Forms of Business Organization – Key Vocabulary

These vocabulary flashcards cover key terms, features, merits, and limitations of the main forms of business organization—Sole Proprietorship, Joint Hindu Family Business, Partnership, Cooperative Society, and Joint Stock Company—as well as related legal concepts and special terms mentioned in the lecture notes.

Sole Proprietorship

A business owned, managed, and controlled by one person who keeps all profits and bears unlimited personal liability for losses.

Unlimited Liability (Sole Proprietor)

The owner’s personal assets can be used to repay business debts if business assets are insufficient.

No Separate Entity (Sole Proprietor)

Legally, the owner and the business are the same person; obligations of the firm are personal obligations of the proprietor.

Business Continuity Risk

Likelihood that a business ceases on the owner’s death, insanity, imprisonment, or bankruptcy (common in sole proprietorships).

Karta

Eldest male member who manages a Joint Hindu Family Business and bears unlimited liability.

Coparcener

A family member in a Hindu Undivided Family who shares ownership of ancestral property but has limited liability.

Hindu Succession Act, 1956

Indian law that governs formation and inheritance rules within a Joint Hindu Family Business.

Joint Hindu Family Business (HUF)

Family-run enterprise governed by Hindu Law where ownership passes automatically by birth and management rests with the Karta.

Mutual Agency (Partnership)

Principle under which every partner is both agent and principal of the firm, binding others by his acts.

Indian Partnership Act, 1932

Statute that defines partnership, partner rights, duties, and registration procedures in India.

Active Partner

Partner who contributes capital, participates in daily management, and has unlimited liability.

Sleeping Partner

Partner who contributes capital and shares profits but does not participate in management; liability remains unlimited.

Secret Partner

Partner whose association with the firm is undisclosed to outsiders yet takes part in management; liability unlimited.

Nominal Partner

Person who lends their name to a firm without capital contribution or profit share but holds unlimited liability.

Partner by Estoppel

Individual who, by words or conduct, leads others to believe they are a partner and is thus held liable as one.

Partner by Holding Out

Person who knowingly allows themselves to be represented as a partner and incurs partner liability despite not being one.

Minor Partner (Benefit Only)

Individual below 18 admitted to the benefits—not liabilities—of a partnership with consent of all partners.

Partnership Deed

Written agreement detailing terms such as capital, profit sharing, duties, and dispute resolution among partners.

Registration of Partnership

Voluntary filing with the Registrar of Firms that confers legal standing and enables the firm or partners to sue.

Cooperative Society

Voluntary association of persons with service motive, registered under the Cooperative Societies Act, 1912.

Voluntary Membership

Open entry and exit principle of cooperatives without discrimination; each member holds one vote.

Limited Liability (Co-op)

Co-op members’ responsibility for debts is restricted to the amount invested as share capital.

Consumer Cooperative

Society that buys goods in bulk from wholesalers and sells to members at reasonable prices, sharing surplus as dividends.

Producers’ Cooperative

Co-op that supplies raw materials and equipment to small producers and markets their output collectively.

Marketing Cooperative

Society that pools produce from members, grades, packs, and markets it to secure better prices.

Credit Cooperative

Co-op providing low-interest loans to members, funded by member deposits and share capital.

Cooperative Housing Society

Association that acquires land or flats at reasonable cost for members, payable in installments.

Joint Stock Company

Artificial legal person formed under the Companies Act, 2013 whose ownership is divided into transferable shares.

Separate Legal Entity

Characteristic of a company whereby it exists independently of its shareholders and can sue or be sued.

Limited Liability (Company)

Shareholders’ obligation is confined to the unpaid amount on the shares they hold.

Perpetual Succession

Company’s continuous existence unaffected by death, insolvency, or insanity of its members.

Common Seal

Official signature of a company affixed to documents to signify corporate assent.

Board of Directors

Elected body of shareholders entrusted with policy making and overall management of a company.

Transferability of Shares

Right of public-company shareholders to sell or exchange their shares freely without consent of other owners.

Oligarchic Management

Situation where control of a company concentrates in a small group of directors despite widespread share ownership.

Unlimited Liability (Partnership)

Partners are personally and jointly liable for all business debts beyond their capital contributions.

Risk Sharing (Partnership)

Profits and losses are distributed among partners in an agreed ratio, reducing individual burden.

Confidentiality Advantage

Ability of sole traders and partnerships to keep accounts private, unlike public limited companies.

Dominance of Karta

Limitation of HUF where sole decision-making power may cause resentment among coparceners.

Service Motive (Co-op)

Primary aim of a cooperative society to provide mutual help and welfare rather than maximize profit.

Government Support (Co-op)

Tax concessions, subsidies, and low-interest loans offered by the state to encourage cooperative activities.

Artificial Person

Legal description of a company as a non-human entity capable of rights and duties but incapable of physical acts.

Professional Management

Employment of qualified specialists in companies, possible due to higher remuneration and large scale.

Formation Complexity (Company)

Time-consuming and costly legal process required to incorporate a company under statutory regulations.

Joint and Several Liability

Creditor may sue any or all partners individually for the full amount owed by the partnership firm.

Economy in Operations (Co-op)

Cost savings achieved by eliminating middlemen and relying on voluntary services of members.

Minor Member (HUF)

A child automatically included in a Hindu Undivided Family business with rights to ancestral property but no management role.

Multinational Corporation (MNC)

Large company operating in multiple countries with centralized control and significant foreign investment.

Role of Profit

Primary measure of business efficiency, survival, and growth; rewards risk and attracts investment.