Course
Code: PCO- 01
Assignment
Code: PCO-01/TMA/2015-16
1.
What do you mean by business? Explain various forms of business
organization.
Answer: The term ‘Business’ can
be defined as production of goods and services that are involved in flow of
goods from the point of consumption or final use with a view to earn profit.
So we can say that any
activity carried with profit motive is business.
The various forms of organization are as follows:
1) Sole proprietorship
2) Partnership
3) Company
These are explained in brief as follows:-
SOLE PROPRIETORSHIP:
The sole proprietorship is a form of business that is owned,
managed and controlled by an individual. He has to arrange capital for the
business and he alone is responsible for its management. He is therefore,
entitled to the profits and has to bear the loss of business. This type of
business organisation is also called single ownership or single proprietorship.
If the business primarily consists of trade, the organization is a sole trading
organization. Small factories and shops are often found to be sole
proprietorship organisations.
Features of Sole Proprietorship:
The important features of a sole-proprietary organization
include the following:
(i) Individual Initiative: One
person is the owner in sole proprietary forms of organization.
(ii) Risk Bearing: The
proprietor is the sole beneficiary of profits in this form organisation. If
there is a loss he alone has to bear it. Thus the risks of business are borne by
the proprietor himself.
(iii) Management and control: Management
and control of this type of organization is the responsibility of the sole
proprietor. He may, however, employ a manager or other people for the purpose.
(iv) Minimum government regulations: The government does not interfere with the working of the sole
proprietorship organization. However, they have to comply with the general laws
and rules laid down by government.
(v) Unlimited liability: The
sole proprietor has to bear the losses and is responsible for the liabilities
of the business. If the business assets are not sufficient to meet the
liabilities, he may also have to sell his personal property for that purpose.
Merits of Sole Proprietorship:
A sole proprietary organization has the following advantages:
(i) Easy formation: A
sole proprietorship business is easy to form where no legal formality involved
in setting up this type of organization. It is not governed by any specific
law. It is simply required that the business activity should be lawful and
should comply with the rules and
Regulations lay down by local authorities.
(ii) Better Control: In
sole proprietary organization, all the relating to business operations is taken
by and easy. The sole proprietor can also bring about changes in the size and
nature of activity. This gives better control to business.
(iii) Sole beneficiary of profits: The sole proprietor is the only person to whom the profits
belong. There is a direct relation between effort and reward. This motivates
him to work hard and bear the risks of business.
iv) Inexpensive Management: The
sole proprietor does not appoint any specialists for various functions. He
personally supervises various activities and can avoid wastage in the business
Limitations of Sole Proprietorship:
A sole proprietor generally suffers from the following
limitations:
(i) Limitation of management skills: A sole proprietor may not be able to manage the business
efficiently as he is not likely to have necessary skills regarding all aspects
of the business. This poses difficulties in the growth of business also.
(ii) Limitation of Resources: The sole proprietor of a
business is generally at a disadvantage in raising sufficient capital. His own
capital may be limited and his personal assets may also be insufficient for
raising loans against their security. This reduces the scope of business
growth.
(iii) Unlimited liability: The
sole proprietor is personally liable for all business obligations. For payment
of business debts, his personal property can also be used if the business
assets are insufficient.
(iv) Lack of continuity: A
sole proprietary organization suffers from lack of continuity. If the
proprietor is ill this may cause temporary closure of business. And if he dies
the business may be permanently closed.
PARTNERSHIP
Partnership is an association of persons who agree to combine
their financial resources and managerial abilities to run a business and share
profits in an agreed ratio. Since the resources of a sole proprietor to
finance, and his capacity to manage a growing business are limited, he feels
the need for a partnership firm. Partnership business, therefore, usually grows
out of the need for expansion of business with more capital, better supervision
and control, division of work and spreading of risks.
Features of Partnership:
The features of partnership are as follows:
(i) Existence of an agreement: Partnership is formed on the basis of an agreement between two
or more persons to carry on business. The terms and conditions of partnership
are laid down in a document known as Partnership Deed.
(ii) Engagement in business: A
partnership can be formed only on the basis of a business activity. Its
business may include any trade, industry or profession. Thus, a partnership can
engage in any occupation – production and/or distribution of goods and services
with a view to earning profits.
(iii) Sharing of profits and losses: In a partnership firm, partners are entitled to share in the
profits and are also to bear the losses, if any.
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