Types Of Organization

Types of Organization Pravin Dhakne Roll No: 9533

TYPES OF PRGANIZATION 1. Single proprietorship 'Sole' means single and „proprietorship‟ means ownership. It means only one person or an individual becomes the owner of the business. Thus, the business organization in which a single person owns, manages and controls all the activities of the business is known as sole proprietorship form of business organization. The individual who owns and runs the sole proprietorship business is called a „sole proprietor‟ or „sole trader‟. A sole proprietor pools and organizes the resources in a systematic way and controls the activities with the sole objective of earning profit. A business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.

Characteristics of Sole Proprietorship i. Single Ownership: A single individual always owns sole proprietorship form of business organization. That individual owns all assets and properties of the business. Consequently, he alone bears all the risk of the business. Thus, the business of the sole proprietor comes to an end at the will of the owner or upon his death. ii. No sharing of Profit and Loss: The entire profit arising out of sole proprietorship business goes to the sole proprietor. If there is any loss it is also to be borne by the sole proprietor alone. Nobody else shares the profit and loss of the business with the sole proprietor. iii. One man’s Capital: The capital required by a sole proprietorship form of business organization is totally arranged by the sole proprietor. He provides it either from his personal resources or by borrowing from friends, relatives, banks or other financial institutions. iv. One-man Control: The controlling power in a sole proprietorship business always remains with the owner. The owner or proprietor alone takes all the decisions to run the business. Of course, he is free to consult anybody as per his liking. v. Unlimited Liability: The liability of the sole proprietor is unlimited. This implies that, in case of loss the business assets along with the personal properties of the proprietor shall be used to pay the business liabilities.

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vi. Less Legal Formalities: The formation and operation of a sole proprietorship form of business organization requires almost no legal formalities. It also does not require to be registered. However, for the purpose of the business and depending on the nature of the business, the sole proprietorship has to have a seal. He may be required to obtain a license from the local administration or from the health department of the government, whenever necessary.

ADVANTAGES OF A SOLE PROPRIETORSHIP

i. 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 to comply with any legal formalities except for those businesses which required license from local authorities or health department of government. Just like formation it is also very easy to wind up the business. It is your sole discretion to form or wind up the business at any time. ii. 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 effort and reward. If he works hard, then there is a possibility of getting more profit and of course, 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. iii. Quick Decision and Prompt Action: In a sole proprietorship business the sole proprietor alone is responsible for all decisions. Of course, he can consult others. But 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 this decision. iv. Better Control: In sole proprietorship business the proprietor has full control over each and every activity of the business. He is the planner as well as the organizer, who co-ordinates every activity in an efficient manner. Since the proprietor has all authority with him, it is possible to exercise better control over business. v. Maintenance of Business Secrets: Business secrecy is an important factor for every business. It refers to keeping the future plans, technical competencies, 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. There is no need to disclose any information to others. vi. Close Personal Relation: The sole proprietor is always in a position to maintain good personal contact with the customers and employees. Direct contact enables the sole proprietor to know the individual likes, dislikes and tastes of the customers. Also, it helps in maintaining close and friendly relations with the employees and thus, business runs smoothly.

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vii. Flexibility in Operation: The sole proprietor is free to change the nature and scope of business operations as and when required as per his decision. A sole proprietor can expand or curtail his business according to the requirement. Suppose, as the owner of a bookshop, you have been selling books for school students. If you want to expand your business you can decide to sell stationery items like pen, pencil, register, etc. If you are running an STD booth, you can expand your business by installing a fax machine in your booth. viii. 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. You must have observed in different shops that there are a number of employees assisting the owner in selling goods to the customers. Thus, it helps in reducing poverty and unemployment in the country. DISADVANTAGES OF THE SOLE PROPRIETORSHIP

i. Limited Capital: In sole proprietorship business, it is the owner who arranges the required capital of the business. It is often difficult for a single individual to raise a huge amount of capital. The owner‟s own funds as well as borrowed funds sometimes become insufficient to meet the requirement of the business for its growth and expansion. ii. Unlimited Liability: In case the sole proprietor fails to pay the business obligations and debts arising out of business activities, his personal properties may have to be used to meet those liabilities. This restricts the sole proprietor from taking risks and he thinks cautiously while deciding to start or expand the business activities. iii. Lack of Continuity: The existence of sole proprietorship business is linked to the life of the proprietor. Illness, death or insolvency of the owner brings an end to the business. The continuity of business operation is therefore uncertain. iv. Limited Size: In sole proprietorship form of business organization there is a limit beyond which it becomes difficult to expand its activities. It is not always possible for a single person to supervise and manage the affairs of the business if it grows beyond a certain limit. v. 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 poor 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.

