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Different Forms of Business Organisation
Sole Proprietorship:
Sole proprietorship or individual entrepreneurship is a business concern owned and operated by one person. The sole proprietor is a person who carries on business exclusively by and for himself. He alone contributes the capital and skills and is solely responsible for the results of the enterprise. In fact sole proprietor is the supreme judge of all matters pertaining to his business subject only to the general laws of the land and to such special legislation as may affect his particular business.
The salient features of the proprietorship are as follows:
i. Single ownership
ii. One man control
iii. Undivided risk
iv. Unlimited liability
v. No separate entity of the business
vi. No Government regulations.
Advantages:
(a) Simplicity – It is very easy to establish and dissolve a sole proprietorship. No documents are required and no legal, formalities are involved. Any person competent to enter into a contract can start it. However, in some cases, i.e., of a chemist shop, a municipal license has to be obtained. You can start business from your own home.
(b) Quick Decisions – The entrepreneur need not consult anybody in deciding his business affairs. Therefore, he can take on the spot decisions to exploit opportunities from time to time. He is his own boss.
(c) High Secrecy – The proprietor has not to publish his accounts and the business secrets are known to him alone. Maintenance of secrets guards him from competitors.
(d) Direct Motivation – There is a direct relationship between efforts and rewards. Nobody shares the profits of business. Therefore, the entrepreneur has sufficient incentive to work hard.
(e) Personal Touch – The proprietor can maintain personal contacts with his employees and clients. Such contacts help in the growth of the enterprise.
(f) Flexibility – In the absence of Government control, there is complete freedom of action. There is no scope for difference of opinion and no problem of co-ordination.
Disadvantages:
(a) Limited Funds – A proprietor can raise limited financial resources. As a result the size of business remains small. There is limited scope for growth and expansion. Economies of scale are not available.
(b) Limited Skills –
Proprietorship is a one man show and one man cannot be an expert in all areas (production, marketing, financing, personnel etc.) of business. There is no scope for specialisation and the decisions may not be balanced.
(c) Unlimited Liability – The liability of the proprietor is unlimited. In case of loss his private assets can also be used to pay off creditors. This discourages expansion of the enterprise.
(d) Uncertain Life – The life of proprietorship depends upon the life of the owner. The enterprise may die premature death due to the incapacity or death of the proprietor. The proprietor has a low status and can be lonely.
Expansion of Business:
When the business of a proprietor expands, he has either to employ a manager or take a partner to handle the problems of capital and management. The merits and demerits of each alternative are given below:
Employment of Paid Assistant:
Advantages:
1. Reduction in administrative burden.
2. Division of work.
3. Appointment of specialist.
4. Expert advice and guidance.
5. Complete control-no interference in policies.
6. Independent decisions and freedom of action.
7. Secrecy.
8. No sharing of profits.
9. Easy to dismiss.
Disadvantages:
1. No incentive to work hard may be careless and inefficient.
2. Increases risk and liability of the sole proprietor.
3. No financial stake-business at the mercy of the assistant.
4. Danger of disclosure of business secrets.
5. No addition to goodwill.
6. Lack of responsibility.
7. Problem of capital unsolved.
8. Increased expense.
9. May leave the business and set up competition.
Admission of a partner:
Advantages:
1. Investment of capital.
2. Sharing of managerial responsibilities.
3. Pooling of knowledge, experience and judgment.
4. Increase in goodwill and connections.
5. Direct relation between effort and reward. Personal incentive and interest.
6. Secrecy ensured.
7. Benefits of specialisation.
8. Sharing of losses and liability.
9. Economy of costs.
Disadvantages
1. Sharing of control-loss in freedom of action.
2. Division of authority-lack of independent decisions.
3. Increase in liability and risk.
4. Danger of dishonesty and negligence.
5. Possibility of dispute and differences.
6. Sharing of profits.
7. Blocking of individual capital.
8. Difficulty in removing the partner.
9. Lack of stability.
Conclusion:
The choice between paid assistant and partner depends upon requirements of business and preference of the proprietor. In case the proprietor wants to retain complete control of business and he can raise the additional capital himself, he should employ a qualified and experienced assistant to share his managerial responsibilities. But if he wants additional funds as well as managerial assistance, admission of a partner may be better.
Suitability:
The foregoing description reveals that sole proprietorship or one-man control is the best in the world if that man is big enough to manage everything. But such a person does not exist.
