Some of the popular types of business organization  one can setup in India are as follows:

1. Individual Entrepreneur:

The common form of business organisation in India is one-man business.

In agriculture and retail business, this form is the general rule. In this type of enterprise, the individual entrepreneur supplies the entire capital (even if he has to borrow); he organizes and supervises the business; and he alone is responsible for the results, i.e., gets profit or suffers losses. If necessary, he can employ some persons to assist him.

Merits of Individual Enterprise:


This form of enterprise has certain advantages. The business is generally on a small scale and all the economies of small-scale production are available.

The chief advantages may be thus summarized:

(i) Incentive for Hard Work:

Since the risk is entirely his own, the entrepreneur has a great incentive for hard work. He works long and late. Such a hard work is bound to produce good results.


(ii) Superior Output at Low Cost:

On account of very close supervision over details, quality of the goods is taken care of and the cost per unit is low. Nobody can waste materials or time or spoil machinery.

(iii) Customers Satisfaction:

The customers are sent away fully satisfied. This is due to the keen personal interest that the entrepreneur takes in the business. Even a small complaint can be promptly attended to.


(iv) Sympathetic Treatment of the Employees:

The employees can be kept happy and contented. This is due to the intimate personal relations, that exist between the entrepreneur and his employees. He is in a position to treat them sympathetically.

(v) Low Overhead Charges:

The staff maintained by the individual entrep­reneur is small. Most of the work is done by the word of mouth and personally. Hence overhead charges are kept low.

(vi) Independence:

The entrepreneur is his own ‘boss’. He is not to serve another’s will. Such a type of business suits capable businessmen of small means, who prefer to be independent.

(vii) Easy Dissolution:

Finally, it is easy to form such a business and simple to dissolve it. This is so because the proprietor is the only person concerned. One need not be tied to a business all his life. In case of unsatisfactory result, it can be easily wound up.



But the individual entrepreneur has to face many serious difficulties.

The following are the chief shortcomings of this type of business organisation:

(i) Limited Resources:

The entrepreneur cannot expand his business to take advantage of increased demand. He is unable to avail of the opportunities of making profits due to lack of funds. His business will generally remain on a small scale.


(ii) No division of labour:

The entrepreneur has to look into every aspect of business single-handed, and he may not be able to do it efficiently. The advantages of division of labour are lost.

(iii) Small Income:

In spite of all efforts, such a business can yield only a small profit. Since the resources are limited, many profitable ventures are ruled. Business is on a small scale and income is small.


(iv) Weak Competitive Capacity:

The one-man business cannot compete with a big business. Its life is, therefore, precarious. Any time cutthroat competition by powerful rivals may kill the business.

(v) Backward Country:

A country with small businesses is bound to remain economically backward. It can never hope to attain industrial or commercial leadership with such a small and primitive organisation. Not to speak of industrial leadership, it cannot even occupy a respectable place among the economically advanced countries of the world.


In spite of these handicaps, the individual enterprise is not likely to disappear. Entrepreneurs of ability do not like to enter into partnership or to take up a job in a public company. They prefer to run their business independently and be content with whatever profits they make. Agriculture and retail stores must generally remain the sphere of the individual entrepreneur.

2. Partnership:


Sometimes the one-man business reaches such a stage of development that it becomes too unwieldy for one man to be able to carry on. The original entrepreneur may become too old for work. It would seem essential then to take a younger person into partnership to prevent the firm from decaying. Individual ownership thus naturally develops into a partnership.

Partnership may also be formed to start a new business altogether. Two or more persons combine together to do business. Their mutual relations, their rights, and duties, the capital each is to put in, the proportion in which profits and losses are to be shared are laid down in the partnership deed. The agreement also lays down the aims of the partnership as well as the manner in which it can be dissolved. The agreement may be verbal or in writing.

Unlimited Liability:

From the legal point of view, each partner is a fully authorised agent of the partnership, and every partner has the power to bind the other partners to any contract that he may enter into. Each partner is responsible for the debts of the firm, not only to the extent of his share in the business, but to the full extent of even his private resources. In other words, the liability is unlimited.

Limited Partnership:

There is also a type of partnership in which one or more partners can get their liability for the partnership debts limited to their share capital or to a fixed proportion of it. This is called a limited partnership. But the liability of all partners cannot be so limited. It is essential that there are some partners whose liability is unlimited. The partners with limited liability cannot take active part in business. They are called dormant or sleeping partners.


