The economic activities in any country can be broadly classified into two sectors: formal and informal. The formal sector comprises activities that are regulated by the government and are recognized by the legal framework, while the informal sector consists of unregulated and unregistered activities. Let's explore the differences between these two sectors in detail.



The formal sector mainly includes activities that are structured, monitored, and regulated by the government. Some key characteristics of the formal sector are:

• Legal recognition: Formal sector activities are recognized by the government and operate within the legal framework.


• Registration: Businesses and individuals operating in the formal sector are required to register with relevant authorities and obtain necessary licenses and permits.


• Regulation: The formal sector is subject to various regulations and compliance requirements, such as labor laws, taxation, environmental standards, and consumer protection.


• Formal contracts: Transactions in the formal sector are typically governed by formal contracts, which provide legal protection to parties involved.


• Credit access: Businesses in the formal sector have relatively easier access to formal credit systems, such as banks and financial institutions.

Examples of formal sector activities include large corporations, government organizations, registered businesses, and formal employment in sectors like manufacturing, finance, education, and healthcare.



The informal sector, also known as the "shadow economy" or "underground economy," consists of economic activities that are unregulated and operate outside the purview of legal frameworks. Key characteristics of the informal sector include:

• Lack of regulation: Informal sector activities are not subject to government regulations and do not comply with formal legal requirements.


• No registration: Businesses and individuals operating in the informal sector often do not register with authorities or obtain necessary licenses.


• Small-scale operations: Informal sector activities are typically small-scale, involving self-employment, family businesses, street vendors, and unskilled labor.


• Informal contracts: Transactions in the informal sector often rely on informal agreements and trust rather than formal contracts.


• Limited access to credit: Due to the lack of formal documentation and assets, businesses in the informal sector face challenges in accessing formal credit systems.

Examples of informal sector activities include street food vendors, home-based businesses, informal labor, small-scale agriculture, and unregistered small businesses.



Here are the key differences between the formal and informal sectors:

• Regulation: The formal sector is regulated by the government, while the informal sector operates outside government regulations.


• Recognition: Formal sector activities are recognized by the legal framework, whereas the informal sector activities are not officially recognized.


• Registration: Businesses and individuals in the formal sector must register and obtain licenses, while the informal sector often operates without registration.


• Compliance: The formal sector complies with various legal requirements, such as taxation and labor laws, but

Formal and informal structure is complementary to each other




* In formal it refers to the structure of well defind authority and responsibility relationship

*It is planned and create infinite

*In informal to person relationship which develop automatical when people work together

*It is plans are orgini automatical