Therefore, sole proprietorship is suitable in the following cases:
i. Where small amount of capital is required e.g., sweet shops, bakery, newsstand, etc.
ii. Where quick decisions are very important, e.g., share brokers, bullion dealers, etc.
iii. Where limited risk is involved, e.g., automobile repair shop, confectionery, small retail store, etc.
iv. Where personal attention to individual tastes and fashions of customers is required, e.g., beauty parlour, tailoring shops, lawyers, painters, etc.
v. Where the demand is local, seasonal or temporary, e.g., retail trade, laundry, fruit sellers, etc.
vii. Where the operation is simple and does not require skilled management.
Thus, sole proprietorship is a common form of organisation in retail trade, professional firms, household and personal services. This form of organization is quite popular in our country. It accounts for the largest number of business establishments in India, in spite of its limitations.
Partnership Firm:
As a business enterprise expands beyond the capacity of a single person, a group of persons have to join hands together and supply the necessary capital and skills. Partnership firm thus grew out of the limitations of one man business. Need to arrange more capital, provide better skills and avail of specialisation led to the growth to partnership form of organisation.
According to Section 4 of the Partnership Act, 1932 partnership is “the relation between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all”. In other words, a partnership is an agreement among two or more persons to carry on jointly a lawful business and to share the profits arising there from. Persons who enter into such agreement are known individually as ‘partners’ and collectively as ‘firm’.
Characteristics of Partnership: i. Association of two or more persons — maximum 10 in banking business and 20 in non-banking business
ii. Contractual relationship—written or oral agreement among the partners
iii. Existence of a lawful business
iv. Sharing of profits and losses
v. Mutual agency among partners
vi. No separate legal entity of the firm
vii. Unlimited liability
viii. Restriction on transfer of interest
ix. Utmost good faith.
Formation of Partnership: A partnership firm can be formed through an agreement among two or more persons. The agreement may be oral or in writing. But it is desirable that all terms and conditions of partnership are put in writing so as to avoid any misunderstanding and disputes among the partners. Such a written agreement among partners is known as Partnership Deed. It must be signed by all the partners and should be properly stamped. It can be altered with the mutual consent of all the partners.
A partnership deed usually contains the following details:
i. Name of the firm.
ii. Names and address of all the partners.
iii. Nature of the firm’s business.
iv. Date of the agreement.
v. Principal place of the firm’s business.
vi. Duration of partnership, if any.
vii. Amount of capital contributed by each partner.
viii. The proportion in which the profits and losses are to be shared.
ix. Loans and advances by partners and interest payable on them.
x. Amount of withdrawal allowed to each partner and the rate of interest.
xi. Amount of salary or commission payable to any partner.
xii. The duties, powers and obligations of all the partners.
xiii. Maintenance of accounts and audit.
xiv. Mode of valuation of goodwill on admission, retirement or death of a partner.
xv. Procedure for dissolution of the firm and settlement of accounts.
xvi. Arbitration for settlement of disputes among the partners.
xvii. Arrangements in case a partner becomes insolvent.
xviii. Any other clause(s) which may be found necessary in particular kind of business.
Registration of Firms:
The Partnership Act, 1932 provides for the registration of firms with the Registrar of Firms appointed by the Government. The registration of a partnership firm is not compulsory. But an unregistered firm suffers from certain disabilities. Therefore, registration of a partnership is desirable.
Procedure for Registration:
A partnership firm can be registered at any time by filing a statement in the prescribed form. The form should be duly signed by all the partners. It should be sent to the Registrar of Firms along with the prescribed fee.
The statement should contain the following particulars:
1. Name of the firm.
2. Principal place of its business.
3. Name of other places where the firm is carrying on business.
4. Names in full and permanent addresses of all the partners.
5. Date of commencement of the firm’s business and the dates on which each partner joined the firm.
6. Duration of the firm, if any.
7. Nature of the firm’s business.
On receipt of the statement and the fees, the Registrar makes an entry in the Register of Firms. The firm is considered to be registered when the entry is made. The Registrar issues a Certificate of Registration. Any change in the above particulars must be communicated to the Registrar of Firms within a reasonable period of time so that necessary alterations may be made in the Register of Firms. The register is open for inspection on payment of a nominal fee.
Merits of Partnership: The partnership form of business ownership enjoys the following advantages:
1. Ease of Formation : A partnership is easy to form as no cumbersome legal formalities are involved. An agreement is necessary and the procedure for registration is very simple. Similarly, a partnership can be dissolved easily at any time without undergoing legal formalities. Registration of the firm is not essential and the partnership agreement need not essentially be in writing.
