Different Forms of business organization

Course: BBA ISubject : Introduction to Business Organization

Unit: I

Various Forms of business organization:-Individual or single or sole proprietorship

Partnership

Hindu Undivided Family ( HUF )

Corporation

Co-operative Societies

Sole proprietorship :-Meaning :- A Sole proprietorship or one

man’s business organization owned and managed by a single person. He is entitled to receive all the profit and bears all risk of ownership.

A sole proprietorship is a business established, owned, and controlled by a single person.

The Sole proprietorship is the most prominent of the five forms of ownership.

Sole Proprietorship Features:-

Sole Proprietorship Advantages:-

5.

5. The business itself pays no income tax the owner pays income tax as an individual.

Sole Proprietorship Disadvantages:-

Unlimited liability :- Limited Financial Resources :-All Decisions:-Owner is the only person who can arrange

financing and capitalization.Limited growthLimited life span

Partnership

Partnership Meaning :-

Features of Partnership :-Two or more members : At least two members are required to

start a partnership business. But the number of members should not exceed 10 in case of “banking business” and 20 in case of “other business.

Lawful business : The partners should always carry on any kind of lawful business, they cannot indulge in illegal business like smuggling, black marketing, etc.. 

No separate legal existence : Partnership firms are no legal entities as opposed to companies, who have their separate legal existence, partnerships are not recognized in law at their own, they are recognized by their partners

Eligibility of partners : Since individuals join hands to become partners, it is necessary that they must be “competent” to enter into a partnership. Thus, minors, lunatics and insolvent people are not eligible to become partners. However, a minor can be admitted to the benefits of partnership i.e., he can have a share in the profits only.

Conti…Sharing of profits : The main objective of every

partnership firm is to make and share the profits of the business. Suppose, there are two partners in the business and they earn a profit of Rs.20,000. They may share the profits equally i.e., Rs.10,000 each or in any other agreed proportion.

Unlimited liability : The biggest disadvantage of partnership is that the liability of partners in a partnership is unlimited. Suppose, the firm has to make payment of Rs.30,000/- to the creditors. The partners are able to arrange for only Rs.20,000/- from the business. The balance amount, of Rs.10,000/- will have to be arranged from the personal properties and assets of the partners. 

Conti…Voluntary registration : Though the Partnership

Act provides for registration but had not made it mandatory to register a partnership firm.

Restriction on transfer of interest : No partner can sell or transfer his share or part in the firm to any one without the consent of the other partners. For example, A, B, and C are three partners .If “A” wants to sell his share to “D” as his health problems prevent him from working, he cannot do so until B and C both agree. 

Continuity of business :  A partnership firm comes to an end at death, lunacy or bankruptcy of any partner.

Types/Forms of Partnership:-General / Active Partner : The partners who

actively participate in the day-to-day operations of the business are known as active partners. They contribute the capital and are also entitled to share the profits & losses of the business.

Limited Partner : Those partners who do not participate in the day-to-day activities of the partnership firm are known as dormant or “sleeping partners”. They only contribute capital and share the profits or bear the losses, if any.

Conti…Nominal / Outside Partners : These

partners are persons, who hold a particular goodwill as to their character or work and to allows the firm to use this goodwill by showing them as the partner in their firm.

Minor as a Partner :  Legally only a person who is or above the age of 18 can become a partner in the firm but in special cases, a minor can also be admitted as partner with certain conditions. A minor can only share the profit of the business.

References1. Fundamentals of Business Organization and Management by Y.K.Bhushan- Sultan Chand

publications2. Principles & Practices Of Management by L

M Prasad – Himalaya Publishing House

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