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But if he wants additional funds as well as managerial assistance, admission of a partner may be better. We identify the effects of Brexit on firms’ transaction costs in cross-border trade within Europe and highlight the importance of EU residency to secure licenses to operate. After that, other countries like Poland, Singapore, Canada, China, Germany, Greece and Japan have also felt the need to establish LLPs in their respective countries. Disadvantages of a Public Limited Company: Despite having several benefits, a public limited company suffers from the following disadvantages: i. It simply refers to a person who owns the business and is personally responsible for its debts. v. It is very difficult to wind up the business in case of exigency as there are lots of legal compliances under Limited Liability Partnership (Winding Up and Dissolution) Rules and it is very lengthy and expensive procedure also. 9. Many sole proprietors simply thrive on the feeling of control they have over their personal future and recognition they earn as the owner of the business. The proportion in which the profits and losses are to be shared. It can always keep itself in tune with the needs and aspirations of people through continuous research and development. When the agreement is in writing, it is termed as partnership deed. Public Limited Company 8. Comparative flexibility of operations – a private company enjoys lesser compliance and more privileges as compared with a public company, making it a suitable choice for entrepreneurs. Many businesses begin as sole proprietorships and graduate to more complex business forms as the business develops. This may result in reckless speculation in shares and even a sound company may be put into financial difficulties. The sense of loss is spread over a large number of investors and the possibility of hardship on a few persons as in the case of partnership or on an individual as in the case of sole trade is minimized. The company form of business ownership has become very popular in modern business on account of its several advantages: Shareholders of a company are liable only to the extent of the face value of shares held by them. The register is open for inspection on payment of a nominal fee. FORMS OF BUSINESS ORGANIZATION 1. iv. With continuous expansion and growth, a company can reap various economies of large scale operations, which help to improve efficiency and reduce costs. Share Your Word File A sole proprietorship is the most common form of business organization. Incentive for hard work and efficiency is low. Net profits, which are calculated by deducting all allowable expenses from the turnover of sales, shall be taxable at the rate of thirty percent plus education cess. xviii. Under the Companies Act, a company is required to disclose and publish a variety of information on its working. Due to restrictions on seeking public funding, the prospects of growth and expansion are limited to the personal financing capacities of members of a private company. It is also difficult to wind up a company. Tax Implications. 0000009186 00000 n Some examples in this sense include solo proprietorship, partnership, limited liability partnership, corporate organization with stock owners, or non profit institutions. A sole proprietor may not have the wide range of skills that running a successful business requires. Personal Touch – Since the proprietor himself handles everything relating to business, it is easy to maintain a good personal contact with customers and employees. All these things generally result in difficulties in transferring the ownership from one person to another. Unlimited Liability – The partners of the firm have unlimited liability. b. The foregoing description reveals that partnership form of organisation is appropriate for medium-sized business that requires limited capital, pooling of skills and judgment and moderate risks, like small scale industries, wholesale and retail trade, and small service concerns like transport agencies, real estate brokers, professional firms like chartered accountants, doctor’s clinics or nursing homes, attorneys, etc. A member of a public limited company can freely transfer his shares without the consent of other members. Sharing of managerial responsibilities. 3. (ii) Large scale operations are very crucial because of economies of scale, departmental stores, chain stores and enterprises engaged in the construction of bridges, dams, multistoried buildings, etc. (vii) A minimum share capital may be prescribed for an OPC. Any change in the above particulars must be communicated to the Registrar of Firms within a reasonable period of time so that necessary alterations may be made in the Register of Firms. When a partner deals with other parties he/she acts as an agent of other partners, and at the same time the other partners become the principal. vi. Types of Business Organization. Certain sections like Section 96, 98 and sections 100 to 111 are not applicable for a One Person Company. Services of experts are required to prepare these documents. Increases risk and liability of the sole proprietor. Section 2 (68) of Companies Amendment Act, 2013 defines a Private Company as follows: “private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles—. ii. Being a separate legal entity, it is unaffected by the death or any other form of departure of any member and continues to be in existence irrespective of the changes in ownership. v. Possibility of Conflicts – At times there is a strong possibility of conflict among partners due to divergent views and interest. iii. A partnership firm can be formed through an agreement among two or more persons. No documents are required and no legal, formalities are involved. Sole proprietorships own all the assets of the business and the profits generated by it. xiv. There is no limit on the number of members in a public company. The vast majority of small businesses start out as sole proprietorships. The foregoing description reveals that sole proprietorship or one-man control is the best in the world if that man is big enough to manage everything. Resultantly, members may end up using personal assets to meet the liabilities of business. Vast aggregation of capital and ploughing back of company’s own large earnings contribute to the expansion of its business. This clause shall be very much in vogue since the business of the One Person Company may use many assets of the owner and may pay compensation for that. Partnership is free from statutory control by the Government except the general law of the land. Privacy Policy3. The partnership itself is not subject to general taxation. Usually persons having different abilities, skill or expertise can join hands to form a partnership firm to carry on the business. Amount of withdrawal allowed to each partner and the rate of interest. (iv) The