Forms of Business Organization

The following are the forms of organization:-

Sole Proprietorship:-

L.H. Haney:-The individual proprietorship is the form of business organization at the head of
which stands an individual as one who is responsible, who directs its operations
and who alone runs the risk of failure.

This is one of the best popular small forms of business. As the name suggests, sole proprietor, here, the word sole implies only, and proprietor refers to owner. Hence, a sole proprietor is the single person who is owner of a business.
In such a form of business organization, a business is owned, controlled and managed by an individual who owns the business, and all profits and risk will be borne by that individual. In India, high proportion of micro and small businesses are unregistered.
In a modern economy where the best financial system exists, it is often possible to obtain micro–finance and bank finance for this type of small business.
Here, the owner of the business is personally responsible for the debts, and if there is a shortfall to meet liabilities or debts, if any, the owner’s personal assets could be used for the repayment of debts.

Important Points:-

Sole proprietor is considered as one’s own boss.
Sole proprietor is regarded as an economic hero.
Autonomous power, unlimited liability and bearing capacity of risk.
No separate entity, there is no difference between owner and business.

Hindu Undivided family

Joint Hindu Family can also do business in India. HUF (Hindu Undivided Family) is formed automatically in a Hindu Family which consists of persons lineally descended from a common ancestor, including their wives and unmarried daughters. Joint Hindu Family Business or HUF business is a separate entity from Income Tax point of view.

Important Points:-

It is governed by Hindu Succession Act, 1956.
Three successive generations are considered HUF (Hindu Undivided Family).
HUF can have income from five heads of income except income from salary.
Karta is the person who is the eldest member of the family.
Family members are co-owners (also known as co-parceners) by birth.
HUF includes Buddhist, Jain and Sikh families.
Karta has unlimited liability.
Married daughter has equal rights in property of a Joint Hindu Family.

Partnership

The Indian Partnership Act, 1932 defines partnership as the relation between persons who have agreed
to share the profit of the business carried on by all or any one of them acting for all.

Important Points:-

Minimum two or more persons are required to form a partnership.
It is an agreement enforceable by law.
The essence of partnership is partnership deed.
Partnership is governed by the Indian Partnership Act, 1932.
Ownership is not easily transferable.
Liability of partners is unlimited.

Limited Liability Partnership (LLP)

It is registered under the Limited Liability Partnership Act. 2009. Here, the liability of the partners is limited. LLP is a separate entity.

Important Points:-

It is a legal entity.
Entity is different from partners.
Partners have limited liability.
ROC is the administrative body.
There is no limit on maximum no. of partners.

Company

According to Prof. Haney – A company is an artificial person created by law, having separate entity, with a perpetual succession and common seal.

Memorandum of Association (MOA) and Article of Association (AOA) are important documents of company. There are various types of companies.