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Form of Business Organization

The ultimate choice of the form of business depends upon the balancing of the advantages and disadvantages of the various forms of business. The right choice of the form of the business is very crucial because it determines the power, control, risk and responsibility of the entrepreneur as well as the division of profits and losses

Forms of Business Organisations

1.Sole Proprietorship 2.Partenership Firm 3.Co-operatives society 4.Joint Hindu Family Business 5.Company

1. Sole Proprietorship
Definition :-A business enterprise exclusively
owned, managed and controlled by a single person with all authority, responsibility and risk.

Characteristics of a Sole Proprietorship

Almost no legal formalities Single ownership No share of profit or loss Low capital One-man control Unlimited liability

The firm has no legal existence separate from its owner

Advantages & Disadvantages

Advantages Easy to form and wind up Direct Motivation Quick Decision Better Control Maintenance of Business Secrets Close Personal Relation Flexibility in Operations

Disadvantages Limited Capital Lack of Continuity Limited Size Lack of Managerial Expertise

Suitability of Sole Proprietorship Form of Business

Where the market for the product is small & local . For exp. selling grocery items, books, stationary, vegetables, etc. . Where the customers are given personal attention, according to their tastes and preferences. For exp.- making special kind of furniture, designing garments etc.. Where the nature of business is simple. For exp. grocery, garments business, telephone booth, etc. . Where the capital requirement is very small and risk involvement is not heavy. For exp. vegetables and fruit business, tea stall, etc. . Where manual skill is required. For exp. making jewelry, haircutting or tailoring , cycle or motorcycle repair shop,etc.

How to start a sole-proprietorship

A sole proprietorship require almost no legal formalities. It can start the day you want it to start. The only thing you must take care of is that you have the licenses specific to your line of business. For exp. If you are a doctor you need a license to practice etc. . In case you wish to have a Trade Mark, design and use it as your trade mark. One may even register a Trade Mark with the proper authorities. He maybe required to obtain a licence from the local administration or from the health department of the government, whenever necessary.

2. Partnership Firm
Partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by all of them or any of them acting for all. The owners of a partnership business are individually known as the "partners" and collectively as a "firm".


partnership is formed by an agreement, which may be either written or oral. When the written agreement is duly stamped and registered, it is known as "Partnership Deed". Ordinarily, the rights, duties and liabilities of partners are laid down in the deed. But in the case where the deed does not specify the rights and obligations, the provisions of the THE INDIAN PARTNERSHIP ACT, 1932 will apply.

The deed, generally contains the following particulars: Name of the firm. Nature of the business to be carried out. Names of the partners. The town and the place where business will be carried on. The amount of capital to be contributed by each partner. Loans and advances by partners and the interest payable on them. The amount of drawings by each partner and the rate of interest allowed thereon. Duties and powers of each partner. Any other terms and conditions to run the business.

Main features of Partnership firms

A partnership is easy to form as no cumbersome legal formalities are involved. Its registration is also not essential. However, if the firm is not registered, it will be deprived of certain legal benefits. The Registrar of Firms is responsible for registering partnership firms. The minimum number of partners must be two, while the maximum number can be 10 in case of banking business and 20 in all other types of business. The firm has no separate legal existence of its own i.e., the firm and the partners are one and the same in the eyes of law. In the absence of any agreement to the contrary, all partners have a right to participate in the activities of the business.

Ownership of property usually carries with it the right of management. Every partner, therefore, has a right to share in the management of the business firm. Liability of the partners is unlimited. Legally, the partners are said to be jointly and severally liable for the liabilities of the firm. This means that if the assets and property of the firm is insufficient to meet the debts of the firm, the creditors can recover their loans from the personal property of the individual partners. Restrictions are there on the transfer of interest i.e. none of the partners can transfer his interest in the firm to any person except to the existing partners) without the unanimous consent of all other partners. The firm has a limited span of life i.e. legally, the firm must be dissolved on the retirement, bankruptcy, or death of any partner.

