L.5 - Types of Business Organisation

Manpower of an enterprise, Is its strength you must deem, Encourage their inner strength, And build a successful team.

UDYAM SHASTRA- Chapter 09,Verse 06

Key Objectives: The students compare the principal characteristics of sole proprietorship, partnership, and Limited Company as they follow the growth of a domestic appliances business from a sole proprietorship to a large company. They also discover the principal strategies businesses use to finance their operations. This module and its associated exercises should enable the students to :

  • List the advantages and disadvantages for sole proprietorship, partnerships, and Limited company.

  • Describe the principal means of financing different forms of business


Enterprise Concepts:

Business.: The buying and selling of goods and services in order to make a profit.

Sole proprietor.: An Individual who owns and operates a Business.

Partnership.: A business owned and operated by two or more people.

Limited company.: Is a business owned by people called shareholders.

Economic institutions.: An institution that supports entrepreneurs.

For e.g. Bank, District Industries center, Chamber of commerce etc.

Share.: Certificate representing part ownership of a limited company.

Share holder.: People who own shares are called shareholders.  

Enterprise Skills:

The student 'Activities' in each lesson are designed to clarify the ENTERPRISE CONCEPTS of the lesson and develop some ENTERPRISE SKILLS (E.SKILLS). The E.SKILLS included in a lesson may not be exhaustive, but are indicative.

E.SKILLS stated in a lesson elsewhere may also get addressed through the activities of a particular lesson.

Some useful E.SKILLS are dealt with below:

Following direction.: An entrepreneur must develop the skill to follow instructions, order and suggestions of customers in order to absorb what is conveyed and act on it.

Role playing.: An entrepreneur has to have the skill of playing different roles during the course of the day. Some times he may be acting like a salesman to a client , some times he may be a friend and counselor to a customer seeking information, another time he may be a technical expert for his design team, or even a team leader for the people who are helping him to manufacture products.

For each role the entrepreneur may have to call upon different talents and traits of his in order to achieve the desired influence on the people he is dealing with.

Listening skill.: An entrepreneur has to constantly pay attention to what is being said by people around him e.g. customers, suppliers, visitors etc.He has to maintain a responsive attitude to what he hears in matters that relate to his enterprise. This is referred to as Listening skill.

Activities:

ACTIVITY 1 : " BECOME YOUR OWN MASTER-PROPRIETOR "

Instruction to Students : • Read the case study, "Become your Own Master-Proprietor", given here. • One student should role play, the role of Abhijeet and read the case study to the class as also answer the trainer's questions. • Students should then fill the answers in the worksheet. • After completing the activity, each group should present and share its main discussion points with the rest of the class.

CASE STUDY Abhijeet was a brilliant child. In school or at home he always liked to tinker with appliances like radio, iron, fan etc. Every one said that Abhijeet could take apart any appliance and reassemble it perfectly. Abhijeet's teacher once said he could earn a lot of money by repairing and selling domestic appliances. Abhijeet found this very encouraging and determined that one day he would start his own business. A specialised vocational course in repairing and servicing domestic appliances increased Abhijeet's confidence. Abhijeet's father suggested that he could make a beginning by using the empty storeroom under the staircase of their house. A hardware supplier agreed to sell Abhijeet high quality tools required to do servicing of domestic appliances. He even agreed to differ payment for the cost of the tools. Abhijeet now needed some furniture to put in his repair shop. He quickly calculated that he would need Rs.5000 for this. When Abhijeet approached the local bank for a loan, the banker was reluctant since Abhijeet was new in business. But Abhijeet did not allow this to frustrate him. Instead he became more determined to start his business. Abhijeet got together his savings he had kept aside from his birthday gifts, as a child, and few odd rupees he used to earn by working at a local store during his vacation. He then borrowed some money from his friend and purchased the necessary furniture and fittings for his repair shop.

WORKSHEET:
1. How did you raise the finance to start your enterprise?
_____________________________________________

2. Who will make the decision about the price to be charged for your designs and the appliances you sell? _____________________________________________

3. If business does well, who will get the profit?
_____________________________________________

4. What happens to business if Abhijeet decides to give up?
_____________________________________________


ACTIVITY 2 : " TOGETHER WE CAN DO IT-PARTNERSHIP"

Instruction to Students

• Read the case study "Together we Can Do it-Partnership", and fill the answers in the worksheet. • One more student should join Abhijeet to play the role of Kareem. • After completing the activity, each group should present and share its main discussion points with the rest of the class.

CASE STUDY One day Abhijeet and his friend Kareem discussed his success. Abhijeet told Kareem "I can hardly assemble the appliances fast enough as the current place is quite small. I wish I had enough money to rent a shop. I am sure I could sell a lot more in the shop and make more profit". Kareem thought for a moment and said " I have got some money saved up. Why not we use it to rent a small shop? We could be partners. We could work together and split the profits." Abhijeet agreed with Kareem and said that if the business keeps going the way it has, they might even be able to hire one or two others to help them. So both the friends decided to do partnership. Kareem was a qualified Electrical Engineer and could design the appliances in a short time and it gave more profit to them. They even hired two people to help them, and their business bloomed.

WORKSHEET:
1. How did you raise the finance to start your partnership?
_____________________________________________

2. Who will make the important business decision in your partnership? _____________________________________________

3. If business does well, who will get the profits?
_____________________________________________

4. What happens to the partnership if either of partner decides to give up or retire?
_____________________________________________

Activity 3 -
" WE CARE, WE SHARE-LIMITED COMPANY " 

Instruction to Students 
• Read the case study "We care, We share-Limited Company", and fill the answers in the worksheet. One more student should join Abhijeet & Kareem to play the role of Subramanium. • After completing the activity, each group should present and share its main discussion points with the rest of the class. 

CASE STUDY 
One day Abhijeet & Kareem met their friend Subramanium, an experienced entrepreneur, who knew a lot about business. Subramanium explained "People who like the idea of owning their own business form sole proprietorship . They make all the decisions, and, if the enterprise does well, the sole proprietor, does not have to share his profits with any body else". Subramanium said, "You have a successful partnership business today . Partner-ships have the same kind of limitations as sole proprietorship in thier ability to grow large. If I were you, I would think about forming a Limited Company . Of course you should talk to a Chartered Accountant about it first , but I would guess there are good reasons to form a Limited Company. Your business has potential to grow at a fast pace. You must use your urge for achieving something in life to fulfill worth while needs and wants in the society ". 
Kareem interrupted "Please tell us what you mean by forming a Limited Company". Subramanium continued "Limited Company is registered with the Registrar of Companies, a government body. Limited Company is owned by the shareholders. Limited company with less than 50 shareholders is referred to as Private Limited company. Where number of shareholders is much larger, it is a Public Limited Company. Investors in Limited Company have limited liabilities. The money shareholders might lose is limited to the amount they paid for their share. The risk of operating the business is shared among shareholders.
Limited company has unlimited life. When limited company shareholders die, their shares are inherited by their heirs. Meanwhile, the Limited company managers are free to conduct business as usual. Large number of people invest in Limited company because of limited liability and unlimited life of the company. This makes it possible for Limited company to raise large sums of money for growth". Abhijeet and Kareem thought about Subramanium's suggestion. They felt this was a good way to share and care for their business. 

WORKSHEET:
1. How did your Limited Company raise finance to expand the business?
_____________________________________________

2. Who will make the important business decision in your Limited Company ? _____________________________________________

3. If Limited Company does well, who will get the profits?
_____________________________________________

4. What will happen to Limited Company if you decide to resign or retire?
_____________________________________________