Forms of Business Organisation
Class 11 Business Studies · Business Studies · Chapter 2
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Summary
When starting or expanding a business, an important decision is the choice of the form of organisation, weighing the merits and limitations of each. The main forms are sole proprietorship, joint Hindu family business, partnership, cooperative society and joint stock company. A sole proprietorship is owned, managed and controlled by one individual who bears all risk and gets all profit; it offers ease of formation, quick decisions and confidentiality but suffers unlimited liability, limited resources and lack of continuity. A joint Hindu family business, found only in India, is owned by members of a Hindu Undivided Family by virtue of birth and controlled by the eldest member, the karta, who alone has unlimited liability while the co-parceners have limited liability. A partnership, governed by the Indian Partnership Act 1932, is the relation between persons who agree to share the profits of a business carried on by all or any of them acting for all; its features include unlimited liability, mutual agency and a partnership deed, with various types of partners and optional registration. A cooperative society is a voluntary association formed for mutual welfare, with compulsory registration, limited liability, democratic control and a service motive. A joint stock company is an artificial person created by law with a separate legal entity, perpetual succession, limited liability and transferable shares, and may be private or public. The choice depends on cost, liability, continuity, management ability, capital and control.
Choice of form of business organisationSole proprietorship — features, merits, limitationsJoint Hindu family business and the kartaPartnership — features and partnership deedTypes of partners and registrationCooperative society and its typesJoint stock company — features and typesFactors affecting choice of form
Key terms
Sole proprietorship
A form of business owned, managed and controlled by one individual who is the sole recipient of profit and bearer of risk, with unlimited liability.
Joint Hindu family business
A business found only in India, owned by members of a Hindu Undivided Family by birth and controlled by the karta.
Karta
The eldest member of a joint Hindu family who manages and controls the business and alone has unlimited liability.
Partnership
The relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all (Indian Partnership Act, 1932).
Mutual agency
A feature of partnership where every partner is both an agent and a principal, able to bind and be bound by the acts of the other partners.
Cooperative society
A voluntary association of persons who join to protect their economic interests, with democratic control and a service motive.
Extra questions & answers
Try one from this chapter
A business owned, managed and controlled by a single individual is a: