5
GSEB / CBSE
B.O.M
ACCOUNTS
STATISTICS
ECONOMICS
C.A., C.S., C.M.A.
Sector-2c, 737/2, Nr GH 1.5,opp. Andra Bank, Gandhinagar
Sector-28, Below SBI Bank,Opp. Pagarav Hospital, Gandhinagar
Sector 5c, 1683/1,Nr. Shiv Shakti Chowk,Gandhinagar
ORGANIZATION OF COMMERCE& MANAGEMENT
FOR MS OF BUSINESSORG ANISATION - 1
CHAPTER � 5 FORMS OF BUSINESS ORGANISATION-1
RACHNA SEKHANI 1
01 | Give the meaning of Sole Proprietorship & state its Characteristics and advantages
Meaning : Sole proprietor is such a rm which is owned, managed and controlled by only one person.
CHARACTERISTICS
ADVANTAGES
A
B
This is a large network.
As owner himself is in contact with the customers, personal contact can be made.
By keeping focus on the changing taste of customers, their requirements, fashion etc more satisfaction cane be given to customers
In this type of business, owner himself invests the entire capital.
Ownership and management is with the same person so there is a centralisation of ownership and management.
The power o f managemen t and administration is with the owner only.
The sole proprietorship is easy to establish as there is very few legal formalities
The power o f managemen t and administration is with the owner only.
Less capital is required to start the sole proprietorship w h i c h i s i t s b i g g e s t advantage
As ownership and management is with the single person, secrecy can be maintained.
Liability of the owner is unlimited i.e. if business assets are short to pay the outside liabilities, he has to bring his personal assets to pay off the liabilities.
As there is no interference from other parties, quick decisions can be made.
As there is no interference from other parties, quick decisions can be made.
As entire management is in one hand, secrecy of d e c i s i o n s c a n b e maintained.
In sole proprietorship, owner himself acts as the manager, he can maintain personal and live contact with the customers, employees and creditors.
However if he do not have sufcient capital, he can borrow money from others.
The process of establishing the sole proprietorship is very easy.
Any person can start a lawful business under sole proprietor
Complexions of law do not affect.
Easy to establish
Personal contact
Capital
Centralization of managementand ownership
Power of administration
Easy to establish
Freedom of work andquick decisions
Less capital
Maintenance of secrecy
Liability
Quick decisions
Quick decisions
Maintenance of secrets
Personal contact
1 |
7 |
2 |
8 |
3 |
1 |
4 |
2 |
3 |
5 |
4 |
5 |
6 |
6 |
RACHNA SEKHANI 2
Income of sole proprietorship is the income of the owner.
As compared to other forms of business organisation, there is less legal restriction in sole proprietorship rm
Here the owner is the one who invests in the business. So he can bring limited capital and his funds requirements are not meant.
Liability of the owner is unlimited that is he has to bring his personal assets to pay off the debts.
When the owne r o f t he business dies or is declared insolvent, the business come to an end.
In sole proprietorship, the owner is responsible to formulate the work policies and look after the management.
Every person has limited work capacity so he cannot look after all the functions.
So personal norms of taxation are applicable to him.
In sole proprietorship, the owner can make required changes according to business environment.
Sole proprietor himself takes b u s i n e s s d e c i s i o n s s o sometimes he might take wrong decisions.
Due to limited capital, the business remains limited in small business and hence advantage of large scale business is not available.
Due to qu ick dec is ion constant awareness, he can bring exibility to business.
Flexibility Possibility of wrong decisions
Lack of advantage of largescale business
Less tax burden
Less legal restrictions
Limited capital
Unlimited liability
Short duration
Limited work capacity
7 | 5 |
6 |
8 |
9 |
1 |
2 |
3 |
4 |
DISADVATAGESCHARACTERISTICS
CA
02 | State the meaning of HINDU UNDIVIDED FAMILY (HUF) and explain its characteristics
Meaning - According to hindu law, business is inheritable. Business acquired by way of inheritance by hindu family is called HUF
The HUF comes into existence by law.
