Forms of Business Organisation
Core forms
- Sole proprietorship: one owner, unlimited liability, no separate legal entity, easy to start.
- Partnership: Indian Partnership Act 1932; two or more partners; agreement may be oral or written; registration is optional, but an unregistered firm cannot enforce contractual rights against third parties. Liability is joint and several.
- HUF: Karta manages; coparceners acquire interest by birth; governed by Hindu law.
- Cooperative society: minimum 10 members, registered under the Maharashtra Cooperative Societies Act 1960; one member one vote; service and mutual benefit.
- Company: Companies Act 2013; private company minimum 2 members and 2 directors, maximum 200 members; public company minimum 7 members and 3 directors; separate legal entity, limited liability, perpetual succession.
- LLP: LLP Act 2008; minimum 2 partners, at least two designated partners and one resident in India; limited liability and fewer compliance duties than a company.
Worked example
Three friends want to run a bakery with ₹15 lakh and expect to add investors later. Compare a partnership and a private company. A partnership is cheap and flexible, but their personal assets are exposed and the firm lacks separate legal personality. A private company gives limited liability, perpetual succession and easier equity investment, but requires incorporation, directors, annual filings and audit. If they expect outside investors, the private company is the better legal form; if they want low compliance and no outside investors, partnership may suit. Reasoning: form follows liability, funding and compliance needs.
Traps
A company is an artificial legal person but not a citizen. A partnership firm is not a separate legal entity. Registration of a partnership is optional, but non-registration has consequences. Limited liability does not mean the business has no debts; it limits members' exposure. Do not mix cooperative membership with company shareholding.