Basic Business Organization Structures
basic business organization structures
Types of Business Entity
There are number of business vehicles a person may use in running a business. The most basic and simplest form is the sole proprietor. It consists of and individual carrying on a business as the sole owner.Partnership defines two or more person to agree to carry on business in common with a view of profit. And the most dominant form of business today is incorporated company. The term company has no strict legal meaning, but implies an association of number of people for some object or objects.
Sole Proprietor
A sole proprietor takes all the profit of the business, but if the business fails, he will have to bear all the losses. As said earlier, a sole proprietor thus has unlimited liability. Sole proprietorship is the simplest form of business organisation. It is owned by one person, but it need not be operated by that person alone. A sole proprietorship can even have large numbers of employees. There are advantages and limitations of running a Sole Proprietorship type of business.
Sole proprietor is not regulated by any specific law. Thus the owner of the business has great flexibility in conducting business. A sole proprietor is the cheapest and least formal business entity.
A sole proprietorship is the business or an individual who has decided not to carry his business as a separate legal entity, such as a corporation, partnership or limited liability company. This kind of business is not a separate entity. Any time a person regularly provides services for a fee, sells things at a flea market or engage in any business activity whose primary purpose is to make a profit, that person is a sole proprietor.
Partnership
All the partners of a business also have unlimited liability, but the potential liability of partner are more serious, as a partner may be made personally liable for all the firm obligation, whether such obligations arise out of the contract the firm enters into or for wrongs committed by any partners. In a partnership, partnership interests may be transfer provided that all other partners consent to such transfers. Partnership is also an informal business organization. The partner may agree to conduct business regulate their relationship with each other in any way they wish. The partnership Act 1961 only provided for rules to be applied in the absence of specific agreement between the parties. A partnership is an informal business entity. What is required is an agreement between two or more person to carry on business in a common with a view of profit.
Company
A company on the other hand have a limited liability. Not that the company’s liability is limited, but rather that the liabilities of the shareholder are limited. This means that they are liable only for the sum they invest in the company’s share and no more. The company is itself a legal entity. Therefore creditors of the company must look to recover their debts from the company and not its shareholder. In a company, shares (representing interests in the company are transferable). A Company is an artificial person created by the law. A company exists independently of the individuals ho at any given time are the members of the corporate body. The main and striking function of a company is to hold property and carry o business as an entity separate from the participants in that business. A company is the most inflexible business organization as it must comply with the provision of the Companies Act 1965 and other relevant statues governing companies. A company is the most formal and expensive business structure. A company is a creature of statute and must therefore comply with all the requirement of the Companies Act 1965.
About the Author
WAN MOHD HIRWANI WAN HUSSAIN is information publisher specialising in helping people start their own home based business. You can read up on how to create your own info products in one day without writing a single word by going to http://affiliate-spy.blogspot.com/
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