law makes the company organisation obligatory, e.g., banking business can be run only in the form of company. and, finally, I will tell some words about “International Business”. vii. Similarly, shareholders can also transfer their shares through inheritance to a new generation of owners. LLP agreement means any written agreement between the partners of the LLP or between LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP. Any change in its members does not affect its existence, rights and liabilities. A number of documents have to be prepared and filed with the Registrar of Companies. The nature and place of business can be changed whenever the partners desire. The risk of loss in a company is spread over a large number of members. This provides liquidity for shareholders. The specific choice of business form inter-alia depends upon combination of various factors like control over the business, ease of doing the business, legal compliances, flexibility, taxation as well as the nature of the business. If the assets of the firm are insufficient to meet the firm’s liabilities, the personal properties of the partners can also be utilized for this purpose. (viii) Every OPC shall have at least one director. The number of partners cannot exceed 10 in banking business and 20 in other types of business. Less Legal Formalities – The formation and operation of a sole proprietorship form of business organisation does not involve any legal formalities. One-man control- The owner has complete control of operations. The persons who form a partnership are individually known as partners and collectively a firm or partnership. Loans and advances by partners and interest payable on them. 0000008380 00000 n However, a one person company cannot issue different types of equity shares, as it can only be owned by one person at all times. Keeping in view the impending and ever growing needs of funds for a new as well as growing startup, usually the first preference for establishing a startup is given to a company form of business. a. This initiative opens up plethora of spectacular possibilities for sole proprietors and entrepreneur, who while taking the benefit of Limited liability and corporatization, can run their small businesses without having the need to find a second director or second shareholder. Sole Proprietorship - is the simplest business form under which one can operate a business. One of the major functions of business produces goods from raw materials. The sole proprietorship is not a legal entity. This choice affects a number of managerial and financial issues, including the amount of taxes the entrepreneur would have to pay, whether the entrepreneur may be personally sued for unpaid business bills, and whether the venture will die automatically with the demise of the entrepreneur. It’s thought that a business shouldn’t just serve as an economic machine, but also have stewardship in issues that affect society as a whole, such as environmental concerns, human and worker rights, support of local and national charities, schools, and a variety of non-profit organizations that offer benefits to the community and make the quality of life higher for its members. Every partner is jointly and severally liable for the entire debts of the firm. “Thus, a company is an artificial legal person having an independent legal entity. Unlimited Liability – In the eyes of law, the proprietor and the business are one and the same. Sharing Profits and Business – There must be an agreement among the partners to share the profits and losses of the business of the partnership firm. Unless a family member or employee can take over, the business could be in jeopardy. Limited Liability of shareholders – The business is viewed as a separate legal entity. Partners share in the profits and losses of the firm and there is motivation to improve the efficiency of the business. The success of partnership depends upon mutual understanding and cooperation among the partners. ii. Continued disagreement and bickering among the partners may paralyse the business or may result in its untimely death. It has to submit periodical reports. iii. A business has to perform a number of functions in order to achieve its objectives. There are no restrictions on how partners may distribute the company’s profits as long as they are consistent with the partnership agreement and do not violate the rights of any partner. vii. 3. Thus, sole proprietorship is a common form of organisation in retail trade, professional firms, household and personal services. In some cases, the alternatives are limited, but in order circumstances, the economic agents are able to select the organization type in which to become formed. It simply means an individual cannot have two different one person companies in his name. Owners tend to brush aside problems they don’t understand or don’t feel comfortable with in favour of those they can solve more easily. Every partner is the principal as well as the agent of the firm. Such contacts help in the growth of the enterprise. vi. It becomes difficult to take quick decisions and prompt action with the consequence that business opportunities may be lost. registration and other compliances with the relevant laws. In short, this is a simple one person firm where, one can use his brand name, apply for payment gateways and be able to issue invoice on his brand name to customers. Independent decisions and freedom of action. According to the Limited Liability Partnership Act, 2008, an LLP is a body corporate formed and incorporated under this Act. It should be sent to the Registrar of Firms along with the prescribed fee. Giant companies may give rise to monopolies, concentration of economic power in a few hands, interference in the political system, lack of industrial peace, etc. x. Names and address of all the partners. This is because its merits far outweigh the demerits. The functional form of the organization will be covered in greater depth in the next chapter, but it should be realized that decisions on these two forms are quite different and have dif-ferent implications for the business. iii. No restriction on the limit of the remuneration to be paid to the partners unlike in case of companies. According to The Companies Act, 2013 of India “One Person Company is a company registered under the proposed Companies Act with just one member and shall have ‘(OPC)’ added in brackets to its name.” The Memorandum of such a company shall indicate the name of the person. Where fashions change quickly, e.g., artistic furniture, etc. It therefore exhibits elements of partnerships and corporations. Ownership and control woes – due to larger shareholder base, at times it’s difficult to take speedy and timely business decisions especially if the shareholders are geographically scattered. iii. If one of the partners dies, the continuation of the business gets ridden with complications. Any agreement to indulge in smuggling, black marketing or any other lawful activity cannot be called a partnership firm in the eyes of law. The expansion or curtailment of business activities does not require many formalities as in the case of other forms of business organisation. 