INTRODUCTION TO

BUSINESS STUDIES

Legal forms of business

ownership

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 A person need to understand the advantages
and disadvantages of various types of
businesses so that they can choose the one
that best suits their needs.

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 MAIN TYPES OF BUSINESS
OWNERSHIP
The three main types of business organizations are:

Sole
Partnerships Corporations
Proprietorships

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 SOLE
PROPRIETORSHI
P
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 SOLE PROPRIETORSHIP
 A sole proprietorship is usually started by an
entrepreneur.
 Businesses where the owner is entitled to all business
profits and is responsible for all business debts, losses,
and liabilities A business
 The easiest and most popular form of business owned and
ownership is the sole proprietorship. managed by
one
individual
Entrepreneur
individual who takes the risk of
starting a new business
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CHARACTERISTICS/ADVANTAGES OF SOLE
PROPRIETORSHIP
Ownership Management and control

Easy formation Social Benefits

Direct relationship with

Size of the business
workers
Direct contact with
Capital
customers

Profit Quick decision

Legal Status Secrecy

Easy dissolution
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 DISADVANTAGES OF SOLE
PROPRIETORSHIP
Continuity Lack of Skilled Persons

Unlimited liability Lack of Capital

Expansion Difficulty  Lack of Innovation

Management Difficulty Risk of Loss

Permanent Existence Chances of Fraud

Poor bargaining

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 Is one man control best in the world?

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 SUITABILITY OF SOLE
PROPRIETORSHIP
Where one likes being his
Where market is local
own boss

Where personal contact with Where promptness is

customer is required required in decision making

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 PARTNERSHIP

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 PARTNERSHIP
 The persons who join partnership are individually
known as partners and collectively as a firm.
 The law which deals with the partnership form of
business in Pakistan is the Partnership Act 1932. An association of
 According to the Partnership Act 1932 there two or more
cannot be more than 10 partners in banking people who co-
business and not more than 20 partners in any
other business. own a business for
the purpose of
making a profit

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 ELEMENTS OF PARTNERSHIP

Contractual relation Earning of profit

Association of at least
Mutual agency
two persons

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FEATURES AND CHARACTERISTICS OF
PARTNERSHIP

Formation/Agreement Unlimited liability

Financing Payment of tax

Management Implied authority

Transferability of shares Duration

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 ADVANTAGES OF
PARTNERSHIP
Easy formation Skilled workers

Large capital Tax advantage

Size of the business Minority protection

Greater management
Teamwork
ability

Profit Incentive Quick decision

Secrecy Easy dissolution

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 DISADVANTAGES OF
PARTNERSHIP
Unlimited liability Divided Control

Limited life Implied authority

Difficulty in withdrawal  Transfer of shares

Misunderstanding Misuse of resources

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 Special partner
Partner in  Active partner
Profits only

Sleeping
Partner by 
partner
Estoppel

Kinds of
Secret 
Senior  Partners Partner
Partner

Silent
 Partner
Junior Partner

Nominal 
Minor Partner
Partner
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PARTNERSHIP AGREEMENT
OR DEED
 Also called as “Articles of
partnership”.
 This agreement may be in written or
oral.
A document
 It is necessary that it should be in
that contains
writing. the terms and
conditions of
the business.

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 CLAUSES OR CONTENTS OF PARTNERSHIP
Date
DEED
Name of the business
Location
Nature of business
Names, addresses, telephone Numbers and emails of the partners
Duration
Capital
Salary
Ratio of profit
Entry and exit method
Audit of accounts
Right and duties
Arbitration

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Witnesses
REGISTRATION OF A FIRM
 Basic information should be provided for registration:

a) Name of the firm
b) Head office and sub offices of the firm
c) Nature of business
d) Names, addresses, telephone Numbers and emails of the partners
e) Each partner's date of joining
f) Duration
 Signature
 Submission of fee
 Submission of application
 Certification
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 Clear terms and
conditions

