Forms of Business Organisation: Sole Proprietorship & Partnership

70 vocabulary flashcards covering key terms, features, types, merits, demerits, and legal aspects of sole proprietorships and partnerships, helping students review Chapter 2: Forms of Business Organisation.

Sole Proprietorship

A business owned, controlled, and financed by one individual who takes all profits and bears all risks.

Sole Trader

The individual who owns and operates a sole proprietorship; also called an individual proprietor.

Single Entrepreneurship

Another name for sole proprietorship, highlighting one-person ownership and management.

Sole Proprietor

The person who provides capital, makes decisions, manages operations, and assumes unlimited liability in a sole proprietorship.

Single Ownership

Feature of a sole proprietorship where one person supplies capital and exercises complete control.

No Separate Entity

Legal concept that the sole proprietorship and its owner are the same person for rights and liabilities.

Unlimited Liability (Sole)

Obligation of a sole proprietor to pay business debts from personal assets if business assets are insufficient.

Easy to Start and Close

Characteristic of sole proprietorship requiring minimal legal formalities for opening or shutting the business.

Risk and Profit (Sole)

Principle that the sole proprietor alone bears losses and enjoys all profits.

Management and Control (Sole)

Total authority of the owner to direct all business activities in a sole proprietorship.

Continuity (Sole)

Dependence of the business on the proprietor; it ends on owner’s death, insolvency, or incapacity.

Ease of Formation (Sole Merit)

Advantage that a sole proprietorship can be established quickly with little paperwork.

Quick Decision-making

Benefit where a sole proprietor can act immediately without consulting others.

Business Secrecy

Ability of a sole proprietor to keep plans and accounts confidential because only one person knows them.

Direct Incentive

Motivation arising because the sole proprietor receives all profits and thus works harder.

Flexibility (Sole)

Capacity of a sole trader to change product lines or methods swiftly to meet market needs.

Personal Touch

Close relationships a sole proprietor develops with customers, improving service and loyalty.

Low Overhead Costs

Reduced expenses in a sole proprietorship due to absence of complex administration.

Minimum Government Regulation

Relatively few legal controls on sole proprietorship compared with larger business forms.

Social Importance (Sole)

Role of sole proprietorships in providing self-employment and reducing unemployment.

Limited Capital (Sole Demerit)

Constraint that the owner’s personal funds may restrict growth of a sole proprietorship.

Uncertain Life of Business

Risk that the sole proprietorship may end abruptly if the owner dies or withdraws.

Limited Managerial Ability

Weakness that one person may lack all the skills needed for efficient business management.

Unsound Business Decisions

Possible outcome when a sole proprietor acts without the advice or checks provided by partners.

Lack of Economies of Scale

Disadvantage that small size prevents cost savings from bulk production or purchase.

Partnership

Association of two or more persons who agree to share profits of a lawful business carried on by all or any acting for all.

Indian Partnership Act 1932

Legislation that defines and regulates partnerships in India.

Partners

Individuals who enter into a partnership agreement and share profits, losses, and management responsibilities.

Firm Name

The trade name under which a partnership conducts its business.

Mutual Agency

Key feature of partnership where each partner is both principal and agent of the firm and other partners.

Two or More Members

Requirement that at least two persons must join to form a partnership.

Lawful Business

Condition that partnership objectives must be legal; mere joint ownership of property is insufficient.

Risk Bearing (Partnership)

Arrangement where partners share profits and losses according to an agreed ratio.

Shared Decision-making

Right of all partners to participate in management unless otherwise agreed.

Partnership Agreement

Oral or written contract that sets terms of association between partners.

Partnership at Will

Firm with no fixed term that continues until partners decide to dissolve it.

Partnership for Fixed Period

Partnership formed for a specified duration, ending when that period expires unless renewed.

Particular Partnership

Partnership created for a single project or venture, dissolving when the project is completed.

Active Partner

Partner who contributes capital and takes part in day-to-day management; also called actual or ostensible partner.

Sleeping Partner

Partner who invests capital but does not participate in daily operations and remains undisclosed to the public.

Silent Partner

Partner known to the public but not involved in management; shares profits and bears unlimited liability.

Secret Partner

Partner who actively participates in business while keeping their association hidden from outsiders.

Nominal Partner

Individual who allows the use of their name by the firm without investing capital or sharing profits.

Partner by Estoppel

Person held liable as a partner because they represented themselves—or allowed others to represent them—as one.

Partner in Profits Only

Partner entitled to a share of profits but not losses, yet still liable to third parties for firm debts.

Minor Admitted to Benefits

Minor who receives profit share in a partnership with consent of all partners but has no personal liability.

Partnership Deed

Written document (deed of partnership) outlining terms, duties, and rights of partners.

Contents of Partnership Deed

Items such as firm name, nature of business, capital contributions, profit-sharing ratio, and dispute clauses included in the written agreement.

Registration of Partnership

Optional legal recording of partnership details with the Registrar of Firms to obtain certain rights.

Consequences of Non-registration

Inability of an unregistered firm to sue outsiders or of partners to sue each other to enforce contract rights.

Ease of Formation (Partnership Merit)

Advantage that a partnership can be created simply through an agreement with minimal legal steps.

Large Financial Resources

Benefit that combined capital of partners allows greater funding than a sole proprietorship.

Better Management

Advantage of pooling different talents and expertise of multiple partners.

Sharing of Risks

Distribution of losses among partners, lessening the individual burden.

Maintenance of Secrecy (Partnership)

Privacy enjoyed because partnerships are not legally required to publish accounts.

Flexibility (Partnership)

Freedom for partners to frame their own rules and change business lines as long as lawful.

Agency Relationship

Legal principle that each partner can bind the firm through contracts with third parties.

Unlimited Liability (Partnership)

Joint and several responsibility of partners to pay firm debts from personal assets if necessary.

Limited Resources (Partnership Limitation)

Constraint that capital is restricted by the maximum number of partners allowed by law.

Possibility of Conflict

Risk that disagreements among partners may disrupt business operations.

Slow Decision Making

Delay caused when unanimous consent of partners is required for major actions.

Risk of Implied Agency

Danger that any partner’s unauthorised act can still legally obligate the entire firm.

Disruption of Continuity

Potential dissolution if a partner dies, retires, or becomes insolvent, unless a new agreement is formed.

Non-transferability of Interest

Rule that a partner cannot transfer their share to outsiders without unanimous consent.

Less Public Confidence

Skepticism investors may hold because partnership accounts are not publicly disclosed.

Registrar of Firms

Government authority with whom partnership particulars are filed for registration.

Application for Registration

Form stating firm name, principal place, partner details, and duration, signed by all partners.

Registration Certificate

Official document issued by Registrar confirming entry of the firm in the Register of Firms.

Articles of Partnership

Another term for the clauses and rules contained in a partnership deed.

Dissolution of Partnership

Termination of the partnership relationship, requiring settlement of accounts and liabilities.