Forms of business

Sole Propreitership meaning

sole means single and proprietor means owner
sole proprietorship refers to a form of business organisation that is owned and managed by an individual who is the recipient of all profits and bearer of all risks
while ownership cannot be shared employees can be hired for assistance

Features of sole propreitership

1. Formation and closure : it is easy to start as no legal formalities are required apart from certain cases where a license is required. no separate law governs it

2. unlimited liability: liability of the proprietor is unlimited ie if assets of the business are insufficient the owners personal property may be sold to pay of debts.

3. Sole risk bearer and profit recipient

4. sole control: it is a one man show.right to make all decisions

5. no separate entity: the business has no legal exiistence the propreitor and the business are same in eyes of law

6. lack of business continuity:as business and entity are same if the owner dies or becomes insolvent it leads to closure

merits of sole propreitorship

1. quick decision making

2. confidentiality: sole proprietor is not required by law to publish firm’s accounts

3. Direct incentive for effort'

4. sense of accomplishment; it provides personal satisfaction

5. ease of formation and closure

demerits of sole proprietorship

1. limited resources: limited to owners savings and borrowings and as it is a sole propreitor borrowing capacity is limited

2. limited life of business

3. unlimited liability: wrong decision can create huge burden on owner thus less innovation

4. limited managerial ability
   

partnership meaning

according to the Indian partnership act, 1932 partnership is the relation between persons who have agreed to share the profits of the business carried on by all or one of them acting for all

limitations of sole proprietorship have given rise to partnership as partnership allows for more capital, diverse skills and sharing of risk

features of partnership

1. Formation: partnership has to get registered under Indian partnership act 1932. it comes into existence through a legal agreement among partners which after authorisation of ROF becomes partnership deed

2. liability- that of partners is unlimited and each partner is both jointly and individually liable

3. risk bearing: agreed ratio