CS Foundation Forms of Business Organisation

CS Foundation Forms of Business Organisation Notes

→ A business organization is an individual or group of people that collaborate to achieve certain commercial goals. Some business organizations are formed to earn income for owners. Other business organizations, called non-profits, are formed for public purposes.

The common characteristic feature of business organisation are:

• Distinct ownership: Business organisation may be owned by one or more individuals. Ownership is directly linked to control, thus more close is ownership and management more control will be. As in the case of sole proprietorship, ownership and management is very close thus control on organisation is more.
• Separate identity: Every business organisation has its own separate identity. It has its own assets and liabilities.
• Lawful purpose: Every organisation should have lawful purpose. The objective of the organisation should not be contrary to law.
• Dealing in goods and services: Every business organisation is engaged in some business or providing some services in order to earn profit.
• Continuity and stability of business organisation: Stability is essential for any business concern. Uninterrupted existence enables the entrepreneur to formulate long-term plans for the development of the business concern.
• Risk involvement: Every organisation is involved in one or other type of risk. It is an integral part of business.

The choice of the most suitable form of business organisation is a crucial decision because it affects the rights and liability of the owners. Therefore, the choice should be made with great thought and deliberations.

Factors which should be checked while deciding the form of organisation most suitable for business are:

• Ease of formation: It should be easy to form an organisation. Formation of an organisation should not involve too many legal formalities which may take time.
• Adequacy of capital: The form of organization should facilitate the raising of the required amount of capital at a reasonable cost.
• Nature of business: Business which provide direct services like restaurants, professional services are generally organised as proprietary concerns while some more organised drawing large amount of capital are generally Public limited or private limited companies.
• Liability: Liability of a organisation can be limited or unlimited. A choice is to be made between them from the point of risk, liability should be limited.
• Control: Degree of control an owner is looking for is another factor to determine what kind of organisation is best suited. A person who desires direct control of business, prefers proprietorship, because a company involves separation of ownership and management.
• Tax liability: Tax liability for each form of organisation is different so when deciding about the form of organisation taxation is an important issue.
• Flexibility: an organisation form should be such so as to be able to absorb the market changes.
• Stability and continuity: if the business is ad-hoc or temporary then proprietorship or partnership are the ideal type of organisation. But for business organisation stability and continuity is best suited cause uninterrupted long-term plans are must for the development of the business concern.

→ Choosing a Form of Business Organisation
A business enterprise can be owned and organized in several forms. Each form of organization has its own merits and demerits. The ultimate choice of the form of business depends upon the balancing of the advantages and disadvantages of the various forms of business. The choice of the form of business is governed by several interrelated and interdependent factors such as the nature of business, Scale of operations, the degree of control, Amount of capita! required, the volume of risks and liabilities as well as the willingness of the owners to bear it.

Different forms of organisation are:

1. Sole proprietorship
2. Partnership
3. Hindu Undivided Family Business
4. Co-operatives, Societies and Trusts
5. Limited Liability Partnership
6. Company
7. Statutory Bodies and Corporations

1. Sole proprietorship
A sole proprietorship is the oldest and the most common form of business. It is a one-man organisation where a single individual owns, manages and controls the business. For tax and legal liability purpose, the owner and the business are one and the same. The proprietorship is not taxed as separate entity. Note that the earnings of the business are taxed at the individual level, whether or not they are actually in cash. You are entitled to all profits and are responsible for all your business’s debts, losses and liabilities.

Its main features are:

• Ease of formation is its most important feature because it is not required to go through elaborate legal formalities.
• No agreement is to be made and registration of the firm is also not essential. However, the owner may be required to obtain a license specific to the line of business from the local administration.
• The firm has no legal existence separate from its owner.
• The capital required by the organisation is supplied wholly by the owner himself and he depends largely on his own savings and profits of his business.
• Owner alone enjoys the benefits or profits of the business and he alone bears the losses.
• The liability of the proprietor is unlimited i.e. it extends beyond the capital invested in the firm.
• Owner has a complete control over all the aspects of his business and it is he who takes all the decisions though he may engage the services of a few others to carry out the day-to-day activities.
• The formation and operation of a sole proprietorship form of business organisation requires almost no legal formalities.
• The legal claimants can pursue the personal property of the proprietor and not simply the assets used in the business.

Advantages of Proprietorship:

• A sole proprietorship is the simplest and least expensive business structure to establish.
• Costs are minimal, with legal costs limited to obtaining the necessary license or permits if required.
• Just like formation it is also very easy to wind up the business.
• It is your sole discretion to form or wind up the business at any time.
• The profits earned belong to the sole proprietor alone and he bears the risk of losses as well. Thus, there is a direct link between effort and reward. If he works hard, then there is a possibility of getting more profit and of course, he will be the sole beneficiary of this profit. Nobody will share this reward with him. This provides strong motivation for the sole proprietor to work hard.
• The income generated through operations can be directed into the proprietor’s pocket or reinvested as he or she sees fit.
• Profits flow directly to the proprietor’s personal tax return; they are not subject to a second level of taxation, fri others words, profits from the business will not be taxed at the business level.
• In a sole proprietorship business the sole proprietor alone is responsible for all decisions. Since no one else is involved in decision-making it becomes quick and prompt action can be taken on the basis of this decision.
• In the case of sole proprietorship business, the proprietor can keep business secrets with himself and all his plans to himself, since management and control are in his hands. There is no need to disclose any information to others.
• The sole proprietor is always in a position to maintain good personal contact with the customers and employees. Good personal contacts helps in maintaining close and friendly relations with the employees and thus, business runs smoothly.
• Sole proprietorship form of business organisation leads to creation of employment opportunities for people. Not only is the owner self-employed, sometimes he also creates job opportunities for others.
• Your business is not taxed separately, so it’s easy to fulfil the tax reporting requirements for a sole proprietorship.

Disadvantages of a Proprietorship

• In sole proprietorship business, it is the owner who arranges the required capital of the business. It is often difficult for a single individual to raise a huge amount of capital.
• In the eyes of law, owner and business are considered one and the same. So, proprietorship does not enjoy continuity of life.
• Because there is no separation between proprietor and his business, he can be held personally liable for debts and obligations of the business. This risk extends to the liability caused by any employee of the proprietor.
• A sole proprietor may not be an expert in every aspect of management.
• In sole proprietorship form of business organisation there is a limit beyond which it becomes difficult to expand its activities.

Hence, this form of organisation is suitable for the businesses which involve moderate risk, small financial resources, capital requirement is small and risk involvement is not heavy like automobile repair shops, small bakery shops, tailoring, etc. It accounts for the largest number of business concerns in India.

2. Partnership:
Partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by all of them or any of them acting for all. The owners of a partnership business are individually known as the “partners” and collectively as a “firm”.

Its main features are:

• A partnership is easy to form as no cumbersome legal formalities are involved.
• Its registration is also not essential. However, if the firm is not registered, it will be deprived of certain legal benefits.
• The Registrar of Firms is responsible for registering partnership firms.
• The minimum number of partners must be two, while the maximum number can be 100.
• The firm has no separate legal existence of its own i.e., the firm and the partners are one and the same in the eyes of law.
• Ownership of property usually carries with it the right of management. Every partner, therefore, has a right to share in the management of the business firm.
• If firm assets are not sufficient for the payment of firm liabilities than all the partners personal assets can be taken for the payment of liability.
• In the absence of any agreement to the contrary, all partners have a right to participate in the activities of the business.
• Partnership comes to an end with the death, retirement of any partner. However, if remaining partners want to continue then they can continue by signing a new agreement.
• A partner binds all partner with its activities. In this way every partner plays a double role of principal and agent.
• There are restrictions on the transfer of interest i. e. none of the partners can transfer his interest in the firm to any person (except to the existing partners) without the unanimous consent of all other partners.

