Forms of Business Organisation

In a Joint Hindu family business, a minor can also be a member because membership is by birth in the family. So, minors can be included in the business.

In a partnership firm, a minor cannot become a partner because partnership is based on a legal contract and a minor is incompetent to enter into a valid contract. However, a minor can be admitted to the benefits of partnership with the consent of all partners. In that case, the minor can share only the profits and his liability is limited to the extent of his capital contribution.

Although registration of a partnership firm is optional, firms willingly get registered because it gives them important legal advantages. An unregistered firm suffers these consequences:

- a partner of an unregistered firm cannot file a suit against the firm or other partners,
- the firm cannot file a suit against third parties, and
- the firm cannot file a case against the partners.

Therefore, registration is useful because it provides conclusive proof of the existence of the firm and protects the firm and partners in legal disputes.

The important privileges available to a private company are:

1. It can be formed by only two members, whereas seven are needed for a public company.
2. There is no need to issue a prospectus because the public is not invited to subscribe to its shares.
3. Shares can be allotted without receiving minimum subscription.
4. It can start business as soon as it receives the certificate of incorporation.
5. It needs to have only two directors instead of the minimum three required in a public company.
6. It is not required to keep an index of members.

A cooperative society exemplifies democracy because its management is controlled by an elected managing committee, and the members exercise their power through the principle of one man one vote—each member gets equal voting rights regardless of capital contributed.

It exemplifies secularism because membership is open to all, irrespective of religion, caste, or gender. There is no discrimination on the basis of religion or social background.

A partner by estoppel is a person who, by his or her conduct, behaviour, or own initiative, gives others the impression that he or she is a partner of the firm. Such a person becomes liable for the debts of the firm because third parties believe that person to be a partner, even though he or she may not have contributed capital or taken part in management.

(a) Perpetual succession: The company continues to exist even if members die, resign, become insolvent, or insane. Its existence is not affected by changes in membership.

(b) Common seal: The common seal is the official seal of a company and acts as its signature. It is used to authenticate company documents.

(c) Karta: The karta is the eldest member of a Joint Hindu family who controls and manages the family business and takes all major decisions.

(d) Artificial person: A company is called an artificial person because it is created by law and has a separate legal existence, though it cannot act like a natural human being.

A sole proprietorship is a form of business organisation that is owned, managed and controlled by one person, who receives all the profits and bears all the risks.

Merits:
- Quick decision making because the owner does not need to consult others.
- Confidentiality of business information can be maintained.
- Direct incentive: the owner gets all the profits.
- Sense of accomplishment from working for oneself.
- Ease of formation and closure with minimal legal formalities.

Limitations:
- Limited resources because capital comes mainly from personal savings and borrowings.
- Limited life because death, insanity, imprisonment, or bankruptcy of the owner affects the business.
- Unlimited liability means personal property can be used to pay business debts.
- Limited managerial ability because one person may not excel in all functions.

Partnership is sometimes considered relatively unpopular because, although it is easier to form than a company, it has serious limitations such as unlimited liability, limited resources, possibility of conflicts, lack of continuity, and lack of public confidence.

Merits of partnership:
- Ease of formation and closure
- Balanced decision making because partners share responsibilities according to expertise
- More funds than a sole proprietorship
- Sharing of risks among partners
- Secrecy of business information can be maintained

Limitations of partnership:
- Unlimited liability of partners
- Limited resources due to restriction on number of partners
- Possibility of conflicts due to differences in opinion
- Lack of continuity because death, retirement, insolvency or lunacy of a partner may dissolve the firm
- Lack of public confidence because financial reports are not publicly available