Forms of Business Organisation
What this domain tests
Forms of organisation: sole proprietorship, joint Hindu family business, partnership, cooperative society, company and LLP. Questions test features, merits, demerits, liability, continuity and Indian legal minimums.
Core rules
- Sole proprietorship: one owner, unlimited liability, no separate legal status, easy to start, limited capital.
- Partnership (Indian Partnership Act, 1932): two or more partners, agreement, unlimited joint and several liability; registration is optional but advisable.
- LLP (LLP Act, 2008): at least two partners, limited liability, separate legal entity, partnership-style flexibility.
- Company (Companies Act, 2013): private company minimum 2 members, public minimum 7; OPC one person; separate legal entity, perpetual succession, limited liability.
- Cooperative society: minimum 10 members, one member one vote, service motive, regulated by state cooperative laws.
Worked example
Three engineers want limited liability and flexible management but no public issue. Reasoning: a partnership gives flexibility but unlimited liability; a private company gives limited liability but heavier compliance; an LLP gives limited liability, a separate legal entity and partnership-style management. Choose the LLP.
Traps that cost marks
- Saying a private company needs only one member; only an OPC does.
- Ignoring joint and several liability in a partnership.
- Treating a cooperative as profit-first; voting is by person, not by share.
- Assuming an HUF is created by contract; it is governed by Hindu law.