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Types Of Business Units, Cycles - PART I

 Types of Business Units - PART I

Introduction

These are the types of Business units – Sole proprietorship, Partnership, Joint Stock Company, JSC, Co-operative Societies and Public or State undertakings.

1. Sole Proprietorship

            Sole proprietorship is the ancient form of business enterprise. In this type, an individual person is the owner of the business solely. He supplies land, labour, capital etc. individually. The functions of management, overseeing and risk taking feature are executed by individual proprietor. This type of proprietorship may be suitable for small scale units or shop keepers.

Merits

  • Easy to Start and Independent – It does not require much legal aspects and no need of interference of others since it is formed by one individual person.
  • Share of Profit – The person running the business shares the profit himself and with no other since the risk being born by himself
  • Quick Decisions – As he does not necessitate much conference or sanction from others he can take decision on his own and speedy.
  • Business Secrets – The secrets of business do not reveal and that enables him to earn sometimes high profits.
  • Easy to Liquidate – Merely like commencement of business, it is equally easier to windup as it is not compelled by anyone. This is for the reason that he is the sole proprietor.

Demerits

  • Complexity of Large Scale Production – In this type of enterprise, the sole owner is short of capital and other factors of production.
  • Unlimited Liability – The sole owner is wholly responsible for profits or loss and hence he is indecisive to take certain important decision which may be vital at the time of requisite.
  • Complexity of Credit – There is much complexity in acquiring funds. The financial institutions are indecisive to provide financial assistance since of his less credit worthiness.
  • Lack of Technical Development – Since the sole owner is the boss and functions all the activities alone, there is no one to support or assist and lacks technical support.

2. Partnership

            Partnership has much broader scope than that of sole proprietorship. This means when two or more persons mutually agreed and does business and shares profits or losses equally or as per mutual agreement with unlimited liability vested with one or more partners. The features of partnership are types of partners - working partners, dormant partners, and partners with or without capital, unlimited liability, Partnership deed, limits of partnership and non-transferability of shares.

Merits

  • Careful Decisions – Decisions are taken with discussions. This lessens the opportunity of incorrect or vague decisions.
  • More Capital – Each partner will have his part of investment with which the capital invested will be higher. Hence they individually harvest results advantageously.
  • Easy Credit – Since the business is quite larger than the sole proprietorship, the availability of credit is much easier since the reputation will be good.
  • Personal Interest – Each partner individually takes interest in the business and since he has an unlimited liability he has to abide with risk of profit or loss.
  • Use of machines – Due to sufficient capital investment and the manufacture is of large scale, the use of machines can be amplified under this business type.

Demerits

  • Lack of mutual confidence – The victory of partnership is based on the trust worthiness of all the partners without which cannot run this type of business. In the deficiency of mutual understanding, leads to liquidation.
  • Difficult to Separate – No partner can sell his shares to others and cannot come out of business without the consent of other partners.
  • Uncertainty – The activeness of partnership is quite uncertain. These types of organisation dissolve with either misunderstanding or death of partners.
  • Delay in Decision – Occasionally partners do not agree with each other on a particular problem and decisions may not be finalised with everybody’s consent.

3. Joint Stock Company

            Joint Stock Company is one of the most vital forms of business organisations. There are certain large scale enterprises which cannot be operated on the basis of the sole ownership or partnership types of organisation. To commence such a business large amount of capital is gathered by a Joint Stock Company. It is an extended form of partnership business. When a group of persons are mutually joined together and are known to each other, to endow their finance in some common business is called Joint Stock Company (JSC).

Formation

            With the laws of the country, a JSC is formed. There should be atleast 7 persons to form this business and the maximum number is unlimited. The beginners are called the promoters and they devise plan and submit to the Registrar of JSCs and subsequently establishes with the essential documents of Memorandum of Association and Articles of Association.

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