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Forms of Business Organisations

Forms of Business Organisation
Forms of Business Organisation
The following are the various forms of business organisation:
• Sole proprietorship
• Joint Hindu family business
• Partnership
• Cooperative society
• Joint stock company

Sole Proprietorship
Meaning: Sole proprietorship is a form of business that is owned, managed and controlled by a single individual (known as the sole proprietor) who is the sole recipient of all the profits earned by the business and bears all the losses.
Features of sole proprietorship
1. No legal formalities are involved in forming or closing down a sole proprietorship business.
2. A sole proprietor has unlimited liability, which implies that the personal assets of the proprietor will be used in case the business assets fall short of the amount required for debt payments.
3. The sole proprietor is the single recipient of all the profits of the business and bears all the risks.
4. He or she takes all the business decisions independently and enjoys total control over the business operations.
5. The sole proprietorship business has no legal identity separate from its owner.
6. It lacks business continuity in the sense that such situations as the death, ailment or bankruptcy of the sole proprietor may cause its closure.
Merits of sole proprietorship
A sole proprietor enjoys the following benefits.
1. Ease of formation and closure of business, as no legal formalities are required for setting up or for closing down the business
2.  Complete and independent control over the business, thereby enabling quick decision-making
3. A direct incentive to operate the business efficiency and effectively, being the sole recipient of the profits
4. High confidentiality, as the sole proprietor is not bound by the law to publish the accounts
5. A feeling of satisfaction and self-confidence, as he or she is responsible for the gains in the business
6. High flexibility in operations, because, as the sole owner, he or she can readily adapt to the changes in the business environment
7. Minimum government regulations

Limitations of sole proprietorship:
The following are a few limitations of a sole proprietor firm.
1. Limited capital in the form of only the personal savings and borrowings of the proprietor
2. Lack of specialisation in various managerial functions as the proprietor manages the business all alone
3. Risk to the personal assets of the proprietor, as these assets may be used for debt repayments if there is any shortage of funds
4. Risk of closure caused by such situations as the death, ailment or bankruptcy of the sole proprietor or other adverse situations
5. High probability of wrong decisions, because the proprietor is the sole decision-maker
Suitability of sole proprietorship
The sole proprietor form of business is suitable in the following instances:  
⚬ The business requires limited capital and managerial skills.
⚬ There is a need to maintain personal relations with the customers
⚬ The demand for the products is highly elastic and open to the market conditions.
⚬ The proprietor wants to earn a living using his or her own skills.

❖ Joint Hindu Family Business
Meaning:  The Joint Hindu family business is a form of business organisation that is
• Jointly owned and run by the members of a Hindu undivided family
• Governed by the Hindu Succession Act, 1956
• Controlled by the karta (the eldest member and head of the family) with all the other members (co-partners) enjoying equal ownership rights over the business property
Features of a joint Hindu family business
1. It enjoys continued existence and remains unaffected by the death, insolvency or insanity of the karta. In such situations, the next eldest member takes over the business responsibilities.
2. It requires a minimum of two members with some ancestral property.  
3. The karta, being the head of the joint Hindu family, has unlimited liability over the business, while the other members have limited liability to the extent of their share in the family business.
4. The decisions of the karta are binding on all the members of the family business.
5. A minor also has membership rights in the business—that is, membership in the family business is acquired…

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