Forms of Business Organisation
Sole proprietorship and the joint Hindu family
A sole proprietor is one person who owns all assets, bears unlimited liability, has no separate legal entity, needs no minimum capital and enjoys secrecy and quick decisions; the cost is limited capital and uncertain life. A Joint Hindu Family business is governed by Hindu law, controlled by the Karta, with coparceners having unlimited liability; membership is by birth and it exists only in Hindu undivided families.
Partnership and LLP
Under the Indian Partnership Act, 1932, partnership is a relation between persons who agree to share profits of a business carried on by all or any of them acting for all. Liability is unlimited and joint; registration is optional in most states, but an unregistered firm cannot sue third parties. The LLP Act, 2008 gives a body corporate with limited liability, perpetual succession and lighter compliance.
Company and cooperative society
A company under the Companies Act, 2013 is a separate legal person with perpetual succession, limited liability and transferable shares; a private company needs at least 2 members (maximum 200), a public company at least 7 (no maximum). A cooperative society needs at least 10 members, follows one member, one vote, and is regulated by state cooperative acts and the Cooperative Societies Act, 1912.
Worked example
Two friends want limited liability, flexible profit sharing and low compliance cost. Reasoning: unlimited liability rules out a partnership; raising public money is not needed, so a public company is unnecessary; an LLP fits - limited liability, agreement-based sharing, no minimum capital.
Traps that cost marks
- Saying a partnership has limited liability or must be registered.
- Confusing Karta (manager) with coparcener (member).
- Writing "one share, one vote" for cooperatives.
- Forgetting that the company, not its members, owns the assets.