Business Organizations

There are basically three types of business organizations

  • Sole-proprietorship

  • Partnership

  • Joint stock company


When a business is owned and managed by a individual or single, he is known as the sole trader or individual entrepreneur.

Characteristics of Sole-proprietorship:

a) Formation: No restriction in formation. There is no registration of any sort. Any body can start this business according to his will and time at any place.

b) Capital: In this business the businessman himself provide capital, but his resources are limited. Some time he borrows money from his friend or relatives.

c) Unlimited liabilities: Businessman has unlimited liabilities. If the business gets losses, sometime he has to sell his personal property.

d) Management of the business : He is the single person to manage the business. He is singly responsible for the decision making and for policies.

e) Secrecy Every business has its own secrets, which is the basis of its success. Trade secrets such as secret formulas, special accounts are very important. This type of business has more security as compared to other types.

f) Personal Relations : As in this type of business, the businessman has direct contact with the customers therefore, he knows the likes and dislikes and the need of the customers.

g) Saving in Expenses The same members of the family usually run single person business, therefore, saving in expenses is highly observed.

h) Legal Entity: It has its legal entity

i) Distribution Of Profit He is the only person who enjoys the profit.

j) Business On The Small Scale It is a small scale and usually he does not extend due to the reason of control.

k) No Need of Agreement

No need of agreement with second or third parties.

l) Adminstrative And Contrl Of Business

He is responsible for whole business administrative and control process.

Merits /advantage of Sole-proprietorship:

1. Easy formation

2. Secrecy

3. Personal interest

4. Immediate decision

5. Personal contracts

6. Saving in expenses

7. Publicity

8. Satisfaction of individual liking and interest

9. Flexibility

10. Free in depended

Demerits/disadvantages of sole-proprietorship:

1. Limited capital

2. Limited management ability

3. Unlimited liabilities

4. Unsuitable for large-scale business

5. Lack of continuity

6. Wrong decisions

7. Less public interest

9. Danger of loss

10. Lack of expert services

11. Insolvency

12. Business success depends upon personal ability

13. Limited life