Forms of

Business
Organizations

All by yourself?

Sole Proprietorship
Owned by one
person
Owner keeps all
the profits
Relatively
unlimited control

No separation of

owner

from business Owner

responsible for all
debts/liabilities
Business and
property can

personal
be
seized

How can I start

one?

How can I start

Few legal
one?
requirements

Can be run from a

home, garage, or
van

Do you have a
friend

Do you have a
friend
and a good idea?

Partnerships
Owned by two or
more people Share
profits equally
(unless otherwise
agreed upon)

Partnershi
ps
Owners share all the risks
equally
Fully liable without limit
(similar to a sole proprietorship)

Forming
a
Partners
Partnership
Agreement
hip
More difficult
than a sole
proprietorshi
p

Corporatio
ns

Corporations
Legal
entity/artificial
person Separate
from its owners

Corporations
Owners risk losing their
investments Owners do
not lose personal assets
Harder to form

Corporations
State Charter and
Organizational Fees

Lets
Revie
w

Sole
Requirements for Organization None
Proprietorship
Legal Status Owner is the business
Liability

Unlimited Liability

Management
decides

Owner

Dissolution
decides/death

Owner

Ease of formation

Just do it

Partners
Requirements for
Agreement of
hip
Organization
Parties
Legal
Status
Liabilit
y
Managem
ent
Dissolutio
n
Ease of
formation
Duratio
n

Owners not a
separate entity
Unlimited
Liability
Owner have
equal say
Owners
decides/death/
withdrawal/Bankru
ptcy
Moderately
Withdrawal/Bankru
Hard
ptcy

Corporatio
Requirements for
State Charter/Org.
ns
Organization
Fees
Legal
Status
Liabilit
y
Managem
ent
Dissoluti
on
Ease of
formation
Duratio
n

Separate entity
from Owners
Limited
liability of
Shareholders
Directors set
policy and
Appoint officers
Does
Difficu
necessarily end
lt
Can be
perpetual

WHAT IS HUF?
It is obvious that a non-Hindu family cannot get this
status. So, A Parsi, Muslim orChristian cannot create a
HUF.
So,what is a HUF?
The term 'Hindu Undivided Family' has not been defined
under the Income Tax Act. It is defined under the Hindu
Law as a family that consists of all persons lineally
descended from a common ancestor, including wives
and unmarried daughters.
This meansthat a membership into a HUF does not
come from a contract but from status under Hindu law.
A HUFcannot be formed by a group of people who do
not constitute a family;lineal descendents with a
common ancestor is a must.

Formation Of Huf
The most frequently asked question
about HUF is: How does it come into
being? To form an HUF, One has to do is
Get Married. The HUF gets created as
soon as a person complete the seven (or
four, whatever) circles round the holy fire
and become husband and Wife.
There have to be a minimum of two
people to constitute a family. The
husband and wife together make up a

CAN AN UNMARRIED FORM HUF

No, an unmarried cannot form a HUF of

which he seeks to be the Karta himself. He
can very well be the member of the HUF of
his father or grandfather, but to create his
own HUF he has to wait till he gets
married.

A HUF consists of:

Karta
The karta has to be the oldest male in the family. If
he passes away, his wife cannot become the karta.
His eldest son will take his place. If he chooses not
to, he can give up his right and the next son in line
can take his place.
Coparceners
This is what all the male members are referred to
as.
A Hindu coparcenary includes the sons,
grandsons and great-grandsons of the holder of
the joint family property. By virtue of their birth,
they acquire an interest in the property.
Members
The female members are simply called members

DAUGHTER CAN ACT AS COPARCENER

On 9th September 2005, the Hindu Succession

Act, 1956 was amended to provide that
a daughter too could be a coparcener i.e. joint heir,like her
brother to the joint family's assets and
she too could enforce the partition of the family property to
claim her individual share.
She continues to be the coparcener in her father's HUF even
after she gets married and forms another HUF with her husband.

Can there be an all-female HUF?

Yes, there can be. Where a couple has only a daughter
-and the husband passes away,the mother-daughter
duo can continue the HUF (although a problem may
arise after she gets married and becomes a member of
her husband's HUF). It has been held by the Allahabad
High Court in CIT v. Sarwan Kumar 13 ITR 361 (All) that
there can be an HUF consisting of female members.
Can a female be the Karta? The answer can't be No in
the light of the amendment in the Hindu succession
Act in 2005.An unmarried daughter, in the unfortunate
event of her father passing away, will become the
Karta of the HUF if she has no brother.

Can it be partitioned?
Yes, the HUF can be partitioned.
This is actually a division of property where the share of
each member is determined.
Any coparcener can enforce the partition of the HUF and
then the share will be divided between:
~All coparceners
~A son in the womb of his mother at the time of partition
~Mother (gets an equal share if there is a partition
between the sons and her husband has passed away)
~Wife (gets a share equal to that of a son at the time of
partition between father and sons)
-Income tax act does not recognize partial partition. So
there should be complete partition of HUF.