Merits of Partnership:

A partnership has some obvious advantages over individual proprietorship. The partnership business is small but not too small. It enjoys all the advantages of small-scale business as well as some economies of large-scale business too.

They are:

(i) More Capital:

It commands large capital resources. As the liability of each partner is unlimited and all partners are jointly and severally responsible for the payment of debts, the creditors feel more secure about the money they may have advanced. Hence, it is easier for a partnership to raise funds. They are thus able to do business on a large scale reaping the economies of scale.

(ii) Diverse Talent:


Partnership brings about a pooling of skills and ability. Diverse talents are at the service of a partnership, and a certain degree of specialization is possible among the partners. Specialization makes for higher efficiency. A looks after the store, B is in-charge of the office and C runs the factory. This division of labour proves advantageous and fruitful.

(iii) Correct Decisions:

In a partnership, there is less possibility of error of judgment. A problem is examined from more than one angle and the decision arrived at is likely to be sounder than in a one-man business.

(iv) Vigour and Zeal:

The partners work with great enthusiasm and vigour. Every partner is supposed to be deeply interested in the business and is expected to give it his best.

(v) Prompt Decisions:


The partners are in continuous and intimate touch with one another and prompt decisions can be taken. In business, time factor is very important. A partnership can take full advantage of each business current, and it can decide on a suitable course of action before it is too late.

(vi) Personal Relationship:

Partnership can maintain personal relationship with the employees and the customers. This is highly conducive for a good business.


A partnership suffers from the following drawbacks:

(i) Unlimited Liability:

Since the liability of a partner is unlimited, he can be held liable for the whole debt of the firm, not necessarily his own share. This frightens away the moneyed people. They are reluctant to join those who may have ability but no capital.

(ii) Timid and Unenterprising:

Owing to unlimited liability, a partnership follows a timid policy. Each partner is anxious that the partnership should not run big risks and incur heavy liability, for any one of them can be called upon to pay the entire debt of the firm. Hence they become unduly cautions.

(iii) Less Work and More Waste:

It is generally seen that a partner shirks work. Every partner tries to shift some work on to the other. But he wants to get the utmost out of the business. The partnership fund, being a common fund, is spent by every partner recklessly. Each partner tries to enrich himself at the expense of the firm. Hence it is wasteful.

(iv) Mutual Dissensions:

Misunderstandings generally arise and the work suffers. Quarrels among the partners are quite common. No partner then pays any serious attention to the business

(v) No Permanence:

The partnership has to be dissolved in case of retirement, death, insolvency or insanity of a partner. There is thus no continuity of life in a partnership.

(vi) Money locked up:

A partner is wedded to the partnership for ever. No partner can transfer his interest in the firm to anybody else without the unanimous consent of the other partners.

(vii) Insufficient Funds:

A partnership has generally insufficient resources for undertaking any manufacturing or business activity on a large scale. It thus suffers from the disadvantages of small-scale production and is unable to enjoy the economies of large-scale.

3. Joint-Stock Company:

The most important type of business organization today is the joint stock company. In fact, only in this manner can a business be organised on a respectable scale.

Organisation and Finance:

A limited company is organised in this way: An entrepreneur conceives a scheme of business; he secures the co-operation of at least six more persons, for the minimum number of persons to form a company is seven. They take steps for the formation of the company.

They draft the Memorandum of Association, which contains the name of the company, the location of the head office, its aims and objects, the amount of share capital, the kind and value of shares, and a declaration that the liability is limited.

Articles of Association, containing the rules and regulations of the company, are also drafted. These two documents are submitted to the Registrar of Joint-Stock Companies. If the Registrar is satisfied that the requirements of the law have been fulfilled, he issues a certificate of incorporation. The company then comes into existence.

The promoters of the company then canvass for the sale of shares. The shares are of several kinds—Preference, Ordinary and Deferred. The preference shareholders have the right to be paid first out of the profits, before anything is paid to the other shareholders. The preference shares may be cumulative preference shares, in which case the holders are entitled to receive a fixed dividend even for the years when there is no profit.

Their dividend goes on accumulating. Or, they may be non-cumulative preference shares, in which case the shareholders will get dividend only for the years when the company has made enough profit to pay them.

