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Sole proprietary

Definition: A sole proprietorship is a business owned by oust one person.

According to B.D. wheeler, “the sole proprietorship is that from of business

ownership which is owned and controlled by a single Individual”

# Salient features: The characteristics of sole proprietorship one as follows.

1/ Single ownership: The proprietary is the exclusive owner of the business

2/ Single ownership; The proprietary concern one men control all thing

3/ No separate entity of the firm: A sole proprietary concern has no legal

existence separate from its owner.

4/ Unlimited risk: One man take unlimited risk or there is no sharing of profits or
5/ Unlimited liability: One man bears unlimited risk.

6/ No government control: Sole proprietorship is free from legal formalities and


# Merits of sole proprietorship.

1/ Ease of formulation : It is easy to formation because there have no lawful

formalities .

2/ Direct motivation : In sole proprieties ownership and control remain vested

in the name person .

3/ Independent control : The sole proprieties control all thing independently .

4/ Prompt decisions : Sole proprietors his own boss and not consult others in
decision making .
5/ Business secrecy : The sole proprietor can retain vital business secrets .

6/ Flexibility of operation : Sole proprietorship home flexibility of operations

because one man making decision.

7/personal touch: the sole proprietor can keep intimate personal contracts with
his customers and employees.
8/Freedom from government control: The property concern is least regulated by
the government concern.
9/ Economy 9: As the sole proprietor himself performs managerial activities,
costs of operation and overhead expenses are minimum .

# Limitation of sole proprietorship

Limitations: Sole proprietorship suffers from the following drawbacks.

1/ Limited finances: The capital which a sole proprietor can raise is to his
personal sarongs and borrowing capacity.
2/ Limited managerial skill: the Managerial ability of the proprietor is limited.

3/ Unlimited liability: The sole proprietor has to bear the entire risk of business
4/ Instability: The sole proprietary concern comes to an end with the death or
physical incapacity of the owner.
5/ Limited scope for growth: Due to the limitations of finance.

#Suitability of sole proprietorship

1/ Where small amount of capital are required, e.g., sweet shops, bakery,
newsstand, etc.

2/ Where quick decisions are very important, e.g., share brokers, bullion dealers,

3/ Where limited risk is involved, e.g., automobile repair shop , confectionery,

small retail store, etc.

4 / where personal attention to individual tastes and fashions of customer is

required, e.g., beauty parlor, tailoring shops, etc.

5/ where the demand is local, seasonal or temporary, e.g., retail trade, laundry,

6/ Where fashion change quickly, e.g., artistic furniture, etc.

7/ Where the operation is simple and does not require skilled management.
Partnership Firm

Definition: partnership is an association of two or more persons to carry on as

co –owners of a business for profit.

In 1932 partnership Act.” Partnership is the relation between person who have
agreed to share the profit of a businessn carried on by all or any of them acting
for all.”

Essential characteristics of Partnership

1/Two or more persons: At least two persons are required to constitute a


2/Agreement: A partnership is a contractual relationships arising out of an

agreement among the partners.

3/Lawful business: The agreement between partners must be to carry on some

lawful business.

4/ sharing of profits: The agreement must provide for the sharing of profits and
losses of the partnership businesses

5/ mutual agency: Each and every partner is considered to be an agent of the

firm as well as that of other partner.

6/ no separate legal existence: the partnership is a voluntary association and it

has no separate legal entity of its own.

7/ unlimited liability: every partner is liable jointly and severally for all debts and
obligations of the firm

8/ restriction on transfer of interest: none of the partners can transfer his

interest in the firm to any person without the unanimous consent of other
partner .

Essentials or requisites of an Ideal partnership:

An ideal partnership is a partnership which possesses all the requirements of a

successful business
1/ mutual trust and good faith: partners who enjoy the good faith of each other
must be chosen
2/ supplementary contributions: partner should pool their resources in such a
way that complements the other.
3/ common Approach: all the partners must have common outlook and must act
in coordination .
4/ written and Agreement:The agreement of partnership should be in writing
and signed by all the partner to avoid the possibility of misunderstanding .and
dispute among partners

5/ registration: an ideal partnership should not suffer from any disadvantage

6/ Equitable Adjustment of rights: it is not necessary that every partner had

equal rights in the profits and management of the firm but the right of each
should be equitable having regard to his contributions to the firm .

7/ competent management . In an ideal partnership control must lie in competent


8/ proper size. An ideal partnership should be large enough to have financial and
managerial strength but should not be unwieldy and unmanageable

9/ long duration. Any medium scale business today requires a fairly long time to
be successful an ideal partnership should therefore be set up for reasonably long
period of time

10/ Adequate capital . An ideal partnership should have sufficient financial

resources for its long term and short term needs without being over capitalized

Types of partnership

A partnership can be two kinds, namely (1)unlimited partnership, and (2)limited


1/ General or unlimited partnership: A partnership in which the liability of all

the partners is unlimited is known as unlimited partnership.There are three types
of partnership.those are:

A. partnerhip-at-will: Partnership-at-will is a partnership which is formed to carry

on business without specifying any period of time.
B. particular partnership:. It is a partnership established for a stipulated period
of time or for the completion of a specified venture.
C. joint venture:. A joint venture is a temporary partnership which is formed to
complete specific venture or job during a specified period of time.

Kinds of partners

1/ Active or working partner: A partner who takes active part in the

management of the partnership firm is known as active or working partner
2/special or limited partner: he is a partner whose liability is limited to the
extent of his capital contributed to the firm

3/ dormant or sleeping partner .such partner does not take active part in the
management off firm .

