b. Where fashions change quickly, e.g., artistic furniture, etc. It simply refers to a person who owns the business and is personally responsible for its debts. Names in full and permanent addresses of all the partners. Illness, death or insolvency of the proprietor can lead to closure of the business. This is because its merits far outweigh the demerits. A Limited Liability Company (LLC) is a business structure allowed by state statute. It is also considered suitable where capital requirement is of a medium size. Thus, businesses like a wholesale trade, professional services, mercantile houses and small manufacturing units can be successfully organized as partnership firms. (b) Quick Decisions – The entrepreneur need not consult anybody in deciding his business affairs. The Company form of organization generally encourages reckless speculation on the stock exchange. FORMS OF BUSINESS ORGANIZATION 1. Where personal attention to individual tastes and fashions of customers is required, e.g., beauty parlour, tailoring shops, lawyers, painters, etc. iii. This is an evil of great magnitude in our country. The case of South Sea Bubble Company is the leading example of such malpractices by promoters. It is not always possible to arrange sufficient funds from personal sources. The number of partners cannot exceed 10 in banking business and 20 in other types of business. Not only that any dissenting partner can give notice at any time for dissolution of partnership. Secrecy – Business secrets of the firm are only known to the partners. Employment of professional managers having managerial skills and little financial stake results in higher efficiency and more adventurous management. Quick Decision and Prompt Action – Nobody interferes in the affairs of the sole proprietary organisation. (vii) A minimum share capital may be prescribed for an OPC. This legal protection of personal assets beyond the business is of critical concern to many potential investors. No basic changes in the rights and obligations of partners can be made without the unanimous consent of all the partners. Partners’ interest is often non-transferable through inheritance because the remaining partners may not want to be in a partnership with the person who inherits the deceased partner’s interest. Any change in its members does not affect its existence, rights and liabilities. (v) There is no need to share business information with any other person, therefore, business secrecy is ensured. The partnership form of business ownership enjoys the following advantages: A partnership is easy to form as no cumbersome legal formalities are involved. Which organizational form is most appropriate can be influenced by tax issues, legal issues, financial concerns, and personal concerns. The concept of ‘one person company’ has the following characteristics: (i) OPC may be registered as a private company with one member. LLP Act, 2008), the provisions of Indian Partnership Act, 1932 are not applicable to an LLP and it is regulated by the contractual agreement between the partners. Co-operatives provide a structure for starting up business in which all the members of the cooperative jointly own, control, and work for the business. A partnership deed usually contains the following details: ii. 0000009497 00000 n The assignment attempts to explore the different sources of finance and its implicationIt describes how different structures and cultures affect the business performance of the organization. Proprietorship and partnership forms of ownership failed to meet these needs due to their limitations, e.g., unlimited liability, lack of continuity and limited resources. Privacy Policy3. It becomes difficult to take quick decisions and prompt action with the consequence that business opportunities may be lost. iii. Keeping in view the impending and ever growing needs of funds for a new as well as growing startup, usually the first preference for establishing a startup is given to a company form of business. In a partnership, the … vii. Many sole proprietors simply thrive on the feeling of control they have over their personal future and recognition they earn as the owner of the business. A business has to perform a number of functions in order to achieve its objectives. Limited Capital – A partnership firm suffers due to limited personal capacity of partners. Ability to raise large amount of capital – Public limited companies are able to raise large sums of money because there is no limit on the maximum number of members. The partners are not liable to be sued for dues against the LLP. Further, the company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors within a period of fifteen days of the date of approval by the Board. No Separation of Ownership and Management – The owner himself/herself manages the business as per his/her own skill and intelligence. It is important that the business owner seriously considers the different forms of business organization—types such as sole proprietorship, partnership, and corporation. The partnership has a profit of $9,000, so each partner is responsible for $3,000. vi. iv. 0000067314 00000 n A company form as compared to other forms of business such as LLP, Proprietorship and Partnership firm, can seek larger funding from the while limiting personal liabilities of its members. Risk of loss is diffused among two or more persons. It is easy to become a partner or leave the LLP. becomes the members of the company. Exit strategy – due to transferability of shares and being widely recognizable in the public domain, a public company magnifies its chances of easily seeking future suitors for the company. Protection of Interest – In partnership form of business organisation, the rights of each partner and his/her interests are fully protected. Many businesses begin as sole proprietorships and graduate to more complex business forms as the business develops. Increases risk and liability of the sole proprietor. Since nothing has been specified as such by the finance ministry, it is assumed that the rates of taxation applicable for a private limited company shall apply to an OPC. Difficulty of Raising Money, Image of Instability: If the business is to grow and expand, a sole proprietor generally needs additional financial resources. 0000003878 00000 n Stability – being a separate legal entity, the existence of a private company is independent of the existence of its members. In a time when the government requests for information seem never ending, this feature has much merit. A sole proprietorship is the most common form of business organization. One Person Company (OPC) 6. 9. Creditworthiness of the firm is also higher because every partner is personally and jointly liable for the debts of the business. The statement should contain the following particulars: 3. It can always keep itself in tune with the needs and aspirations of people through continuous research and development. vi. By the time an owner decides to seek help in addressing those problems, it may be too late to save the company. The company organisation has made it possible to accumulate large amounts of capital required for large scale operations. A corporation is ‘an artificial being, invisible, intangible, and existing only in contemplation of the law’. The legal form a firm chooses to operate under is an important decision with implications for how a firm structures its resources and assets. Each of these forms of business ownership has advantages and disadvantages that you will want to weigh before choosing a particular form of business for your new venture.First, let's look at the advantages and disadvantages of sole proprietorships, the most popular form of business ownership. The choice between paid assistant and partner depends upon requirements of business and preference of the proprietor. An individual’s capital is blocked. One Person Company also gets freedom from complying with many requirements as normally applicable to other private limited companies. Audit and publication of accounts is obligatory. We also address how access to skilled labor may be affected by rising restrictions to immigration. (vii) Quick decisions can be taken due to complete control by the owner. Share Your PPT File, External Sources of Recruitment (With Advantages), Forms of Business Organisation: 9 Different Forms of Business Organisation, Forms of Business Organisation – Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Joint Stock Company and One Person Company (With Merits and Demerits), Forms of Business Organisation – Sole Proprietorship, Partnership Firm, Limited Liability Partnership, Private Company and Public Limited Company, Forms of Business Organisation – Sole Proprietorship, General Partnerships, Company Form of Organization and Co-Operatives. Every partner is jointly and severally liable for the entire debts of the firm. v. LLP has more flexibility and lesser compliance requirements as compared to a company. Joint stock company has become the dominant form of ownership for large scale enterprises because it enables collection of vast financial and managerial resources with provision for limited liability and continuity of operations. Lack of Motivation and Personal Touch: There is divorce between ownership and management in a large public company. In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence, as it was the case in case of original form of partnership firms. (ii) Adequate safeguards in case of death/disability of the sole owner are provided. Business activities like construction, providing legal services, accounting and financial services etc. (a) Limited Funds – A proprietor can raise limited financial resources. Due to the hybrid form of the business, it is required to comply with various rules and regulations and legal formalities. Persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and. An overview of the four basic legal forms of organization: Sole Proprietorship; Partnerships; Corporations and Limited Liability Company follows. There is a possibility that the original owners can lose control of the public limited company in the issue of a dispute or violation. Nobody shares the profits of business. 0000001421 00000 n These organizations are based on some form of ownership. Partners with complementary skills may be chosen to avail of the benefits of specialisation. This choice affects a number of managerial and financial issues, including the amount of taxes the entrepreneur would have to pay, whether the entrepreneur may be personally sued for unpaid business bills, and whether the venture will die automatically with the demise of the entrepreneur. This form was introduced in the world by U.S in 1990s in the wake up of fall of real estate and energy prices in Texas. 0000009419 00000 n In case one line of business is not successful, the firm may undertake another line of business to compensate its losses. The liability of an LLP and its partners in Limited. Your need for access to cash out of the business for yourself. vii. Flexibility in Operations – It is very easy to effect changes as per the requirements of the business. Organizations hav… Any change in the above particulars must be communicated to the Registrar of Firms within a reasonable period of time so that necessary alterations may be made in the Register of Firms. Amount of salary or commission payable to any partner. If the assets of the firm are insufficient to meet the firm’s liabilities, the personal properties of the partners can also be utilized for this purpose. 0000010012 00000 n Loans and advances by partners and interest payable on them. 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