Forms of Business Organisation and Enterprise Setup
Choosing a form
The exam tests features, liability, control, continuity, taxation and suitability of sole proprietorship, partnership, LLP, HUF, co-operative society and company. A sole proprietor is easy to start, owns all profit and bears unlimited liability. A partnership under the Indian Partnership Act, 1932, needs at least two partners, has unlimited liability and is governed by its deed. An LLP under the LLP Act, 2008, is a body corporate with limited liability, perpetual succession and lighter compliance than a company. A private company needs at least two members and can have up to 200; a public company needs at least seven. A co-operative society is formed under the Maharashtra Co-operative Societies Act, 1960, for member benefit. An HUF is governed by Hindu law and the karta manages it. Setup also requires Udyam, GST where applicable, shop/factory registration, pollution consent and municipal licences.
Worked example
Two friends have ₹15 lakh, want limited liability and flexible profit sharing, and do not plan to raise public funds. A partnership gives flexibility but unlimited liability. A private company gives limited liability but adds audit and compliance. An LLP gives limited liability, contractual profit sharing and lower compliance; it fits their need. They should still check sector licences and GST.
Traps that cost marks
An LLP is not a partnership under the 1932 Act. A private company is not limited to two members. Udyam registration does not replace GST, shop, factory or pollution approvals. Do not ignore liability when recommending a form.