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Types of Organization Pravin Dhakne Roll No: 9533

Let Sum Up –

2. Partnership It is basically a relation between two or more persons who join hands to form a business organization with the objective of earning profit. The persons who join hands are individually known as „Partner‟ and collectively a „Firm‟. The partners provide the necessary capital, run the business jointly and share the responsibility. There must be some agreement between the partners before they actually start the business. This agreement is termed as „Partnership Deed‟, which lays down certain terms and conditions for starting and running the partnership firm. This agreement may be oral or written. A partnership firm is governed by the provisions of the Indian Partnership Act, 1932. Section 4 of the Indian Partnership Act, 1932, defines partnership as “a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

Features of Partnership form of business organization i. Two or more Members - You know that the members of the partnership firm are called partners. But do you know how many persons are required to form a partnership firm? At least two members are required to start a partnership business. But the number of members should not exceed 10 in case of banking business and 20 in case of other business. If the number of members exceeds this maximum limit then that business cannot be termed as partnership business. A new form of business will be formed, the details of which you will learn in your next lesson. ii. Agreement: Whenever you think of joining hands with others to start a partnership business, first of all, there must be an agreement between all of you. This agreement containsPage 4 of 23

Types of Organization Pravin Dhakne Roll No: 9533

the amount of capital contributed by each partner; profit or loss sharing ratio; salary or commission payable to the partner, if any; duration of business, if any ; name and address of the partners and the firm; duties and powers of each partner; nature and place of business; and any other terms and conditions to run the business. iii. Lawful Business - The partners should always join hands to carry on any kind of lawful business. To indulge in smuggling, black marketing, etc., cannot be called partnership business in the eye of the law. Again, doing social or philanthropic work is not termed as partnership business. iv. Competence of Partners - Since individuals join hands to become the partners, it is necessary that they must be competent to enter into a partnership contract. Thus, minors, lunatics and insolvent persons are not eligible to become the partners. However, a minor can be admitted to the benefits of partnership i.e., he can have a share in the profits only. v. Sharing of Profit - The main objective of every partnership firm is sharing of profits of the business amongst the partners in the agreed proportion. In the absence of any agreement for the profit sharing, it should be shared equally among the partners. vi. Unlimited Liability - Just like the sole proprietor the liability of partners is also unlimited. That means, if the assets of the firm are insufficient to meet the liabilities, the personal properties of the partners, if any, can also be utilized to meet the business liabilities. vii. Voluntary Registration - It is not compulsory that you register your partnership firm. However, if you don‟t get your firm registered, you will be deprived of certain benefits, therefore it is desirable. The effects of non-registration are: Your firm cannot take any action in a court of law against any other parties for settlement of claims. In case there is any dispute among partners, it is not possible to settle the disputes through a court of law. Your firm cannot claim adjustments for amount payable to or receivable from any other parties. viii. No Separate Legal Existence - Just like sole proprietorship, partnership firm also has no separate legal existence from that of it owners. Partnership firm is just a name for the business as a whole. The firm means the partners and the partners collectively mean the firm. ix. Restriction on Transfer of Interest - No partner can sell or transfer his interest to any one without the consent of other partners. Page 5 of 23