2. Larger Financial Resources: As a number of persons or partners contribute to the capital of the firm, it is possible to collect larger financial resources than is possible in sole proprietorship. Creditworthiness of the firm is also higher because every partner is personally and jointly liable for the debts of the business. There is greater scope for expansion or growth of business.
3. Specialisation and Balanced Approach: The partnership form enables the pooling of abilities and judgment of several persons. Combined abilities and judgment result in more efficient management of the business. Partners with complementary skills may be chosen to avail of the benefits of specialisation. Judicious choice of partners with diversified skills ensures balanced decisions. Partners meet and discuss the problems of business frequently so that decisions can be taken quickly.
4. Flexibility of Operations: Though not as versatile as proprietorship, a partnership firm enjoys sufficient flexibility in its day-to-day operations. The nature and place of business can be changed whenever the partners desire. The agreement can be altered and new partners can be admitted whenever necessary. Partnership is free from statutory control by the Government except the general law of the land.
5. Protection of Minority Interest: No basic changes in the rights and obligations of partners can be made without the unanimous consent of all the partners. In case a partner feels dissatisfied, he can easily retire from or he may apply for the dissolution of partnership.
6. Personal Incentive and Direct Supervision: There is no divorce between ownership and management. Partners share in the profits and losses of the firm and there is motivation to improve the efficiency of the business. Personal control by the partners increases the possibility of success. Unlimited liability encourages caution and care on the part of partners. Fear of unlimited liability discourages reckless and hasty action and motivates the partners to put in their best efforts.
7. Capacity for Survival: The survival capacity of the partnership firm is higher than that of sole proprietorship. The partnership firm can continue after the death or insolvency of a partner if the remaining partners so desire. Risk of loss is diffused among two or more persons. In case one line of business is not successful, the firm may undertake another line of business to compensate its losses.
8. Better Human and Public Relations: Due to number of representatives (partners) of the firm, it is possible to develop personal touch with employees, customers, government and the general public. Healthy relations with the public help to enhance the goodwill of the firm and pave the way for steady progress of the business.
9. Business Secrecy: It is not compulsory for a partnership firm to publish and file its accounts and reports. Important secrets of business remain confined to the partners and are unknown to the outside world.
Demerits of Partnership:
1. Unlimited Liability: Every partner is jointly and severally liable for the entire debts of the firm. He has to suffer not only for his own mistakes but also for the lapses and dishonesty of other partners. This may curb entrepreneurial spirit as partners may hesitate to venture into new lines of business for fear of losses. Private property of partners is not safe against the risks of business.
2. Limited Resources: The amount of financial resources in partnership is limited to the contributions made by the partners. The number of partners cannot exceed 10 in banking business and 20 in other types of business. Therefore, partnership form of ownership is not suited to undertake business involving huge investment of capital.
3. Risk of Implied Agency: The acts of a partner are binding on the firm as well as on other partners. An incompetent or dishonest partner may bring disaster for all due to his acts of commission or omission. That is why the saying is that choosing a business partner is as important as choosing a partner in life.
4. Lack of Harmony: The success of partnership depends upon mutual understanding and cooperation among the partners. Continued disagreement and bickering among the partners may paralyse the business or may result in its untimely death. Lack of a central authority may affect the efficiency of the firm. Decisions may get delayed.
5. Lack of Continuity: A partnership comes to an end with the retirement, incapacity, insolvency and death of a partner. The firm may be carried on by the remaining partners by admitting new partners. But it is not always possible to replace a partner enjoying trust and confidence of all. Therefore, the life of a partnership firm is uncertain, though it has longer life than sole proprietorship.
6. Non-Transferability of Interest: No partner can transfer his share in the firm to an outsider without the unanimous consent of all the partners. This makes investment in a partnership firm non-liquid and fixed. An individual’s capital is blocked.
7. Public Distrust: A partnership firm lacks the confidence of public because it is not subject to detailed rules and regulations. Lack of publicity of its affairs undermines public confidence in the firm.
The foregoing description reveals that partnership form of organisation is appropriate for medium-sized business that requires limited capital, pooling of skills and judgment and moderate risks, like small scale industries, wholesale and retail trade, and small service concerns like transport agencies, real estate brokers, professional firms like chartered accountants, doctor’s clinics or nursing homes, attorneys, etc.
Limited Liability Partnership (LLP):
According to the Limited Liability Partnership Act, 2008, an LLP is a body corporate formed and incorporated under this Act. It is a legal entity separate from that of its members.