Corporations
Corporation a form of business
organization that is recognized by the law
as having all the legal rights of an
individual.
They have the right to buy & sell property,
enter into legal contracts, and to sue & be
sued.
In 2000, corporations were 19.9% of
business organizations, but were
responsible for 88.8% of all sales.

Corporations
Forming a Corporation:
File for permission from the federal (national)
government or the state where your HQ will be
charter is granted: states name, address,
purpose, number of shares of stock, etc.
Sell stock (IPO) at an initial price
Stock value goes up and down according to your
profitability
Issue dividends (hopefully)

Stock?
Stock a certificate of ownership in a firm.
Stockholders a.k.a. shareholders investors in
a corporation (they own stock).
The money from the stockholders (investors) is
used to set up the firm.
This money is called financial capital.

Types of Stock
Common stock basic form of ownership in a
corporation. Each share is worth one vote for the
board of directors, who run the company.
Preferred Stock non-voting shares of stock, but
these shareholders receive profits before
common stockholders.

Multinational
Multinational - can be an ordinary
corporation or a conglomerate, but it has
manufacturing or service operations in
several different countries.
Multinationals introduce new technology,
generate jobs, and produce tax revenues
for the host countries.
Pay taxes in each country / must follow
the law of each country

Nonprofits
Firms use scarce resources to produce
goods and services in order to make a
profit for their owners.
Other organizations operate on a notfor-profit basis
A nonprofit organization operates like a
business to promote the collective
interests of its members rather than to
seek financial gain for its owners

Nonprofits
Examples: schools, churches, hospitals,
welfare groups, and adoption agencies.
Many of these organizations are legally
incorporated to take advantage of
unlimited life and limited liability.
They are similar to profit-seeking
businesses, but do not issue stock, pay
dividends, or pay income taxes.
The profits they produce are used to

Goal of Cooperatives
Cooperative - a voluntary association of
people formed to carry on some kind of
economic activity that will benefit its
members.
Producer and worker cooperatives are
associations in which the members join
in production and marketing and share
the profits.

Cooperatives
The consumer
cooperative is a
voluntary
association
They buy bulk
amounts of goods
such as food and
clothing on behalf
of its members.
The goal is lower
prices for
members.

Credit Unions
An example of a cooperative is
a credit union
It is a financial organization
that accepts deposits from, and
makes loans to, employees of a
particular
company
or
government agency.

Business Organizations
Chamber of Commerce: promotes the
welfare of its businesses by lobbying
and education.
Better Business Bureau: provides info
on local companies, keeps records of
complaints, offers consumer education
programs.
Industry or Trade Associations: try to
influence government policy on imports,
tariffs,
minimum
wage,
new

MEANING OF PUBLIC 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
undertakings.

known

as

public

sector

A pubic sector enterprise may be defined as any

commercial or industrial undertaking owned and
managed by the government with a view to
maximise social welfare and uphold the public
interest
Public enterprises consist of nationalised
private sector enterprises, such as, banks, Life

CHARACTERISTICS OF PUBLIC ENTERPRISES

(a)Government Ownership and Management
(b)Financed from Government Funds
(c)Public Welfare
(d)Public Utility Services
(e)Public Accountability
(f) Excessive Formalities

Basis of difference
1. Objective

Private sector
enterprises

Public sector
enterprises

Maximisation of profit Maximise social

welfare and ensure
balanced economic
development.

2. Ownership

Owned by individuals

Owned by
Government

3. Management

Managed by owner
and professional
managers

Managed by
Government

4. Capital

Raised by owners
through loans, private
sources and public
issues

Raised from
Government funds
and sometimes
through public issues.

5. Area of operation

Operates in all areas

with adequate return
on investment.

Operates in basic and

public utility sectors.

FORMS OF ORGANISATION OF PUBLIC

ENTERPRISES
There are three different forms of organisation
used for the public sector enterprises in India.
These are
(1)Departmental Undertaking;
(2)Statutory (or Public) Corporation
(3)Government Company.

Departmental Undertaking

This form of organisation is primarily used for provision

of essential services such as railways, postal services,
broadcasting etc. Such organisations 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.

Statutory Corporation (or public corporation)

It refers to a corporate body created by the Parliament or State

Legislature by a special Act which define 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 organisations are Life Insurance
Corporation of India, State Trading Corporation etc

Government Company
It 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

Public
Departmental
Enterprises Undertakings

Example
1. Posts &
Telegraph
2. Railways
3. All India Radio
(AIR)
4. DoorDarshan
(TV)
5. Ordnance

Example
1. Food Corporation of
India
2. Industrial Finance
Corporation of India
3. Life Insurance
Corporation of India
4. Unit Trust of India

Example
1. Hindustan
Machine Tools
Limited
2. Steel Authority of
India Limited
3. Hindustan
Shipyard Limited