Sole trading concern

Meaning:-
Sole means one. Therefore a sole trading concern is a business organization in which all
activities are conducted by one person only, called as sole trader or sole proprighter. Sole
trading concern is oldest form of business organization. A sole trader is the sole owner
manager and controller of his business .He solely enjoys all the profit and bears all the
losses of his business. Since all business activity are conducted by one man, it is also known
as, ~one man show business`.
Features:-
Single ownership: In sole trading concern, there is single ownership.
Sole trader is the sole owner of all business, assets, and properties because he solely
invest all business capital
No sharing of profit or losses: In sole trading concern there is no
sharing of profit or losses. This is because sole trader invests his business income out
of his personal saving. He uses his own skills and intelligence to manage his
business. Hence he solely enjoys all the profit and bears all the losses of his business.
Unlimited liability: The liability of sole trader is unlimited. There is
no distinction between his personal and business property. It means if his business
losses are more than his business assets, then he may have to sell his personal
property, to clear his business liability.
Limited Capital: A sole trader has limited capital. This is because sole
trader is the sole investor of his business. He can borrow funds from his friends and
relatives and even from financial institutions. But his borrowing capacity is limited.
Hence, there is limited scope for growth and expansion.
Unification of ownership and management: There is unification of
ownership and management in sole trading concern. Sole trader is sole owner and
manager of his business. Thus, he can change his business policy when he wants.
Easy formation. The formation of sole trading concern is very easy,
less time consuming, less expensive. This is because there are least or no legal
formalities. Any person of a sound mind, can start this business easily
Flexibility: Sole trading concern enjoys maximum flexibility. This is
because sole trader is sole owner, manager, and controller of his business. Again,
there is no strict government control of sole trading concern. Therefore a sole trader
can easily expand , diversify, change the line of business and even close his business .
No separate legal status : Sole trading concern enjoy separate legal
status , it means sole trading concern and sole trader are not separate from each
other but one and the same in eyes of law.
Quick decision making: in sole trading concern, quick decision and
prompt actions are possible. This is because all business decisions are taken by sole
trader alone. He need not call meeting or consult others before taking a decision.
quick decisions are vital for success of business
Local Market: A sole trader has limited capital and limited
managerial skills. So the size of business is also limited, Hence he can mainly operate
on local market.
Close contacts with costumers : A sole trader can maintain close
contacts with customers. This is possible for him, due to small size of business. He
operates on local market. He knows the likes, dislike, taste , and preference of his
costumers very well. He knows them very well. He may provide free home delivery
and credit facilities, etc, to his costumers.
Close contacts with employees: A sole trader can maintain personal
relationship with his employees. This is possible for him due to small size of his
business. He appoints few employee. He knows them very well. He helps to solve
their personal problems. Due to this he gets good support from his employee.
Business secrecy:- In sole trading concern there is complete business
secrecy. This is because sole trader alone has all the business secrets. Also, he need
not publish his books of accounts. Hence there is no fear of leakage of business
secrets to outsider.

Merits:-
1) Easy formation: done
2) Quick decisions: done
3) Business secrecy: done
4) Close contacts with costumers: done
) Close contacts with employees: done
6) Flexibility: done
70 minimum government control: done
8) self employment: done
9) Low tax liability: done
10) Economy in management: done
11) Direct motivation/direct effort reward relationship: in case of sole trading concern
there is direct effort reward relationship. Sole trader is sole owner of his business. He
shares all the profit and bears all the losses of his business solely. If he doesn`t work hard,
he will have to suffer loss and if he works hard, he will enjoy more profits. This motivates
him to work hard.

DEMRITS:
Limited capital: done
Limited managerial skills: done
Unlimited liability : done
Lacks continuity and stability: done
Lacks specialization: Due to small size of business, Sole trader handles
all the business activities. Again, due to limited capital he cannot appoint experts to
look after various business activities. This results in to lack of specialization.
No economies of scale: done
No separate legal status: done
Poor decision making: A sole trader may make poor decisions in his
business. This is because he may not have the necessary managerial skills.
Moreover, he cannot appoint experts<professionals >in his business due to limited
capital.
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Partnership firm
Meaning:-Partnership came in to existence to remove the defects of sole trading concern
such as limited capital, limited managerial skills and limited risk bearing capacities.
Partnership is simple method for business expansion.
It is the form of business organization in which 2 or more person invests their capital, skill
and time and shares the profits and losses of business in their agreed ratio. Persons who
have entered in to partnership are individually known as Partners` and collectively as
parternshipfirm`.

