Three Basic Forms of Business Organizations

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Three Basic Forms of Business Organizations

 

 

Basic Forms of Business Organizations

 

 

 

 

 

 

 

 

Generally speaking, there are three basic forms of business organizations dominated in the world.

  1. Sole Proprietorship
  2. Partnership
  3. Corporations

1 –  Sole Proprietorship

A sole proprietorship is just like a one-man show. It has one owner who has 100% ownership in the business.

Sole Proprietorship

 

 

 

 

 

 

Main Features

  • The formation is very easy
  • Very easy to wind up
  • More personalize
  • Full command authority
  • Quick decision making
  • Have limited funds
  • 100% profit availability

 This is the most commonly used form of business organization is small scale businesses in the world.

Examples:

Retail shops, saloons, grocery stores, legal firms, tax accounting, and audit firms are the best examples of a sole proprietorship.

 2  –  Partnership

When two or more persons agree voluntarily to carry a business by contributing assets then there will be a partnership.

Partnership

 

 

 

 

 

 

 

 The profit of the partnership firm is shared with partners according to their share capital in the partnership.

Simply partnership is a mutual agreement between two or more persons to run a business activity for the sake of profit.

Partnership Types.

Generally, there are three forms of partnership

  • General partnership
  • Limited Liability Partnership
  • Joint Venture

General Partnership

When two or a maximum of twenty persons make a general agreement to run a business activity to generate profit then this gives the birth of a general partnership.

Main Features.

  • Minimum two partners
  • Maximum twenty partners
  • More partners, more capital
  • Profit divided on the base of share capital
  • Every partner Unlimited liability
  • The formation is very easy and simple
  • Some tax benefits

Limited Liability Partnership.

As the name states itself that in a limited liability partnership, the partner has the limited liability but there must be a general partner who takes the unlimited liability for the firm and manages all the operations of the organization

All other persons are liable to the extent of their share capital in the firm and creditors cannot go after the personal assets of the partners

Joint Venture

A joint venture is basically not a type of partnership as this type is not fulfilling the basic requirements of the partnership.

It is basically an agency of two or more established organizations to share their resources to accomplish a specific task or project for a specific period of time.

When the said project is completed the joint venture automatically dissolved.

 

3 –  Corporation

A corporation is a form of business organization on a large scale which is created by shareholders.shareholders are simply the owners of the organization who has shares.

Corporation

 

 

 

Corporation has a separate legal entity the shareholders. Every shareholder in the corporation has ownership in the form of shares, shares represent the ownership.

The corporation is managed by the Board of Directors selected by the shareholders by voting.

Every shareholder has limited liability to his owned shares only.

 

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