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 Private Ltd. Co.

Companies Ltd. Co.

 Sole Proprietorship
Business owned by one individual for the individual’s profit

Advantages Disadvantages

– Ease of formation – Unlimited liability

– Management limitations
– Low start-up costs
– Limited capital
– Owner has direct control
and responsibility
– Uncertain life, lack of
continuity
– All earnings goes to
owner
 Partnership
Association of 2 or more who carry on a business

Advantages Disadvantages

– Unlimited liability
– Low start-up costs
– Still limited capital
– More management
skills
– Possibility of disagreement
– Shared responsibility
– Divided authority
– More capital available
– 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
1 2 2
No.

10 for Bank /
Max. No. 1 50
else, 20

Memorandum
Partnership & Articles of
Formation No document association
Deed
 Proprietorship Partnership Pvt. Ltd. Co.

Liability Unlimited Unlimited Limited

Financial
Limited Pooled Large
Strength

Borrowing
Limited Better Good
Capacity

Management
Self Partners BOD
Control
 Proprietorship Partnership Pvt. Ltd. Co.

Business
Perfect Shared Shared
Secrecy

State Control None Very little Moderate

Mutual
Transferability At will Restricted
Consent

Stability Unstable Less Stable Stable

Mutual
Winding up At will Restricted
Consent
 Impact of Forms of Ownership

• Access to Funds

• Control of business

• Distribution of Earnings/ losses

• The degree of liability

• Potential return and risk