business Administration-XI

Unit 4: Type of Organisation

Learning Outcomes

  • Meaning of Business Organisation

  • Definition of Business Organisation

  • Characteristics of Business Organisation

  • Significance of Business Organisation

  • Types of Organisation

4.1 Meaning of Business Organisation

  • Definition: A business organisation refers to the structured arrangement of resources (human, financial, physical, technological) to achieve specific goals.

  • Example: In a rice mill:

    • Requires land acquisition, construction of buildings, purchase and installation of machinery, employment of labor, and procurement of raw materials (paddy).

    • Proper systematization and coordination of resources lead to profitable operations.

4.2 Definition of Organisation

  • Keith Davis: "Organization may be defined as a group of individuals, large or small, that is cooperating under the direction of executive leadership in accomplishment of certain common object."

  • Chester I. Barnard: "Organization is a system of cooperative activities of two or more persons."

  • Louis A. Allen: "Organization is the process of identifying and grouping the work to be performed, defining and delegating responsibility and authority, and establishing relationship for the purpose of enabling people to work together effectively."

  • Mooney and Railey: "Organization is the form of every human association for the attainment of a common purpose."

4.3 Characteristics of Organisation

  1. Outlining the Objectives: Establishing long-term objectives alongside supporting short-term goals.

  2. Identifying and Enumerating Activities: Breakdown of tasks necessary to meet objectives.

  3. Assigning Duties: Allocation of responsibilities within departments based on grouped activities.

  4. Defining and Granting Authority: Clear definition and correspondence of authority with responsibilities.

  5. Creating Authority Relationships: Establishing formal and informal relationships, defining supervisory roles and spans of control.

4.4 Significance of Organisation

  • Efficiency: Streamlines administration, improves management, reduces delays, and motivates employees.

  • Enterprise Growth: Supports business expansion and diversification.

  • Optimum Human Resource Utilization: Facilitates collaboration among individuals with diverse skills.

  • Stimulation of Creativity: Encourages innovative thinking through structured organization.

  • Achievement of Objectives: Provides a framework for accomplishing business goals.

  • Prevention of Corruption: Enhances employee morale and promotes ethical conduct.

  • Coordination: Ensures that different functions work together harmoniously.

  • Elimination of Duplication: Clearly defined duties prevent overlap and inefficiencies.

4.5 Types of Organization

  • Various forms include:

    1. Sole Proprietorship

    2. Partnership

    3. Co-operative Society

    4. Joint Stock Company (Private and Public)

4.5.1 Sole Proprietorship

  • Meaning: A business owned and managed by a single individual, accountable for all business operations and liabilities.

  • Features:

    • Individual initiative, risk-bearing, management control, minimum regulations, unlimited liability, secrecy.

  • Merits:

    • Easy formation, better control, sole beneficiary of profits, small-scale benefits, inexpensive management.

  • Limitations:

    • Management skill limits, resource limitations, unlimited liability, lack of continuity.

4.5.2 Partnership

  • Meaning: An association of individuals agreeing to share financial resources and management.

  • Features:

    • Existence based on agreement, business engagement, profit-sharing, unlimited liability, common management, restrictions on shares, optional registration.

  • Merits:

    • Easy formation, pooling resources, balanced decisions, risk-sharing.

  • Limitations:

    • Uncertainty of existence, implied authority risks, disharmony risks, withdrawal difficulties, lack of trust from institutions, expansion challenges.

4.5.3 Co-operative Organisation

  • Meaning: A voluntary association formed for mutual benefit, prioritizing self-help and collaboration.

  • Characteristics:

    1. Voluntary association

    2. Equal voting rights

    3. Separate legal entity

    4. Service motive

    5. Profit distribution based on participation.

  • Merits:

    • Easy to form, open membership, democratic management, limited liability, stability, economical operations, government support.

  • Limitations:

    • Limited capital, management inefficiency, absence of motivation, member conflicts, rigid regulations.

4.5.4 Company

  • Meaning: A voluntary association with distinct legal status, separate from its members, and featuring limited liability.

  • Features:

    • Registered body, distinct legal entity, perpetual succession, common seal, limited liability, transferability of shares.

  • Merits:

    • Ability to raise large funds, limited liability, free share transfer, stability, growth potential, expert management, public confidence, and social benefits.

  • Limitations:

    • Lengthy registration procedures, excessive government regulation, lack of incentives for managers, decision-making delays, oligarchic management.

4.5.5 Limited Liability Partnership (LLP)

  • Meaning: A hybrid form offering the benefits of partnership while providing separate legal entity status and limited liability.

  • Features:

    1. Separate legal entity

    2. Partners manage the business directly

    3. Limited liability for partners

    4. Minimum of 2 partners, no maximum

    5. Business must be profit-oriented

    6. Perpetual succession.

  • Merits:

    • Lower formation costs.