitability

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4.4. (A) Types of Companies (On the basis of incorporation)

Chartered CompanyStatutory CompanyRegistered or Incorporated CompanyNot-for-Profit CompanyProducers Company

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4.4. (B) Types of Companies (On the basis of Liability)

Company Limited by SharesCompany Limited by GuaranteeUnlimited Company

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4.4. (C) Types of Companies (On the basis of Control)

Government CompanyNon-Government CompanyForeign CompanyDomestic CompanyHolding and Subsidiary Company