This document provides an overview of different forms of business organizations under Indian law. It discusses private enterprises such as sole proprietorships, partnerships, joint stock companies, and Hindu Undivided Families. It then covers cooperatives and their definition and types. Finally, it examines public sector enterprises and types of public sector organizations. The document includes details on the characteristics, advantages, and disadvantages of each form of business organization. It provides a comprehensive yet concise introduction to the legal aspects and types of businesses in India.

1. ASSIGNMENT
THE LEGAL ASPECTS OF
BUSINESS
SUBMITTED BY :
SHIROMANI GUPTA
Roll no: 49-MBA-15
Semester: 1ST

2. I N D E X
TOPIC PAGE
1. INTRODUCTION 1-2
1.1 Business 1
1.2 Forms of Business 1-2
2. PRIVATE ENTERPRISES 3-10
2.1 Types of Private Enterprises 3
2.2 Sole Proprietorship 3-5
2.3 Partnership 5-7
2.4 Joint Stock Company 7-8
2.5 Hindu Undivided Family 9-10
3. COOPERATIVES 11-13
3.1 Definition 11
3.2 Types of Cooperative Societies 11-13
3.3 Advantages and Disadvantages 13
4. PUBLIC SECTOR ENTERPRISES 14-19
4.1 Public Sector 14
4.2 Types of Public Sector 15-19
BIBLIOGRAPHY 20

3. Forms of Business
TOPIC 1: INTRODUCTION
1.1 BUSINESS
A business, also known as an enterprise or a firm, is an organisation involved in the trade of goods,
services, or both to consumers. Businesses are prevalent in capitalist economies, where most of
them are privately owned and provide goods and services to customers in exchange for other goods,
services, or money.
1.2 FORMS OF BUSINESS
1.2.1 CHOICE OF BUSINESS
One of the first decisions that you will have to make as a business owner is how the business should
be structured. All businesses must adopt some legal configuration that defines the rights and
liabilities of participants in the business’s ownership, control, personal liability, life span, and
financial structure. This decision will have long-term implications, so you may want to consult with
an accountant and attorney to help you select the form of ownership that is right for you. In making
a choice, you will want to take into account the following:
• Your vision regarding the size and nature of your business.
• The level of control you wish to have.
• The level of “structure” you are willing to deal with.
• The business’s vulnerability to lawsuits.
• Tax implications of the different organisational structures.
• Expected profit (or loss) of the business.
• Whether or not you need to re-invest earnings into the business.
• Your need for access to cash out of the business for yourself.
1.2.2 VARIOUS FORMS OF BUSINESS
There are various forms of business:
1. PRIVATE ENTERPRISE: Business or industry that is managed by independent companies or
private individuals rather than being controlled by the state.
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4. Forms of Business
2. PUBLIC ENTERPRISE: Public Enterprises are business organisations set up and financed by
the government to provide essential services to the members of the public. They may be set up
by the federal, state or local governments. The public enterprise is controlled by the
government.
3. COOPERATIVE SECTOR ENTERPRISE: Cooperative enterprise may be defined as
enterprise owned by the employees, not individually as investors but as a group, with
membership in the group conditional only on employment.
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Figure 1: Forms of Business

5. Forms of Business
TOPIC 2: PRIVATE ENTERPRISES
2.1 TYPES OF PRIVATE ENTERPRISES
Various types of private enterprises are:
• Individual Ownership/ Sole Proprietorship
• Partnership
• Joint stock Company
• Hindu Undivided Family
Figure 2: Types of Private enterprises
2.2 SOLE PROPRIETORSHIP/ INDIVIDUAL OWNERSHIP
The vast majority of small businesses start out as sole proprietorships. These firms are owned by
one person, usually the individual who has day-to-day responsibility for running the business. Sole
proprietorships own all the assets of the business and the profits generated by it. They also assume
complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you
are one in the same with the business.
2.2.1 FEATURES
• Formation and closure: Hardly any legal formalities are required to start a sole proprietary
business, though in some cases one may require a license. There is no separate law that governs
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6. Forms of Business
• sole proprietorship. Closure of the business can also be done easily. Thus, there is ease in
formation as well as closure of business.