Credit facilities

Benefits to incoming
partner

Protection of rights
Advantages of
Registration Legal protection

Use of trademark

Settlements of
disputes

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 RIGHTS OF THE PARTNERS
 Right of profit
 Expression of opinion
 Right of inspection
 Right of management
 Right of salary
 Right to retire
 Right to continue

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 DUTIES OF THE PARTNERS
 Common advantage
 To keep the secrecy
 Distribution of loss
 Indemnity
 Provide all information
 Use of powers within limits

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 LIABILITIES OF THE PARTNER
S
 Liability of a new partner
 Liability of retired partner
 Liability of insolvent partner
 Liability of deceased partner
 Joint liability

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MODES OF DISSOLUTION OF
PARTNERSHIP FIRM
1. Dissolution by agreement
2. Dissolution by notice
3. Compulsory dissolution
1. Insolvency
2. Unlawful business

4. Contingent dissolution
1. Expiry of period
2. Death of partner
3. Completion of work

5. Dissolution by court
1. Breach of agreement
2. Incapability of partner
3. Case of mad partner
4. Misconduct of partner
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 CORPORATIONS

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 CORPORATIONS
 The law relating to Joint Stock Company
has been laid in Companies Ordinance,
1984, which  came into force on January
1, 1985, in Pakistan.
 The government body that registers and
regulates the companies in Pakistan is known as
It is an artificial
the Securities and Exchange Commission of person created by
Pakistan (SECP). law having
Members: separate entity
 Public Company: The minimum number of with a perpetual
members is seven and maximum members are succession and
unlimited.
common seal.
 Private Company: started by minimum two
persons with a limit of 50 persons.
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FEATURES AND CHARACTERISTICS OF A
COMPANY

Voluntary association of
Limited liability
persons

An Artificial Person Transferability of Shares

Separate Legal Entity Perpetual existence

Separation of ownership
Common Seal
from management

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ADVANTAGES OF A COMPANY
Permanent Existence Limited Liability

Larger capital Transfer of Ownership

Efficiency in
Higher Profits
Management

Large Scale Production  Spread of Risk

Easy Access to Credit Employment

Experts’ Services

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 DISADVANTAGES OF A
COMPANY
Formation Double Taxation

Separation of ownership
Lack of Secrecy
from control

Difference of opinion Nepotism

Monopoly Corruption

 Lack of Responsibility Lack of Freedom

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 CLASSIFICATION OF
1. Chartered company
COMPANIES
2. Statutory company
3. Registered company
1. Company limited by shares
1. Private company
2. Public company
2. Company limited by guarantee
3. Unlimited company
4. Association not for profit
5. On the basis of ownership
1. Holding company
2. Subsidiary company

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 STRUCTURE

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 OTHER TYPES
Other ways to organize a business include:

Nonprofit
Cooperative Franchise
Organization

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 COOPERATIVE
 The purpose of a cooperative is to save
money on the purchase of certain goods
and services and to realize the economic,
cultural and social needs of the
organization's members and its surrounding An organization
community.
 Cooperatives often have a strong
that is owned and
commitment to their community and a operated by its
focus on strengthening the community they
exist in or serve. members.

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 NON-PROFIT
ORGANIZATION
 Non-Profit Organizations receive
tax-exempt status from the federal A type of
government, meaning they don't
have to pay income tax, because it
business that
does not make a profit. focuses on
providing a
service, not
making a profit.

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 FRANCHISE
  A franchise is a joint venture between a franchisor and a franchisee.
The franchisor is the original business. It sells the right to use its name
and idea. The franchisee buys this right to sell the franchisor's goods or
Legal agreement that
services under an existing business model and trademark. gives an individual a
legal right to market a
company’s product or
services in a particular
area.

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 STOP AND THINK
 If you started your own business, what would it be?
 What are some of the 4 Factors of production you would need?
 2 examples for each

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