Different kinds of business forms and it’s features

            For starting a new business, there are different business formations. Each and every business form has it’s own advantages and limitations. The common forms of business which are accepted worldwide are the following

1)    Proprietorship business

Proprietorship business is the most common and the simplest form of business. It can be formed very easily. It can be started by a single person who is called as a sole proprietor or sole trader. It has the least formalities for starting a business and it is the most comfortable form of business. Profits and losses of the business is beared alone by the sole proprietor. This form of business is ideal for small businesses where there is no need of big financial investment. Proprietorship business has no separate legal existence distinct from the owner. Liability of a proprietorship business is unlimited. Taxation matters are simple for proprietors compared to any other form of business since only individual tax rates are applied.

2)    Partnership business

Partnership form of business can be started by minimum of two partners and maximum number of partners can be upto 50. Partnership business is collectively called a firm. Partnership business is ideal for middle level business which require a moderate amount as investment. Profits and losses of a partnership firm are shared by the partners as per the profit sharing ratio agreed between the partners. The terms and conditions agreed and decided among the partners are written down in the partnership deed. The partnership deed can be registered in registrar of firms of the concerned state. Partnership business does not have a separate legal entity and the liability of the partners are unlimited.  Partner’s liability regarding the firm’s business is joint and several. Partnership business have a profit motive. As on date, the income tax liability for a partnership firm is 30% of the book profit. Partnerships in India are ruled and regulated according to the Indian Partnership Act,1932. Limited liability partnership business can also be started in India now which has the advantage of limited liability to partners. 

3)    Joint stock company:

Joint stock company form of business is ideal for large scale businesses. Joint stock company is a voluntary association of persons formed for conducting a business having a profit motive. Capital of the company is divided into shares and owners of the company are called share holders. The company is managed by a board of directors lead by a Managing Director. A joint stock company have a separate legal entity.  A company can be registered as a private limited company or a public limited company. A private limited company can be started by two members and the maximum number of members can be up to two hundred. For a public limited company, a minimum of seven members are required to start a company and there is no maximum number limit for members. Income tax liability for a joint stock company is 30% of the book profit as on date. One person company can also be started in India now with a single person. 

4)    Co operative society:

Co operative society form of business is meant to protect the interests of weaker sections of the society including farmers, artisans and skilled workers. It was formed as a result of co operative movement in the country. It was formed with the aim of eliminating exploitation by middlemen of the weaker sections. It have a democratic set up and is serving the interests of it’s members. It’s principles are based on equality of it’s members. It have a separate legal entity distinct from it’s members. Profits from the business are shared among the members. A co operative society is formed under Co operative Societies Act, 1912 or relevant state laws. Minimum members required for starting a co operative society is 10 and there is no maximum limit for it’s members. Management is vested in the committee elected in a general meeting.

5)    State enterprise:

State enterprise form of business is conducting commercial activities for the state and is owned by the state. It have a separate legal entity. Main peculiarity of this form of business is that it does not have a profit motive. It’s motive is service oriented. It’s business is conducted for the welfare of the society. Examples for state enterprise are Indian Railways, Road Transport Corporations etc. Ownership of the state in a state enterprise may be full or partial.

            Above mentioned are the most common forms of businesses available in a global level. Persons who want to setup a business can start their business in any of the above forms according to their convenience. Business with small or medium investments can adopt proprietorship or partnership forms whereas business which requires a large capital should be formed as a joint stock company.  

N.B.-This article is prepared according to the laws and rules pertaining to India.