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EXTERNAL TRADE
CHAPTER 5
Forms and Formation of
Business Enterprise
LEARNING OBJECTIVES
After studying this chapter, you should be able to :
•
identify the different forms of business enterprises;
•
explain the features, merits and limitations of each form of
business enterprise;
•
examine the factors to be considered for selecting a suitable form
of organisation;
•
analyse the factors to be considered for setting a business;
•
examine the scope for setting small business.
106
BUSINESS STUDIES
5.1 Introduction
Every business entity adopts some
form of business organisation to carry
out business activities. For the private
sector in India (i.e., business run by
private individuals) the forms of
business organisation/enterprise are
the following:
•
Sole proprietorship;
•
Joint Hindu Family Business;
•
Partnership;
•
Cooperative Society;
•
Company.
In this chapter we shall discuss
various aspects of different forms of
business organisation, their relative
advantages and limitations, as well as
the scope of setting up small business
enterprises.
5.2 Sole Proprietorship
A business owned, managed and
controlled by a single individual is
known as a sole proprietorship
organisation. The individual is referred
to as the sole proprietor and is
responsible for all business decisions.
She/he has ownership of all business
resources. All profits earned belong
exclusively to her/him and all losses
incurred are to be borne by her/him. In
running the business, however, she he
can take the help of his family members
and also employ persons as assistants
or manager. Legally the business and
the individual are the same, in the
sense that the sole proprietor is
personally liable for all the debts that
are incurred in the course of business.
In the case of trading firm, the sole
proprietor may also be referred to as
sole trader. Most small concerns adopt
this form of business organisation
because of its several merits.
5.2.1 Features of Sole
Proprietorship
The features of sole proprietorship are
mentioned below:
(i) Individual ow