Features(i) An LLP must be registered under the LLP Act 2008.
(ii) It is a body corporate having a separate entity of its own.
(iii) It has perpetual succession. Any change in its members does not affect its existence, rights and liabilities,
(iv) Any individual or a body corporate can be a partner in an LLP.
(v) Every LLP must have at least two partners.
(vi) There must be at least two designated partners and one of them must be a resident in India.
(vii) An LLP must maintain proper books of accounts as per the double entry system.
(viii) An LLP must file with the Registrar a Statement of Account and solvency along with its annual return in the prescribed form.
Meritsa. An LLP enjoys stability as changes in partners do not affect its existence.
b. The liability of an LLP and its partners in Limited.
c. A body corporate and a foreigner can be partners in an LLP.
d. An LLP can raise, large amount of funds as there is no restriction on the number of members and risk involved is limited.
Demerits: a. Time and money are involved in the formation and registration of an LLP.
b. There is less flexibility of operations because an LLP has to comply with certain legal formalities.
c. There is lack of business secrecy as an LLP has to file the prescribed documents with the Registrar. Its accounts are open to the public for inspection.
The LLP gives an entrepreneur the twin benefits of limited liability and a flexible internal structure. It is also free from dividend distribution tax and minimum alternate tax.
Private Limited Company :
With the growing needs of modern business, collection of vast financial and managerial resources became necessary. Proprietorship and partnership forms of ownership failed to meet these needs due to their limitations, e.g., unlimited liability, lack of continuity and limited resources.
The company form of business organisation was evolved to overcome these limitations. Private Limited Company has become the dominant form of ownership for large scale enterprises because it enables collection of vast financial and managerial resources with provision for limited liability and continuity of operations.
A Private Limited Company is an incorporated and voluntary association of individuals with a distinctive name, perpetual succession, limited liability and common seal, and usually having a joint capital divided into transferable shares of a fixed value.
“Thus, a company is an artificial legal person having an independent legal entity.
Merits of Company Organisation:
The company form of business ownership has become very popular in modern business on account of its several advantages:
1. Limited Liability: Shareholders of a company are liable only to the extent of the face value of shares held by them. Their private property cannot be attached to pay the debts of the company. Thus, the risk is limited and known. This encourages people to invest their money in corporate securities and, therefore, contributes to the growth of the company form of ownership.
2. Large Financial Resources: Company form of ownership enables the collection of huge financial resources. The capital of a company is divided into shares of small denominations so that people with small means can also buy them. Benefits of limited liability and transferability of shares attract investors. Different types of securities may be issued to attract various types of investors. There is no limit on the number of members in a public company.
3. Continuity: A company enjoys uninterrupted business life. As a body corporate, it continues to exist even if all its members die or desert it. On account of its stable nature, a company is best suited for such types of business which require long periods of time to mature and develop.
4. Transferability of Shares: A member of a public limited company can freely transfer his shares without the consent of other members. Shares of public companies are generally listed on a stock exchange so that people can easily buy and sell them. Facility of transfer of shares makes investment in company liquid and encourages investment of public savings into the corporate sector.
5. Professional Management: Due to its large financial resources and continuity, a company can avail of the services of expert professional managers. Employment of professional managers having managerial skills and little financial stake results in higher efficiency and more adventurous management. Benefits of specialisation and bold management can be secured.
6. Scope for Growth and Expansion: There is considerable scope for the expansion of business in a company. On account of its vast financial and managerial resources and limited liability, company form has immense potential for growth. With continuous expansion and growth, a company can reap various economies of large scale operations, which help to improve efficiency and reduce costs.
7. Public Confidence: A public company enjoys the confidence of public because its activities are regulated by the government under the Companies Act. Its affairs are known to public through publication of accounts and reports. It can always keep itself in tune with the needs and aspirations of people through continuous research and development.
8. Diffused Risk: The risk of loss in a company is spread over a large number of members. Therefore, the risk of an individual investor is reduced.
9. Social Benefits: The company organisation helps to mobilise savings of the community and invest them in industry. It facilitates the growth of financial institutions and provides employment to a large number of persons. It provides huge revenues to the Government through direct and indirect taxes.
Demerits of Company: A company suffers from the following limitations:
1. Difficulty of Formation: It is very difficult and expensive to form a company. A number of documents have to be prepared and filed with the Registrar of Companies. Services of experts are required to prepare these documents. It is very time-consuming and inconvenient to obtain approvals and sanctions from different authorities for the establishment of a company. The time and cost involved in fulfilling legal formalities discourage many people from adopting the company form of ownership. It is also difficult to wind up a company.