4/ nominal or ostensible partner . He is a partner is name only because he

neither contributes capital nor takes part in the management of the firm .

5/ partner in profits only . A parson who shares the profits of a firm but who is
not liable for the losses is called partner in profits only .

6/ sub partner . when a parson makes an arrangement with a partner share his
profits he is known as sub partner

7/ minor as a partner . partnership is a contractual relationship legally a minor

cannot become a partner because he is incompetent to enter into a contract .

Formation of partnership
(A) partnership deed usually contains the following points

1/ name of the firm .

2/ names and address of all the partners

3/ nature of the firms business .

4/ date of the agreement .

5/ principal place of the firms business .

6/ Duration of partnership if any .

7/ Amount of capital contributed by each partner .

8/ the proportion in which the profits and losses are to be shared .

9/ loans and advances by partners and interest payable on them .

10/ Amount of withdrawal allowed to each partner and the rate of interest .

11/ Amount of salary or commission payable to any partner

12/ The duties powers and obligations of all the partners

13/ maintenance of account and audit .

14 mode of valuation of good will on admission retirement or death of a partner .

15 procedure for dissolution of the firm and settlement of accounts .

16/ Arbitration for settlement of disputes among the partners.

Merits of partnership

1/ ease of formation: a partnership is easy to form as no comber some legal

formalities are involved .

2/ larger financial resources . as a number of persons or partners contribute to

the capital of the firm .

3/ specialization and balanced approach . The partnership firm enables the

lolling of abilities and judgment of several persons.

4/ flexibility of operations . though not as versatile as sole proprietorship a

partnership firm enjoys sufficient flexibility in its day to day operations .

5/ Protection of operations . no basic change in the rights and obligations of

partners can be made without the unanimous consent of all the partner.

6/ Personal incentive and supervision . there is no divorce between ownership

and management .

7/ capacity for survival: The survival capacity of the partnership firm is higher
then that of sole proprietorship .

8/better human and public relations . due to a number of representatives of the

firm its is possible to develop personal touch with employees.

9/ business secrecy . it is not compulsory for a partnership firm to publish and

file its accounts and reports.
Demerits of partnership:

1/ Unlimited resources: every partner is jointly and severally liable for the entire
debt of the firm .

2/ limited resources . the amount of financial resources in partnership is limited to

the contributions made by the partners.\

3/ risk of implied agency . the acts of a partner are binding on the firm as well as
on other partners

4/ lack of harmony: the success of partnership depends upon mutual under

standing and co operation among the partners

5/ lack of continuity . A partnership comes to an end with the retirement

incapacity insolvency and death of a partner

6/ non- transferability of interested . no partner can transfer his share in the firm
to an outsider without the unanimous content of all partners

7/ public distrust . A partnership firm lacks the confidence of public because it is

not subject to detailed rules and regulations .
Joint stock company
Company means an association of persons united for a common object .

In act of 1984 company means a company formed and registered unsex this or
any existing company .

Distinction between company and partnership

1/ formation and registration: A company is created by law while partnership id

the result of an agreement between the partners .

2/ number of numbers: . the minimum number of partners in partnership firm is

two and maximum is 10 in banking business and 20 in other business .

3/ legal status . A company has a separate legal entity independent of its

members but a partnership firm has no separate legal entity different from its

4/ transferability of interest . shares of a public company are freely trans farmable

but in a private company there are retractions on the

5/ statutory control . a company has to comply with several legal requirements

and it most submit report to the government .

6/ change of object . the objects and power of a company as laid down in its
memorandum of association can be altered only by fulfilling legal formalities laid
down in the company act 1956.

7/ management . in a partnership all the partners can take active part in the
management of the firm .

8/ stability . a company enjoy perpetual life or existence which is not affected by

the retirement, death insolvency , etc.

9/ liabilities of members: in a joint company, the liability of every member is

usually limited to the unpaid money on the shares held or the amount of
guarantee given by him
10 majority rule . in a company all policy decisions are taken on the basis of
majority opinion in a meeting of the board of directors or of the general body of
Distinction between private and public company

Point of distinction Private company Public company

1. Number of Minimum-2 Minimum-7
member Maximum-50 Maximum-No limit

2.Name The name must include the The name must include the worlds
worlds “Private Limited” “Limited”

3.Number of Minimum-2 Minimum-3


4.Articales of Mast prepares its own articles May adopt table as a given in the
association of association. companies Act.

5.Public Cannot invite public to subside Generally invites public to subcribe

subscription to its shares and debentures to its shares and debentures.

6.Prospectus Need not issue and file Must issue and file a prospectus or
prospectus a statement in lieu of prospertus.

7.Transfer of Restrictions on transfer of No restrictions on transfer of

shares shares shares.

8.Share Warrants Cannot issue share warrants Can issue share warrants per
Merits of Company Organization:

1. Limited liabilities: shareholders of a company are liable only to the extent of

the face value of shares held by them.

2. Large financial resource: Company from of ownership enables the conection

of huge financial resources.

3. Stability: A company enjoys uninterrupted business life.

4. Transferability of shares: A member of a public limited company can freely

transfer his shares without the consent of other member.

5. Scope for growth and expansion: there is considerable scope for the
expansion of business in a company.

6. Public confidence: A public company enjoys the confidence of public because

its activities are regulated by the government under the company act.

7. Diffused risk: the risk of loss in a company is spread over a large number of
Demerits of a company

1.Difficulty of formation: It is vary difficult and expensive to set up a


2.Excessive government control: A company subject to elaborate statutory

regulations in its day-to-day operations.

3.lack ok motivation and personal touch: There is divoree between

ownership and management in a large public company.