Types of Organization Pravin Dhakne Roll No: 9533

x. Continuity of Business - A partnership firm comes to an end in the event of death, lunacy or bankruptcy of any partner. Even otherwise, it can discontinue its business at the will of the partners. At any time, they may take a decision to end their relationship. Advantages of a Partnership a) Easy to form: Like sole proprietorship, the partnership business can be formed easily without any legal formalities. It is not necessary to get the firm registered. A simple agreement, either oral or in writing, is sufficient to create a partnership firm. b) Availability of large resources - Since two or more partners join hand to start partnership business it may be possible to pool more resources as compared to sole proprietorship. The partners can contribute more capital, more effort and also more time for the business. c) 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 problems. d) Flexibility in operations - The partnership firm is a flexible organization. At any time the partners can decide to change the size or nature of business or area of its operation. There is no need to follow any legal procedure. Only the consent of all the partners is required. e) Sharing risks - In a partnership firm all the partners share the business risks. f) Protection of interest of each partner - In a partnership firm every partner has an equal say in decision making. If any decision goes against the interest of any partner he can prevent the decision from being taken. In extreme cases a dissenting partner may withdraw himself from the business and can dissolve it. g) 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 and knowledge. 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, another in labour cases and so on as per their specialization. Similarly two or more doctors of different specialization may start a clinic in partnership. Disadvantages of a Partnership a) Unlimited Liability: All the partners are jointly as well as separately liable for the debt of the firm to an unlimited extent. Thus, they can share the liability among themselves or any one can be asked to pay all the debts even from his personal properties. Page 6 of 23

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b) Uncertain Life: The partnership firm has no legal entity separate from its partners. It comes to an end with the death, insolvency, incapacity or the retirement of any partner. Further, any dissenting member can also give notice at any time for dissolution of partnership. c) Lack of Harmony: You know that in 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 quarrel among the partners. Difference of opinion may lead to closure of the business on many occasions. d) 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. e) No transferability of share: If you are a partner in any firm you cannot transfer your share of interest 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.

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Difference between Partnership and Sole Proprietorship

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3. Joints of Companies A company form of business organization is known as a Joint Stock Company. It is a voluntary association of persons who generally contribute capital to carry on a particular type of business, which is established by law and can be dissolved only by law. Persons who contribute capital become members of the company. This form of business has a legal existence separate from its members, which means even if its members die, the company remains in existence. This form of business organizations generally requires huge capital investment, which is contributed by its members. The total capital of a joint stock company is called share capital and it is divided into a number of units called shares. Thus, every member has some shares in the business depending upon the amount of capital contributed by him. Hence, members are also called shareholders. 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.

Types of Companies i) ii)

Private Limited Company Public Limited Company

i)

Private limited company

A private limited company is a voluntary association of not less than two and not more than fifty members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures. Its main features are: It has an independent legal existence. The Indian Companies Act, 1956 contains the provisions regarding the legal formalities for setting up ofaprivate limited company. Registrars of Companies (ROC) appointed under the Companies Act covering the various States and UnionTerritories are vested with the primary duty of registering companies floated in the respective states and the Union Territories.

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

  

It is relatively less cumbersome to organize and operate it as it has been exempted from many regulations and restrictions to which public limited company is subjected to. Some of them are : It need not file prospectus with the Registrar.  It need not obtain the Certificate for Commencement of business.  It need not hold the statutory general meeting nor need it file the statutory report.  Restrictions placed on the directors of the public limited company do not apply to its directors. The liability of its members is limited. The shares allotted to its members are also not freely transferable between them. These companies are not allowed to invite public to subscribe to its shares and debentures. It enjoys continuity of existence i.e. it continues to exist even if all its members die or desert it. Hence, private company is preferred by those who wish to take the advantage of limited liability but at the same time desire to keep control over the business within a limited circle and maintain the privacy of their business.

Advantages  Continuity of existence  Limited liability  Less legal restrictions Disadvantages  Shares are not freely transferable  Not allowed to invite public to subscribe to its shares  Scope for promotional frauds  Undemocratic control

ii)

Public Limited Company

A Public Limited Company is a Company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 7.