• Liability: Sole proprietors have unlimited liability. This implies that the owner is personally
responsible for
• Sole risk bearer and profit recipient: The risk of failure of business is borne all alone by the
sole proprietor. However, if the business is successful, the proprietor enjoys all the benefits. He
receives all the business profits which become a direct reward for his risk bearing.
• Control: The right to run the business and make all decisions lies absolutely with the sole
proprietor. He can carry out his plans without any interference from others.
• No separate entity: In the eyes of the law, no distinction is made between the sole trader and his
business, as business does not have an identity separate from the owner. The owner is, therefore,
held responsible for all the activities of the business.
• Lack of business continuity: Since the owner and business are one and the same entity, death,
insanity, imprisonment, physical ailment or bankruptcy of the sole proprietor will have a direct
and detrimental effect on the business and may even cause closure of the business.
2.2.2 ADVANTAGES OF SOLE PROPRIETORSHIP
• Quick decision making: A sole proprietor enjoys considerable degree of freedom in making
business decisions. Further the decision making is prompt because there is no need to consult
others. This may lead to timely capitalisation of market opportunities as and when they arise.
• Confidentiality of information: Sole decision making authority enables the proprietor to keep all
the information related to business operations confidential and maintain secrecy. A sole trader is
also not bound by law to publish firm’s accounts.
• Direct incentive: A sole proprietor directly reaps the benefits of his/her efforts as he/she is the
sole recipient of all the profit. The need to share profits does not arise as he/she is the single
owner. This provides maximum incentive to the sole trader to work hard.
• Sense of accomplishment: There is a personal satisfaction involved in working for oneself. The
knowledge that one is responsible for the success of the business not only contributes to self-
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7. Forms of Business
• satisfaction but also instils in the individual a sense of accomplishment and confidence in one’s
abilities.
• Ease of formation and closure: An important merit of sole proprietorship is the possibility of
entering into business with minimal legal formalities. There is no separate law that governs sole
proprietorship. As sole proprietorship is the least regulated form of business, it is easy to start and
close the business as per the wish of the owner.
2.2.3 DISADVANTAGES OF SOLE PROPRIETORSHIP
• Sole proprietors have unlimited liability and are legally responsible for all debts against the
business. Their business and personal assets are at risk.
• May be at a disadvantage in raising funds and are often limited to using funds from personal
savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are motivated by the
opportunity to own a part of the business.
• Some employee benefits such as owner’s medical insurance premiums are not directly deductible
from business income (only partially as an adjustment to income).
2.3 PARTNERSHIP
In a Partnership, two or more people share ownership of a single business. Like proprietorships, the
law does not distinguish between the business and its owners. The Partners should have a legal
agreement that sets forth how decisions will be made, profits will be shared, disputes will be
resolved, how future partners will be admitted to the partnership, how partners can be bought out, or
what steps will be taken to dissolve the partnership when needed;
Yes, its hard to think about a “break-up” when the business is just getting started, but many
partnerships split up at crisis times and unless there is a defined process, there will be even greater
problems. They also must decide up front how much time and capital each will contribute, etc.
2.3.1 FORMATION OF PARTNERSHIP
Partnership can be formed either verbally or by written agreement. The written agreement is known
as “Partnership Deed”.
The Partnership Deed contains :
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8. Forms of Business
• The terms and conditions relating to the partnership.
• The regulations governing its internal management.
• The rights and duties of the partners.
2.3.2 ADVANTAGES OF PARTNERSHIP
• Partnerships are relatively easy to establish; however time should be invested in developing the
partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners’ personal tax return.
• Prospective employees may be attracted to the business if given the incentive to become a partner.
• The business usually will benefit from partners who have complementary skills.
2.3.3 DISADVANTAGES OF A PARTNERSHIP
• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death of a partner.
2.3.4 TYPES OF PARTNERSHIP
1. General Partnership
Partners divide responsibility for management and liability, as well as the shares of profit or loss
according to their internal agreement. Equal shares are assumed unless there is a written agreement
that states differently.
2. Limited Partnership and Partnership with limited liability
“Limited” means that most of the partners have limited liability (to the extent of their investment) as
well as limited input regarding management decision, which generally encourages investors for
short term projects, or for investing in capital assets. This form of ownership is not often used for
operating retail or service businesses. Forming a limited partnership is more complex and formal
than that of a general partnership.