Management of the HUF is in the hands of karta.
Business management is done by the karta independently.
The membership in the rm of HUF is by birth.
All the nancial matters of the business lie in the hands of karta
Senior most member of the family is called karta.
Other members have no right to interrupt in the business but they can help.
Existence by law
Management
Independent field of operation
Membership
Financial control
1 |
2 |
3 |
4 |
5 |
CHAPTER � 5 FORMS OF BUSINESS ORGANISATION-1
RACHNA SEKHANI 3
E n t i r e b u s i n e s s i s u n d e r t h e administration of karta.
Liability
Life span
Difficulty in raising funds
Insolvency
6 |
7 |
8 |
9 |
On the death of the karta, the other senior most member of the family becomes karta and so the HUF continues.
The success of the rm depends on the efciency of the karta.
When the rm becomes insolvent, the members of the family are declared insolvent, the minors are excluded.
Firm has to depend on the members of the family for fund raising.
The liability of karta is unlimited.
So it is difcult to raise the additional capital.
Therefore the liabilities are unlimited.
CHARACTERISTICSA
03 | State the meaning of Partnership and explain its characteristics
Meaning - Partnership is such form of business organisation where ownership remains with more than one person and in the same way business is managed by one or more than one on behalf of the partners.
Partnership comes into existence by agreement. This agreement can be oral or written
It is not compulsory to get the rm registered.
There can be maximum 50 partners (10 in case of banking business) and minimum 2 partners in a partnership rm.
T h e m a i n p u r p o s e o f partnership rm is to carry out lawful business activities to earn Prots.
Generally all the partners must bring capital. But still it is not necessary for all the partners to bring capital. Partners must bring the capital as shown in the deed.
In partnership rm, all partners can manage the rm jointly.
The liability of the partnership rm is unlimited i.e. all the partners are jointly and severally liable to outsiders.
In partnership rm, the transfer of ownership is not easy.
Consent of all the partners have to be taken to transfer the ownership.
All of them have the right to participate in the decision making process
If one partner is unable to pay the debts from his personal assets, other partners have to bring their personal assets to pay the debts.
A rm is registered by submit t ing a copy of partnership deed to the registrar.
Establishment procedure of partnership rm is very simple
Relation by Agreement
Registration
Number of partners
Purpose
Capital
Management
Unlimited liability
Transfer of ownership
Establishment Procedure
1 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
2 |
CHAPTER � 5 FORMS OF BUSINESS ORGANISATION-1
RACHNA SEKHANI 4
Legal status
Life span
Easy and less expensiveprocedure of establishment
Efficient Management
Increase in Goodwill / Creditworthiness
More capital
Advantage of division of labour
Proper decisions
Flexibility
Protection of the interest ofthe minority
Direct relation with customer
Less Burden of Income Tax
Decentralisation of Economic Power
10 |
11 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
11 |
10 |
Indian Partnership Act, 1932 claries the partner's rights, duties and other legal provisions relating to partnership
Life span of partnership is limited. If any partner dies, becomes insolvent or declared insane, partnership comes to an end.
The process of establishing partnership is easy and less expensive.
The partnership gets skill, experience, intelligence, and knowledge of various partners.
As every partner has unlimited liability, the traders do not hesitate to sale goods to the rm
In the partnership rm, there are two or more partners, more capital can be raised.
Advantages can be derived from the different skills and abilities of the partners of a rm
As all the partners are involved in the decision making, advantages of division of labour can be obtained.
Partnership is a voluntary agreement.
Usually, in the partnership rm, all types of work is carried out with the consent of all the partners.
Like sole proprietorship, in partnership also change can be made easily as there is direct contact with the customers and employees.
The prot of partnership rm is divided among partners as per the partnership deed. Therefore the burden of income tax is less.
In partnership rm as there are more than two partners, economic power is divided among the partners
In this agreement, required changes can be made in the management and structure of the rm.
If one partner does not agree to any decision, then that work can not begin.
Any partner can ask for the dissolution of partnership rm.
By allotting different work to different partners, advantages of division of labour can be obtained.
