GNDU B.Com (Bachelor of Commerce)

Chapter 2: Forms of Business Organisation

Summary

A business organisation is the arrangement under which the resources of a firm are owned, managed and controlled. Choosing the right form is important because it affects ownership, liability, capital, continuity and control. The sole trader (proprietorship) is owned and run by one person who enjoys all profits, bears unlimited liability and has limited capital and continuity. A partnership is an association of two or more persons who agree to share the profits of a business carried on by all or any of them acting for all; it offers more capital and combined skills but suffers from unlimited liability and the risk of disputes. The joint Hindu family business is governed by Hindu law, managed by the karta, with co-parceners having limited liability. The joint stock company is an incorporated association with a separate legal entity, perpetual succession, limited liability and transferable shares, able to raise large capital but subject to heavy regulation. Co-operative societies are voluntary associations formed for mutual benefit on the principle of one-member-one-vote. Public utilities supply essential services like water and electricity, while public enterprises are owned by the government. The unit also compares the public sector with the private sector and introduces the Limited Liability Partnership (LLP), a hybrid that combines the flexibility of a partnership with the limited liability of a company.

Key terms

Important questions

Practice quiz