Business Environment and Business Organisation
Business Environment and Business Organisation tests how external forces affect a firm and how the legal form of ownership changes liability, capital and control.
Environment
The business environment is the set of internal and external factors influencing decisions. Micro factors include customers, suppliers, competitors, intermediaries and the public. Macro factors include economic, social, technological, political-legal and environmental dimensions. Features: dynamic, uncertain, complex and relative to place and time. Internal factors such as resources, culture and structure are partly controllable; external factors are largely not.
Forms of organisation
Sole proprietorship: one owner, unlimited liability, quick decisions. Partnership: two or more persons under the Indian Partnership Act 1932; unlimited liability unless a limited liability partnership. Cooperative society: service motive, one member one vote, limited return on capital. Joint stock company: separate legal entity, limited liability, perpetual succession, governed by the Companies Act 2013. Public sector units serve public interest but may face less competitive pressure. Choice depends on liability, capital, control, continuity, risk and legal formalities.
Worked example
Two friends need Rs 50 lakh, want limited liability and expect many investors. A partnership is unsuitable because partners have unlimited liability and raising large capital is difficult. A private company gives separate legal personality and limited liability, though it must comply with incorporation and disclosure rules. If they want public subscription, a public company is required.
Traps
External environment is not only economic. A company is not owned by its shareholders in the simple sense of owning its assets; it owns property itself. Cooperative societies are not profit-maximising companies. Unlimited liability means personal assets may be used to pay business debts.