Advantages of Partnership Firm

• A partnership firm can be formed easily with an agreement between two or more persons to carry lawful business
• Registration is not compulsory
• Closure of firm is easy
• Different partners may have expertisation in different areas of functions. As a result, decisions are likely to be more balanced
• Since two or more partners join hands to start a partnership business, it may be possible to pool together more resources as compared to a sole proprietorship. The partners can contribute more capital, more effort and more time for the business.
• Risk is shared by all partners.
• A partnership firm is a flexible organization. At any time, the partners can decide to change the size or nature of the business or area of it’s operation. There is no need to follow any legal procedure. Only the consent of all the partners is required.
• A partnership firm is not legally bound to publish its accounts thus it can maintain confidentiality and secrecy. Disadvantages of Partnership Firm
• All the partners are jointly liable for the debt of the firm. They can share the liability among themselves or any one can be asked to pay all the debts even from his personal properties depending on the arrangement made between the partners.
• Capital investment by partners is limited as there is restriction on number of partners.
• Firm cannot expand beyond a certain size.
• As the decisions are shared between all the partners, thus there is possibility of conflicts among the partners in case of difference in opinion in some issues.
• The partnership firm has no legal existence separate from it’s partners. It comes to an end with death, insolvency, incapacity or the retirement of a partner. Further, any unsatisfied or discontent partner can also give notice at any time for the dissolution of the partnership.
• If you are a partner in any firm, you cannot transfer your share or part of the company to outsiders, without the consent of other partners. This creates inconvenience for the partner who wants to leave the firm or sell part of his share to others.
• The confidence of the public in partnership firm is low because it is not legally required to publish its accounts.
• Partnership is an appropriate form of ownership for medium sized business involving limited capital. This may include small scale industries, wholesale and retail trade; small service concerns like transport agencies, real estate brokers, etc.

3. Hindu Undivided Family Business
Hindu Undivided Family Business is a distinct type of organisation which is unique to India. Even within India its existence is restricted to only certain parts of the country. In this form of business ownership, all members of a Hindu undivided family do business jointly under the control of the head of the family who is known as the ‘Karta’. The members of the family are known as ‘Co-partners’. Thus, the Hindu Undivided Family Business is a business owned by co-partners of a Hindu undivided estate.

Its main features are:

• It comes into existence by the operation of Hindu law and not out of contract.
• The rights and liabilities of co-partners are determined by the general rules of the Hindu law.
• The membership of this form of business is the result of status arising from the birth in the family and its legality is not affected by the minority.
• The Karta can function in Dual capacity and can claim remuneration and other benefits from the HUF.
• Registration is unnecessary, but the rights of its members to sue third parties for claims of debt remains unaffected.
• It is managed by the Karta. He has the authority to obtain loans against the family property or in other ways. Other members have no right of management. Moreover members cannot take loans binding on the joint-family property.
• There can be a HUF comprising only of FEMALE members.
• The firm enjoys continuity of operations as its existence is not subject to the death or insolvency of a co-partner or even of the Karta himself. Thus, it has a perpetual life like the public limited company.
• HUF cannot enter in to contracts, or form partnership firm, or represent except through Karta, however Karta may allow others to represent HUF.
• The Karta has unlimited liability while the liability of the other members is limited to the value of their individual interests in the joint family.

Advantages of Hindu Undivided Family Business

• It is easy to form Hindu Undivided Family Business as it does not involve lot of legal formalities.
• HUF can accept gifts from relations who may not be the member of the family.
• Every co-partner will get share in the profit generated from business irrespective of money put by him.
• Liability of the Karta is unlimited which compelles him to do business in efficient manner.
• As HUF does not get dissolved with the death of Karta it has continuity of operations.

Disadvantages of Hindu Undivided Family Business

• It is confined to Joint Hindu families thus the benefits of HUF cannot be availed by everyone.
• If there is any dispute between the co-partners then the business may be closed and then the profits are shared between the co-partners.
• Resources available to HUF are limited so it cannot carry on big business.
• As Karta is responsible for all the acts of HUF thus the business of HUF depends on the knowledge and experience of Karta, thus a managerial skill lacking can be there.
• Karta has unlimited liability.

4. Co-operatives, Societies and Trusts:
Co-operative organisation is a society which has as its objectives the promotion of the interests of its members in accordance with the principles of cooperation. The term co-operative is derived from the Latin word ‘co’ means ‘with’ and ‘operari’ means ‘to work’. It is a voluntary association of ten or more members residing or working in the same locality, who join together on the basis of equality for the fulfilment of their economic or business interest. The basic feature which differentiates the co-operatives from other forms of business ownership is that its primary motive is service to the members rather than making profits. It functions under the Co-operative Societies Act,1912 and other State Co-operative Societies Acts.

There are different types of co-operatives like consumer co-operatives, producer’s co-operatives, marketing co-operatives, housing co-operatives, credit co-operatives, farming co-operatives, etc. The aim of all such co-operatives is to promote the welfare of their members.