As per act registration is not compulsory so there is no need to go through a special process of law.
There is direct control of partners over employees so rm is managed efciently.
In comparison to sole proprietor, the credit worthiness of the rm is more
ADVANTAGESB
CHAPTER � 5 FORMS OF BUSINESS ORGANISATION-1
RACHNA SEKHANI 5
Limited Capital
Unlimited Liability
Possibility of Disagreement
Difficulty in maintaining secrets
Difficulty in Share Transfer
Delay in decision making
Short life span
1 |
2 |
3 |
4 |
5 |
6 |
7 |
Considering the development and big size of modern industries and trade, the capability to raise large capital by partners is limited.
In Partnership rm, the liability of each partner is unlimited.
There is a possibil i ty of difference of opinion and disagreement in partnership.
In partnership decis ions cannot be taken without proper d iscuss ion and th ink ing process.
In partnership rm, a partner cannot transfer his share to other person easily.
According to the law, each partner can take part in management of the rm.
For reason of death, insolvency or loss of mental balance of any partner, the partnership comes to an end.
There is less scope for partnership rm to engage in large scale business activity and due to limited capital, the activities like research can not be undertaken.
Al l par tners are responsible for the work done by any other partners
In partnership, management of the rm runs properly till there is unity and agreement.
Due to discussions among partners the maintenance of business secrets are difcult.
Share transfer to another person requires consent of all partners.
Due to internal conicts among the partners, delay in decision making occurs.
If assets of the rm are insufcient to pay the debt then in that situation all partners have to pay debt even by selling their personal properties.
When the dispute arises, there is a p o s s i b i l i t y o f d i s a g r e e m e n t i n partnership.
LIMITATIONSC
04 | State the types of partners
According to partnership act, the person who becomes a partner and takes keen part in the management is called active partner.
The person who becomes a partner by the partnership deed and bears loss or prot but he does not take active part in management of the rm, then he is called dormant partner/sleeping partner.
If some person allows his name to be used by the rm then such partner is called nominal partner.
His liability is unlimited like other partners
Such partner gets his agreed share in prot-loss.
Active Partner
Sleeping/Dormant Partner
Nominal partner
1 |
2 |
2 |
CHAPTER � 5 FORMS OF BUSINESS ORGANISATION-1
RACHNA SEKHANI 6
If a person is made a partner in the rm to take advantage of special skill, knowledge and experience, then such person is called partner in prot only.
The person has not signed deed, does not bring capital and does not share prot or losses but on the basis of his behaviors, other party assumes that he is partner then he is called partner by estoppel or holding out.
According to partnership act only an adult person is able to sign the partnership deed.
If any partner dies, his minor child can be made minor partner.
A minor partner has no liability to repay the debts of the rm.
Creditors cannot take personal property of the minor partners.
When he becomes adult, he can be admitted as a partner like other partners.
As third party does business with the rm, after taking his credit, his liability becomes unlimited.
He has not to share loss in the rm.
Partner in Profit only
Partner by estoppels
Minor partner4 |
5 |
6 |
TYPES Explanation
Partnership at will
Unlimited Liability
Term Partnership Firm
Limited Liability
General
Unregistered Partnership Firm
Banking
Registered Partnership Firm
Business
Registration
Partnership for a specific work
Time Limit
Liability
Life span of the partnership depends upon the wishes of the partners. There is no time limit. It exists till there is unity among the partners. Partners can dissolve the partnership by giving notice. Message can be oral, written or non-verbal
The liability of the partners is unlimited i.e. if the assets of the rm are not sufcient to repay the debts, partners have to bring their personal assets to repay the debts of the rm.
When the time limit of the partnership is mentioned then it is called term partnership. After completion of the term, the partnership is dissolved automatically.
This is a special type of partnership, excluding one partner, liability of all the partner can be kept limited.
For business other than banking, when a partnership rm is created then such a rm is called general rm. In such rm, there are minimum 2 and maximum 50 partners
The partnership rm which is not registered with the Registrar of Firms, it is called unregistered rm.
