A formal organisation refers to an organisational set up where the positions, authority and responsibility at each level is clearly defined. In this organisation authority is delegated from higher to lower level and the entire organisation is designed in such a manner to attain the organisational objective. A formal organisation makes avoidance of overlapping of authority and responsibility and encourages specialisation in office work.

Every format organisation gives birth to informal organisation. The network of personal and social relationship which is not established by formal organisation is called informal organisation. These organisations do not find a place in the organisation because here social relationships and groupings are developed because of frequent contact with one another. There organisations provide a channel of communication and influence the workings of formal organisation.