Forms of Business Organisation
Compare the main forms of organisation on formation, liability, capital, control, continuity and legal status, and match a form to a given situation.
Sole proprietorship
One owner supplies capital and takes decisions; unlimited liability; no separate legal entity; simplest and cheapest to start; limited capital and limited life.
Partnership
Governed by the Indian Partnership Act, 1932; 2 to 50 partners; agreement (oral or written) creates the firm; partners have unlimited, joint and several liability; registration is optional but an unregistered firm cannot fully enforce its rights in court. An LLP under the LLP Act, 2008 gives limited liability with a lighter compliance load.
HUF and cooperative society
- HUF: governed by Hindu law; the karta manages; coparceners share by birth.
- Cooperative society: voluntary, minimum 10 members, one member one vote, service motive, registered under a state Cooperative Societies Act, limited liability.
Company
Companies Act, 2013: separate legal entity, perpetual succession, limited liability. Private company - minimum 2 members, 2 directors; public company - minimum 7 members, 3 directors; one person company - 1 member.
Worked example
Two friends want limited liability, shared control and low compliance for a small trading business. A private company gives limited liability but adds filings; an LLP gives limited liability with fewer formalities; a partnership is cheapest but leaves personal assets exposed. Best fit: LLP or private company, not a partnership.
Traps
Claiming partners have limited liability; using 7 members for a cooperative or private company; saying partnership registration is compulsory.