Question

 

Discuss types of business units ( sole proprietor, Partnership, Corporation)

Please provide Difinition , Characteristics , Difference , Advantages and Disadvantages of each.

Answer 1

Ans .                            Types of Business units/ Organisations

The various legal forms in which a particular business can be organised and managed are called forms of business organisation. Profit maximisation is the common objective of all types of business organisation. A particular business may be established in provate or public sector also they may be established either by individual or group of people, as per their sectpr and nature of ownership, different forms of business organisation available, which are as follows:

1. Sole Proprietorship

2. Partnership

3. Corporation

Sole Trader/ Proprietorship- A business which is owned by an individual and is not registered as limited liability Company with state is known as “sole trade”. It is the easiest form of ownership and can be established easily without having much knowledge about it, for example- Independent contractor, craftsman on a contract based jobs.

Merits of sole proprietorship

a) This type of business organisation mostly required low production cost, and also leads to low cost of production

b) As there is only a single member exists in this all decision can be taken easily and timely, they can take prompt decision without any interruption.

c) This type of business can be formed very easily as well as can be dissolved very easily, no legal formalities required to dissolve the business

d) This types of business is very flexible

Demerits

a) A small business have limited resources, also single owner faces several problems while expanding the business.

b) A small business have limited skills and knowledge which he applies in his business.

c) This type of business have no economies of large scale production , factors of production like , land, labour , capital, raw material in low quantities.

d) Having small business may lead to small income and this may lead to difficult for the owner to grow and expand the business

Partnership

It is very popular type of business organisation; partnership is contractual agreement between two or more person who is willing to share profits of business which is carried by all of them or single person acting for all. It is a business relationship between different person having common ownership or management.

Merits of Partnership

a) To form partnership no special type of permission is required from government and hence are easy to establish, only an agreement is required between the partners to get firm registered.

b) Under partnership all decision are made with consent of all partners, as all partner are in direct contact of each other , it is easy to make decision

c) All partners may have different skills and knowledge which may be used according to the need of business.

d) In partnership risk are shared by all partners, and in case of loss or difficulty to perform well loss shared by all partners

Demerits of Partnership

a) Existence of partnership firm is uncertain, in case of death retirement or insanity partnership comes to end

b) A partnership have different persons as partner, clashes or conflicts occurs due to misunderstanding and may lead to dissolution of firm.

c) This type of business organisation is not perfect for large scale business

d) In partnership all partners have unlimited liability which may lead to huge loss to partners of this organisation.

Corporation/ Joint stock company

A company legally owned by shareholders and managed by elected “Board of Directors”, having limited liability known as “joint stock Company” or corporation, it is considered as the only systematic and standard ways of managing of business, the capital of company is divided into shares and have limited liability.

Merits

a) The major advantage of this type of business organisation is “Perpetual Existence”, means it is not affected by shareholders or directors; they may change by passing of time.

b) Through sale of bonds, debentures or by issuing shares, they may raise large amount of funds for business activities

c) All the shareholders of Joint Stock Company have limited liability comparing to other types of business forms

d) It is appropriate for large scale enterprise, as they are capable of providing efficient and economic management

Demerits

a) It is not easy to form this type of business organisation as it required legal procedure, also required substantial amount before start up.

b) In comparing to other forms of organisation decision making proess in these is not an easy task, due to complex structure of company.

c) All the decision of company taken by board of directors or shareholders which leads in no secrecy in business

d) No concentration of power and wealth in few hands.

Difference between forms of organisation

S.No	Basis	Sole Trader	Partnership	Corporation
1.	Liability	Unlimited	Unlimited	limited
2.	Formation	Easy	Easy	Complex
3.	Capital	Very less	Less	High
4.	Decision	quick	Fast	Time taking
5.	Dissolution	Very easy	Easy	Time Taking