3. Joint Venture
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9. Forms of Business
Acts like a general partnership, but is clearly for a limited period of time or a single project. If the
partners in a joint venture repeat the activity, they will be recognised as an ongoing partnership and
will have to file as such, and distribute accumulated partnership assets upon dissolution of the
entity.
2.4 JOINT STOCK COMPANY
The joint stock company is a legal business owned by the shareholders having limited liability and
managed by an elected “Board of Directors”. The shares are transferable.
Joint Stock Companies are formed and registered under the Indian Companies Act, 1956.
2.4.1 CHARACTERISTICS OF A JOINT STOCK COMPANY
• A company is created by registering or incorporating an association of persons under the
Company Act.
• It has a separate legal existence as distinct from its members.
• Artificial personality enabling it to exercise certain legal powers.
• Perpetual life and a very stable existence.
• It has a common seal on which its name is engraved and this seal acts as its signature.
• There is a complete separation of ownership from management.
• Liability of shareholders is limited.
• Lower tax liability.
• Easy transferability of shares.
• There is a wide distribution of risk of loss.
• Large membership.
• Statutory regulations as provided in the Indian Company’s Act, 1956.
2.4.2 TYPES OF JOINT STOCK COMPANY
1. Private Limited Company
2. Public Limited Company
1. Private Limited Company
It can be formed by two or more members. The maximum number of members is limited to 50. The
company is registered under the Indian Company’s Act, 1956.
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10. Forms of Business
It enjoys a separate legal status, continuity of life, benefits of limited liability. Large capital raising
power, business secrecy to certain extend.
2. Public Limited Company
The membership is open to general public. The minimum number of persons is seven and no upper
limit. It is subjected to greater control and supervision of the government which protect the interest
of the shareholders and the members of the public.
2.4.3 ADVANTAGES OF JOINT STOCK COMPANY
• Economies of Large Scale.
• Limited Liability.
• Huge Capital.
• Share Transferable.
• Economies Administration.
• Democratic.
• Permanent Existence.
• Legal Control.
• Risk spread out.
• Mobilization of Scarce saving.
• Accelerated economic growth of the country is possible through industrialization.
• It creates huge employment possibilities.
2.4.4 DISADVANTAGES OF JOINT STOCK COMPANY
• Dishonest directors may exploit the shareholders.
• Large Complexities.
• It is democratic in theory only.
• Delay in Decisions.
• Favouritism.
• Difficult labour relations.
• Lack of initiative and personal interest.
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11. Forms of Business
2.5 HINDU UNDIVIDED FAMILY
Joint Hindu family business is a specific form of business organisation found only in India. It is one
of the oldest forms of business organisation in the country. It refers to a form of organisation
wherein the business is owned and carried on by the members of the Hindu Undivided Family
(HUF). It is governed by the Hindu Law. The basis of membership in the business is birth in a
particular family and three successive generations can be members in the business.
The business is controlled by the head of the family who is the eldest member and is called karta.
All members have equal ownership right over the property of an ancestor and they are known as co-
parceners.
2.5.2 FEATURES
The following points highlight the essential characteristics of the joint Hindu family business.
• Formation: For a joint Hindu family business, there should be at least two members in the family
and ancestral property to be inherited by them. The business does not require any agreement as
membership is by birth. It is governed by the Hindu Succession Act, 1956.
• Liability: The liability of all members except the karta is limited to their share of co-parcenery
property of the business. The karta, however, has unlimited liability.
• Control: The control of the family business lies with the karta. He takes all the decisions and is
authorised to manage the business. His decisions are binding on the other members.
• Continuity: The business continues even after the death of the karta as the next eldest member
takes up the position of karta, leaving the business stable. The business can, however, be
terminated with the mutual consent of the members.
• Minor Members: The inclusion of an individual into the business occurs due to birth in a Hindu
Undivided Family. Hence, minors can also be members of the business.
2.5.3 MERITS
The advantages of the joint Hindu family business are as follows:
• Effective control: The karta has absolute decision making power. This avoids conflicts among
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12. Forms of Business
members as no one can interfere with his right to decide. This also leads to prompt and flexible
decision making.
