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Types of Business Organizations

By: Haseeb Jamal / On: Feb 19, 2017 / Notes, Definition, Types of


In broad sense business includes industry commerce & trade. Its main aim is to increase wealth.

  • Industry means a place where materials are extracted or converted into finished or semi-finished products.

  • Trade means a process of buying &selling of commodities.

  • While Commerce relates to financial transportation insuring & allied activities.

  • The form of organization will be decided by various factors such as.

  • Size & nature of the business to be started.

  • Technical difficulties.

  • Market condition (competition & scope of the article in the market).

  • Capital required to start the business & the means to collect the funds.

  • Limitation & restriction put forth by the government (grant of loan, license, foreign exchange etc.

Business may be defined as ‘an enterprise engage at in production & distribution of good for sale in market. Several Types if businesses organization are exiting in order to satisfy various social, economic & rumen requirements. Following are the main types of business organization.

A. Private Sector

  • Individual ownership or Sole Proprietorship.

  • Partnerships

  • Joint Stock Companies

B. Public Sector

  1. Departmental Organizations
  2. Public Corporation.
  3. Government Companies

C. Joint Sector

Ownership & control shared by private entrepreneur. State and public.

A. Private Sector Organization

1. Individual Ownership:

As the name suggests, such type of business is owned & operated by one person. This is the oldest and simplest form of business organization. The businessman invests capital, employs labor & machines. Stance owner alone enjoys the profits and suffer the losses in his business. Therefore, he is the supreme authority to decide into different matters concerning it his business and has unlimited freedom of action within legal jurisdiction. Overall control in single hand helps him in quick decision efficient administration and working. Such organization owner himself is responsible for the liabilities. Hence the creditor can collect the money even from the personal property.


  • In small enterprise requiring small capital which can be spared by one man.

  • Where management by one man is possible.


  • Such individual enterprises can easily be formed and simple to sun.

  • Minimum if legal restrictions.

  • Owner’s interest, care & efficiency directly affect the profit in the business.

  • Retain of all profit to the owner.

  • Ease of dissolving firm.

  • In this system owner himself is in touch with customers and hence can know their likings.

  • Since it is supervised by the proprietor himself, the fixed cost over heads are nary less and products can be obtained cheaply.

  • Most of the businesses have their no competitor of certain secrecy in their functioning. In this form of organization such secret functions are performed by the owner himself. There fore, he has the greatest possibility of running business well.

  • If at any time the owner feels some benefit in dong some work, he can act quickly without any body’s advice and can avail the benefit.


  • Amount of the capital that can be invested is limited; therefore, modern factory cannot be run with this system of organization.

  • Owner cannot be the master of all techniques management, sales, engineering processes etc, since work suffers.

  • Due to unlimited liability owner cannot take risk to start a big industry.

  • Limited opportunity for employee’s because organization is not permanent.

Uncertainty of duration I-e death imprisonment or insanity automatically terminates the firm possibility that overall direction may become a burden on owner when business grows.

2. Partnership Organization:

3. Joint Stock Company:

Limited financial resources & heavy burden of risk involved in both of the previous forms of organization has led to the formation of joint stock companies these have limited dilutives. The capital is raised by selling shares of different values. Persons who purchase the shares are called shareholder. The managing body known as; Board of Directors; is responsible for policy making important financial & technical decisions. There are two main types of joint stock Companies.

  1. Private limited company
  2. Public limited company

1. Private limited company:

This type company can be formed by two or more persons. The maximum number of member ship is limited to 50. In this transfer of shares is limited to members only. The government also does not interfere in the working of the company.

2. Public Limited Company:

Its is one whose membership is open to genera public. The minimum number required to form such company is seven, but there is no upper limit. Such company’s can advertise to offer its share to genera public through a prospectus. These public limited companies are subjected to greater control & supervision of control.


  1. The liability being limited the shareholder bear no Rick& there fore more as make persons are encouraged to invest capital.
  2. Because of large numbers of investors, the risk of loss is divided.
  3. Joint stock companies are not affected by the death or the retirement of the shareholders.


  4. It is difficult to preserve secrecy in these companies.

  5. It requires a large number of legal formalities to be observed.

  6. Lack of personal interest

B. Public Sector Organization

State Ownership

Such ownership is the only serious competitor to the joint stock companies. This form is most suitable for the establishment & development of modern industries, because of facilities like owner, transport; Credit, insurance etc. are easily available to them. The private ownership & the joint stock company gave rise to exploitation of labors & of the consumers. Government either starts or nation aliases certain industries to prevent the economic unbalance in the nation. It serves as a means to obstruct the monopolistic tendencies.

Main reason for Theodora in the above mentioned state ownership is that they cannot be bundled like private enterprise.

1. Government Departmental Organizations:

Types of organizations

  1. Management through the Concerned ministry:

It is managed by the officials of the government under the chair of the secretary of the ministry concerned. The examples are posts & Telegraphic, Railways, Defense, Industries, Broadcasting.

  1. Management by Inter department Committee:

In certain organization cooperation is required from several ministries; Therefore a board or committee of representatives from concerning ministries is formed so that co-operation consultation & quick decisions may be taken.

All the governmental organizations have following essential characteristics;

  1. Financed out of government bud get.
  2. All the rules regulations of government are applicable.
  3. Direct control of the concerned ministry.
  4. Employees are government servant.


  • Because of the government control it is easy to achieve the economical political & social objectives.

  • Such organizations are suitable for public utility serviced & defense industries.

  • Because of the government control, complete secrecy is possible like in ordinance factories etc.


  • Because of bureaucratic control generally timely decision are not taken.

  • Government officials prefers to work according to certain rules & regulation & thus it becomes difficult to ring out major modifications is innovation etc.

  • Lack of initiative because promotions are seniority based rather than merit based.

2. Public Corporations:

A public corporation is wholly owned by the Government Centre to state. It is established usually by a Special Act of the parliament. Special statute also prescribes its management pattern power duties & jurisdictions. Though the total capital is provided by the Government, they have separate entity & enjoy independence in matters related to appointments, promotions etc.


  • These are expected to provide better working conditions to the employees & supported to be better managed.

  • Quick decisions can be possible, because of absence of bureaucratic control.

  • More Flexibility as compared to departmental organization.

  • Since the management is in the hands of experienced & capable directors & managers, these ate managed more efficiently than that of government departments.


  • Any alteration in the power & Constitution of Corporation requires an amendment in the particular Act, which is difficult & time consuming.

  • Public Corporations possess monopoly & in the absence of competition, these are not interested in adopting new techniques & in making improvement in their working.

3. Government Companies:

A state enterprise can also be organized in the form of a Joint stock company; A government company is any company in which of the share capital is held by the central government or partly by central government & party by one to more state governments. It is managed b the elected board of directors which may include private individuals. These are accountable for its working to the concerned ministry or department & its annual report is required to be placed ever year on the table of the parliament or state legislatures along with the comments of the government to concerned department.


  • Its is easy to form.

  • The directors of a government company are free to take decisions & are not bound by certain rigid rules & regulations.


  • Misuse of excessive freedom cannot be ruled out.

  • The directors are appointed by the government so they spend more time in pleasing their political masters & top government officials, which results in inefficient management.


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