2. Excessive Government Control: A company is subject to elaborate statutory regulations in its day-to-day operations. It has to submit periodical reports. Audit and publication of accounts is obligatory. The objects and capital of the company can be changed only after fulfilling the prescribed legal formalities. These rules and regulations reduce the efficiency and flexibility of operations. A lot of precious time, effort and money have to be spent in complying with the innumerable legal formalities and irksome statutory regulations.
3. Lack of Motivation and Personal Touch: There is divorce between ownership and management in a large public company. The affairs of the company are managed by the professional and salaried managers who do not have personal involvement and stake in the company. Absentee ownership and impersonal management result in lack of initiative and responsibility. Incentive for hard work and efficiency is low. Personal contact with employees and customers is not possible.
4. Oligarchic Management: In theory the management of a company is supposed to be democratic but in actual practice company becomes an oligarchy (rule by a few). A company is managed by a small number of people who are able to perpetuate their reign year after year due to lack of interest, information and unity on the part of shareholders. The interests of small and minority shareholders are not well protected. They never get representation on the Board of Directors and feel oppressed.
5. Delay in Decisions:Too many levels of management in a company result in red-tape and bureaucracy. A lot of time is wasted in calling and holding meetings and in passing resolutions. It becomes difficult to take quick decisions and prompt action with the consequence that business opportunities may be lost.
6. Conflict of Interests: Company is the only form of business where in a permanent conflict of interests may exist. In proprietorship there is no scope for conflict and in a partnership continuous conflict results in dissolution of the firm. But in a company conflict may continue between shareholders and board of directors or between shareholders and creditors or between management and workers.
7. Frauds in Promotion and Management: There is a possibility that unscrupulous promoters may float a company to dupe innocent and ignorant investors. They may collect huge sums of money and, later on, misappropriate the money for their personal benefit. The case of South Sea Bubble Company is the leading example of such malpractices by promoters.
Moreover, the directors of a company may manipulate the prices of the company’s shares and debentures on the stock exchange on the basis of inside information and accounting manipulations. This may result in reckless speculation in shares and even a sound company may be put into financial difficulties.
8. Lack of Secrecy:Under the Companies Act, a company is required to disclose and publish a variety of information on its working. Widespread publicity of affairs makes it almost impossible for the company to retain its business secrets. The accounts of a public company are open for inspection to public.
9. Social Evils: Giant companies may give rise to monopolies, concentration of economic power in a few hands, interference in the political system, lack of industrial peace, etc.
SuitabilityDespite its drawbacks, the company form of organisation has become very popular, particularly for large business concerns. This is because its merits far outweigh the demerits. Many of the drawbacks of a company are mainly due to the weaknesses of the people who promote and manage companies and not because of the company system as such. The company organisation has made it possible to accumulate large amounts of capital required for large scale operations.
Due to its unique characteristics, the company form of ownership is ideally suited to the following types of business:
(i) Heavy or basic industries like ship-building, coach-making factory, engineering firms, etc., requiring huge investment of capital.
(ii) Large scale operations are very crucial because of economies of scale, departmental stores, chain stores and enterprises engaged in the construction of bridges, dams, multistoried buildings, etc.
(iii) The line of business involves great uncertainty or heavy risk, e.g., shipping and airline concerns.
(iv) The law makes the company organisation obligatory, e.g., banking business can be run only in the form of company.
(v) The owners of the business want to enjoy limited liability.
One Person Company (OPC):
According to The Companies Act, 2013 of India “One Person Company is a company registered under the proposed Companies Act with just one member and shall have ‘(OPC)’ added in brackets to its name.” The Memorandum of such a company shall indicate the name of the person.
The concept of ‘one person company’ has the following characteristics:
(i) OPC may be registered as a private company with one member.
(ii) Adequate safeguards in case of death/disability of the sole owner are provided.
(iii) OPC will have a corporate entity of its own.
(iv) The owner of an OPC shall be liable only to the extent of its capital. If the activities are carried out in a mala fide manner the liability of the owner extends to his personal property.
(v) An OPC may be managed by the owner or his representative.
(vi) An OPC will get its annual accounts audited and file a copy of the same with the Registrar of Companies.
(vii) A minimum share capital may be prescribed for an OPC.
(viii) Every OPC shall have at least one director.
(ix) The one person shall have to indicate the name of the person who in the event of the subscriber’s death, disability, etc. becomes the members of the company.