The characteristic features of Co-operative organisation are:

• It is a voluntary organisation as a member is free to leave the society and withdraw his capital at any time, after giving a notice.
• Individuals having common interest can join a co-operative enterprise as members of their own accord.
• The minimum number of members is 10, but there is no limit to the maximum number of members. However, the members must be residing or working in the same locality.
• While leaving, a member can withdraw his capital from the society but he cannot transfer his share to another person.
• Registration of a co-operative enterprise is compulsory. A co-operative society may be registered with the Registrar of Co-operatives Societies.
• After registration a co-operative enterprise becomes a body corporate independent of its members /. e. a separate legal entity.
• Equality is the essence of co-operative enterprises; each member is entitled to a single vote regardless of his contribution to the capital of the society.
• The basic principle of co-operatives “one man one vote” ensures that nobody can dictate terms to other members just because of his greater command over excessive wealth.
• Administration of co-operative society is entrusted to a Board of Directors elected on the principle of equality of vote.
• It is subject to the provisions of the Co-operative Societies Act, 1912 or State Co-operative Societies Acts. It has to submit annual reports and accounts to the Registrar of Societies.
• The primary motive of co-operative societies is to provide service to their members. The aim is not to earn profits as is the case in all other forms of enterprises.
• The liability of every member is limited to the extent of his capital contribution.
• The shares of co-operative society cannot be transferred but can be returned to the society in case a member wants to withdraw his membership.
• Being a separate legal entity a co-operative enjoys continuity of existence which is not affected by death, insolvency, retirement, etc. of the members.
• The organization of co-operative society is a democratic body. Every member has got equal right over the function and management of that society.
• It runs on the principle of cash unlike other forms of organisation. It is not a position to afford the liability of credit sales which is a common phenomenon with all other form of business. It is because a cash sale, is a rule, it has always helped in avoiding the risk of bad debts and in conserving the limited resources of co-operatives.

Advantages of Co-operative Societies

• As there are large number of members thus greater amount of capital is available.
• The formation of a co-operative society is very simple as compared to the formation of any other form of business organisations. Any ten adults can join together and form a co-operative society.
• In most cases, the liabilities of the members of the society is limited to the extent of capital contributed by them.
• Unless and otherwise specifically debarred, the membership of co-operative society is open to everybody.
• The primary motive of co-operative societies is to provide service to their members
• In Co-operative society members arc provided with better good and services at reasonable prices.
• The co-operative society is managed by the elected members from and among themselves
• The Central and State Government provides a number of incentives for the promotion of co-operatives.
• A co-operatives society after registration is recognized as a separate legal entity on the eyes of law. It acquires an identity quite distinct and independent of its members.
• The basis of co-operation is united and joint action. Co-operatives thrive on the principle of mutual help. Disadvantages of Co-operative Societies
• Co-operative societies financial strength depend on the capital contributed by its members and loan raising capacity from state co-operative banks.
• The membership fee is limited for which they are unable to raise large amount of resources as their members belong to the lower and middle class. Thus, co-operative are not suitable for the large scale business which require huge capital.
• A co-operative society is managed by the members only. They do not possess any managerial and special skills.
• The co-operative societies sell their products to outsiders only in cash. Hence, marketing is a shortcoming for the co-operatives.
• Government put their nominee in the Board of management of co-operative society. They influence the decision of the Board which may or may not be favourable for the interest of the society.
• It constitutes of members from various types of personnel from different social, economical and academic background which may cause a lack of harmony between them.
• The co-operative society docs not maintain any secrecy in business because the affairs of the society is openly discussed in the meetings.
• Excessive state regulation, interference with the flexibility of its operation affects adversely the efficiency of the management of the society.

5. Limited Liability Partnership
Limited Liability Partnership entities, the world wide recognized form of business organization has now been introduced in India by way of Limited Liability Partnership Act, 2008. A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company and Partnership into a single form of organization.

It is a new corporate structure that combines the flexibility of a partnership and the advantages of limited liability of a company at a low compliance cost. In other words, it is an alternative corporate business vehicle that provides the benefits of limited liability of a company, but allows its members the flexibility of organising their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm.
Internationally, LLPs arc the preferred vehicle of business, particularly for service industry or for activities involving professionals.

