Forms Of Business Organisation: Meaning, Objectives, Types

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Meaning:

  • Business is an economic activity which is an entire spectrum of market oriented activities coming under industry, trade and commerce.
  • It is entirely carried out with a profit motive.
  • There is a certain percentage of risk associated to a business.
  • Business is the backbone of the economy, it leads to the creation of employment and contributes to the economy, significantly.

Objectives of Business:

  • Economic: Sales, profit, market share, return on investment
  • Organic: Survival, growth
  • Social: Community service, heritage conservation, specific responsibilities towards employees, investors, customers, suppliers
  • Legal: Legal compliance, respect for law, fair practices, complete disclosure, integrity, green technologies, effective treatment of wastes.

Types of business organizations:

There are innumerable forms of business organization each one with its distinctive features, advantages and disadvantages.

1. Sole proprietorship

  • The sole proprietorship form of business is also known as the OPC, that stands for one person company.
  • ‌When an individual makes a choice to start a business of one’s own, to be one’s own boss a sole proprietorship form of business organisation emerges.
  • The sole proprietor is regarded as an economic hero and autonomous individual who carries out all the business activities by himself/ herself. It is considerable to take a note that although individually these might appear of not much significance, yet collectively such enterprises make a tremendous contribution to the national economy of the country. Their aggregate contribution to the GDP, employment is quite impactful.

2. Hindu undivided family business

  • ‌The Joint Hindu Family Business or the Hindu Undivided Family (HUF) is a unique type of business entity. It is governed and dictated by the Hindu Law.
  • This form of business organisation is prevalent only in India. HUF is an entity formed automatically by members of the common ancestry, it cannot be formed by a group of people who do not constitute a family. An HUF enjoys a separate legal entity status under the Income Tax Act.
  • The head of the joint Hindu family business is known as the karta he takes all the decisions related to the business.

3. Partnership

  • Section 4 of the Act defines Partnership as “ the relation between the persons who have agreed to share the profits of business carried on by all or any of them acting for all”. Persons who have entered into partnership with one another are called individually partners and collectively a firm. The name under which the business is carried on is called the firm name.
  • Partnership derived from the word ‘part’ which implies sharing. Persons come together to share profits and properties of the business the relationship of partnership rises from contract and not the status.
  • ‌This form of business organisation has come into existence due to some of the limitations of sole trading concern such as limited capital, manager ability, etc. Formerly partnership business was regulated by Indian Contract Act 1872 but subsequently authorities found it necessary to have a separate law for this purpose, as a result of which Indian Partnership Act 1932 came into effect.
  • The partnership deed is the written agreement of Partnership. The partnership agreement must satisfy all conditions of a valid contract such as offer, acceptance, competence, lawful business, etc. The partnership deed contains the name of the firm, the name and address of all the partners, nature and place of business, duration of partnership, amount of capital of each partner with their profit sharing ratio, interest on drawings and interest on capital, interest on loan advanced by partner, salary or commission payable to any partner, valuation of goodwill in case reconstitution of the partnership firm.
  • There are a few essential elements pertaining to partnership: Minimum two persons are required to form a partnership form of organisation. All partners must have attend an age of majority and must be of sound mind. There has to be an agreement to form partnership it may be expressed or implied. The business ordinary so carried on, in the partnership firm must be of lawful nature. An agreement entered into by all the partners concerned must be for sharing the profits of the business, profit means that profit arrive that after providing for all expenses. There must be mutual agency between the partners.

4. Limited Liability Partnership

  • LLP means a partnership formed and registered under the Limited Liability Partnership Act,2008.
  • ‌LLP is a body corporate separate from its partners. The liability of the LLP is unlimited whereas the liability of the partners shall be limited. An LLP is required to carry out audit every year and submit statement of solvency to the registrar every year.
  • An LLP has a separate legal status which is easy to form. It enjoys perpetual succession has global recognition. There is no limit on maximum number of partners of LLP.
  • It is also known as the “alternative corporate business vehicle” that gives the benefits of limited liability of a company and the flexibility of a partnership.
  • Every partner is considered as the agent of LLP but not the agent of other partners. Therefore, top mutual agency is present in LLP.
  • In case of any problem the central government will have power to investigate into the affairs of the LLP. The winding up can be carried out either by the high court or by the tribunal.

5. Company

  • The company form of organisation means an organisation that is jointly owned by its shareholders. These shareholders are allotted shares of the company in proportion to their ownership.
  • The organisation which is separate and distinct from its owners.
  • A company is an artificial person created by the law. It has its common seal to enter into agreements. A company form of organisation enjoy perpetual succession.

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