Introduction to Business Organizations

       A business organization is an organization that is engaged in some industrial or commercial activity. It represents an institutional arrangement for carrying on any kind of business activity. It may be owned or controlled by a single individual or by a group of individuals who have entered into a formal or informal agreement to jointly conduct the business.

       Every business has its own identity separate ownership. It can be distinguished from other undertakings based on its ownership, management, and control. 

Meaning of Business Organisation

        A business undertaking may be defined as an organization operating under separate ownership, management, and control and carry on any business activity with independent risk-bearing.

Characteristics of a Business Organisation

1. Separate Identity - Every business undertaking has a distinct name and separate existence. Its assets and liabilities are independent of the other undertakings. Its accounts are separate from those of the persons who own it.

2. Independent Ownership - Every business undertaking has an independent unit of ownership. A business undertaking is owned by the persons who contribute to its capital. The owners may be individuals or the government.

3. Independent management - The form of management of an organization depends on its nature and size and legal requirements. Every organization has its own management and the management of one organization does not interfere in the working of other organizations. The management of each undertaking takes independent decisions concerning different aspects of the business.

4. The element of risk - Every business undertaking involves risk. Profit is the reward for bearing risk. The risk of an undertaking is borne by its owners though some of the risks may be covered through insurance.

Types of Business Organizations

1. Private Sector Undertakings - These undertakings are owned, controlled, and financed by private businessmen. There is no Government participation in them.

Characteristics of Private sector undertakings

(a) Private Ownership and control - A private sector undertaking is fully owned and controlled by private entrepreneurs. It may be owned by one person or by a group of persons jointly.

(b) Profit Motive - The main objective of private sector undertakings is earning profits. Profits provide the reward for the risk assumed and the required return on capital.

(c) No State Participation - There is no participation by the central or state Governments in the ownership and control of a private sector undertaking.

(d) Private Finance - The capital of a private sector undertaking is arranged by its owners. A private sector undertaking can also raise loans to meet its long-term and short-term needs for funds.

(e) Independent Management - A private sector undertaking is managed by its owners. In the case of sole proprietorship and partnership, the owners directly manage the firm. The management of a joint-stock company lies in the hands of directors who are the elected representatives of the shareholders.

2. Public Sector Undertakings - These undertakings are owned and operated by the Central and State Governments. Examples - Mahanagar Telephone Nigam Ltd, Reserve Bank of India is owned by the Central government, while Delhi Transport Corporation is owned by the Government of Delhi State.

Characteristics of Public Sector Undertakings

(a) State Ownership - Public undertakings are fully owned by the Government or some public authority. 

 

(b) Government Control - The control of public sector undertaking lies with the Government.

(c) Service Motive - The primary objective of a public sector undertaking is to render service to the public at large. In order to serve the public, it may occur loss. For example, The Food Corporation of India provides food grains to the public at subsidized prices.

(d) State Financing - The Government provides the capital and funds through appropriations from its budget. The Government may also provide loans from time to time from the state exchequer.

(e) Bureaucratic Management - The management of public sector undertakings is bureaucratic in the sense that their operations are governed by certain rules and regulations prescribed by the Government.

(f) Public Accountability - Public sector undertakings are accountable to the public at large for their performance and results. The audit of public sector undertakings is conducted by the CAG ( Comptroller and Auditor General of India).

3. Public-Private Partnerships - PPPs consists of business undertakings where the ownership, control, and management is shared jointly by the Government, the private entrepreneurs, and the public. Examples of PPPs - Maruti Udyog, Cochin Refineries, and Gujarat State Fertilisers.

Characteristics of PPPs

a) The PPPs are owned jointly by the Government, private entrepreneurs, and the investing people.

b)The management and control of PPPs are with the nominees or representatives of the Government, Private businessmen, and the public.

c) The capital of PPPs is shared by the Government, private businessmen, and the public. The share in the capital is 26%, 25%, and 49% respectively.

Comparison between Private, Public, and PPPs Enterprises

Point of Distinction	Public Enterprise	Private Enterprise	PPPs Enterprise
Ownership      Management          Capital        Objective        Audit	Government      By Government        51 % or more by the Government    Service to society      By Comptroller and Auditor General	Private persons    By Private owners        By private investors      Earning Profits      By Practicing Chartered Accountant	Government, Private both    Both Government and private individuals    Government and private both    Profit and social objectives    By Qualified Auditors

Forms of Private Sector Organizations

1. Sole Proprietorship - In this form of ownership, one person provides capital, bears all the risks, and independently manages the business. It is one of the oldest, simplest, and most popular forms of business organization.

2. Joint Hindu Family Firm -  It is owned and controlled by a Joint Hindu family which consists of the father and his son, grandson, and the great-grandson. The head of the family called Karta who manages the business for the benefit of the family as a whole. The liability of every member of the family except the Karta is limited to his share in the family's assets. Hindu law has granted independent and corporate existence to the family. 

3. Partnership - In this form of the organization two or more persons enter into a contract to carry on some lawful business jointly and to share its profits. Each partner is jointly and individually liable for the debts of the firm to an unlimited extent. The number of partners cannot be more than ten in the case of banking business and twenty in other types of business.

4. Joint Stock Company - It is an incorporated association of two or more persons. It has a distinct legal entity that is separate from the identity of its members. Its management and control lies in the hands of the Board of Directors consisting of the elected representatives of the members.

5. Cooperative Society - It is organized with the purpose of rendering service to its members and to the public in general. It is organized on the principle of mutual self-help. It has a distinct identity and the liability of its members is limited.