Business organisations can be of different types, depending upon factors like their nature, the extent of operation, ownership, legalities, terms, financial structure, liabilities, etc. The form of a business is likely to have long-term impacts on the company. Thus, the members of an organisation must choose wisely as to which sort of business would be ideal for them.
The primary aspect, based on which forms of business organisations are decided, is its characteristics. Various factors determining the character of business include:
Depending on the factors mentioned above, there can be seven different forms of business organisations. They are as follows:
Hindu Undivided Family
Corporations or Statutory Bodies
LLP (Limited Liability Partnerships)
But if we are to consider the three major forms of business organisations, it would include sole proprietorship, corporations, and partnerships.
Sole Proprietorship of an Organisation
Sole proprietorship of a company suggests that the complete ownership of that organisation lies with a single person. This is one of the primary forms of business organisations where an individual not only owns the company wholly but also manages it single-handedly. Here, the business organisation and the owner are a single entity.
A sole proprietorship is among the simplest forms of business organisations, which is why it has minimal or no registration formalities. This is the ideal form of organisation for small or medium scale businesses. The biggest advantage of these business organisations is that the owner gets to access the entire incentive. He is not liable to share the profits with anyone else. However, a huge amount of personal liability can be seen as a setback in these business organisations.
Corporations or Statutory Bodies
A statutory body means any such authority or organisation which is non-constitutional. Such bodies have been set up by the parliament, and hold power to take decisions on behalf of an entire nation. Some notable examples of statutory bodies in India are:
National Green Tribunal
National Commission for Women
National Human Rights Commission
National Commission for Backward Classes
National Law Commission
Armed Forces Tribunal
On the other hand, corporations are such forms of business organisations which consist of many shareholders. A corporation has the legal authority to act as a single entity. It usually has a board of directors (elected by all the shareholders), led by a president. The board of directors are authorised to make management decisions. To set up this legal form of business organisation, it requires proper paperwork and lawful proceedings.
If we consider the corporate scenario in India, companies set up on partnership deals are the most popular and basic form of business organisation. A partnership is a mutual agreement between two or more parties that agree to carry out a common business. Parties entering into a partnership could include individuals, companies, schools, governments, etc.
This form of business organisation has to follow the norms specified under the Indian Partnership Act of 1932. Such entities are known as partnership firms. Here, the partners work towards the common goal of business, which is profit.
Businesses run on charitable or non-profit causes cannot be considered as partnership firms. Partnerships happen to be among the 3 main forms of business organisations, and its nature is determined by the types of partners included.
HUF or Hindu Undivided Family Business
This is a special form of business entity which is limited only to India. Such forms of business organisations are governed by the Hindu law prevalent in the country. Any member of a Hindu Undivided Family can co-own the business owned by that family. These members will be known as coparceners in the business. The head of a Joint family Business in India is called the ‘Karta’. He usually holds full control of the management and finance of the business.
The Indian Companies Act of 2013 defines different types of companies as different forms of business organisations. It is not mandatory for a company to be multinational or operate in different locations. It can be a small-scale business or even a start-up initiative.
As per the Indian Companies Act, a company can either be private or public. Private companies are the ones in which the minimum paid-up share capital has to be Rs.1 lakh. On the other hand, public companies are separate legal entities which must have a paid-up share capital of at least Rs.5 lakh. The shares of these companies can be owned by members of the public.
Co-operative Societies and Trusts
A co-operative society is a type of business organisation which combines joint ownership with shared leadership. Such forms of business organisations are common in sectors like healthcare, finance, food, agriculture, and so on. Co-operative societies and trusts work towards the welfare of a section of people.
Limited Liability Partnerships
This form of business organisation is operated by organisations facing troubles of several liabilities in the business. LLP or Limited Liability Partnerships enable partners to hold separate obligations in business. Here, the partners continue to share the profits, just like a regular partnership firm. But unlike regular firms, the partners in LLP can choose the profit-sharing ratio by themselves. In this form of business organisation, the minimum number of partners has to be two.