Forms Of Ownership
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- Pages: 11
Forms of ownership • Types of organisations- Formal and Informal • Different forms of ownership • Sole proprietorship, Partnership and Companiesa 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 Association of 2 or more who carry on a business
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
Company • Separate and distinct legal entity • Stable and perpetual existence • Needs to be registered • Two types – Private company – Public company
Comparison Proprietorship
Partnership
Pvt. Ltd. Co.
Minimum No.
1
2
2
Max. No.
1
10 for Bank / else, 20
50
Formation
No document
Partnership 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
Proprietorship
Partnership
Pvt. Ltd. Co.
Business Secrecy
Perfect
Shared
Shared
State Control
None
Very little
Moderate
Transferability
At will
Mutual Consent
Restricted
Stability
Unstable
Less Stable
Stable
Winding up
At will
Mutual 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
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 Association of 2 or more who carry on a business
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
Company • Separate and distinct legal entity • Stable and perpetual existence • Needs to be registered • Two types – Private company – Public company
Comparison Proprietorship
Partnership
Pvt. Ltd. Co.
Minimum No.
1
2
2
Max. No.
1
10 for Bank / else, 20
50
Formation
No document
Partnership 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
Proprietorship
Partnership
Pvt. Ltd. Co.
Business Secrecy
Perfect
Shared
Shared
State Control
None
Very little
Moderate
Transferability
At will
Mutual Consent
Restricted
Stability
Unstable
Less Stable
Stable
Winding up
At will
Mutual 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
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