Definition:-Section 4 of Indian Partnerships Act, 1932 defines partnerships under-

~Partnership is the relation between the persons who have agreed to share the profits of the
business carried on by all or any of them acting for all.

Features:-

Agreement: Partnership is an outcome of an agreement. It is formed

by 2 or more person. The agreement may be oral or written. The written agreement
is called as partnership deed`. It is always advisable to have a written agreement in
order to avoid future disputes between partners. Agreement contains the term and
condition of partnership and profit and loss ratio.
No of partners: As per Indian act, 1932, minimum two persons are
required to start a partnership firm. The maximum number of partners can be 10 in
case of banking business and 20 in case of non banking business <general or trading
business>.
Lawful Business: Partnership firm must conduct only lawful business.
It should not conduct any illegal business activity such as theft, kidnapping,
smuggling, dealing in illegal arms or banned drugs, etc.
Sharing of Profit and Losses: The profit and losses of the firm are
shared by all the partners in an agreed ratio. If this agreed ratio is not mentioned in
the partnership deed, then the profit and losses are shared equally by all the
partners.
1oint ownership: In partnership firm there is join ownership. All the
partners of a firm are joint owners of the property and assets. The partners should
use firm`s property and asset for business use only and not for their personal use.
No partner should make secret profit out of firm`s property.
1oint Management: In partnership firm there is joint management.
All the partners in a firm are joined managers of the business. Every partner has a
right to participate in the management of the firm. However one or more partners
may agree to manage the business on behalf of others.
Unlimited Liability: The liability of each partner is unlimited, joint,
and several. There is no distinction between their personal property and business
property of the partners. If the business losses are more than business property,
then the partners have to sell their personal property to clear their business liability.
Mutual Trust and Confidence: The partnership business is based on
mutual trust and confidence amongst the partners in the firm. As long as there is
mutual trust and confidence amongst partners, the partnership business can be
conducted smoothly. Hence every partner must disclose every information to each
other.
No Transfer of Interest: In partnership firm, the partner cannot
easily transfer his share to an outsider. If he wants to do so, he has to take prior
consent of other partners in the firm. If any partner transfers his share to an
outsider without the prior consent of other partners, it may lead to dissolution of
partnership firm.
Registration: according to Indian partnership act 1932, Registration
of partnership firm is not compulsory. Registration of partnership is optional.
However in certain states like Maharashtra, the registration of partnership is
compulsory.
Dual Role: In partnership every partner plays dual role. Dual role of
principal and agent. To an outsider every partner is a principal while to other
partners he is an agent.
No Separate legal status: A partnership firm does not enjoy separate
legal status. Legally, partnership firm and partners are not separate from each
other but one and the same.
Lacks business secrecy: Partnership business lacks complete business
secrecy. This is because there are several partners are the firm and some partners
may leak business information to outsiders for their personal benefit.

Advantages of partnership firm:-

Easy formation: The formation of partnership firm is very easy, less
time consuming, less expensive. This is because there are no lengthy and
complicated legal formalities. In some cases only partners need to obtain licenses.
For example- Starting a restaurant. Any two persons can enter into a agreement
and start the business.
More Capital: A partnership firm can collect more capital then sole
trading concern. This is because there are many partners in partnership firm who
contribute the capital. Again, Admission of new partner can add to the capital of the
firm. Moreover due to unlimited liability of partners, they can easily get loans from
banks and financial institution.
Division of labour: As there are two or more person to manage the
business, partnership firm has the advantage of division of labour. The work can be
divided amongst the partners as per their skill, experience, and interest. This results
in specialization and higher efficiency.
Flexibility: Partnership firm enjoys flexibility. This is because there is
no strict government control and supervision on the activity of partnership firm.
Therefore, can easily expand, diversify, and change line of business and close down
the business at any time.
Business secrecy: A partnership firm can maintain business secrecy.
It`s because partners need not publish their books of account and records.
Therefore the competitors cannot easily get business secret of partnership firm.
Benefit of unlimited liability: The liability of partners is
unlimited. Due to this partners become more alert and work more carefully. They
don`t take hasty decision. Again, due to unlimited liability they can get loans and
advances from financial institutions easily.
Direct effort-reward relationship: There is direct effort- reward
relationship in case of partnership firm. All the partners are joint owners. All
business and losses belong to the partners only. If they don`t work hard they will
suffer losses and if they work hard, they will enjoy more profits. This motivates
them to work hard.
Spreading of Risk: In partnership firm, Risk and losses are divided
among all the partners. In case of a loss each partner will bear only a part of it and
not the entire loss. This promotes the partners to take gutsy decision for the
expansion of business.