The characteristic features of LLP are:

• The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons,
  associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership. The LLP will have perpetual succession.
• It offers limited liability protection for its partners. As a sole trader or partnership business, personal assets of the proprietor or partners can be at risk in the event of a failure of the business, but this is not the case for an LLP.
• The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act, 2008. The Act provides flexibility to devise the agreement as per their choice.
• Renowned and accepted form of business worldwide
• An LLP is a legal entity, a juristic person established under the Act. It has its existence separate from its partners. Corporate entity status enables LLP to be taken more seriously than a proprietorship/partnership status does.
• Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India. The duties and obligations of Designated Partners shall be as provided in the law.
• The Central Government has powers to investigate the affairs of an LLP, if required, by appointment of competent Inspector for the purpose.
• The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government.
• The compromise or arrangement including merger and amalgamation of LLPs shall be in accordance with the provisions of the LLP Act, 2008.
• The Indian Partnership Act, 1932 shall not be applicable to Limited Liability Partnerships.
• Low cost of Formation and compliances.
• Body corporate can be a partner of an LLP.

Advantages of Limited Liability Partnership:

• First and foremost benefit of trading/doing business via LLP is the limited liability conferred upon the partners. As a sole trader or partnership business, personal assets of the proprietor or partners can be at risk in the event of a failure of the business, but this is not the case for an LLP.
• Changes in partners does not make an end to LLP.
• Owing to flexibility in its structure and operation, it would be useful for small and medium enterprises, in general and for the enterprises in services sector, in particular.
• No restriction regarding the number of partners.
• No requirement of minimum capital.
• Body corporate can be a partner of an LLP.
• It is easy to dissolve or wind up an LLP.

Disadvantages of Limited Liability Partnership:

• It cannot raise funds from public.
• A major disadvantage of operating an LLP is that a partner can enter into a contractual agreement without the authorization of another partner.
• There is no distinct separation between management and owners.

6. Company:
A company is a legal entity that is separate from its owners, the shareholders. No shareholder of a corporation is personally liable for the debts, obligations or acts of the corporation. A company is registered association which is an artificial legal person, having an independent legal, entity with a perpetual succession, a common seal for its signatures, a common capital comprised of transferable shares and carrying limited liability.

Its main features are:

• It has an independent legal existence. The Indian Companies Act, 2013 contains the provisions regarding the legal formalities for setting up of a private limited company. Registrars of Companies (ROC) appointed under the Companies Act covering the various States and Union Territories are vested with the primary duty of registering companies floated in the respective states and the Union Territories.
• A corporation is identified by the terms “Limited”, “Ltd.”, “Incorporated”, “Inc.”, “Corporation”. Whatever the term, it must appear with the corporate name on all documents, stationery and so on, as it appears on the incorporation document.
• A joint stock company is a voluntary association of certain persons formed to carry out a particular purpose in common.
• For forming a public company at least seven persons and for a private company at least two persons are persons are required.
• A company is an artificial person. It has to act through a board of directors elected by shareholders.
• The liability of its members is limited.
• It enjoys continuity of existence i.e. it continues to exist even if all its members die or desert it.
• Its formation, working and its winding up, in fact, all its activities are strictly governed by laws, rules and regulations.
• Being an artificial entity, a company cannot act and sign itself. Therefore, it acts through human beings. All the acts of the company are authorised by its common seal.

Advantages of Company Form of Organization

• A company is a creation of the law and only the law can bring an end to its existence. Its life does not depend on the life of its members.
• As a company has a separate legal entity, its members cannot be held liable for the debts of the company. The liability of every member is limited to the nominal value of the shares bought by him or to the amount of guarantee given by him.
• With this form of organisation larger amount of capital can be raised.
• The capital of a company is divided into parts. Each part is called a share. These shares are generally transferable.
• A company is an artificial person created by law. It exists only in contemplation of law. It is competent to enter into contracts and to own property in its own name.
• Organizing a business in corporate form increases the credibility of the company. In addition, businesses organized in corporate form appear more professional in comparison to other forms of business. Thus this form of organisation can avail more financial loans from financial institutions.
• Organizing a business as a corporation provides owners with personal asset protection.
• Businesses that organize as a corporation find it easier to transfer ownership.
• Ownership interest in a corporation may be sold or assigned by transferring the company’s stock certificate to another shareholder.
• The management of companies is done by the directors elected by the shareholders. Due to this, shareholders elect only such directors who are experts and posses special knowledge and skill in their respective field so that management of the business may be done with maximum efficiency and ability.
• The company form of organization is an effective medium for mobilizing the scattered savings of the community and investing them in different commercial and industrial enterprises.