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Advantages: Members' (the directors and shareholders) financial liability is limited to the amount of money they have paid for shares. The management structure is clearly defined, which makes it easy to appoint, retire or remove directors. If extra capital is needed, it can be raised by selling more shares privately. It is simple to admit more members. The death, bankruptcy or withdrawal of capital by one member does not affect the company's ability to trade. The disposal of the whole or part of the business is easily arranged. High status. Disadvantages: Requirement to register the company with the registrar of companies and provide annual returns and audited statement of accounts. All details of the company are available for public inspection so there can be no secrecy. There are penalties for failing to make returns. Can be more expensive to set up. May need professional help to form. As a director, you are treated as an employee and must pay tax. The advantages of limited liability status are increasingly being undermined by banks, finance house, landlords and suppliers who require personal guarantees from the directors before they will do business. Approval An application in Form No. 1A needs to be filed with the Registrar of Companies (ROC) of the state in which the Registered Office of the proposed Company is to be situated. The application is required to be signed by one of the promoters. The details to be state in the said application are as follows: 1. Four alternative names for the proposed company. (The name can be coined names from the objects of the proposed company or the names of the directors, etc. but should definitely be indicative of the main object of the company. Justification for the name needs to be specified along with the application) 2. Names and addresses of the promoters (Minimum 7 for a public company while 2 for private company). 3. Authorized Capital of the proposed company. Page 11 of 23

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4. Main objects of the proposed company. 5. Names of other group companies. On submitting the application, the ROC scrutinizes the same and sends the approval / objections in about 10 days to the applicant. On fulfilling of the objections a formal letter of name approval is issued.

4. Co-operative Society The term co-operation is derived from the Latin word co-operari, where the word co means „with‟ and operari means „to work‟. Thus, co-operation means working together. So those who want to work together with some common economic objective can form a society which is termed as “co-operative society”. It is a voluntary association of persons who work together to promote their economic interest. It works on the principle of self-help as well as mutual help. The main objective is to provide support to the members. Nobody joins a cooperative society to earn profit. People come forward as a group, pool their individual resources, utilize them in the best possible manner, and derive some common benefit out of it.

Types of Co-operative Societies Although all types of cooperative societies work on the same principle, they differ with regard to the nature of activities they perform. Followings are different types of co-operative societies that exist in our country. Page 12 of 23

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1. Consumers’ Co-operative Society: These societies are formed to protect the interest of general consumers by making consumer goods available at a reasonable price. They buy goods directly from the producers or manufacturers and thereby eliminate the middlemen in the process of distribution. Kendriya Bhandar, Apna Bazar and Sahkari Bhandar are examples of consumers‟ co-operative society. 2. Producers’ Co-operative Society: These societies are formed to protect the interest of small producers by making available items of their need for production like raw materials, tools and equipments, machinery, etc. Handloom societies like APPCO, Bayanika, Haryana Handloom, etc., are examples of producers‟ co-operative society. 3. Co-operative Marketing Society: These societies are formed by small producers and manufacturers who find it difficult to sell their products individually. The society collects the products from the individual members and takes the responsibility of selling those products in the market. Gujarat Co-operative Milk Marketing Federation that sells AMUL milk products is an example of marketing co-operative society. 4. Co-operative Credit Society: These societies are formed to provide financial support to the members. The society accepts deposits from members and grants them loans at reasonable rates of interest in times of need. Village Service Co-operative Society and Urban Cooperative Banks are examples of co-operative credit society. 5. Co-operative Farming Society: These societies are formed by small farmers to work jointly and thereby enjoy the benefits of large-scale farming. Lift-irrigation cooperative societies and pani-panchayats are some of the examples of co-operative farming society. 6. Housing Co-operative Society: These societies are formed to provide residential houses to members. They purchase land, develop it and construct houses or flats and allot the same to members. Some societies also provide loans at low rate of interest to members to construct their own houses. The Employees‟ Housing Societies and Metropolitan Housing Co-operative Society are examples of housing co-operative society.

Formation of a Co-operative Society A Co-operative Society can be formed as per the provisions of the Co-operative Societies Act, 1912. At least ten persons having the capacity to enter into a contract with common economic objectives, like farming, weaving, consuming, etc. can form a Co-operative Society. A joint application along with the bye-laws of the society containing the details about the society and its members has to be submitted to the Registrar of Co-operative Societies of the concerned state. After scrutiny of the application and the bye–laws, the registrar issues a Certificate of Registration.

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Requirements for Registration: 1. Application with the signature of all members 2. Bye-laws of the society containing: (a) Name, address and aims and objectives of the society; (b) Names, addresses and occupations of members; (c) Mode of admitting new members; (d) Share capital and its division.