Disadvantages of partnership firm:-

Limited capital: Partnership firm has limited capital as compared
to big organizations like joint stock committees. There is restriction on maximum
number of partners in a partnership firm. Hence a partnership firm cannot raise
huge amount of capital.
Unlimited liability: The liability of each partner is unlimited,
joint, and several. There is no distinction between their personal property and
business property of the partners. If the business losses are more than business
property, then the partners have to sell their personal property to clear their
business liability
Disputes:There maybe conflicts or disputes between the partners.
Some partners maybe selfish. Some partners may make secret profits. Some may
not show interest in working of the firm. These things may result in disputes
between partners and may lead to dissolution of firm.
No Separate legal status: : A partnership firm does not enjoy
separate legal status. Legally, partnership firm and partners are not separate from
each other but and the same.
Lack of continuity and stability: Partnership firm lacks continuity
and stability. This is because Partnership firm does not have separate legal status.
Death, insolvency or insanity of partners affects the continuity of the firms. Again
conflicts and disputes between partners may also affect continuity of firm.
No transfer of interest: In partnership firm, the partner cannot easily
transfer his share to an outsider. If he wants to do so, he has to take prior consent of
other partners in the firm. If any partner transfers his share to an outsider without
the prior consent of other partners, it may lead to dissolution of partnership firm.
Difficulty in admitting new partner:
In partnership firm there is difficulty in admitting new partner. This is
because admission of new partner needs consent of all other partners and
some partners may oppose to such admission. Again, there is a limit on
maximum number of partners under the Indian Partnership Act, 1932.
Danger of implied authority:
In a partnership firm each partner is a principal as well as an agent of the
firm. As an agent he binds other partners for all his business actions. Now, if
a firm suffer losses due to fraudulent and dishonest act of one partner , then
other partners will also bear the same loss.

`Types or kind of partners:-

Refer to Michael Vaz text< Only objective type question are

asked>

1oint Hindu Family Firm

Meaning:-
This is a unique form of commercial organization found only in India. It
comes into existence by the operation of Hindu Succession Act, 196< that is
Hindu law>. The business is managed by senior most person of the family
called as Karta`. He is the head of the family. Other members of the family
are called as Co- Parceners`. They assist Karta in conducting business
smoothly.

