TYPES OF

BUSINESS
ORGANIZATION:
• Sole Proprietorship
• Partnership
Sole
Proprietorship
DEFINITION •FEATURES • ADVANTAGES
•DISADVANTAGES
Definition
Sole proprietorship is an unincorporated business
owned by one single person and often managed by that
same person. It simply refers to a person who owns the
business and is personally responsible for its debts.

Sole Proprietors incude:

- physicians, lawyers, electrians, and other people in
business for themeselves.
 As a sole proprietor………….
▸ need only register his or her name and secure local licenses,
and the sole proprietor is ready for business
▸ typically signs contracts in his or her own name, because
the sole proprietorship has no separate identity under the
law
▸ you must file a Schedule SE with Form 1040
▸ personally liable for all debts of a sole proprietorship
business
▸ wronged by another party, he can bring a lawsuit in his own
name. Conversely, if a corporation or LLC is wronged by
another party, the entity must bring its claim under the
Features
1. Single Ownership. A sole trading concern is owned by
one individual. It is run entirely at his risk of loss. The sole
trader provides both capital and management to the business.

2.    Personal Organization or Common Identity. A sole

tradership concern has no separate legal entity independent
of the owner. The owner and the business concern are one
and the same. The owner owns everything the business owns
and he owes everything the business owns.
3.    Capital. In sole tradership, the capital is employed by
the owner himself from him personal resources. He may also
borrow money form his friends and relatives if he cannot
depend solely on his personal resources.

4.    Unlimited Liability. The liability of the proprietor for

the debts of the business is unlimited. The creditors have the
right to recover their dues even from the personal property
of the proprietor in case the business assets are not sufficient
to pay their debts.
5.    One Man Control. Sole tradership is one-man show.
The sole trader provides management to the business. He
takes all the decisions, procures material resources, employs
persons and directs and controls the affairs of the enterprise.

6.    Profits and Losses. The surplus arising in the business

of the sole trader entirely belongs to him and similarly all the
business losses and risk are to be borne by him alone.

7.    No Special Legislation. Sole tradership is not governed

by any special legislation. However, he is subject to the
common law, the law of contract and the law of insolvency.
Advantages
▸ Owners can establish a sole proprietorship instantly,
easily and inexpensively.
▸ Sole proprietorships carry little, if any, ongoing
formalities.
▸ A sole proprietor need not pay unemployment tax on
himself or herself (although he or she must pay
unemployment tax on employees).
▸ Owners may freely mix business or personal assets.
Disadvantages

▸ Owners are subject to unlimited personal liability for the

debts, losses and liabilities of the business.
▸ Owners cannot raise capital by selling an interest in the
business.
▸ Sole proprietorships rarely survive the death or
incapacity of their owners and so do not retain value.
Partnership
DEFINITION •TYPES •FEATURES • ADVANTAGES
•DISADVANTAGES
Definition

Partnership is an operation between two or more

individuals who share management and profits. The federal
government recognizes several types of partnerships. The
two most common are general and limited partnerships.
Types
1. General Partnership. partners agree to unlimited
liability, meaning liabilities are not capped and can be
paid through the seizure of an owner's assets.
Furthermore, any partner may be sued for the business's
debts.

2. Limited Partnership. It is is when two or more

partners go into business together, with the limited
partners only liable up to the amount of their investment.
Features
1. Two or More Persons. At least two persons must
pool resources to start a partnership firm. The
Companies Act, 1956 stated that any partnership or
association of more than 10 persons in case of
banking business and 20 persons in other types of
business is illegal unless registered as a joint stock
company.

2. Agreement. A partnership comes into being through

an agreement be­tween persons who are competent
to enter into a contract (e.g. Minors, lunatics,
insolvents etc. not eligible). The agreement may be
3. Lawful Business. The purpose of the partnership
agreement is to run a business, which is legally allowed
by the government and to earn profits. A partnership to
carry on some charitable or social work or some
unlawful activity, e.g., black-marketing or smuggling,
is not included in it.

4. Sharing of Profits and Losses. In the partnership

organization, the partners share the profits according to
the proportions written in the partnership agreement. In
case the business faces a loss, it will be shared
proportionately.
5. Liability. The liability of partners is unlimited as in the
case of sole proprietorship. Partners are individually
and collectively liable to creditors of the firm. Hence,
the creditors have a right to recover their dues from the
private property of one or all partners, when the assets
of the firm are insufficient.

6. Ownership and Control. Every partner has a right to

take
part in the management of the business. Hence, the
rights of ownership and control are jointly held by the
partners. The unanimous consent of all the partners is
7. Mutual Trust and Confidence. Every partner is
expected
to act in the best interest of other partners and also the
firm. He must observe the utmost good faith in all his
dealings with his co-partners. He must render true
accounts and make no secret profit from the business of
the firm or set up a competitive business.

8. Restriction on Transfer of Interest. In case a partner

wants to transfer his share in the agreement or if a
partner wants to withdraw from it, he can do so only
with the approval of all the other partners. Thus, a
partner cannot transfer his interest at his own will.
9. Registration. To form a partnership firm, it is not
compulsory to register it. However, if the partners so
decide, it may be registered with the Registrar of Firms.

10. Duration. The partnership firm continues as to the

pleasure of the partners. Legally, a partnership comes to
an end if any partner dies, retires or becomes insolvent.
However, if the remaining partners agree to work
together under the original firm’s name, the firm will
not be dissolved and will continue its business after
settling the claims of the outgoing partner.
11. Capital. Finances or the capital of the firm is
contributed
by the partners in the agreed proportions. Skillful
persons may be taken into partnership without any
contribution of capital.

12. No Separate Individuality. A partnership form of

organisation does not have separate entity from its
partners. All the contracts and agreements are
applicable to both i.e., partners as well as the firm.
Advantages
▸ Less formal with fewer legal obligations
▸ Easy to get started
▸ Sharing the burden
▸ Access to knowledge, skills, experience and contacts
▸ Better decision-making
▸ Privacy
▸ Ownership and control are combined
▸ More partners, more capital
▸ Prospective partners
▸ Easy access to profits
Disadvantages

▸ The business has no independent legal status.

▸ Unlimited liability
▸ Perceived lack of prestige
▸ Limited access to capital
▸ Potential for differences and conflict
▸ Slower and more difficult decision making
▸ Profits must be shared
▸ Personally demanding
▸ Limits on business development