• Continued business existence: The death of the karta will not affect the business as the next
eldest member will then take up the position. Hence, operations are not terminated and continuity
of business is not threatened.
• Limited liability of members: The liability of all the co-parceners except the karta is limited to
their share in the business, and consequently their risk is well-defined and precise.
• Increased loyalty and cooperation: Since the business is run by the members of a family, there
is a greater sense of loyalty towards one other. Pride in the growth of business is linked to the
achievements of the family. This helps in securing better cooperation from all the members.
2.5.4 LIMITATION
The following are some of the limitations of a joint Hindu family business.
• Limitedresources: The joint Hindu family business faces the problem of limited capital as it
depends mainly on ancestral property. This limits the scope for expansion of business.
• Unlimited liability of karta: The karta is burdened not only with the responsibility of decision
making and management of business, but also suffers from the disadvantage of having unlimited
liability. His personal property can be used to repay business debts.
• Dominance of karta: The karta individually manages the business which may at times not be
acceptable to other members. This may cause conflict amongst them and may even lead to break
down of the family unit.
• Limited managerial skills: Since the karta cannot be an expert in all areas of management, the
business may suffer as a result of his unwise decisions. His inability to decide effectively may
result into poor profits or even losses for the organisation.
The joint Hindu family business is on the decline because of the diminishing number of joint Hindu
families in the country.
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13. Forms of Business
TOPIC 3: COOPERATIVES
3.1 COOPERATIVES
The word cooperative means working together and with others for a common purpose.
The cooperative society is a voluntary association of persons, who join together with the motive of
welfare of the members. They are driven by the need to protect their economic interests in the face
of possible exploitation at the hands of middlemen obsessed with the desire to earn greater profits.
Cooperative organisation is “a society which has its objectives for the promotion of economic
interests of its members in accordance with cooperative principles. -The Indian Cooperative
Societies Act 1912
• Co-operative spirit is the heart and backbone of a co-operative society.
• “Each shall work for all and all for each” is the motto of co-operation.
• Its main object is to promote self help and mutual assistance among men of moderate means and
income, having needs and interest in common.
• The five pillars of a co-operative organization are :
- Mutual Trust.
- Mutual Supervision.
- Self-reliance.
- Spontaneity.
- Equality.
3.1.1 CHARACTERISTICS/ FEATURES:
• It is a voluntary organization.
• There is no limit to its members.
• The management is based on democratic lines of equality.
• Its objective is to promote self-help and mutual assistance.
• Service has primary importance and self-interest has secondary importance.
• Unity of joint action is the basis for co-operation.
• The members come together to fulfil their common interest.
• A co-operative society has to be registered under separate legislation.
3.2 TYPES OF COOPERATIVE SOCIETIES
1. Producers Co-operative Society.
2. Consumers Co-operative Society.
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14. Forms of Business
3. Housing Co-operative Society.
4. Credit Co-operative Society.
3.2.1 PRODUCER CO-OPERATIVE SOCIETY
In this form, the workers wish to be their own masters. They elect their own managers. They are
their own employees.
The profit goes to the actual workers. There are no strikes and lock-outs.
Examples :
Agricultural Industries, Cottage Industries, etc.
Shortcomings :
- Inadequate capital.
- Inefficient management.
- Lack of discipline.
3.2.2 CONSUMERS CO-OPERATIVE SOCIETY
The consumers living in a particular area combine together. Each contributes a small capital.
A store is opened in which articles of common use are stocked and sold at reasonable prices. Such
stores are found in colleges and schools.
Advantages :
- Much capital is not needed.
- The management is simple and honorary.
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Figure 3: Types of Cooperatives

15. Forms of Business
- There is legal control and inspection.
Disadvantages :
- They offer very little selection for consumers.
- The honorary office bearers do not take much pains, they are sometimes dishonest.
3.2.3 HOUSING CO-OPERATIVE SOCIETY
These are formed for the purpose of getting plots or constructing house for the needy persons.
Government provides great facilities for this purpose.