After the preference shareholders are paid dividend at the fixed rate comes the turn of the ordinary share holders for getting the dividend. Last of all rank the deferred shares. These shares are generally held by the promoters them­selves. They are a few in numbers. Whatever is left of the total profit, after other types of shareholders have been paid, is distributed among the deferred shareholders, and it may happen to be quite substantial. This device is, therefore, adopted by the promoters of the company to keep to themselves the lion’s share of the profits.

Besides raising capital by selling shares, the company may also raise funds by sale of debentures or bonds. The debenture is document showing the loan taken by the company. Unlike the shareholders, the debenture-holders do not take any risk. Profit or no profit, they must get their interest. They are the creditors of the company.

The shareholders then elect directors to manage the business on their behalf. The directors have to justify their policies before the shareholders in the annual meeting. If the shareholders are not satisfied, other directors may be elected in their place.

The board of directors only lays down the general policy and discusses major issues. The day-to-day business is carried on either by the salaried secretary, manager, managing director or the managing agents. Since April 1970, managing agency system has been abolished in India.

Public Limited Company. The joint-stock company may take the form of a public limited company. Such a company has to submit certain statements and the balance-sheet to the Registrar of Joint-stock Companies yearly. It can invite the public to buy shares by issuing a prospectus. There is no maximum limit to the number of shareholders; the minimum limit is seven. Business cannot be started unless the minimum capital laid down has been subscribed.

Private Limited Company. This type of company is free from the necessity of submitting certain returns to the Registrar. But there are certain restrictions. If cannot issue a prospectus. The maximum number of shareholders is limited to 50.

Joint-stock Company and Partnership Compared:

From the above description of a joint stock company, we can easily notice some essential features which distinguish it from a partnership. The number of shareholders in a company is very much larger than in a partnership. It may run into thousands, and they are scattered through the length and breadth of the country, sometimes the world. The number of partners, however, is generally very small and the contact between them is close and continuous.

The financial resources of a joint-stock company are much larger:

No partnership can raise so much capital. Since the partnership cannot sell shares, it has to depend on its own resources. The liability is limited in a joint-stock company, whereas it is unlimited in the case of partnership. A partner can be called upon to pay the entire debt of the business; even his private property can be attached. But the liability of a shareholder in a company is limited to his share capital only.

The company is a legal person and, as such, it can sue and be sued upon. In the partnership, the partner can sue and be sued up in personally, and right in the name-of the firm. Being a legal person a company can own property and enter into business contracts.

The existence of a limited company has a legal sanction:

It is brought into existence according to an Act of the State and works under the supervision of law. The partnership comes into the grip of law only when the law is invoked against it. The partnership can change in any lawful business? But a company cannot go beyond what has been laid down in the Memorandum of Association.

A company has a perpetual existence:

The retirement or death of a shareholder or a director cannot bring about the dissolution of a company. But a partnership comes to an end when a partner retires, dies, or if he becomes instance or bankrupt. Hence, a company is a permanent body and can go on forever.

Personal relationship is of no importance in a company, whereas it is vital in a partnership. This is shown by the fact that a shareholder may sell his shares without the consent of the company. But no partner can transfer his interest in the firm to another person without the consent of all other partners.

In a partnership, the owners themselves manage the business. In fact, every partner has a right to take part in business management. But in a company the shareholders, who are the owners of the company, entrust the work of management to a board of directors. Ownership is thus separated from control.

Merits of Joint-Stock Organisation:

Let us now enumerate the merits of the joint-stock type of organisation:

(i) Economies of Large Scale:

The large financial resources of the com­pany enable it to undertake business on a scale large enough to realise internal and external economies of scale. These economies are: use of modern machinery, division of labour, economies in buying and selling, lower overhead charges relating to distribution, publicity and administration, research and experiments, etc.

(ii) Limited Liability:

It is a great advantage to have the liability limited. The shares are of different kinds and the value of each share is quite low. This attracts all sorts of people, rich and poor, rash and prudent, to invest their capital. Large funds can thus easily be raised which would not have been possible if the liability were unlimited.

(iii) Shares Transferable:

A shareholder can sell his shares whenever he likes. He is not tied for life to the fortunes of a company. When he needs money he can get it by selling his shares. Thus the investment is quite convenient.

