- Slides: 16
Three basic forms of business ownership • Sole proprietorship • Partnership • Corporation
Sole proprietorship • A business owned and operated by one person. Partnership is relation between two or more persons who have agreed to share the profits of a business
Advantages of sole proprietorships • Easy to create. • Owner makes all business decisions. • Owner receives all profits.
Disadvantages of sole proprietorships • Difficult to raise capital. • Sole proprietorship is limited by his/her skills and abilities. • The death of the owner automatically dissolves the business.
Partnership A form of business ownership in which two or more people share the assets, liabilities, and profits.
1. Active partner: A person who takes active interest in the conduct and management of the business of the firm is known as active or managing partner
A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the management of the business. Such a partner only contributes to the share capital of the firm
3. Normal partner: A nominal partner is one who does not have any real interest in the business but lends his name to the firm, without any capital contributions, and doesn’t share the profits of the business.
4. Partner by estoppel or holding out: . If a person, by his words or conduct, holds out to another that he is a partner, he will be stopped from denying that he is not a partner. The person who thus becomes liable to third parties to pay the debts of the firm is known as a holding out partner.
Minor as a partner: A partnership is created by an agreement. And if a partner is incapable of entering into a contract, he cannot become a partner. Thus, at the time of creation of a firm a minor (i. e. , a person who has not attained the age of 18 years) cannot be one of the parties to the contract. But under section 30 of the Indian Partnership Act, 1932, a minor ‘can be admitted to the benefits of partnership’, with the consent of all partners. A minor partner is entitled to his share of profits
Types of Partnerships • General partnership: A partnership in which all partners have unlimited personal liability and take full responsibility for the management of the business. • Limited partnership: A partnership in which the partners’ liability is limited to their investment.
MAIN CHARACTERISTICS OR FEATURES OF PARTNERSHIP 1. Agreement : - Without agreement partnership can not be formed. The agreement may be written or oral. But it must be written on settle the disputes. 2. Registration : It is not necessary that a partnership may be registered. But in case of registered firm many problems can be created. 3. Number of Partners : In a partnership there should be at last two partners. In ordinary business the partners must not exceed
4. Profit and Loss Distribution : The basic aim of partnership is to earn profit. This profit is distributed among the partners according their agreement. In case of loss also all the partners share in it. 5. Business : The object of the partnership it to carry on the business. It may be production or trading. It should be according the laws of the state. 6. Unlimited Liability : The liability of the partner is not limited to his invested amount. In case of loss the private property of the partner also used to pay the business obligations.
7. Entity : Law has not granted it any legal entity, it is not independent from the partners. It has not separate entity from its members. 8. Share in Capital : According to the agreement every partner contributes his share. It is not necessary all the partners should contribute equally. Some people provide only skill and ability to become a partner. 9. Management : All the partners can participate actively in the business management. Sometimes only few persons are allowed to handle the business affairs. 10. Payment of Tax : Every partner pays the tax on his share of profit
Advantages of partnerships • Shared decision making and management responsibilities. • Easier to raise capital than in a sole proprietorship. • Business losses are shared by all partners.
Disadvantages of partnerships • Partnerships may lead to disagreements. • Some entrepreneurs are not willing to share responsibilities and profits.