3.2.4 CREDIT CO-OPERATIVE SOCIETY
Its object is to finance the poor cultivators by providing loans at low rate of interest for the
development of land, purchase of agricultural machinery, fertilizers etc.
3.3 ADVANTAGES AND DISADVANTAGES OF CO-OPERATIVES
3.3.1 ADVANTAGES
• It protects the interest of the weaker section of the community as under :
- Provide better methods and tools of production to small manufacturers and craftsmen.
- Help the farmers in farming and marketing their products efficiently.
- Provide financial assistance at moderate rate of interest.
- Opening of super bazaar types of stores gives relief to the weaker section of the society.
• Elimination of middlemen.
• Services motive.
• Democratic nature.
• Sense of co-operation.
• Socially neglected class.
3.3.2 DISADVANTAGES
• Lack of Co-ordination.
• Chances of undue advantages.
• Favourism.
• Limited Capital.
• Inefficient Management.
• Political influence.
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16. Forms of Business
TOPIC 4: PUBLIC SECTOR ENTERPRISES
4.1 PUBLIC SECTOR
The public sector consists of various organisations owned and managed by the government. These
organisations may either be partly or wholly owned by the central or state government. They may
also be a part of the ministry or come into existence by a Special Act of the Parliament. The
government, through these enterprises participates in the economic activities of the country.
A public enterprise may take any particular form of organisation depending upon the nature of its
operations and their relationship with the government. The suitability of a particular form of
organisation would depend upon its requirements. At the same time, in accordance with general
principles, any organisation in the public sector should ensure organisational performance
productivity and quality standards.
4.2 TYPES OF PUBLIC SECTOR ENTERPRISES
The forms of organisation which a public enterprise may take are as follows:
(i) Departmental undertaking
(ii) Statutory corporation
(iii)Government company
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Figure 4: Types of Public Sector Enterprise

17. Forms of Business
4.2.1 Departmental Undertakings
This is the oldest and most traditional form of organising public enterprises.These enterprises are
established as departments of the ministry and are considered part or an extension of the ministry
itself. The Government functions through these departments and the activities performed by them
are an integral part of the functioning of the government.
Examples: railways and post and telegraph department.
Features: The main Departmental undertakings are as follows-
• The funding of these enterprises come directly from the Govern- ment Treasury and are an annual
appropriation from the budget of the Government. The revenue earned by these is also paid into
the treasury;
• They are subject to accounting and audit controls applicable to other Government activities;
• The employees of the enterprise are Government servants and their recruitment and conditions of
service are the same as that of other employees directly under the Government. They are headed
by Indian Administrative Service (IAS) officers and civil servants who are transferable from one
ministry to another;
• It is generally considered to be a major subdivision of the Government department and is subject
to direct control of the ministry;
• They are accountable to the ministry since their management is directly under the concerned
ministry.
Merits:
• These undertakings facilitate the Parliament to exercise effective control over their operations;
These ensure a high degree of public accountability;
• The revenue earned by the enterprise goes directly to the treasury and hence is a source of income
for the Government;
• Where national security is concerned, this form is most suitable since it is under the direct control
and supervision of the concerned Ministry.
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18. Forms of Business
Limitations:
• Departmental undertakings fail to provide flexibility, which is essential for the smooth operation
of business;
• The employees or heads of depart- ments of such undertakings are not allowed to take
independent decisions, without the approval of the ministry concerned. This leads to delays, in
matters where prompt decisions are required;
• These enterprises are unable to take advantage of business opportunities. The bureaucrat’s over-
cautious and conservative approval does not allow them to take risky ventures;
• There is red tapism in day-to-day operations and no action can be taken unless it goes through the
proper channels of authority;
• There is a lot of political interference through the ministry;
• These organisations are usually insensitive to consumer needs and do not provide adequate
services to them.
