Forms of Business Organization Joint Stock Companies and Banks. Dr. Attaullah Shah. Sole Proprietorships. Business owned (and usually operated) by one person Simplest form of business ownership Most popular form of business organization – 72.2% of all Most common in: Retailing Service
Forms of Business OrganizationJoint Stock Companies and Banks
Dr. Attaullah Shah
EBT $500,000 $500,000 (Assume Business Tax Rate = 50%)
Business Tax 0250,000
Net Profit $500,000 $250,000
(Assume a 30% Personal Tax Rate)
Personal Tax 150,000 75,000
$ to Owners $350,000 $175,000
Joint Stock Company:
The limitations of sole-proprietorship and partnership forms of ownership gave birth to joint stock company form of organisation.
Two important limitations of earlier form of organisation were inadequacy of funds and unlimited liability.
The earlier form of organisation could not meet the increasing demand for funds of organisation. The other limitation which hampered the growth of business was the unlimited liability of owners.
Joint stock company was first started in ITALY in THIRTEENTH century.
During 17th and 18th centuries, joint stock companies were formed in ENGLAND under ROYAL CHARTER or ACTS OF PARLIAMENT.
A company is ‘’ a voluntary association of many individuals for profit having limited liability and contribute money or money’s worth to a common stock.
Kinds of Companies: ACCORDING TO INCORPORATION
The companies may be divided into three categories according to incorporation.
CHARTERED COMPANIES:- These type of companies are incorporated under ROYAL CHARTER by the king or HEAD OF THE STATE. Under the charter, certain exclusive rights and privileges are granted to the company for undertaking certain commercial activities. If the company violates the rules, the head of the state can close such companies.
STATUTORY COMPANIES:- These companies are formed under special act of parliament or of a state legislature. These companies may or may not use the word ‘limited’. The EXAMPLES of such companies are State Bank of Pakistan THE INDUSTRIAL FINANCE CORPORATION OF Pakistan, STATE TRADING CORPORATION OF Pakistan, etc.
REGISTERED COMPANIES:-These are the companies formed and registered under the provisions of the companies act. Most of the companies in Pakistan are registered under the COMPANIES ACT 1956. these companies may be limited by shares, limited by guarantee or unlimited companies.
According to liability, the companies may be classified into three categories.
EXEMPTIONS AND PRIVILEGES OF PRIVATE COMPANY
2. PUBLIC COMPANIES:- Public company means that public at large is interested in those companies. A minimum of seven members are required to constitute a public company and to get it registered. There is no restriction on the maximum number of members. Public companies are required to issue a prospectus for inviting people to purchase their shares. A public company can start work only after getting ’CERTIFICATE OF COMMENCEMENT’ from the ‘REGISTRAR OF COMPANIES’. The shareholders are free to sell their shares in the market.
MERITS OF JOINT STOCK COMPANY
ACCUMULATION OF LARGE RESOURCES: - a company can collect large sum of money from large number of share holder. need for more fund arise, the number of shareholder can be increased .
LIMITED LIABILITY:-The liability of members in a company is limited to the nominal value the shares
CONTINUITY IN EXISTENCE:-The member of a company may go on changing from time
to time but that does not affect the continuity of a company. The death or insolvency of members does not in any way affect the corporate existence of company.
EFFICIENT MANAGEMENT: - In the company form of organization, ownership is separate
from management its enables the company to point expert and qualified person for managing various business function.
ECONOMIES OF LARGE SCALE PRODUCTION:-The availability of large resources, the
company can organize production on a big scale .The increase in scale and size of business bill result in economics in production, purchase , marketing and management , etc.
DEMERITS OF JOINT STOCK COMPANY
1.DIFFICULTY IN FORMATION:- There is no. of stages is involved in company promotion. It is both expensive and risky.
2.SEPARATION OF OWNERSHIP AND MANAGEMENT:-.The ownership and management of a public company is in different hands . The management may indulge in speculative business activities.
3.EVILS OF FACTORY SYSTEM:- The stock company are attribute the evils of factory system like insanitation ,air pollution ,congestion of cities.
4.SPECULATION IN SHARES:- The joint stock company facilitate speculation in the shares at stock exchanges.
5.FRADULENT MANAGEMENT:- The promoters and director may indulge in fraudulent practices due to not invested much in the company.
6.LACK OF SECRECY:- Every thing is discussed in the meeting of board of directors
7.DELAY IN DECISION MAKING:- There is no single individual can make a policy decision.
On the basis of ownership
On the basis of domicile
On the basis of Function
The banks are classified on the basis of ownership into two categories.
1. Public sector banks
2. Private sector banks
1. Public sector banks:
The banks owned and controlled by the Government are called Public sector bank. e.g national Bank of Pakistan
2. Private sector banks:
The banks owned by corporations are called private sector banks. e.gHabib Bank, Bank Alfalah etc.
The banks are divided on the basis of domicile into two categories.
1. Domestic banks
2. Foreign banks
1. Domestic banks.
The banks registered and incorporated within the country are called domestic banks. e.g. Bank of Punjab, MCB Bank etc
2. Foreign Banks
The banks which have their origin and head offices in the foreign countries are called foreign banks. e.g. Citi bank, Standard Charted Bank etc
1. Central Bank:
3. Exchange Banks:
4. Saving Banks:
5. Agriculture Banks:
6. Industrial Development Banks: