What are the Types of Business organizations ?

What is abusiness organisation?

          A business organisation conducts activities to earn or maximise profits.

Different types of business organisations

          Choosing the type of business is very important decision to make when starting or planning to start a business.

There are commonly four types of business organisations.

1.    Sole proprietorship

·       This is the oldest, simplest, straight forward business type of all.

·       It is a type of business owned and operated by an individual.

·       Sole traders operate in an area where start up cost and barrier to entry is very low.

·       Sole trader is the sole barer of all the risks and the recipient of all profits.

·       This type of business does not follow the business entity concept (the business and the owner are considered one in front of the law)

·       In this type of business the sole trader is usually the Jack of all trades but master of none.

2.    Cooperative society

·       Cooperative society is a voluntary association of people, who join together to work for a common goal in accordance with cooperative principles.

·       They work for the welfare of its members.

·       One of the main reasons for the creation of cooperative society is to minimise middle men and gain the maximum profit.

·       Capital is raised amongst the members by the issue of shares.

·       The members of the society enjoy limited liability. Maximum risk of each member is limited by the number of shares owned by them.

·       The society follows the rule of ‘one man one vote’. This means that regardless of the number of shares owned by the member, each member gets one vote for the decision to be made.

3.    Partnership

·       Partnership takes place when two or more individuals agree to run a business together.

·       This type of business is generally formed by a contract.

·       They pool their resources and get the part of the profits in agreed ratios.

·       Just like sole traders, partnerships are also not separate legal entity from their owners.

·       A main advantage of this form from sole trader is that more funds are available than the sole trader.

·       Partnerships are not bound by law to publish their financial results. So secrecy can be maintained.

4.    Joint stock company

·       Limited resources, unlimited liability to an extent and absence of continuity makes the first three not suitable for large sale business. Therefore Joint Stock Company came into existence.

·       A company is an artificial person, has legal status but cannot function like a human being.

·       It is a separate legal entity. Its identity is separate from its owners.

·       A company has perpetual succession. It is created by law and only be bought to an end by law.

·       Shares of Joint Stock Company are freely transferable.

5.    Joint Hindu Family/ Hindu Undivided Family business

·       This type of business can only be seen in India.

·       This type of business are owned and carried out by the oldest member of the family. Eldest member is known as KARTA.

·       The head of the business has unlimited liability and the rest of its members have limited liability.

·       Membership of its members is by birth, i.e. when a baby is born in the family, it becomes a member.

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