(iv) Economical Administration:

The directors have not to be paid salaries but just a fee tor attending the Board meeting. Thus the company can get the advice of people of mature wisdom and ripe experience at a small cost. The administration is, therefore, economical.

(v) Democratic:

The directors can be removed by the shareholders, if they are not found satisfactory. The company is therefore a democratic organisation. It is the will of the general body of the shareholders that is supreme.

(vi) Permanent Existence:

The company has a perpetual existence. Any number of shareholders may leave it, but the company continues. It can thus afford to launch enterprises which may reach the stage of profit-taking after a long time.

(vii) Thrift Encouraged:

By affording opportunities of investment even to men of small means, the company organisation encourages thrift and saving in the country. This type of organisation is a great aid in capital formation.

(viii) Legal Control:

The Government exercises control over the working of the company. It has to conform to certain legal requirements. The object is to prevent fraud and to protect the interests of the share-holders and the public at large.

(ix) Risks spread out:

This type of organisation enables the individual investor to spread out his risks. Instead of starting a business of his own, he can buy the shares of a number of .joint-stock companies. He need not put all his eggs in one basket. These are some of the advantages associated with joint-stock from of business organisation.


As against the advantages mentioned above, there are certain draw-backs too in the company form of organisation

(i) Rash Enterprises:

The limited liability may encourage rash enterprises to be launched. It is the shareholders’ money that is involved and the decisions are taken by the directors. One is tempted to play ducks and drakes with other people’s money.

(ii) Shareholders Indifferent:

The transferability of shares kills the interest of the shareholders in the company. On account of the indifference of shareholders, the directors are all in all. They often promote their own interests at the expense of the company.

(iii) Democratic only in Theory:

The directors, self-elected at first, manage to get themselves re-elected every time by securing proxies. The shareholders who should have ultimate authority feel helpless.

(iv) Fraud and Exploitation:

The shareholders are exploited by dishonest directors. Frauds are common. This frightens away the prospective investor and capital becomes shy.

(v) Lacking Adaptability:

A company lacks the adaptability and vigour of a partnership. It is a slow-moving machine. Quick decisions are not possible. This form of business organisation is thus more suited to business that can be reduced to a routine. When quick decisions are necessary, it is not suitable.

(vi) Lack of Personal Touch:

The owners of the company, i.e., the shareholders, have no personal touch with the employees. This impersonal and unsympathetic role results in employees being often exploited in the name of the shareholders. There are often labour troubles.


Weighing advantages and disadvantages, we can say that, on the whole, a joint-stock company is very desirable and beneficial. This form of business has come to stay and no country can do without it. First class business can be run only in this form of organisation.

4. Co-Operative Organisation:

Another form of business organisation is co-operative enterprise. Co­operation is broadly of two types, namely,

(1) Producers’ co-operation, and

(2) Consumers’ co-operation.

Producers’ Co-operation:

In this form of co-operation, the workers are their own masters. The business is owned by them. They elect managers and foremen. They are their own employees. The profits, if any, are divided among them all.

The scheme is very attractive. The “accursed” entrepreneur is done away with and the profits, instead of enriching a few individuals, go to the actual workers. Nothing could be more attractive and fairer than this. The workers are supposed to put in very hard work; and there are no strikes or lock-outs. Co-operation is educationally and morally useful. It encourages thrift among the workers and prevents them from being exploited. It teaches them how to run a business and to work in a team spirit.

This, however, is all theory. Actually, co-operative enterprise has proved a failure. It has generally not achieved the results expected of it. The members are not able to raise sufficient capital and employ good managers. The workers show lack of discipline and often refuse to obey orders of their managers. Bickering’s are common. The workers have powers, but lack of the sense of responsibility. They cannot make success of a business.

Consumers’ Co-operation:

The consumers living in a particular place, or working in an establishment, combine together. Each contributes a small capital. A store is opened in which articles of common use are stocked. Such co-operative stores are found in many colleges schools and other establishments. Usually goods are sold at market price, and points are distributed among the shareholders.

This form of co-operation has been very successful. The consumers feel deeply interested in then own store and extend to it their unfailing patronage. Not much capital is needed. The management is simple and honorary. There is legal control and inspection which keep these cooperatives straight.