Advantages of Co-operative Society i. Easy Formation: Formation of a co-operative society is very easy compared to a joint stock company. Any ten adults can voluntarily form an association and get it registered with the Registrar of Co-operative Societies. ii. Open Membership: Persons having common interest can form a co-operative society. Any competent person can become a member at any time he/she likes and can leave the society at will. iii. Democratic Control: A co-operative society is controlled in a democratic manner. The members cast their vote to elect their representatives to form a committee that looks after the day-to-day administration. This committee is accountable to all the members of the society. iv. Limited Liability: The liability of members of a co-operative society is limited to the extent of capital contributed by them. Unlike sole proprietors and partners the personal properties of members of the co-operative societies are free from any kind of risk because of business liabilities. v. Elimination of Middlemen’s Profit: Through co-operatives the members or consumers control their own supplies and thus, middlemen‟s profit is eliminated. vi. State Assistance: Both Central and State governments provide all kinds of help to the societies. Such help may be provided in the form of capital contribution, loans at low rates of interest, exemption in tax, subsidies in repayment of loans, etc. vii. Stable Life: A co-operative society has a fairly stable life and it continues to exist for a long period of time. Its existence is not affected by the death, insolvency, lunacy or resignation of any of its members.

Limitations of Co–operative Society i. Limited Capital: The amount of capital that a cooperative society can raise from its member is very limited because the membership is generally confined to a particular section of the Page 14 of 23

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society. Again due to low rate of return the members do not invest more capital. Government‟s assistance is often inadequate for most of the co-operative societies. ii. Problems in Management: Generally it is seen that co-operative societies do not function efficiently due to lack of managerial talent. The members or their elected representatives are not experienced enough to manage the society. Again, because of limited capital they are not able to get the benefits of professional management. iii. Lack of Motivation: Every co-operative society is formed to render service to its members rather than to earn profit. This does not provide enough motivation to the members to put in their best effort and manage the society efficiently. iv. Lack of Co-operation: The co-operative societies are formed with the idea of mutual cooperation. But it is often seen that there is a lot of friction between the members because of personality differences, ego clash, etc. The selfish attitude of members may sometimes bring an end to the society. v. Dependence on Government: The inadequacy of capital and various other limitations make cooperative societies dependant on the government for support and patronage in terms of grants, loans subsidies, etc. Due to this, the government sometimes directly interferes in the management of the society and also audits their annual accounts. Let us now sum up –

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PUBLIC SECTOR ENTERPRISES Traditionally, business activities were left mainly to individual and private organizations, and the government was taking care of only the essential services such as railways, electricity supply, postal services etc. But, it was observed that private sector did not take interest in areas where the gestation period was long, investment was heavy and the profit margin was low; such as machine building, infrastructure, oil exploration, etc. Not only that, industries were also concentrated in some regions that had certain natural advantages like availability of raw materials, skilled labour, nearness to market. This led to regional imbalances. Hence, the government while regulating the business activities of private enterprises went in for direct participation in business and set up public enterprises in areas like coal industry, oil industry, machine building, steel manufacturing, finance and banking, insurance etc. These units are not only owned by central, state or local government but also managed and controlled by them and are termed as Public Sector Enterprises. The business units owned, managed and controlled by the central, state or local government are termed as public sector enterprises or public enterprises. These are also known as public sector undertakings. A public sector enterprise may be defined as any commercial or industrial undertaking owned and managed by the government with a view to maximize social welfare and uphold the public interest. Public enterprises consist of nationalized private sector enterprises, such as, banks, Life Insurance Corporation of India and the new enterprises set up by the government such as Hindustan Machine Tools (HMT), Gas Authority of India (GAIL), and State Trading Corporation (STC) etc. There are three different forms of organization used for the public sector enterprises in India. These are 1. Departmental Undertaking form of organization is primarily used for provision of essential services such as railways, postal services, broadcasting etc. Such organizations function under the overall control of a ministry of the Government and are financed and controlled in the same way as any other government department. This form is considered suitable for activities where the government desires to have control over them in view of the public interest. 2. Statutory Corporation (or public corporation) refers to a corporate body created by the Parliament or State Legislature by a special Act which defines its powers, functions and pattern of management. Statutory Corporation is also known As Public Corporation. Its capital is wholly provided by the government. Examples of such organizations are Life Insurance Corporation of India, State Trading Corporation etc. 3. Government Company refers to the company in which 51 percent or more of the paid up capital is held by the government. It is registered under the Companies Act and is fully governed by the provisions of the Act. Most business units owned and managed by government fall in this category. Page 16 of 23