Advantages & Disadvantages

Ease of formation Greater capital and credit resources Better judgement and more managerial abilities Flexibility in operations Sharing risks Protection of interest of each partner

Unlimited liability Lack of harmony Limited capital No transferability of shares

Suitability for partnership firms

Partnership is an appropriate form of ownership for medium sized business involving limited capital. This may include small scale industries, wholesale and retail trade; small service concerns like transport agencies, real estate brokers; professional firms like charted accountants, doctors' clinic, attorney or law firms etc.

How to form partnership deeds and start a partnership firms

The general procedure for registering a partnership firm all over India is quite similar : 1. You have to prepare a partnership deed. 2. Fill in the required form at Registrar of firms office near you. 3. Submit the required form, the partnership deed and other supporting documents to the Registrar of firms for approval
NOTE:- This partnership deed must be made on stamp paper as per the law of
the place of signing. The whole process of the drafting the partnership deed can be done through a trusted lawyer. It should cast you around Rs. 1000 to prepare the deed.

3. Co-operatives
A cooperative (also co-operative or co-op) is defined by the International Co-operative Alliance's Statement on the Co-operative Identity as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise . A cooperative may also be defined as a business owned and controlled by the people who use its services. The main principle underlying a cooperative organisation is mutual help, i.e., each for one and all for each.

Its main features

It is a voluntary organisation as a member is free to leave the society and withdraw his capital at any time, after giving a notice. The minimum number of members is 10, but there is no limit to the maximum number of members. However, the members must be residing or working in the same locality. Registration of a co-operative enterprise is compulsory. A cooperative society may be registered with the Registrar of Cooperatives Societies. After registration a co-operative enterprise becomes a body corporate independent of its members i.e. a separate legal entity The capital of a cooperative society is raised from its members by way of share capital. It can also obtain additional resources by way of loans from the State and Central Cooperative Banks.

It is subject to the provisions of the Co-operative Societies Act, 1912 or State Co-operative Societies Acts. It has to submit annual reports and accounts to the Registrar of Societies. The liability of very member is limited to the extent of his capital contribution. The shares of co-operative society cannot be transferred but can be returned to the society in case a member wants to withdraw his membership. Being a separate legal entity a co-operative enjoys continuity of existence which is not affected by death, insolvency, retirement, etc. of the members.

Differences between the Partnership and Co-operatives

A cooperative society has much in common with partnership. Yet there are differences between the two types of organisation. In a partnership mutual benefit is restricted to partners only, but in a cooperative society it extends to its member as also the public. For example, in a consumer cooperative store or a cooperative credit society, the benefits are available to the members as well as the general public. partnership requires the existence of some business activity whereas a cooperative may be formed whenever individuals have common needs which are difficult to fulfill singlehanded. registration is optional in the case of partnership but it is compulsory for a cooperative society.

Types of Cooperative Societies

(i) Consumers Cooperative Societies; (ii) Producers Cooperative Societies; (iii) Cooperative Marketing Societies; (iv) Cooperative Credit Societies; (v) Cooperative Farming Societies; (vi) Cooperative Housing Societies.

Advantages & Disadvantages

Advantages Greater amount of capital Economical operations Better conditions of service to employees Continuity of existence Limited liability Open membership Government patronage Disadvantages Inability to collect sufficient capital Inability to provide efficient managerial services Rigid rules and regulations

Joint Hindu Family Business

The joint Hindu family business refers to a business which is owned by the members of a joint Hindu family. It is also known as Hindu undivided family business. The joint Hindu family form is a form of business organisation in which the family possesses some inherited BUSINESS STUDIES property. The inheritance of the property is among the male members. The share of ancestral property is inherited by a member from his father, grandfather and great grandfather. Thus, three successive generations can simultaneously inherit the ancestral property. For purposes of running a joint Hindu family business, only male members are entitled who are referred to as coparceners. The oldest member is known as the Karta.

The important features of the joint Hindu family business

Membership by birth Management Unlimited Liability No maximum limit Minor members Unaffected by death

Merits & Limitation

Continuity of business Family pride

Unlimited liability Limited access to capital Karta too powerful