Introduction
The selection criteria of a
proper form of organization is crucial for the success of a business
enterprise. Every entrepreneur has to decide at the outset, about the type of
organization which he plans to select for his private enterprise. It is an important
entrepreneurial decision. This choice is by and large influenced by the socio –
cultural norms and then prevailing industrial environment.
The deciding core factors
are:
·
Type of business –
service. Trade, manufacturing.
·
Selection of industry
and the area of operation.
·
Scope of operations,
volume of business and the size of the market, including its expected growth
potential.
·
Amount of capital
funds required – initial capital, working capital.
·
Possibility of
raising resources from the market – institutions, subsides and other
incentives.
·
Costs and procedures
and relative freedom from Government regulation.
·
Comparative tax
advantages etc.
·
Size of the risk.
·
Continuity of the
enterprise.
·
Degree of direct
control and adaptability of administration.
Ownership
Organization
The
first and foremost question in organizing a small – scale industry is that of
ownership, represented by the right of an individual or a group of individuals
to acquire legal title to assets for the purpose of controlling an industrial
operation and enjoying the gains or profits flowing from such activities.
The
chief forms of an ownership are
1.
Sole proprietorship.
2.
Partnership
3.
Co – operative
society and
4.
Joint stock company.
Sole Proprietorship
“Sole proprietorship is a
form of business organization in which an individual invests his own capital
uses his own skill and intelligence in the management of its affairs and is
solely responsible for the results of its operation.”The individual with the assistance
of other workers or by is won labour and capital, may run the industry. This
form of organization is also known as individual entrepreneurship – the oldest
and the most sought after form of enterprise in the filed of small scale
industry and the easiest and simplest form of entrepreneurship from the
operational point of view. The individual entrepreneur embarks upon some
industrial activity with his own savings or with funds borrowed from his
friends or relatives. The industry may be started either in a portion of the
entrepreneurs own house or in rented premises.
The import features of a
sole proprietorship are:
1.
Sole ownership
2.
One man control.
3.
Unlimited risk
4.
Undivided risk
5.
No separate entity of
the firm
6.
No government
regulations.
Partnership Organization
Partnership organization
grew and gained importance as an individual is not competent enough to possess
enormous capital and knowledge or competence to manage everything. With the
expansion of business and enlargement of the sale of its operations it became
necessary for a group of persons to join hands together and supply the
necessary capital and skills. Often it is found that a person may be having a
huge capital but may not possess the required skill. Individually none of them can
run a business enterprise single – handed but together they may be highly
successful in its operations. Thus partnership organization has been adopted to
arrange more capital, offer better skill, control and management to take
advantage of high degree of specialization and division of labour and to share
the risks.
Joint stock companies
The growth of joint stock
companies constitute an important step in the historical evolution of forms of
ownership of business enterprises. With the enlargement of the scale of
business operations, it became difficult for a sole trader or partnership firm
to cope with the problems of finding more resources and arranging for more specialized
management.
Salient features
A joint stock company exists
as a separate legal entity quite apart from that of the members comprising the
organization unlike a partnership. In other words, this company is considered
to be a “person” in the eyes of law. Also these company possesses the right to
own and transfer any property.
In India only 3 % of the units exist as joint
– stock companies. In a sense it is an extension of the partnership form; it is
an association of a number of members which has a legal sanction behind it.
Because of the complicated and cumbersome legal procedures, heavy taxation and
the possibility of unscrupulous promoting securing capital for an undesirable
concern, this system has not made any headway in the small scale industries
sector.
The Co – operatives
A Co – operative society is
essentially an association of persons who join together or a voluntary basis
for the furtherance of their common economic
interests. The International Labor Organization (ILO) defines a cooperative as
“ an association of persons usually of limited means, who voluntarily join
together to achieve a common economic end through the formation of a
democratically controlled business organization , making an equitable
contribution to the capital required and accepting a fair share of the risks
and benefits of the undertaking. These are mainly in such industries as wooden
furniture and fixtures, utensils, agricultural hand tools and implements,
printing and washing soaps.
Forms of Organization
The selection of the form of
organization depends basically on the nature of industrial activity proposed to
the undertaken, the scale of operations in terms of the volume of business to
be handled, the scope of the market to be covered, the sharing of risks and tax
advantages.
Line organization
A line organization is the
basic frameworks of an organization. Under this type, various activities are
organized in groups and controlled by a manager, who is responsible to the top
man. In this type of organization authority flows from the top to the bottom
while responsibility flows from the bottom to the top.
Advantages
1.
It is simple to form
and easy to separate
2.
In it line executives
enjoy decision – making powers.
3.
It has a systematic
organizational structure.
4.
It maintains a
balance between authority, responsibility and accountability.
5.
Discipline can be
maintained easily.
6.
Communication is easy
and quick.
Disadvantages
1.
It becomes autocratic
or dictatorial.
2.
It suffers from lack
of specialization.
3.
There is an overload
of responsibility.
4.
It hampers
initiative.
5.
There is absence of
co – ordination among the different departments.
6.
It is unstable.
Functional organization
The simplest type of
departmentation is the functional type of structure which consists of grouping
of all similar activities into major departments. It was organized by F.W.
Taylor with a view to bringing about the specialization of management activities.
Advantages
1.
It promotes a better
division of labour.
2.
It ensures proper
communication.
3.
It offers a good
scope for specialization.
4.
It promotes co –
ordinated work.
5.
It ensures systematic
organization.
Disadvantages
1.
The unity of command
is absent.
2.
There is a tendency
towards over – specialization.
3.
In this type of
organization, it is difficult to pinpoint responsibility.
4.
It is costly.
5.
There is no
continuity of authority.
