Business Terminologies

FORMS OF BUSINESS ORGANIZATION

Sole Proprietorship

This kind of organization is owned by a single person. The owner is licensed with the government.
This form of organization is widely used in service industries. No formal charter of operation is
required in such arrangements. Also, there are few government regulations to which such
organizations are subjected. Such organizations do not have to pay corporate income taxes and their
earnings are subject to personal income tax. The proprietor of such organizations has unlimited
personal liability for debts and they also find it difficult to obtain a large sum of money for the
business. The organization lasts as long as the proprietor lasts.

Partnership

When two or more persons associate to conduct business, a partnership is said to exist. This ranges
from informal oral understandings to a formal agreement filed with the respective ministry/body.
Similar to proprietorship, in partnership there is ease and economy of formation as well as freedom
from special government regulations. The profits generated out of the business are taxed as
personal income tax in proportion to the partners’ claims, whether they are distributed or not. In the
event that a new partner joins the business, the old partnership ceases and a new one is created. In
case of dissolution due to disputes, the distribution of assets can be made based on the agreement
formulated while forming the partnership organization. The major disadvantage in such organization
is that of impermanence, the difficulty faced in transferring ownership, and the unlimited liability.

Limited Liability Company (LLC)

Limited Liability Company (LLC) This form of organization is the combination of corporation and
partnership. It provides its owners with corporate-style limited liability and the tax treatment of a
partnership. This is well suited for small- and medium-sized firms. It has a few restrictions and
greater flexibility. This form of organization has unlimited life. Complete transfer of ownership and
interest is usually subject to approval of at least a majority of the other LLC members.

Private Limited Company

It is a type of incorporated firm that (like a public firm) offers limited liability to its shareholders but
which (unlike a public firm) places certain restrictions on its ownership. These restrictions are spelled
out in the firm’s ‘articles of association’ or bylaws, and are meant to prevent any hostile takeover
attempt.

The major restrictions are: Stockholders (shareholders) cannot sell or transfer their share without
offering them first to the other stockholders (shareholders) for purchase. Stockholders cannot offer
their shares or debentures to the general public over a stock exchange. The number of stockholders
cannot exceed a fixed figure (commonly 50).

Public Limited Company

Public limited company is an incorporated, limited liability firm whose securities or shares are traded
on a stock exchange (national, regional and international) and can be bought and sold by anyone.
Public limited companies are strictly regulated and are required by law to publish their complete and
true financial position so that investors can determine the true worth of its stock (shares). It is also
referred to as publicly held company.

Government Enterprises

A government-owned corporation, a state-owned enterprise, or a government business enterprise is

a legal entity created by a government to undertake commercial or business activities on behalf of
an owner government. The defining characteristics are that they have a distinct legal form and they
are established to operate in commercial affairs.

joint ventures

construction joint ventures combine certain attributes of one venture with complementary features
of another, for the purpose of engaging in a specific individual or multiple construction undertakings
either as a one-team project or on long-term basis. The enterprise is co-owned and co-managed by
the JV partners. Joint ventures between contractors from developed and developing countries are
recognized mechanisms for technology transfer and, therefore, one way of improving the skills that
are lacking.