For such rm, it is difcult to recover debts through court of law.
As per partnership deed, when a partnership rm is established for completing a specic work, then it is called partnership for specic work. When the work is completed, partnership comes to an end.
When the activity of partnership is to accept deposits from public with the purpose of lending, it is called banking rm. There can be minimum 2 and maximum 7 partners.
The partnership rm which is registered with the Registrar of rms, then such rm is called registered rm.
It is not compulsory but advisable
05 | State the types of Partnership Firm
CHAPTER � 5 FORMS OF BUSINESS ORGANISATION-1
RACHNA SEKHANI 7
06 | Write a note on registration of Partnership firm
07 | Write a note on Partnership Deed
Following details are included inthe registration form
DetailsIncluded in Partnership deed
Advantagesof the registration of firm
Registration of partnership rm can be done according to partnership act 1932.
Registration of the rm is not compulsory.
The state in which the rm is situated, there is registrar of rm which is appointed ofcer of the state government.
Name and address of the rm
Name and address of the rm
For recovery of rms dues, the rm can le a claim in the court of law.
Partner of the rm can le a case in court of law against the other partners or rm
A partner can demand justice from the court of law for his right and share
The retiring partner, by giving notice to public, can free himself from his liabilities.
The existence of the rm becomes public through registration.
Branches of the rm
Name, address, age, type and telephone number of partners
Name, address and phone number of the partners
Purpose and type of business of the rm
Date of admission of each partner
Date of establishment and duration of rm.
The prot and loss ratio
Detail of partner's capital and interest on capital if to be mentioned.
Details regarding capital
Partner's borrowing and their limit
Duration of the rm
Rate of interest on loan given by partners
Rate of prot and loss distribution
Distribution of work among the partners
Details of salary, commission or other facility for partners
Provision for accounting and book keeping of partnership rm
Provision for opening of bank account and banking transactions
The method of goodwill
Signing authority of various documents
Provisions for admission of new partner and retirement of old partner
Rights and duties of partners.
Provision for admission of minor partner
Provision for settlement of account at the time of dissolution of the rm.
1
1
1
2
3
4
5
2
2
3
3
4
4
5
5
6
6
7
7
8
9
10
11
12
13
14
15
16
17
18
CHAPTER � 5 FORMS OF BUSINESS ORGANISATION-1
RACHNA SEKHANI 8
Sole ProprietorPoint of difference Partnership Firm
Meaning
Number of members
Capital
Establishment
Decisions
Profit-Loss
Registration
Secrets
Transfer of share
Risk
Partnership is such form of business organisation where ownership remains with more than one person and in the same way business is managed by one or more than one on behalf of the partners
Minimum 2 and maximum 10 for banking and 50 for others.
Brought by the partners as per deed
Oral or written agreement by partners
Delay in decision making.
Distributed among partners.
Registration is not compulsory but advisable.
Not maintained
Consent of all the partners is required.
Risk of business is borne by the partners.
Sole proprietor is such a rm which is owned, managed and controlled by only one person.
Only one person
Brought by the owner
Any person can establish lawful business
Quick decisions
Only Owner has to bear
No registration
Maintained
As when owner decides, he can transfer the share
Risk of business are borne by the owner
08 | State the difference between Sole Proprietor and Partnership
09 | Sole proprietorship is a training school of business. Explain.
10 | Each partner is a agent of other partner. Explain
In a sole proprietorship, the owner himself l o o k s a f t e r t h e m a n a g e m e n t a n d administration of the business.
He takes all the decision by himself and bears the risk. Sometimes if his decisions go wrong, then he learns from his mistakes.
It is very rightly said that experience is the best teacher and owner learns a lot from his experience.
So sole proprietorship is a training school of business.
In a partnership rm, all the partners take decisions jointly.
Any act of partner makes all the partners liable.
All the partners are liable for the acts done by any of the partner.
In this way partner acts as agent of other partner as they are responsible for the acts of their partners.
CHAPTER � 5 FORMS OF BUSINESS ORGANISATION-1
