Forms of Business Organisation and Enterprise Setup
What this domain tests
The exam tests choosing a business form and sequencing the steps to set up an enterprise legally and practically.
Core rules
- Sole proprietorship: one owner, full control, unlimited liability and limited capital.
- Partnership: two or more partners under the Indian Partnership Act, 1932; liability is generally unlimited unless it is an LLP.
- LLP: separate legal entity with limited liability, governed by the LLP Act, 2008.
- Company: separate legal entity under the Companies Act, 2013; private, public or one-person company; limited liability with more compliance.
- Cooperative: member-owned and democratically controlled.
- Setup steps: validate the idea, prepare a plan, choose a name and form, arrange finance, register under Udyam for MSME, obtain GST and PAN as applicable, secure licences, and launch.
Worked example
Two friends want a small café with shared control and limited liability. A general partnership is simple but exposes personal assets. A private limited company limits liability but adds compliance and cost. An LLP balances limited liability with lighter compliance. Reasoning: the choice follows liability, capital, control and compliance trade-offs.
Traps
Do not claim a sole proprietor has limited liability. Do not say a partnership is always a separate legal entity. Do not assume registration alone covers food, fire and municipal licences.