Business organization is a trading concern or producing unit. A business organization may be owned either by a single person or by many people. The primary aim of a business organization may be either earning profit or promotion of general welfare of the people. On the basis of the above two criteria, business organizations can be classified into five categories as follows:

Individual Entrepreneur (Individual Proprietary System)

A business organization owned by a single person is known as the individual proprietary system. In this case, personal attention on all consumers by the proprietor is possible. He himself takes the entire risks and hence, wastage of all kinds is eliminated. However, large-scale business is not possible, as the capital at the command of the sole proprietor is generally meagre. In the event of failure, not only the assets of business but also the other private assets and properties of the proprietor can be claimed against by creditors. E.g. Retail shops.

Partnership

In this case, two or more persons join together; contribute share capital and share profit or loss in agreed proportions. It establishes wider personal contacts and hence, large-scale production is possible. The existence of unlimited liability curbs the speculative or risky tendencies of the partners and prevents the starting of risky enterprises. However, unlimited liability makes the business unenterprising, because all partners are liable for the firm’s debts irrespective of the amount of capital each has invested. Further, in actual practice, partners behave in a selfish manner, i.e., doing the minimum and trying to get the maximum out of the business. Any action taken by one partner is legally binding on all other partners and this makes the business more complex. E.g. Small transport operators, textiles business firms, etc.

Joint – Stock Company

The joint-stock company is owned by a large number of share holders who contribute to the share capital. They are entitled to get the profits (dividends) of the company. The share holders elect a board of directors among themselves. The board appoints one of its members as the managing director. The board directs and supervises the affairs of the company. The joint stock company is based on the principle of limited liability. That is, each share holder is liable for the debts of the company only upto the value of the share he has bought from the company. His other properties cannot be attached by the creditors of the company. Hence, the word ‘Limited’ (Ltd) is written after the name of any joint stock company. (E.g.) Karur Vysya Bank Ltd. Shares are transferable from one person to another through stock exchanges. In general, there are two types of shares: 1) ordinary share and 2) preference share. There is no special privilege attached to the ordinary share and the ordinary share holder gets a dividend out of the net profits of the company. The preference shares are guaranteed by a certain fixed dividend, which is paid out of the net profits before dividends are paid on any other kind of shares. Joint stock companies are of two kinds, viz., private and public. A private company has to satisfy the following conditions: i) neither share holders nor debenture holders exceed fifty in number; ii) Shares are not offered for sales by public issue; iii) directors can disapprove any proposed transfer of shares; and iv) no body outside the company is in a position to control its policies.

Besides the shares, the companies usually raise funds by floating ‘debentures’. Debentures or security bonds are not shares of the company but they are promissory notes on the basis of which the company raises additional funds in the form of loans. The debenture holders are the company’s creditors and they must be paid the agreed rate of interest whether the company makes profit or not.

Advantages of Joint Stock Company

As the company can raise a large sum of capital, large-scale production is possible.

As the company is based on the principle of limited liability, the share holder’s risk is reduced.

It promotes research and development facilities in order to improve the quality of goods and to minimize the costs.

Shares can easily be transferred through stock exchanges. A share holder can withdraw whenever be likes without disturbing the company.

Disadvantages of Joint Stock Company

The directors are practically self appointed and the share holders do not have much influence in the decisions taken by the company.

Share capital is owned by the share holders but risk is taken by the board of directors. Hence, some directors start risky enterprises and this results in inevitable losses to the company.

The liability being limited and the shares being transferable, the share holders take no interest in development of the company.

Co-operative Enterprises

Co-operation is a form of economic organization where people voluntarily work together for a business purpose on the basis of mutual benefit. It is a voluntary organization designed to promote economic interests of its members. Members have equal rights and responsibilities. The co-operative society has the motto of ‘each for all and all for each’. Co-operation is supposed to teach virtues like self-sacrifice, discipline, honesty and fairness in dealings, mutual help and self-reliance. However, co-operative enterprise suffers from the following defects: i) There is a lack of incentive and initiative. ii) Business leadership is lacking in co-operatives. iii) In general, members do not have honesty. E.g. Primary Agricultural Co-operative Credit Society.

State Enterprises

A commercial undertaking owned by the government is public undertaking or state enterprise. Public undertakings have been started for the following reasons:

It brings about rapid economic development.

It ensures that the benefits of development are shared by all the people.

The state can raise huge capital, which could not be raised by the private sector.

As a monopoly enterprise, it enjoys several advantages.

Disadvantages of State enterprises

State enterprise when compared with private enterprise is not run and managed efficiently.

Red-tapism and lack of initiative are prevalent.

Inefficient management of the administrators results in loss of under utilization of resources. E.g. Tamil Nadu State Transport Corporation.