DD: Forms of Business Organization

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Ideally speaking, a business organization ought to have the following characteristics:
  1. Ease of formation
  2. Adequacy of capital - when raising capital from the public, the conditions involved are safety of investment, fair return on investment and transferability of holding.
  3. Limited liability
  4. Direct relationship between ownership, control and management.
  5. Continuity and stability 
  6. Flexibility of operations
  7. Distinct ownership
  8. Lawful business
  9. Separate legal personality
  10. Dealing in goods and services 
Forms of business organization:
  1. Sole Proprietorship - single ownership, no sharing of either profit or loss, unlimited liability, minimal formality.
  2. HUF - Hindu Undivided Family, unique to India - All members (co-parceners) own the business jointly, and it is managed by the "karta", or head of the family. Governed by Hindu inheritance laws.
  3. Partnership - 2-20 members; governed by the Indian Partnership Act, 1932. Unlimited liability; partners are agents for each other.
  4. Company - A voluntary association of persons to carry on business that is given a legal status and subject to legal regulations. Each member contributes a share of capital – share capital – and are known as shareholders. The capital is divided into units called shares. Governed by the Indian Companies Act, 2013, defined under it as “an artificial person created by law, having separate entity, with perpetual succession and a common seal.”
  5. Statutory Bodies and Corporations - Body created under an act of parliament or an act of state legislature – autonomous corporate body created and set up by statute. Its objectives, powers and functions are defined by statute – a combination of public ownership, public accountability and business management for the public. E.g.: LIC, ESIC
  6. Co-operatives, Societies and Trusts - Organizations which undertake business activities with the prime objective of providing service to the members. Some amount of profit is essential to survive in the market, but that is not the prime directive.
  7.  Limited Liability Partnership - Combines the advantages of company and partnership; i.e. ease of business with separate legal personality.
Choosing the correct form of business suited to one's needs requires factoring in of a number of variables including:
  1. Nature of business
  2. Volume of business
  3. Area of operation 
  4. Finance - initial and working capital 
  5. Ownership and control
  6. Liability 
  7. Independence 
Non Profit Corporation - Owned privately but operating with different policies  under governance - can issue shares of stock but not for dividend disbursement. 

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