Disadvantages of Company Form of Organization:

• The formation of a joint stock company is much more complicated than sole proprietorship or partnership.
  There are many legal formalities,
• The joint stock company is subject to doubt taxation. It pays tax on its earnings to the government. The tax is also paid by the shareholders on receipt of dividend from the company.
• Scope for directors for personal profit because shareholders are scattered and are not known to each other thus all the business is in the hands of directors who can misuse it.
• Working of companies ate regulated by the provisions of the Companies Act. Thus a lot many formalities are to be fulfilled
• There is no secrecy of business cause profit and loss account, balance sheet etc. are to be published.
• One of the primary disadvantages of a corporation is the costs for running a corporate form of business. It costs money to incorporate with the state where the business operates.
• Corporations need to maintain more records than other business entities. Corporations must file annual reports. and tax returns and maintain business bank accounts and records that are separate from personal accounts.

Shareholder meeting records, board of director meeting records etc.

• The shares of some company are listed on stock exchange which can experience speculation.
• Undemocratic control with the exploitation of scattered shareholders.
• If the objective of promoters is dishonesty then there is Scope for promotional frauds. They may give a very good picture about the company hiding true facts to investors which may affect the investor and its money.
• Generally policy decisions are taken at the Board meetings of the company.
• Further the company has to fulfill certain procedural formalities. These procedures are time consuming and therefore, may delay action on the decisions.
• A company is a large-scale business organisation having huge resources. This gives a lot of economic and other power to the persons who manage the company. Any misuse of such power creates unhealthy conditions in the society.
• A joint stock company form of business organisation is found to be suitable where the volume of business is large and huge financial resources are needed. Since members of a joint stock company have limited liability it is possible to raise capital from the public without much difficulty. This form of organisation is also suitable for businesses which involve heavy risks.

→ Other Company types Domestic Corporation
A company that conducts its affairs in its home country. A domestic corporation is often taxed differently than a foreign corporation and may be required to pay duties or fees on the importatiofi of its products.

Foreign Corporation:
It means any company incorporated outside India which has an established place of business in India. A company has an established place of business in India if it has a specified place at which it carries on business such as an office, store house or other premises functioning in India.

Private Corporation:
A privately held company or close corporation is a business company owned by small number of shareholders or company members which does not offer or trade its company shares to the general public on the stock market exchanges.

Public Corporation:
A public company means a company which is not a private company. Any seven or more persons can join hands to form a public company.

→ Statutory Bodies and Corporations:
A statutory corporation or public body is a corporation created by statute. The Act or statute defines its objectives, powers and functions. A public corporation seeks to combine the flexibility of private company and the accountability of public enterprises. Life Insurance Corporation of India, Reserve Bank of India, Employees State Insurance Corporation, Industrial Development bank of India are examples of public Corporation.

Its main features are:

• It is a body corporate established through a special Act of Parliament or State Legislature. The Act defines its powers and privileges and its relationships with government departments and ministries.
• The public corporation is wholly owned by the Central and/or State Govemment(s)
• It has a separate legal entity
• Initial capital is provided by Government.
• The corporations not subject to the budgetary, accounting and audit regulations applicable to government departments.
• The management of companies is done by the directors elected by the Government.
• The primary motive of the corporation is public service rather than private profits.

Advantages of a Statutory Corporation

• There is no parliamentary interference, so it enjoys internal autonomy.
• The formal corporate structure facilitates professional managers which help in good decision-making.
• A public corporation is often granted special privileges. The special law by which by which it is created can be tailor made to meet the specific needs of the particular situation.
• One of the advantages of a statutory corporation is that, being a separate legal entity, it keeps going indefinitely, regardless of who owns or directs it. This can be an advantage where ownership or control is going to change.

Disadvantages of a Statutory Corporation

• It is very difficult to form statutory corporations because it requires lengthy documentation, complicated formalities and passing of statue.
• Statutory Corporations is suitable only for giant size business but is not suitable for small size business.
• The policies once approved, the statue once passed cannot be changed easily. It can be done by the parliament only and this is very time-consuming.
• Mostly Statutory Corporations are subject to political interference and this affects the efficiency of the corporation and practically their internal autonomy is lost.