The drawbacks or the consumers’ cooperatives are that they cannot finance, expanding business. They offer very little selection for the consumers. The honorary office-holder do not take pains. Besides being inefficient they are sometimes dishonest. Still the co-operative stores are very common and are fairly successful.

Other Forms of Co-operation:

The principle of co-operation has been given a very extended application. Co-operative societies have been formed for a number of purposes. Primary co-operative credit societies exist in our villages. They are meant to help the small villagers with loans for-useful purposes.

The aim of such societies is not merely to supply the monetary needs of the farmers, but also to teach them self-help and thrift. These village societies, when they need more money, are helped with loans from the central co-operative thinks in the district towns, which, in their turn, are aided with funds by the State Co-operative Bank.

Besides such co-operative credit societies in the villages, there- are co-operative societies for all sorts of purposes, credit and non-credit, e.g., for running schools and libraries, for killing mosquitoes, for purchasing seeds and cattle, for sale of milk, ghee, fruits, sugar-cane, for consolidation of holdings, and what not.

Principles of Co-operation:

The main principles of co-operation are:

(i) Management is democratic and honorary

(ii) It is based on mutual help and. self-reliance, “Each for all and all for each”.

(iii) Its aim is not merely to promote the economic interests of its members, but it is valued also for its educative and moral advantages. As Parting says in his book “Punjab Peasant in Prosperity and Debt”, “Where there is a good co-operative society drink and gambling a{e at a discount.”

(iv) Dealings are confined to members only.

(v) Honesty is capitalised, i.e., loans are given mostly on personal security.

(vi) Loans are given as far as possible for productive purposes only.

(vii) In rural societies, the liability is unlimited, whereas- in urban sciatic it is limited.

(viii) In rural societies, there is little share capital and profits go to an inalienable reserve fund. Urban societies have share capital and can distribute dividends.

Co-operation avoids the drawbacks of capitalistic organisation, “such as waste, exploitation of workers, absence of any voice iii the management, denial to workers of any share in the profits.” Further, it is free from excessive individualism and self-interest which is a predominant feature of capitalism.

On the other hand, co-operation also avoids the shortcomings of socialism. Under socialism, there is too great a suppression of the individual and there is excessive interference on the part of the State. Stimulus of self-interest is absent. But co-operation reconciles self-interest of the individual with the common interest of all.

Thus, co-operation combines the advantage of both capitalism and socialism and avoids the disadvantages of both.

Co-operative Organisation and Joint-stock Companies Compared:

In size, working and administration, the two types may look alike but there are several differences between the two:

(i) The members of a co-operative organisation are generally known to one another and in some cases very intimately. But the shareholders of a joint-stock company are not supposed to have any contact with one another.

(ii) The members of a co-operative belong to a certain place or to the same class of people. But the shareholders are widely scattered and have nothing else in common.

(iii) The management in both cases is elected but the process is more democratic in a co-operative society, for the rule is ‘one man, one vote’. A shareholder of a joint-stock company commands votes according to the amount of the share capital. Thus, the bigger shareholders exercise larger number of votes than the smaller ones and the voting is by proxy.

(iv) In a co-operative society, the management is more responsive to the general body than is the case in a joint-stock company.

(v) In a co-operative society, the members take a very active interest in-the affairs of the society. But the shareholders of a joint stock company are notoriously indifferent.

(vi) The shares are much less frequently transferred in a co-operative society than in a joint-stock company.

(vii) In some forms of co-operative societies, e.g., rural credit societies, the liability is unlimited. In a joint stock company, the liability is limited.

(viii) Profit is the main motive in a joint-stock company. But in some co-operative societies, profits are not divisible. They go to the reserve fund and a portion is spent on educational or charitable purposes.

(ix) Moral and educational aspect in a co-operative is as important as the economic aspect. But in a joint-stock company, economic consideration is the only consideration.

(x) These are a few points which distinguish a co-operative society from a joint-stock company.

5. Public Enterprise:

We finally come to a form of organisation known as Public enterprise or State enterprise. Here the Government, or a local body like a municipality or a Zila parishad, runs a business. This is generally done in the case of public utility ser­vices like gas, electricity, water supply or bus service.

Advantages of State Enterprise:

The following advantages are claimed for the State enterprise:

(i) Profits for Public Welfare:

Profits go to the Government, and are utilized for the benefit of the society at large. Nation-building departments like education and public health can be liberally financed from the increased resources.