Features Of 1.F.F:-

Formation:-
1oint Hindu family firm is formed by the operation of Hindu law that is
the Hindu Succession Act 196. It comes into existence only by operation
of Hindu law and not by any contract or agreement.
1oint Ownership:-
The business is jointly owned by all the members of a joint Hindu family.
3 Successive generations inherit the business due to their birth in the
family.
Conduct of business:-
The family business is conducted by the senior most person of the family
called as Karta`. He is the head of the family. Karta has full power and
authority to manage and control the business. Other members of the
family called as Co-Parceners` assist Karta` in conducting the business
smoothly
Membership:-
Membership in a join Hindu family business is not fixed. It depends upon
births and deaths in the joint Hindu family. There is no limit on
maximum membership. This provides more hands to manage business.
Capital:-
In joint Hindu family firm, all capital is contributed by Karta` and other
family members out of their savings. If more capital is required, then
Karta may borrow money from his friends, relatives and even from
banks and financial institutions.
Sharing of Profit and Loss:-
Profits and losses of the business are shared by all family members. The ratio
of profit and loss is not mentioned in Hindu Succession Act, 196. The ratio
changes according to births and deaths in the family.
Liability:-
The liability of Karta is unlimited that is there is no distinction between
his personal property and business property. Karta has unlimited
liability mainly due to following reasons-
He is the controller of business.
He frames all the plans and policies for family business and takes all
business decisions on his own.
On the other hand, the liability of Co-Parceners` is limited to the extent
of their share in the business.
Limited government control:-
1oint Hindu family firm is a personal organization like sole trading
concern. There is least government control and supervision on the
activities of family business. Thus, formation, expansion, diversification,
even dissolution of family business quite easy and simple.
No separate legal status:-
1oint Hindu family firm does not enjoy separate legal status. This is
because registration of family business is not compulsory. Therefore, the
family members and the business are not separate from each other but
one and the same.
Continuity and stability:-
1oint Hindu family firm enjoys continuity and stability. Death,
insolvency, and insanity of any family members do not affect the
continuity of any family members. If Karta dies, then the next head of the
family will take charge of the family business. In this way business can be
conducted over many generations.
Male domination:-
1oint Hindu family business is dominated by male members of the family.
All the important business decisions are taken by Karta and other male
members of the family. Female members hardly participate in the
management of the business.
Business secrecy:-
1oint Hindu family business can maintain complete business secrecy. This
is because the business is totally controlled by Karta. All business
decision are taken by Karta only. The Karta need not publish book of
account and records of business. Therefore competitors cannot get
business secrets of 1oint Hindu Family
Merits:-

Easy Formation:-
Formation of joint Hindu family business is very easy and simple. There are no
complicated legal formalities. Registration of this business is not compulsory. It is formed
and operated by the operation of Hindu Succession Act, 196.
Continuity and stability:- Done
Quick Decisions and prompt actions:-
Karta has complete authority to take business decisions. He may or
may not consult co-parceners before taking a decision. Normally
family members agree the decisions taken by the karta. Therefore
Karta can take quick decisions and prompt actions
Closed Contacts With Costumers:-
Karta can maintain closed contacts with costumers. This is possible
for him due to small size of his business. He deals regularly with his
costumers. He knows their likes and dislikes very well. He may also
provide services like free home delivery, credit facilities, etc to his
costumers.
Closed Contacts With Employees:_
Karta can maintain closed contacts with his employees. This is
possible for him due to small size of his business. He appoints hardly
2-3 employees. He knows them very well. He may help his employees
to solve their personal problems. Due to this Karta gets good support
from his employees.
Business Secrecy:- Done
Division Of Labour and Specialization:-
There is no limit on maximum number of members in joint hindu
family business. Therefore, division of labour and specialization is
possible in this business. The work can be divided amongst family
members as per their skills, experience and interest.
No Limit On Membership:- Done
Flexibility:-
This type of business enjoys good deal of flexibility. This is because of
least government control and regulation on this type of business.
Therefore, Karta can easily expand, diversify, change line of business,
and even close down the business at any time without much
difficulties

Socially desirable:-
1oint Hindu Family firm is socially desirable organization. This is
mainly because it takes care of interest of disabled, old, minor, widow
members of the family .
Training school:-
1oint Hindu Family firm is training school for young co-parceners.
The young and inexperienced co-parceners can learn business skills
and tactics from senior and well experienced members of the family.

