Forms of Business Organizations

What is the Need of a Business Organisation?

Business Organisation is an entity that is formed for the purpose of carrying on the commercial enterprise of selling and buying. These organisations are based on the systems of law that governs contract and this exchange, property rights, and incorporation.

 

The Business Organisation system is concerned with the management and planning of different activities. This is an accumulation and coordination of the resources such as men, material, money, machine to produce the goods and services, the business organisation works to coordinate and control all these factors of production.

 

Meaning of Business Organisation

Business organisation is defined as an entity which is structured for the purpose of carrying on the commercial system of enterprise. The organisation is governed under principles and laws governing contract and exchange of goods and services.

 

Business enterprises generally take one of these three forms:  

  • Proprietorship

  • Partnership 

  • LLP

 

Proprietorship

In the proprietorship form one person is responsible for the entire operation as his own personal property is entrusted in it. This is usually managed on a day-to-day basis. Majority of the businesses we see around us are of this category. 

 

Partnership

The second form is Partnership, this needs 2-50 members to pursue the business. Law and accounting firms, brokerage houses and other advertising agencies are of this form. The business id formed by the partners themselves, their share of profit varies with individual investment invested in the partnership.

 

Limited Liability Partnership

The third form, which is the LLP form, is a very popular form of business for its inherited advantages from the partnership and company form of business. The company is legally separated from the individuals who work here in this organisation. They might be the shareholders or the employees who come in legal contract and thus can be sued and be sued by the company. The big industries and commercial organisations are limited-liability companies. 

 

Choice of Forms of Business Organisation

The four-prior types of business organisation are:

  1. Sole Proprietorship

  2. Partnership

  3. Corporation

  4. Limited Liability Company

 

  1. Sole Proprietorship

The simple and common type of business found is this form of business ownership. Sole Proprietorship is a business which is owned and managed by a single individual for his own benefit and gain. The existence of this business depends upon the single owner, the business’s success and profit depends upon the owner. The business comes to an end after the incapacity or death of the owner. All the assets and liability of the firm is the sole responsibility of the owner himself/herself. Even the capital is their personal investment. The profit gained by the owner is accounted to the owner’s account and so does any loss. It is the owner’s unlimited responsibility for every transaction. 

  1. Partnership 

There are two types of partnership:

General Partnership and Limited Partnership. Normally, both the owners invest their money, property and workforce in this business. They both are liable for the business debts. Also, partnerships do not require a formal agreement to start their business. The business agreement can be verbal or even be implied between the two partners. While Limited Liability Partnership or LLP requires a formal agreement between the partners. They also are liable to certify with the state. 

  1. Corporation

These are the separate entities from the individuals or the members working here and are considered as a legal person. The profits generated by a corporation are taxed under “personal income” of the company. The income distributed to the shareholders are the dividends or the profits that are taxed as the personal income of the owners. With certain advantages the corporate structure does face disadvantages as well. The corporate structure faces double taxation which is one of the complexities of tax structure in this form of business. 

  1. Limited Liability Company (LLC)

LLC provides the owners with limited liability also providing some of the income advantages of a partnership. Precisely to point, the advantages of partnerships and corporations are mixed in an LLC. LLC is a very popular form for its advantages. 

Thus, all these were the forms of business organisations, from these an individual chooses one to suit his venture and interest.

History of Business Organisation

The Industrial Revolution laid the groundwork for today's business structures. Manual labour was mainly displaced by machine-based labour during the Industrial Revolution. The industry grew up around factories where the major means of production were machines rather than people. Many people, craftsmen, and family groupings abandoned their homes, small enterprises, and farms in favour of industrial positions that paid for low-skilled labour. Organisations divided duties among workers and built lines of control to arrange employees and executives in order of authority as they became more focused on machines. 

 

The jobs of individual workers become more specialised and routine. Manufacturers realised that assigning staff to simple, machine-based jobs boosted a company's efficiency and productivity. Workers were taught to be focused and to follow factory work procedures. Charles Babbage (1791–1871), an English mathematician and inventor, was similarly interested in the division of labour in manufacturing. In his analysis of factory organisation, management, planning, and labour, he used scientific and mathematical approaches. Babbage's ideas were compiled into a theory of organisation and administration known as scientific management in the early twentieth century, which had a significant impact on how organisations operated. 

 

American engineer Frederick Taylor (1856–1915), who grouped the theory into five key components, further expanded the theories of scientific administration. The first principle advocated for a transfer of responsibility from the worker to the manager inside a commercial organisation. Managers, Taylor felt, were responsible for planning and designing all of the work, while workers were responsible for completing given duties. The second premise advocated for the use of scientific methods to increase the efficiency of commodities manufacturing. 

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FAQs (Frequently Asked Questions)

1. Name Some Sole Proprietary Business that we see Around us?

Sole Proprietary are those businesses which are owned and managed by a single or one individual. The expenses of the business along with the profit is all incurred and gained respectively by the individual business owners. In India, there are local sole proprietors like the local shopkeepers who sell stationery, or the medical shops, beauty salons, Freelancer tutors who teach students as well as IT Consultants etc. 

2. How do the Partners Share the Profit?

The profit-sharing ratio in a partnership business is either written down in the agreement or implied or even verbally communicated among the partners. The business profits are at times shared equally or even shared according to the capital investment ratio of the partners. According to the law of the Partnership Act, in the event of the absence of any agreement about the profit-loss sharing ratio, the profit and loss are divided equally between the partners.

3. What is a General Partnership?

A general partnership is an unincorporated form of business with two or more owners that shares the business responsibilities. The general partner has unlimited personal liability in case of any debts and obligations of the business. Also, each partner represents their share of business profits or losses on their individual tax return. In case of unlimited liability, both the partners are responsible for paying it through their personal assets and belongings.

4. Why do Corporations Face Double Taxation?

Double taxation occurs as corporates are the separate and legal entities distinct from their shareholders, so corporates pay taxes on annual earnings like the individuals also when the shareholders receive dividend, those dividend is attached with income-tax liability for the shareholders even though the cash which was paid as dividend was taxed earlier in the corporate taxation structure. The same amount of tax is implied on both the corporate level employees and their respective shareholders as their amount of income is the same.

5. What are the benefits of studying business management from a career point of view?

A business management degree is a popular choice among ambitious entrepreneurs and company leaders. It gives you the academic knowledge and skills you'll need to explore international career opportunities, as well as a broad knowledge of business and specialized areas such as finance and human resources. If you're still not convinced that a business management degree is right for you, consider the following five reasons.

1. Enhance essential management abilities

Some of the most enticing aspects of obtaining a business management degree are the fundamental management skills that will enable you to be a big contribution to any corporation. There are hence many enticing advantages of obtaining a business management degree are the fundamental management skills that will enable you to be a big contribution to any corporation.

2. Recruitability

You will be able to define the trajectory of your career as you advance through your business management degree by selecting a speciality area of business that interests you, such as entrepreneurship or human resource management. Business management graduates can find work in a variety of fields.

3. An introduction to the world of business

A business management degree will help you develop in-depth knowledge and comprehension of the key principles of business and management; it's also an excellent way to get started in the business sector if you haven't done so before. It provides critical market knowledge, such as market trends and industry reports, and encourages you to adapt theoretical concepts to real-world business settings, which will help you get a head start on your profession once you finish your studies. 

4. Take charge of your own destiny

After graduating, you will not have many job opportunities, but you will also have all of the required elements to launch your own company; all you require is a business strategy to get established.

5. Study a variety of subjects.

A business management degree is a fantastic alternative if you're not sure what you want to do with your future profession or simply want to broaden your knowledge.

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