Sole proprietorship

Businesses owned by an individual. This is the most common type of business organization in the
world because it is easy to commence, requires only a small amount of capital and can take
independent decisions. The success of this business depends on the skills and dedication of its
owner.

Characteristics of sole proprietorship

1. Capital is provided by a single person who is the owner
2. Minimal rules and regulations applicable
3. Profits or losses to be born alone
4. Unlimited liability of the owner (Liability is not limited only for the capital that had been
invested but extends to his properties external to the business)
5. No legal personality (entering in to contracts, purchase of vehicles, obtaining bank loan,
filing cases should be done in the personal name of the owner not under the business name)
6. No continued existence
7. Not mandatory to register
8. Ability to take independent decisions

In addition, in sole trader business the owner has the ability to take decisions alone, controlling is
done by the owner and owner has the opportunity to discontinue the business at any time he
requires.

Advantages and disadvantages of sole proprietorship

Advantages Disadvantages
Convenient to start -legal requirements are minimal and the
Unlimited liability of the owner
cost of establishing is low
All the profits belong to the owner Difficulties in raising capital
Privacy of the business information is secured No continuous existence
Ability to use own skills at the best No legal personality
Individual decisions of the
Independent decision making
owner can be unsuccessful
Self-Control
Commitment
Partnerships
A partnership business is the relationship among persons conducting a business in common with
an objective to earn profit. The Partnership Ordinance of 1890 affects partnerships.

Characteristics of partnerships
1. According to the Companies Act No. 07 of 2007, the minimum Number of members in a
partnership should be 2 and maximum 20
2. Partnership Agreement (This agreement can be in written, oral or implied. If the initial
capital of the partnership is greater than Rs. 1000, a written agreement is required according
to the Prevention of Fraud Ordinance. A written partnership agreement is also called
partnership deed.)
3. Capital is invested by the partners
4. There should be an agreement among the partners.
5. The liability is unlimited (If the assets of the business are not sufficient to pay off its debts,
partners are liable to sacrifice their private properties to pay off debts.)
6. Registration is not compulsory.
7. No separate legal identity. (a partnership is unable to perform any legal activities in its
business name and the Partners are required to use their personal names in legal matters.)
8. Continuous existence not ensured (partnership will be ceased due to the death of a partner
or a partner being mentally unstable)

Advantages and disadvantages of partnerships

Advantages Disadvantages
Convenient to commence Unlimited liability
Can raise more capital Profit shared among partners
Can utilize different skills of partners Conflicts among partners
Shared liability among partners No continued existence
Can take collective decisions No legal personality
Incorporated companies
A firm which is registered under the Companies Act No. 07 of 2007, with a legal personality, can
raise capital by issuing shares and the liability of the shareholders being limited, is an incorporated
company. The owners of these limited companies are the shareholders. Their liability is limited to
the amount they have paid or liable to pay for the shares they have purchased.

Characteristics of incorporated companies

• Incorporation under the Companies Act No. 07 of 2007
• Continued existence - The company is considered as a separate legal entity from its owners,
the death or bankruptcy of shareholders shall not affect
• Ability to register with limited liability - The liability of shareholders is limited to the value
of the shares they have purchased.
• Can raise capital by issuing shares

What is a share: The capital of a company is divided into shares. Each share forms a unit of
ownership of a company and is offered for sale so as to raise capital for the company.

Advantages and disadvantages of Incorporated companies

Advantages Disadvantages
Can raise a huge amount of capital Greater level of legal provisions
Receiving legal personality Profits and ownership are shared
Continued existence Difficult to dissolve
Limited liability
Managed by a Board of Directors
Comparatively higher acceptance and
recognition
Cooperative Societies
Corporative societies are independent organizations who have voluntarily gathered group of
individuals with the aim of achieving a common need. These are democratically controlled and
show collective ownership. corporative societies can be started with ten members and the capital
of the society is mainly consist of the subscription of the members. These are registered under
Cooperative Societies Act No. 05 of 1972.

Examples :- Sri Lanka Multi Purpose Cooperative Societies

Sri Lanka Coconut Producers' Cooperative Society
Thrift and Credit Cooperative Societies (SANASA)

Characteristics of cooperative societies

• Democratic control -Controlled by a Board of Directors elected by its members and the
decisions are taken based on the consent of the majority.
• Voluntary and open membership
• Collective ownership of members -assets are owned by all the members.
• Common expectations and needs – to achieve the well-being of its members and facilitate
development of society.

Advantages and disadvantages of corporative societies

Advantages Disadvantages
Democratic control Limited capital
Should adhere only to the stipulated cooperative
Acting for the well-being of members
policies
Government provides various incentives for
conducting cooperative societies Frequent political interferences
Shared economic benefits
Essential goods and services are provided at
a reasonable price
Business activities in various fields can be
carried out.
Acting with mutual corporation
Associations / Non-profit making Organizations
These are organizations with the objective of social well-being established specially to achieve
well-being of the members, to accomplish a community service or a charitable activity.
Examples :- Sports Clubs
Farmer's Associations

State corporations
These are fully owned or the majority is owned by the government and is controlled by a Board of
Directors appointed by the government. These businesses will be commenced under a general or
special Act of the Parliament.
These are also known as state corporations, commissions, authorities, boards and bureaus.
Eg:- Sri Lanka Rupavahini Corporation Sri Lanka Ports Authority
State Pharmaceuticals Corporation of Sri Lanka Coconut Development Authority
Sri Lanka Bureau of Foreign Employment Export Insurance Board

Characteristics of state corporations

• Government ownership and control
• Objective of providing services in common
• Legal personality
• Essential to register
• Can commence either under a special Act or a general existing Act
• Continued existence
• Liability also lies with the government

Advantages Disadvantages
Appropriate for the provision of essential
Absence of independence in decision making
services
To reduce the monopoly effects of private Need to adhere to financial regulations of the
sector government
Profits owned by the public
Departments
These are directly and fully governed by the government under a ministry and operated in order to
provide various services to the general public.
Examples :- Sri Lanka Railway Department
Sri Lanka Postal Department
Department of Education.
Department of Examinations

Characteristics of state departments

• Ownership and control vested with the government - Departments are fully owned by the
government and directly governed by the Parliament and the respective ministry.
• Liability of the state is unlimited
• In legal activities, the head of the department should represent the department using his
designation (No legal personality)
• Continued existence
• Funded by the government by the annual budget of the government.

Advantages and disadvantages of departments

Advantages
Provide essential services to the public
Handle long term development activities
which require a larger amount of funds
Large number of employment opportunities
Provide services for the well-being of the
general public without a profit motive
Disadvantages
Delays in decision making
Have to operate under strict rules and
regulations
(Financial Regulations, Codes and different
circulars)
Inability to set up easily
Most probably making losses