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C HAPTER 2 F ORMS OF B USINESS O RGANISATION LEARNING OBJECTIVES After studying this chapter, you should be able to: identify different forms of business organisation; explain features, merits and limitations of select forms of business organisation; distinguish between various forms of organisation; and analyse factors determining choice of an appropriate form of business organisation.
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22 BUSINESS STUDIES 2.1 I NTRODUCTION If one is planning to start a business or is interested in expanding an existing one, an important decision relates to the choice of the form of organisation. The most appropriate form is determined by weighing the advantages and disadvantages of each type of organisation against one’s own requirements. Various forms of business organisations from which one can choose the right one include: (a) Sole proprietorship, (b) Joint Hindu family business, (c) Partnership, (d) Cooperative societies, and (e) Joint stock company. Let us start our discussion with sole proprietorship — the simplest form of business organisation, and then move on to analysing more complex forms of organisations. 2.2 S OLE P ROPRIETORSHIP Do you often go in the evenings to buy registers, pens, chart papers, etc., from a small neighbourhood stationery store? Well, in all probability in the course of your transactions, you have interacted with a sole proprietor. Sole proprietorship is a popular form of business organisation and is the most suitable form for small businesses, especially in their initial years of operation. Sole proprietorship Neha, a bright final year student was waiting for her results to be declared. While at home she decided to put her free time to use. Having an aptitude for painting, she tried her hand at decorating clay pots and bowls with designs. She was excited at the praise showered on her by her friends and acquaintances on her work. She even managed to sell a few pieces of unique hand pottery from her home to people living in and around her colony. Operating from home, she was able to save on rental payments. She gained a lot of popularity by word of mouth publicity as a sole proprietor. She further perfected her skills of painting pottery and created new motifs and designs. All this generated great interest among her customers and provided a boost to the demand for her products. By the end of summer, she found that she had been able to make a profit of Rs. 2500 from her paltry investment in colours, pottery and drawing sheets. She felt motivated to take up this work as a career. She has, therefore, decided to set up her own artwork business. She can continue running the business on her own as a sole proprietor, but she needs more money for doing business on a larger scale. Her father has suggested that she should form a partnership with her cousin to meet the need for additional funds and for sharing the responsibilities and risks. Side by side, he is of the opinion that it is possible that the business might grow further and may require the formation of a company. She is in a fix as to what form of business organisation she should go in for?
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