(ii) Pure Supply:

Purity of the supply is guaranteed. There is no incentive for adulteration for a Government official as there is for a private businessman.

(iii) Ample Funds:

Government has ample funds and can borrow more, if needed, in the money market at low rates. This lowers cost of production.

(iv) Best Talent:

The best talent is attracted towards Government service. The Government can, therefore, engage a superior staff. The business, therefore, is run better.

(v) Popular Control:

Government enterprise is more amenable to popular control. Things are not, therefore, allowed to go wrong. Public cannot be exploited for long.

(vi) Where profit is delayed:

Government can afford to wait long for an enterprise to yield profit. Private enterprise will not be attracted towards these lines. Big business ventures, like iron and steel works, can be launched largely by the state.

(vii) Consumers’ Interests:

Consumers’ interests are properly safeguarded. This is a great gain to the community at large.


(i) Evils of Bureaucracy:

There is the tyranny of the bureaucracy. The petty official behaves like a big boss, and a respectable citizen receives no courtesy. The public is at the mercy of a big bureaucratic machine.

(ii) No Incentive:

The Government servant has not the same incentive to do his best as a man in private service. In Government service, promotion is by seniority, and not by merit. Why should a Government servant worry his head?

(iii) Extravagance and Inefficiency:

There is little check on extravagance and inefficiency. The Government has got a long purse to draw upon. Taxes can be increased to cover losses. There are no shareholders to question the directors in the annual meeting.

(iv) No Continuity:

Frequent transfers of Government officials are harm­ful to successful enterprise. There is no continuity in policy and the business may be suddenly dislocated.

(v) No Initiative:

The Government business is all routine and there is little initiative. Business of a pioneering type cannot be attempted; economic progress is, therefore, slow.

Role of-Public Sector in Under-developed Countries:

In under-developed countries, the public sector (i.e. public enterprise has to play an increasingly expanding role. It has a special role to play in creating an infra-structure or social overhead capital like means of transport and communi­cations and the supply of power.

These projects require huge capital, but since they are not productive in the narrow sense, private enterprise is not attracted to them. But they are of vital importance to the development of the economy. Hence they have to be undertaken by the State.

Similar is the case with big enterprises like iron and steel works, fertilizer factories, heavy engineering and electrical works, machine tool factories, etc. Hence State enterprise assumes special importance in an under-developed or developing economy. The under-developed countries lack entrepreneurial talent and suffer from capital deficiency. The State has to make up this deficiency and assume the role of bold entrepreneurship.

In India, according to industrial policy first enunciated, in 1948 and later restated in 1956, a number of industries are exclusively reserved for the public sector. Basic and heavy industries are reserved for the public sector. Even in the sphere reserved for the private sector, the State can step in if the private sector is not showing sufficient progress as required by the country’s needs.

There is also a wide field in which both private and public sectors can start enterprises. This policy is being given effect to in the Indian Five-Year Plans and has proved very fruitful. In short, the public sector occupies a place of crucial importance in the economy of under-developed countries.

Public Enterprises in India:

The public enterprises in India are: the Postal and Telegraph, the Railways, the Steel Plants, the Heavy Electricals, Heavy Engineering, the Machine Tools Factory, Fertilizer Corporations, the Reserve Bank of India, the State Bank of India and 20 nationalised banks, Life Insurance Corporation, Industrial Finance Corporation and the Industrial Development Bank; and in the States: The State Financial Corporations, the State Transport Undertakings, State Electricity Boards; and in the Municipalities and Corporations: Water Works, etc.

Some of these State enterprises are run like government departments such as Post and Telegraph at the Centre and water works in the municipalities. The railways are run by an autonomous body, the Railway Board, and the Reserve Bank, State Bank and nationalised banks by their own Boards of Directors. They are run on commercial principles and make some profit.

The other enterprises like the Life Insurance Corporation, the Hindustan Steel, the Industrial Finance Corporation are organised like the joint-stock companies except that they have no share-holders. Their administration is placed under a general manager or a chairman with a suitable official hierarchy.

In July 1969, 14 top commercial banks were also nationalised and 6 more in April 1980, so that commercial banking in India is now largely run as public sector undertakings. Thus, the public sector in India is steadily expanding 10 occupy command­ing heights in the economy.