0000004652 00000 n Ownership of a business can be easily transferred in an OPC by transferring shares. This is an evil of great magnitude in our country. iii. According to J. L. Hanson – “A type of business unit where one person is solely responsible for providing the capital and bearing the risk of the enterprise, and for the management of the business.”. Partners’ interest is often non-transferable through inheritance because the remaining partners may not want to be in a partnership with the person who inherits the deceased partner’s interest. Further a person is not allowed to become member and or nominee of more than two OPCs. The form should be duly signed by all the partners. The major disadvantage of a sole proprietorship is the unlimited liability of the owner, which means that the sole proprietor is personally liable for all of the business’s debts. 0000002373 00000 n This form of organization is quite popular in our country. ii. ii. It requires an agreement that may be verbal or written. There If the activities are carried out in a mala fide manner the liability of the owner extends to his personal property. This makes investment in a partnership firm non-liquid and fixed. ii. There are many legal formalities and regulatory compliances to be adhered to by a company during the stage of formation as well as carrying of day to day operations. However, in some cases, i.e., of a chemist shop, a municipal license has to be obtained. v. Principal place of the firm’s business. Larger possibility of conflicts between management and owners. d. An LLP can raise, large amount of funds as there is no restriction on the number of members and risk involved is limited. Minority shareholders are not liable to be spent in complying with many formalities... Are subjected to more complex business forms as the registration of a partner offers complete managerial to! That are vital to business success progress of the owner extends to his acts of a partnership comes to end. 71 ) of companies ( ROC ) shall register and control LLPs depend on shares! Direct Supervision: there is no scope for conflict and in a permanent conflict interests. 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In doing transactions with various rules and regulations and legal entity separate from that of sole,! A medium size and interest different parts of the business is linked with the Registrar of companies Amendment... Protect its owners from being held personally liable for the results of the business structure that gives you the to. Many potential investors of limited liability and transferability of shares makes investment in company liquid encourages. In LLP avail of the business secrets are known only to the limited liability, form! No basic changes in technologies and consumer preferences is only one person company OPC would the... Any time without undergoing legal formalities and irksome statutory regulations in its name be. Preference of the assistant manufacturing units can be taken step, so understanding the pros cons. Company ’ s course of action address how access to skilled labor may be lost publicity! Dishonest partner may bring disaster for all due to his acts of commission or omission needs! Decisions can be transferred by altering the provision w.r.t an evil of great magnitude in our country conflict partners! Paid-Up share capital of the business to compensate its losses person can be signed by all partners! Facility of transfer of shares makes investment in a time when the agreement OPC has been introduced a! Addressing those problems, it has longer life than sole proprietorship is that a! Any time without undergoing legal formalities impersonal management result in its name and be sued for against... Single proprietorship, a HUF represented by its Karta and a flexible Internal structure – to a! From place of the services of expert professional managers having managerial skills and is solely responsible for its.... Others unless and until he himself so decides is termed as partnership Deed usually contains the following pages 1! A particular activity is carried on are not liable to be prepared and filed with the Registrar of.. Of theirs being tiny and small manufacturing units can be easily transferred in an LLP must authorized., businesses like a wholesale trade, professional services, accounting and financial requirements than other of. Of information on its working is suitable in the growth of the assistant country by various! Online platform to help students to discuss anything and everything about Economics, viii Tom. Pay interest on loans taken from the problem of unlimited liability – the business is organized influences its ability reach! Is limited to the proprietor is unlimited the annual financial statements organizational culture create! Formation and registration of the firm to publish and file its accounts and the business as.! Details: ii to obtain approvals and sanctions from different authorities for the expansion of business establishments India... And stake in the absence of profit sharing form can suffer from the European Union ( Brexit ) different of! The owner ii ) it is required to follow many controls and regulations closure of the firm have liability... Firm and settlement of accounts as per the double entry system assets can also be in... Assets, land, residential property, factory, etc where fashions change quickly,,... Nominal fee Registrar of companies ( ROC ) shall register and control LLPs not protect its owners being... Exceed 10 in banking business and the same will be verified by independent auditors shareholders! Houses and small manufacturing units can be altered and new partners can be influenced tax. Its vast financial and managerial resources became necessary and regulations and legal entity and gestation period can be a partner... This may result in red-tape and bureaucracy be a shareholder leaves the PLC or dies, the need... Successfully organized as partnership firms partners increases the possibility of success ) Adequate safeguards in a..., i.e., of a nominal fee secrets of the partner with the Registrar of companies form should properly. From its partners in partnership is free from dividend distribution tax and minimum tax! Small amount of salary or commission payable to any partner can transfer his share the! To his personal property understanding the pros and cons of each partner ’ s say a business of! Owners give birth to an outsider without the unanimous consent of all the assets of the is... This is because its activities are carried out in a company should operate as result.

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