Revision Notes- Entrepreneurial Planning | Entrepreneurship Class 12 - Commerce PDF Download

Forms of Business Organization

• From the point of view of ownership and management, business enterprises may be broadly classified under three categories:
  1. Private sector enterprises
  2. Public sector enterprises
  3. Joint sector
• Private sector enterprises: The enterprises which are owned, controlled and managed by private individuals, with the main objective of earning profit comes under this category.
• Private individuals thus could start a venture as:
  1. Sole-Proprietorship
  2. Partnership
  3. Joint Hindu Family business
  4. Co-operative organisations
  5. Company
• Public sector enterprises: When business enterprises are owned, controlled and operated by public authorities, with welfare as primary and profit as secondary goals, they are called as public sector enterprises.
• These enterprises have the following forms of organisation:
  1. Departmental undertakings
  2. Public corporations
  3. Government companies
  4. Joint sector enterprises
• Joint sector is a form of partnership between the private sector and the government where management is generally in the hands of private sector, with enough representation on Board of Directors by the Government too.
• Sole Proprietorship: One of the oldest, simplest and most commonly used form of business organization which is owned financed, controlled and managed by only one person is called as sole proprietorship, single entrepreneurship or individual proprietorship.
• Characteristics of Sole Proprietorship:
  1. Individual ownership
  2. Individual management and control
  3. Individual financing
  4. No separate legal entity
  5. Unlimited liability
  6. Sole beneficiary
  7. Easy formation and closure
  8. Limited area of operation
• Suitability of Sole Proprietorship form of business:
  1. Capital requirement is limited
  2. Confidentiality / secrecy is important
  3. Market is local
  4. Goods are of artistic nature or demands customized approach
  5. Quick decision–making is necessary
  6. Size of the venture is small
• Partnership form of organisation has developed due to the inherent limitations of sole proprietorship i.e.
  1. Limited capital
  2. Limited managerial ability
  3. Limited continuity
• A Partnership is an association of two or more persons to carry on, as co-owners, a business and to share its profits and losses. Thus, two or more persons may form a partnership by making a written or oral agreement to carry a business jointly and share its proceeds.
• Characteristics of Partnership:
  1. Two or more persons
  2. Agreement
  3. Profit sharing
  4. Unlimited liability
  5. Implied authority
  6. Mutual agency
  7. Utmost good faith
  8. Restriction on transfer of shares
  9. Continuity
• Suitability
  1. Capital and managerial requirements are higher as compared to that of sole proprietorship,
  2. Enterprise falls in the category of either being a small or a medium scale enterprise,
  3. Direct contact with the customers is essential
• In common parlance, a Company means a voluntary association of a person formed for some common object with capital divisible into units of equal value called ‘shares’ and with limited liability. Company is a creation of law that is the birth of this artificial human being is by law and it can be put to death by law only.
• Characteristics of a Company:
  1. Voluntary association
  2. Artificial person
  3. Separate legal entity
  4. Common seal
  5. Limited liability
  6. Transferability of shares
  7. Diffusion of ownership and management
  8. Number of members
     Private company:
     Minimum required members : 2
     Maximum members : 200 (excluding employees)
     Public company:
     Minimum requirement : 7
     Maximum number : No limit
  9. Limitation of action
  10. Wind-up is both as per the Companies Act only. It’s born out of law and can be liquidated only by law.
• A Private Company:
  1. has a minimum of two and a maximum of two hundred members excluding its past and present employees.
  2. restricts the right of its members to transfer shares.
  3. prohibits an invitation to the public to subscribe for any shares or debentures of the company or accept any deposits from persons other than its directors, members or relatives.
  4. has a minimum paid up capital of one lakh rupees (subject to change).
  5. uses the word ‘Pvt. Ltd.’ at the end of its name.
• Public Company: Under Section 2(71) of the Companies Act, 2013, “public company” means a company which:
  1. is not a private company.
  2. has a minimum paid-up share capital of five lakh rupees (subject to change).
  3. The minimum number of members is seven.
• Joint Hindu Family/Firm (HUFs): Joint Hindu Family or Hindu Undivided Family Business is a unique form of business organisation prevailing only in India. It is governed by Hindu law and represents a form which is owned, managed and controlled by the male members of a Joint Hindu Family.
• Meaning of HUFs: The HUFs have been defined under the Hindu law “as a family, which consists of male lineally descended from a common ancestor and included their wives and unmarried daughters.” The relation of HUFs arises from the status not from legal contracts. Creating HUFs are the best possible way to save taxes.
• Characteristics of Hindu Undivided Family
  1. Creation: It arises by status or operation of Hindu Law.
  2. Membership: A male member becomes a member merely by his birth. By adoption, an outsider can be admitted to its membership but not otherwise.
  3. Management: The ‘Karta’ manages the affairs, having unlimited powers. The ‘Coparceners’ have no right to deal with outsiders or inspect accounts.
  4. Liability: The liability of Karta is unlimited and that of coparceners is limited to the extent of their share in property which is jointly held by the family.
  5. Right of Accounts: The members other than Karta do not have right to inspect and/or copy contents of the account books.
  6. Minor as member: A male from the time of his birth becomes the member in this form of enterprise.
  7. Dissolution: The HUF continues to operate forever as death of members does not effect it. But if all members want to mutually dissolve the firm, they can do so.
  8. Implied Authority: Only the Karta has implied authority.
• Co-operative Organisations: A co-operative organisation is a different form of business enterprise as here, the main motive is not earning profit but mutual help. It works with the principle of each for all and all for each.
• The Indian Co-operative Societies Act, 1912 defines, “Co-operative” in Section 4 as, “Society which has its objectives as the promotion of economic interests of its members in accordance with co-operative principle.”
• Features:
  1. Voluntary organisation
  2. Democratic management
  3. Service motive
  4. Capital and return thereon
  5. Government control
  6. Distribution of surplus

Various Plans

• Business Plan is a comprehensively written down document prepared by an entrepreneur.
• Business plan has sub-plans related to : Marketing, Finance, Operations, Human, Legal.
• Objective of Production Plan is to plan the work in a manner that each step to be taken in the right place, right degree, right time and more efficiently.
• Operation Plan is the soul of business plan. It is that part of business plan which describes list of company’s operations in advance that was acquired by management for smooth and coordinated flow of work.
• Organisational Plan is that part of business plan that describes the proposed venture’s form of ownership.
• Financial Plan is a projection of the financial data about the potential investment commitment needed for the new venture and economic feasibility of the enterprise.
• In order to build up loyal, efficient and dedicated personnel, entrepreneurs need to pay adequate and proper attention to human resource planning.
• Marketing plan is a guideline regarding the marketing objectives, strategies and activities to be followed by any enterprise.