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1. Departmental Undertakings Departmental undertakings are the oldest among the public enterprises. A departmental undertaking is organized, managed and financed by the Government. It is controlled by a specific department of the government. Each such department is headed by a minister. All policy matters and other important decisions are taken by the controlling ministry. The Parliament lays down the general policy for such undertakings. FEATURES OF DEPARTMENTAL UNDERTAKINGS (a) It is established by the government and its overall control rests with the minister. (b) It is a part of the government and is managed like any other government department. (c) It is financed through government funds. (d) It is subject to budgetary, accounting and audit control. (e) Its policy is laid down by the government and it is accountable to the legislature. MERITS OF DEPARTMENTAL UNDERTAKINGS (a) Fulfillment of Social Objectives: The government has total control over these undertakings. As such it can fulfill its social and economic objectives. For example, opening of post offices in far off places, broadcasting and telecasting programs, which may lead to the social, economic and intellectual development of the people, are the social objectives that the departmental undertakings try to fulfill.

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(b) Responsible to Legislature: Questions may be asked about the working of departmental undertaking in the parliament and the concerned minister has to satisfy the public with his replies. As such they cannot take any step, which may harm the interest of any particular group of public. These undertakings are responsible to the public through the parliament. (c) Control Over Economic Activities: It helps the government to exercise control over the specialized economic activities and can act as instrument of making social and economic policy. (d) Contribution to Government Revenue: The surplus, if any, of the departmental undertakings belong to the government. This leads to increase in government income. Similarly, if there is deficiency, it is to be met by the government. (e) Little Scope for Misuse of Funds: Since such undertakings are subject to budgetary accounting and audit control, the possibilities of misuse of their funds is considerably reduced. LIMITATIONS OF DEPARTMENTAL UNDERTAKINGS (a) The Influence of Bureaucracy: On account of government control, a departmental undertaking suffers from all the ills of bureaucratic functioning. For instance, government permission is required for each expenditure, observance of government decisions regarding appointment and promotion of the employees and so on. Because of these reasons important decisions get delayed, employees cannot be given instant promotion or punishment. On account of these reasons some difficulties come in the way of working of departmental undertakings. (b) Excessive Parliamentary Control: On account of the Parliamentary control difficulties come in the way of day-to-day administration. This is also because questions are repeatedly asked in the parliament about the working of the undertaking. (c) Lack of Professional Expertise: The administrative officers who manage the affairs of the departmental undertakings do not generally have the business experience as well as expertise. Hence, these undertakings are not managed in a professional manner and suffer from deficiency leading to excessive drainage of public funds. (d) Lack of Flexibility: Flexibility is necessary for a successful business so that the demand of the changing times may be fulfilled. But departmental undertakings lack flexibility because its policies cannot be changed instantly. (e) Inefficient Functioning: Such organizations suffer from inefficiency on account of incompetent staff and lack of adequate incentives to improve efficiency of the employees.

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Let us now sum up –

2. Statutory Corporation (or Public Corporation) The Statutory Corporation (or Public Corporation) refers to such organizations which are incorporated under the special Acts of the Parliament/State Legislative Assemblies. Its management pattern, its powers and functions, the area of activity, rules and regulations for its employees and its relationship with government departments, etc. are specified in the concerned Act. Examples of statutory corporations are State Bank of India, Life Insurance Corporation of India, Industrial Finance Corporation of India, etc. It may be noted that more than one corporation can also be established under the same Act. State Electricity Boards and State Financial Corporation fall in this category. FEATURES OF STATUTORY CORPORATIONS (a) It is incorporated under a special Act of Parliament or State Legislative Assembly. (b) It is an autonomous body and is free from government control in respect of its internal management. However, it is accountable to parliament and state legislature. (c) It has a separate legal existence. Its capital is wholly provided by the government. (d) It is managed by Board of Directors, which is composed of individuals who are trained and experienced in business management. The members of the board of Directors are nominated by the government. (e) It is supposed to be self sufficient in financial matters. However, in case of necessity it may take loan and/or seek assistance from the government.

