Business Environment and Law- Forms of Organization-Introduction, Characteristics, and Forms of Business Organization
Introduction (Forms of Organization): To understand forms of the organization first we have to understand business activities. Business activities basically consist of industrial and commercial activities. Industrial activities mean the manufacturing of various products and commercial activities means trading of goods or providing services. Different types of business organizations undertake these activities. They can also be called Business Undertakings, enterprises, concern or firms.
Characteristics analysis can give us a better understanding of a business organization:
- Distinct Ownership: Ownership refers to the right on an individual or group of individual to acquire legal assets or properties for the purpose of running a business. A business firm may be owned by an individual as well as group of individuals jointly.
- Lawful Business: Business enterprises must undertake which is lawful that is business must not involve illegal activities.
- Separate Status and Management: Every business enterprise has its own independent entity. It has its own liabilities and assets. Profit earned or loss incurred by one business can not be accounted for in other business.
- Dealing in Goods and Services: Every business undertaking is engaged in the productions and/or distribution of goods or service in exchange for money.
- Continuity of business Operation: Every concern engages continuous operations. Units having single operations or transaction is not a business unit.
An Ideal form of organization must have various suitability factors like;
- It should be easy to form and must not involve many legal formalities.
- Adequate capital should be there is the organization to run the business activities smoothly.
- It should be organized on the basis of limited or unlimited liabilities. From the low-risk viewpoint, limited liabilities is preferable.
- For the efficient management and control, all the operations must be in the eye of the owner. If it is not so then there may be a risk of inefficient management and control.
- Business is influenced by future conditions which are unpredictable and uncertain. This makes business decisions risky thereby increasing the chances of loss arising out of business. Thus, business involves high risk.
A form of business organizations (Forms of Organization):
- Sole Proprietorship: It is a form of organization where single ownership of business exists. This form of organization can often be seen in the small-scale business’.
- Hindu Undivided Family Business: This form of Business Organization can only be seen in India. In this type of Organization, all the family members own the business jointly. The head of the family manages all the business activities as KARTA of HUF.
- Partnership: An association of two or more individuals but not more than 20 who agree to share the profit of the lawful business which is managed by all or some of the partners as per the mutual understanding of the partners involved in a partnership in an agreed ratio by mutual understating of all the partners.
- Company: A company is a voluntary association of persons to carry on business. Normally it is given legal status and subject to certain legal regulations. It is an association of persons who generally contribute money for the common
- Statutory Bodies and corporations: Statutory bodies are created under an act of parliament or an act of State Legislature Examples Reserve Bank of India, under the RBI Act, State Bank of India under the SBI Act. A statutory corporation of a public body is an autonomous corporate body created by statute. The act and statute define its objective power and functions.
- Cooperatives, Societies, and trusts: Business activities with the prime objective of providing services to its members are done in such type of organizations.
- Limited Liability Partnership: Limited Liability Partnership has been introduced in India by way of Limited Liability Partnership Act, 2008. It is generally known as LLP.
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