October 09, 2018

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Forms of Business Organisations

                        Forms of Business Organisations

  • Various forms of business Organizations
  1. Sole proprietorship
  2. Joint Hindu Family Business
  3. Partnership
  4. Cooperative Society
  5. Joint Stock Company

Sole Proprietorship refers to a form of business organization which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks.

Features Merits   Limitations
Single Ownership Easy to start and dissolve Limited Capital
One man control Motivation to work Lack of Specialisation
No separate legal entity Quick Decisions Unlimited Liability
Small Size Secrecy of Affairs Uncertain Life
No Profit Sharing Personal Touch Limited Scope for Expansion


It means a business which is owned by the members of a Joint Hindu Family.

Features Merits Limitations
Membership by birth Easy formation Limited capital
Minor members allowed Freedom of action Unlimited liability of Karta
No restrictions on number of members Secrecy Limited managerial skill
Management by the Karta Limited liability Conflicts
Registration not essential Personal contact Hasty decisions


  • Partnership

It is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses.

Features  Merits  Limitations
Two or more persons Easy formation Limited resources
Agreement Larger funds Unlimited liability
Sharing of profits Combined skills Uncertain life
Unlimited liability Scope for expansion Conflicts
Lawful business Protection of minority Blocking of capital
Type Function
Active Partner Takes actual part in carrying out business.
Sleeping Partner Do not take actual part in carrying out business.
Secret Partner Association with the firm is unknown to public.
Nominal Partner Allows use of his name but does not contribute capital.
Partner by estoppel Through his conduct gives an impression that he is a partner
Partner by holding out Knowingly allows himself to be represented as partner.
  • Types of Partners
  • Effects of Non- registration of a partnership firm
  1. No suit by partner against the firm or the other partner.
  2. No suit by the firm against third parties.
  3. No right to claim set off in excess of Rs. 100.
  • Cooperative Society

It refers to a form of business wherein persons associate together voluntarily and on equal basis to further their common interest.

Features Merits Limitations
Voluntary association Easy to form Limited finance
Neutrality Open membership Lack of expertise
Separate legal entity Limited Liability Non transferability of interest
One man One vote Distributive justice Lack of secrecy
Service motive Low operating costs Legal formalities


  • Joint Stock Company

Joint Stock company is a voluntary association of persons having separate legal existence, perpetual succession and common seal.

Features Merits Limitations
Separate legal entity Large capital Difficult to form
Perpetual existence Limited liability Delay in decisions
Limited liability Continuity Economic oligarchy
Transferability of shares Efficient management Conflict of interest
Common seal Economies of scale Government control
  • Difference between Public company and Private Company
Basis Public company Private Company


Use of the word “Private”  Not required Must use
Minimum no. of members  Seven Two
Maximum no. of members   No restriction Fifty
Minimum no. of directors   Three Two
Minimum paid up capital   Rs. 5 Lac Rs. 1 lac
Restriction on transferability of shares Not restricted Restricted


  • Factors influencing choice of forms of business organization
  • Availability of capital
  • Cost of formation
  • Ease of formation
  • Transfer of ownership
  • Managerial skills
  • Regulations
  • Glossary

Sole proprietorship: It is a one man business.

Partnership: Agreement between 2 or more persons to carry a business and share profits and losses.

Company: Voluntary and registered association of persons having perpetual succession and a common seal.

Joint Hindu family business: A business carried on by members of a joint hindu family.

Cooperative Society: Voluntary and registered association of persons aimed towards community service.

Karta: A person who controls Joint hindu family business and has unlimited liability.



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