A group involves people who perceive themselves to be part of a coherent unit that they perceive as different from another group (Dasgupta, Banaji, & Abelson, 1999; Haslam, 2004). The extent to which the group is perceived to form a coherent entity is known as entitativity.

The basis of this perceived coherence differs in different types of groups (Prentice, Miller, & Lightdale, 1994). In common-bond groups, which tend to involve face-to-face interaction among members, the individuals in the group are bonded to each other. Examples of these kinds of groups include the players on a sports team, friendship groups, and work teams. In contrast, in common-identity groups the members are linked via the category as a whole rather than to each other, with face-to-face interaction often being entirely absent. Ex: Nationalistic or gender-based groupings.



Basic characteristics of groups include status, roles, norms, and cohesiveness:
1. Status: People gain status in a group for many reasons, ranging from physical characteristics (e.g., height) to various aspects of their behavior (e.g., conforming to group norms). Status tends to be higher for those who are prototypical of the group, or those who have seniority within the group.
2. Roles: The effects of roles on our behavior are often very powerful, primarily when we have internalized the role as part of our identity.
3. Norms: Deviating from group norms can affect how other group members, especially those who highly identify with their group, evaluate us. Norms can be collectivist or individualist.
4. Another important feature of groups is their level of cohesiveness—the sum of all the factors that cause people to want to remain members. Perceiving a threat to one’s group can encourage actions that increase group cohesiveness.

Characteristics of the various stages of group development include:
1. Forming: It is characterized by a great deal of uncertainty about the group’s purpose, structure and leadership. This stage is complete when members have begun to think of themselves as part of the group.
2. Storming: It is characterized by intragroup conflict. Members accept the existence of the group, but there is resistance to the constraints that the group imposes on individuality.
3. Norming: It is characterized by a strong sense of group identity and carmaraderie. Close relationships develop and the group demonstrates cohesiveness.
4. Performing: It is characterized by a fully functional and accepted structure. Group energy has moved from getting to know and understand each other to performing the task at hand.
5. Adjourning: In this stage the group prepares for disbandment. Attention is directed towards wrapping up activities.

The various theories dealing with group formation are discussed below:
1) Propinquity theory: quite often, individuals affiliate with one another because of spatial or geo-graphical proximity. In an organization, employees who work in the same area of the plant or office would more probably form into groups than those who are not physically located together. The propinquity theory explains a basic factor, i.e., proximity of people at the workplace, which leads to formation of groups. This phenomenon is observed in daily practice by all of us.
2) Homans' theory: according to George C. Homans, 'the more activities persons share, the more numerous will be their interactions and the stronger will be their shared activities and sentiments; and the more sentiments persons have for one another, the more will be their shared activities and interactions'. The homans theory has contributed a great deal to the understanding of group formation. It is based on three concepts, namely, activities, interactions and sentiments, which are directly related to each other. The members of a group share activities and interact with one another not just because of physical proximity, but also to accomplish group goals. They key element is interaction because of which they develop common sentiments for one another.
3) Balance theory: the theory as proposed by Theodore Newcomb states that 'persons are attracted to one another on the basis of similar attitudes towards commonly relevant objects and goals. Once a relationship is formed, it strives to maintain a symmetrical balance between the attraction and the common attitudes. If an imbalance occurs, attempts are made to restore the balance. If the balance cannot be restored, the relationship dissolves'. Both propinquity and interaction play a role in the balance theory. Thus, the balance theory is additive in nature in the sense that it introduces the factor of 'balance' to the propinquity and interaction factors. There must be a balance in the relationship between the group members for the group to be formed and for its survival. If they fail in their efforts, the group will get dissolved.
4) Exchange theory: this theory is based on reward-cost outcomes of interaction between people. To be attracted towards a group, a person thinks in terms of what he will get in exchange of interaction with the group members. Thus, there is an exchange relationship in terms of rewards and costs of associating with the group. A minimum positive level (rewards greater than costs) of an outcome must exist in order for attraction or affiliation to take place. Rewards form interactions gratify needs while costs incur anxiety, frustrations, embarrassment, or fatigue. Propinquity, interaction and common attitudes all have roles in the exchange theory.
5) Social identity theory: It suggests that membership of a group may enhance the sense of identity and self-esteem of a member. This motivates the members to be a part of the group and causes cohesiveness. Such groups are typically, organizational, cultural or demographic in nature.

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To summarize, a group involves people who perceive themselves to be part of a coherent unit that they perceive as different from another group. Basic characteristics of groups include status, roles, norms, and cohesiveness. The various stages of group development are Forming, Storming, Norming, Performing and Adjourning. Forming is characterized by uncertainty about the group’s purpose. Storming is characterized by intra-group conflict. Norming is characterized by a mature set of norms for the group members and Performing is characterized by performance – the group starts working towards its objective.

The various theories of group formation include propinquity theory, Homan’s theory, Balance Theory, Exchange theory and Social Identity theory.

Sources:
http://www.tutorsglobe.com/getanswer/theories-of-group-formation-organizational-behavior-90529.aspx
Social Psychology, 12th Edition by Robert A. Baron, Nyla R. Branscombe, Donn R. Byrne, Gopa Bhardwaj (Click for eBook)