4.2.2 STATUTORY CORPORATIONS
Statutory corporations are public enterprises brought into existence by a Special Act of the
Parliament. The Act defines its powers and functions, rules and regulations governing its employees
and its relationship with government departments.not allowed to take independent decisions,
without the approval of the ministry concerned. This leads to delays, in matters where prompt
decisions are required;
Features:
• Statutory corporations are setup under an Act of Parliament and are governed by the provisions of
the Act. The Act defines the objects, powers and privileges of a statutory corporation;
• This type of organisation is wholly owned by the state. The government has the ultimate financial
responsibility and has the power to appropriate its profits. At the same time, the state also has to
bear the losses, if any;
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19. Forms of Business
• A statutory corporation is a body corporate and can sue and be sued, enter into contract and
acquire property in its own name;
• This type of enterprise is usually independently financed. It obtains funds by borrowings from the
government or from the public through revenues, derived from sale of goods and services. It has
the authority to use its revenues;
• A statutory corporation is not subject to the same accounting and audit procedures applicable to
government departments. It is also not concerned with the central budget of the Government;
• The employees of these enterprises are not government or civil servants and are not governed by
government rules and regulations. The conditions of service of the employees are governed by the
provisions of the Act itself. At times, some officers are taken from government departments, on
deputation, to head these organisations.
Merits:
• They enjoy independence in their functioning and a high degree of operational flexibility. They
are free from undesirable government regulation and control;
• Since the funds of these organisations do not come from the central budget, the government
generally does not interfere in their financial matters, including their income and receipts;
• Since they are autonomous organisations they frame their own policies and procedures within the
powers assigned to them by the Act. The Act may, however, provide few issues/matters which
require prior approval of a particular ministry;
• A statutory corporation is a valuable instrument for economic development. It has the power of
the government, combined with the initiative of private enterprises.
Limitations:
• In reality, a statutory corporation does not enjoy as much operational flexibility as stated above.
All actions are subject to many rules and regulations;
• Government and political interference has always been there in major decisions or where huge
funds are involved;
• Where there is dealing with public, rampant corruption exists;
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20. Forms of Business
• The government has a practice of appointing advisors to the Corporation Board. This curbs the
freedom of the corporation in entering into contracts and other decisions. If there is any
disagreement, the matter is referred to the government for final decisions. This further delays
action.
4.2.3 GOVERNMENT COMPANY
A Government company is established under the Indian Companies Act, 1956 and is registered and
governed by the provisions of the Indian Companies Act. These are established for purely business
purposes and in true spirit compete with companies in the private sector.
Features:
• It is an organisation created by the Indian Companies Act, 1956;
• The company can file a suit in a court of law against any third party and be sued;
• The company can enter into a contract and can acquire property in its own name;
• The management of the company is regulated by the provisions of the Companies Act, like any
other public limited company;
• The employees of the company are appointed according to their own rules and regulations as
contained in the Memorandum and Articles of Association of the company. The Memorandum
and Articles of Association are the main documents of the company, containing the objects of the
company and its rules and regulations;
• These companies are exempted from the accounting and audit rules and procedures. An auditor is
appointed by the Central Government and the Annual Report is to be presented in the parliament
or the state legislature;
• The government company obtains its funds from government shareholdings and other private
shareholders. It is also permitted to raise funds from the capital market.
Merits:
• A government company can be established by fulfilling the requirements of the Indian Companies
Act. A separate Act in the Parliament is not required;
• It has a separate legal entity, apart from the Government;
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21. Forms of Business
• It enjoys autonomy in all management decisions and takes actions according to business
prudence;
• These companies by providing goods and services at reasonable prices are able to control the
market and curb unhealthy business practices.
Limitations:
• Since the Government is the only shareholder in some of the Companies, the provisions of the
Companies Act does not have much relevance;
• It evades constitutional responsibility, which a company financed by the government should have.
It is not answerable directly to the Parliament;
• The government being the sole shareholder, the management and administration rests in the hands
of the government. The main purpose of a government company, registered like other companies,
is defeated.
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22. Forms of Business
BIBLIOGRAPHY
1. NCERT_Business_Studies_Class_11 Textbook
2. www.upscportal.com
3. smallbusiness.chron.com/advantages-type-business-organization-10422.html
4.www.kcsourcelink.com/learning-center/starting-a-business/register-and-license-your-business/
forms-of-business-organization
5. igbusinesss.blogspot.in/2011/03/chapter-three-forms-of-business.html
6. en.wikipedia.org/wiki/public_and_private_business
7. www.youtube.com/watch?v=N-Lf6cy3MUA
8. www.youtube.com/watch?v=KGI1jfax9cc
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