Q2. What are the different forms of organizations in which a business activity can be carried out? State the advantages & disadvantages of each one of these forms of organization.
A business is an activity that is carried on with an intention of earning profits. It has different operations involved like production, marketing & finance. The finance function is the most important function and greatly affected by the forms of organization. The basic forms of business organizations are:
1. Proprietary firms.
2. Partnership firms &
3. Joint stock companies.
The proprietary firm is the firm in which only one person is the owner, who is called as “proprietor”. He is the direct person of profits & losses. He has the right to take the decisions individually. The following are the pros & cons:
1. Proprietary firms are the most easiest & economical form of business to form and operate.
2. The proprietor can be act as Manager and he has right of freedom to take decisions.
3. This is very suitable where the size of business is small and.
4. A proprietary firm does not require submitting more number of documents to the government.
1. A proprietary firm does not have any legal status.
2. The proprietor may not be capable to invest further, when the business is in downfall or complexed stages.
3. These are unlimited liability firms & the proprietor’s property will always be at stake, if the liability is more than assets.
4. The proprietor needs to pay higher taxes, as he is the direct person, who is enjoying the profits.
5. Transferring of business is not easy.