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(f) The employees of these enterprises are recruited as per their own requirement by following the terms and conditions of recruitment decided by the Board. MERITS OF STATUTORY CORPORATIONS (a) Expert Management: It has the advantages of both the departmental and private undertakings. These enterprises are run on business principles under the guidance of expert and experienced Directors. (b) Internal Autonomy: Government has no direct interference in the day-to-day management of these corporations. Decisions can be taken promptly without any hindrance. (c) Responsible to Parliament: Statutory organizations are responsible to Parliament. Their activities are watched by the press and the public. As such they have to maintain a high level of efficiency and accountability. (d) Flexibility: As these are independent in matters of management and finance, they enjoy adequate flexibility in their operation. This helps in ensuring good performance and operational results. (e) Promotion of National Interests: Statutory Corporations protect and promote national interests. The government is authorised to give policy directions to the statutory corporations under the provisions of the Acts governing them. (f) Easy to Raise Funds: Being government owned statutory bodies, they can easily get the required funds by issuing bonds etc. LIMITATIONS OF STATUTORY CORPORATIONS (a) Government Interference: It is true that the greatest advantage of statutory corporation is its independence and flexibility, but it is found only on paper. In reality, there is excessive government interference in most of the matters. (b) Rigidity: The amendments to their activities and rights can be made only by the Parliament. This results in several impediments in business of the corporations to respond to the changing conditions and take bold decisions. (b) Ignoring Commercial Approach: The statutory corporations usually face little competition and lack motivation for good performance. Hence, they suffer from ignorance of commercial principles in managing their affairs.

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Types of Organization Pravin Dhakne Roll No: 9533

Let us sum up –

3. Government Public Ltd. Company As per the provisions of the Indian Companies Act, a company in which 51% or more of its capital is held by central and/or state government is regarded as a Government Company. These companies are registered under Indian Companies Act, 1956 and follow all those rules and regulations as are applicable to any other registered company. The Government of India has organized and registered a number of its undertakings as government companies for ensuring managerial autonomy, operational efficiency and provides competition to private sector. FEATURES OF GOVERNMENT COMPANIES (a) It is registered under the Companies Act, 1956. (b) It has a separate legal entity. It can sue and be sued, and can acquire property in its own name. (c) The annual reports of the government companies are required to be presented in parliament. (d) The capital is wholly or partially provided by the government. In case of partially owned company the capital is provided both by the government and private investors. But in such a case the central or state government must own at least 51% shares of the company. (e) It is managed by the Board of Directors. All the Directors or the majority of Directors are appointed by the government, depending upon the extent of private participation. (f) Its accounting and audit practices are more like those of private enterprises and its auditors are Chartered Accountants appointed by the government.

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Types of Organization Pravin Dhakne Roll No: 9533

(g) Its employees are not civil servants. It regulates its personnel policies according to its articles of associations. Merits of Government Public Ltd Companies (a) Simple Procedure of Establishment: A government company, as compared to other public enterprises, can be easily formed as there is no need to get a bill passed by the parliament or state legislature. It can be formed simply by following the procedure laid down by the Companies Act. (b) Efficient Working on Business Lines: The government company can be run on business principles. It is fully independent in financial and administrative matters. Its Board of Directors usually consists of some professionals and independent persons of repute. (c) Efficient Management: As the Annual Report of the government company is placed before both the house of Parliament for discussion; its management is cautious in carrying out its activities and ensures efficiency in managing the business. (d) Healthy Competition: These companies usually offer a healthy competition to private sector and thus, ensure availability of goods and services at reasonable prices without compromising on the quality. Limitations of Government Companies (a) Lack of Initiative: The management of government companies always has the fear of public accountability. As a result, they lack initiative in taking right decisions at the right time. Moreover, some directors may not take real interest in business for fear of public criticism. (b) Lack of Business Experience: In practice, the management of these companies is generally put into the hands of administrative service officers who often lack experience in managing the business organization on professional lines. So, in most cases, they fail to achieve the required efficiency levels. (c) Change in Policies and Management: The policies and management of these companies generally keep on changing with the change of government. Frequent change of rules, policies and procedures leads to an unhealthy situation of the business enterprises.

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Let us sum up now –

And overall comparison of Public sector companies

Compatibility view of Public Sector Enterprises

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