Demerits

Limited Capital:- 1oint Hindu family firm has limited

capital. This is because the business capital is contributed by the Karta and Co-
Parceners out of their family savings. They can borrow fund from friends, relatives,
and financial institutions. However their borrowing capacity is also limited.
Therefore, there is limited scope for growth and expansion.
Unlimited Liability of Karta:-liability of karta is
unlimited. It means he is liable to business debts even from his personal property.
This makes him more cautious and alert and he hardly takes bold decisions for
expansion of business.
Limited Managerial Skills:-this business is managed by
family members the Karta and co parceners may not have necessary managerial
skills and technical knowledge of business. Again, they cannot appoint experts to
manage business, due to limited capital this results in inefficient management.
Family Disputes:-there maybe difference of opinion among
family members which may lead to disputes among them. This may affect smooth
working of business. It may also result in closure of business.
No direct effort-reward relationship:-there is no
direct effort reward relationship in this business. This is because those members
who work hard and put in more efforts in business and those who do not put in
effort get the reward equally. It means efficient and inefficient share profit of firm
equally. Hence efficient members do not feel motivated to work hard.
Male Domination:- Done
No Separate Legal Status: 1oint Hindu family firm is a
personal organization like sole trading concern. Registration of this business is not
compulsory. Hence this business has no separate legal status different from its
owners. This affects the credit standing of the business.
Lacks economies of scale:- Normally this type of
business have a limited capital. It operates on small scale. It buys and sells In small
quantities. Therefore, it does not enjoy the economies of large scale business.
Risk of implied authority:- karta has complete authority
to manage and control the family business. He binds the other co-parceners by his
action. If karta takes any wrong decision, then karta as well as co-parceners will
face the consequences.

1oint Stock Company

Meaning:-
1oint stock company is an incorporated association, which is a
artificial person created by law, having a common seal and
perpetual succession. It`s a business organization owned by share
holders who invest capital and managed by board of directors,
who are the elected representatives of the share holders .

Features Of 1oint Stock Company:-

Incorporated association -A joint stock company is a registered
association of person. Every company< private or public> must be registered with a
Registrar of Companies under the Indian Company Act, 196. On registration, a
company gets a separate legal status.
Artificial Person: A company is a artificial person created by law.
It has no physical existence like human beings but it has legal existence. Like human
being it can acquire property, enter into contracts, signed documents, appoint staff,
take legal actions, etc.
Perpetual Succession: A company has perpetual succession. It
means that the company has long and stable life. It does not get affected due to the
death, insolvency, insanity of its members. Its like a river flowing continuously.
Common Seal: A company is a artificial person and hence does not
have physical existence. Due to this, a company cannot sign documents like natural
persons. Therefore, a common seal is used as its signature. Common seal is a rubber
stamp having the name of the company. It is a fixed on all important documents of
the company and must be accompanied by signature of two directors of the
company as a witness. Common seal is kept in custody of board of directors.
Large Membership:- A company has large membership. In a
Private company, the minimum members are 2 and maximum number can be 0. In
a public company, the minimum of members are 7 and there is no limit on
maximum membership. Large membership helps company to collect huge amount
of capital.
Large Capital: A company has large number of members and thus
it can collect huge amount of capital from them. A joint stock company can raise
large amount of capital by way of shares, debentures, public deposits, loans from
bank and financial institutions, etc.
Separate Legal Status: On registration, company gets a separate
legal status distinct from its member. It means company cannot be held responsible
for the death of its members. Similarly a member cannot be held responsible for the
deaths of the company except to the extent of face value of shares purchased by him.
Separation of Ownership and management: The share holders
who invest capitals in the company are the owners of the company while board of
directors who are elected representatives of the share holders look after
management of the company. Thus there is a separation of ownership and
management in a company.
Limited liability: The liability of share holder of company is limited
to the extent of face value of the shares purchased by them. Members are not
responsible for the other liabilities of the company. Limited liability attracts large
number on investors in the company.
Democratic Management: The management of a joint stock
company is Democratic in nature. The board of directors who are the elected
representatives of the share holders look after the management of the company.
Decisions are taken collectively through meeting and voting directors submit
periodical reports to the share holders on the working and financial position of the
company.
Easy Transfers of Shares: The shares of public company are
freely transferable from one person to another in the open market. Any person can
sell his shares at any time and any person can buy the shares anytime. There is no
restriction on buying and selling of shares. However, the shares of a private
company are not freely transferable.
Voluntary Association: A company is voluntary association of
persons any person can become member of the company by purchasing its shares,
similarly, a share holder can end his shareholder ship by transferring his shares to
another person. In other words, there is no compulsion of becoming member or
leaving membership of the company.
Excessive government control: There is a strict Government
control and supervision on the activities of a joint stock company. Strict government
control results in inflexibility. Therefore formation, expansion, diversification and
even dissolution of a joint stock company is very difficult time consuming and
expensive. Government has strict control on joint stock companies in order to
protect interest of small investors.