Merits: (i) OPC will enable small entrepreneurs and professionals, e.g., chartered accountants, lawyers, doctors, etc. to avail the benefits of companies,
(ii) The procedure for forming the OPC is very simple.
(iii) Running an OPC is easy as it does not require compliance with many legal formalities.
(iv) As the risk is limited to the value of shares held by one person, small entrepreneurs have not to fear litigation and attachment of personal assets.
(v) There is no need to share business information with any other person, therefore, business secrecy is ensured.
(vi) The motivation and commitment of the owner are high due to absence of profit sharing.
(vii) Quick decisions can be taken due to complete control by the owner. There is freedom of action.
Demerits: (i) The life of OPC is uncertain and instable.
(ii) The concept of OPC makes mockery of the corporate concept because company means more than one person.
(iii) A company should operate as a democratic institution with discussion and decision by voting. But in an OPC there is no democracy.
(iv) An OPC has to be incorporated. It has also to comply with some legal formalities.
The concept of OPC has been introduced in a half-hearted and incomplete manner. How would OPC work and what would be the regulatory provisions concerning their formation and functioning has not been made clear. Hence, the provisions concerning OPC require a re-look and redrafting.
Public Limited Company:
Public company is a separate legal entity incorporated under companies act, allowing the members to transfer their shares, while having a larger number of shareholder base.
Definition of Public Company: u/s2 (71) of Companies Act Amendment 2013, public company means a company which:
i. Is not a private company;
ii. Has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed –
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.
Public companies are able to attract large funding through issue of equity, debt and other forms of financing domestically as well as internationally. Due to too much legal constraints and compliances, a public company is not a very suitable form of business especially for small scale businesses and small entrepreneurs.
However once a business is well established in the industry, then riding on the prestige and credibility of the business, at a later stage, a business can unravel the option of being formed as a public company.
Advantages of a Public Limited Company (PLC): Following are the prominent advantages of having a public limited company:
i. Limited Liability of shareholders – The business is viewed as a separate legal entity. This means that even if a shareholder leaves the PLC or dies, the business can continue.
ii. Ability to raise large amount of capital – Public limited companies are able to raise large sums of money because there is no limit on the maximum number of members.
\iii. Transferability of shares – the shares of a PLC can be freely transferable. This provides liquidity for shareholders.
iv. Exit strategy – due to transferability of shares and being widely recognizable in the public domain, a public company magnifies its chances of easily seeking future suitors for the company.
v. Limited liability of shareholders – The liability of shareholders is limited to the extent of unpaid capital on the shares held by them.
vi. Separate legal entity – The public company due to incorporation is distinct legal person different from its shareholders.
Disadvantages of a Public Limited Company: Despite having several benefits, a public limited company suffers from the following disadvantages:
i. There are many legal formalities and regulatory compliances to be adhered to by a company during the stage of formation as well as carrying of day to day operations.
ii. Ownership and control woes – due to larger shareholder base, at times it’s difficult to take speedy and timely business decisions especially if the shareholders are geographically scattered.
iii. Vulnerable to takeovers – With shares being freely transferable, a potential bidder can secretly stock up the shareholding of the company even from open market, to stage a hostile takeover bid.
iv. Larger possibility of conflicts between management and owners
v. Lack of secrecy – due to open access of books of accounts to public, as well as inspection by the relevant authorities, it is difficult to maintain secrets of business within the confined walls of business.
v. Lack of secrecy – due to open access of books of accounts to public, as well as inspection by the relevant authorities, it is difficult to maintain secrets of business within the confined walls of business.
vii. There is a possibility that the original owners can lose control of the public limited company in the issue of a dispute or violation.
viii. Some public limited companies can grow very large. As a result, many can suffer from mismanagement and slow decision making.
ix. Owing to higher degree of transparency and accountability, public companies suffer from slow decision making woes.
Finally it can be concluded that no particular form of business is perfect for organizing a startup. The specific choice of business form inter-alia depends upon combination of various factors like control over the business, ease of doing the business, legal compliances, flexibility, taxation as well as the nature of the business. An entrepreneur should cautiously choose a form of business after considering all the relevant factors.
Choosing Company as a Form of Business:
Keeping in view the impending and ever growing needs of funds for a new as well as growing startup, usually the first preference for establishing a startup is given to a company form of business.
Keeping in view the impending and ever growing needs of funds for a new as well as growing startup, usually the first preference for establishing a startup is given to a company form of business.
