On the basis of ownership, the production units can be broadly classified into the following:
- Indigenous production units
- Foreign production units
1. Indigenous Production Units
The production units located in a country and owned by the residents of the country are called indigenous production units. Locally, most of the production units are indigenous. Farm houses in the villages, shops, small factories, big factories, hospital, school, college, cinema hall, restaurant, dairy farm, government offices, self-employed doctors, lawyers and teachers, etc are all examples of indigenous production units.
Since production units are further divided into private and government, the indigenous production units can be classified into:
- Private production units
- Government production units
1. Private Production Units
Most of the shops, offices, factories are owned by private persons or groups or families. They produce goods and services for sale in the market with the aim of earning profit. Private sector units can further be classified on the basis of number of owners of such unit.
Most of the small units like labour, washer man, cobbler, tailor, milk vendor are owned by a single person. But some of the production units may be owned by more than one person. On the basis of number of owners, private sector production units can be classified into the following categories:
- Sole proprietorship
- Company or Corporations
- Cooperative Society
- Private non-profit organisations (N.P.O.)
i. Sole proprietorship: Such production units are owned by a single person. He is responsible for the profit and loss of the production units. He is responsible for the management and working of the production unit.
ii. Partnership: Such production units are owned by two or more persons. Maximum number is 20. Owners of such production units are called partners of the company. All the partners are collectively responsible for the management and working of the production unit. The share of profit and loss is distributed among
the partners according to agreement made at the time of forming the partnership.
iii. Company or Corporations: It is a production unit owned by a large number of persons. The sum invested in the company is divided into shares. The buyers of these shares are called shareholders. They are all the owners of the company. In private company the minimum number of share holders is two and the maximum number is 50. But in public company minimum number is seven but there is no maximum limit.
These shareholders select some persons for the management of the company who are called directors of the company. These companies are established under companies act 1956. The profit of the company is distributed among the shareholders according to the shares held by them. Tata iron steel company, Reliance industries limited, Bajaj auto limited, Lipton India limited are some of the examples of a company.
iv. Cooperative society: It is also a production unit managed by a number of persons. It is a voluntary association of persons for mutual benefit. Its aims are achieved through self help and collective efforts. In same respects, it is similar to the company. Its owners are also called shareholders. It works according to cooperative societies Act 1912. The minimum number of shareholders is ten but there is no upper limit. The shareholders select some persons among themselves for the managements of the society. The profits of the society are divided among the shareholders according to the shares held by them.
Cooperative stores which sell various goods to consumers at reasonable rates, cooperative housing societies which provide flats and houses to its members are the example of cooperative societies. Kendriya Bhandar which provides various items to consumers is a very big cooperative society.
v. Private Non-profit Organisations: There are private production units which are run by institutions, such as trusts, societies, etc. like charitable hospital, charitable school, welfare societies. Such production units provide services mainly with the aim of serving the member of society as a whole without any aim to earn profit.
2. Government Production Units
Government provides a lot of services such as education, health care, law and order, post and telegraph, transport, telecommunication and broadcasting. Some of the organisations providing these services are run by the Departments and Ministries of the government. They are called Departmental Enterprises. Some examples of Departmental Enterprises are Indian Railways under the Ministry of Railways, All India Radio and Doordarshan which are sister concerns of Prashar Bharti under the Ministry of Information and Broadcasting. The government has direct control over the functioning of these enterprises.
There is another type of government production units which are supported and funded by the government but function independently. They are big Corporations and autonomous in nature. These units are non-departmental enterprises and called Public Sector Undertakings. Some examples of Public Sector Undertakings are Indian Airlines, Hindustan Machine Tools (HMT), Minerals and Metals Trading Corporation (MMTC), Life Insurance Corporation (LIC), General Insurance Corporations (GIC), Indian Oil Corporation (IOC).
2. Foreign Production Units
A foreign production unit is located in the country but is owned by foreigners or nonresidents of the country. In such production units the contribution of foreigners must be more than 50% of total capital. The foreign production units are further classified into:
These are firms which have their main office in one country but have their business activities spread in many countries. These are called Multi National Corporations (MNC) because they operate in more than one country other than the country of their origin. Some examples of MNCs in India are Coca Cola, Pepsi Cola, Johnson & Johnson, Microsoft, Nokia, Sony, Samsung, International Business Machine (IBM), Nestle, Vodafone, Airtel, LG, Google, Ford Motors, Hyundai.
These are production units in which foreigners and domestic entrepreneurs participate jointly. Such production units are partly indigenous and partly foreign. These are treated as foreign production units in terms of ownership if more than 50% of its total capital is contributed by the foreigners or nonresidents. For example, Maruti-Suzuki Limited.