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What aspiring entrepreneurs need to know about business organisations

By Mansi Jain,

There are various structures of business houses on the basis of ownership.

When capital invested in a business is by more than one person and all parties share the risks and the profits of the business, then it is known as a partnership.

Understanding the structure business houses is crucial for any aspiring entrepreneur. If you want to see your child grow up into an adult with strong business acumen, make sure that he has clarity about the various types of organisations that exist and the way they function. On the basis of ownership, there are four types of business organisations: Sole proprietorship, partnership, co-operation, and joint stock company. Here is a low-down on them. 

Sole Proprietorship 
This form of organisational structure is suitable for small businesses, especially in their initial years. In a sole proprietorship, the business is owned, managed and controlled by one individual who is the only recipient of all profits and bearer of all risks. It is particularly common in areas of personalised services such as beauty parlours, hair salons and small-scale local retail shop. 

Partnership 
When the capital invested in the business is by more than one person and all parties share the risks and the profits of the business, then it is known as a partnership. Such a dynamic is known as a partnership at will that lasts until the business dissolves. A partnership can also be formed for the accomplishment of a particular project and automatically ends when the project is complete. This is called as a particular partnership. In a partnership, the amount of say a partner has in the running of the business is proportionate to the percentage of capital he brings into the business. It offers more funds to the business as compared to a sole-proprietorship set-up and lesser risks for each individual. 

Co-operative 
When a company is owned and operated by the people who use its products and services and benefit from what the company has to offer, it’s known as a cooperative. The people who benefit from the products or services of a cooperative business own the cooperative business. In some cases, only members of a cooperative can shop at it. Some cooperatives are open to all, but provide special incentives to members. The member-owners of a co-op have a say in how the cooperative should be run but the opinion of one co-op member does not have more weight than the opinion of another co-op member. 

Joint Stock Company 
What separates a joint stock company from other forms of business organisations is that it is a legal entity that exists separately from its owners. Even if the owners of the company change, it doesn’t alter the identity of the company in the eyes of the law. The company is granted a common seal to validate all its documents. The owners of a joint stock company are its shareholders while a Board of Directors is the managing body. A company can be: 

  • private, wherein the right of the members to transfer shares is restricted to a certain pool  
    or 
  • public, where the public is offered the opportunity to buy and sell its shares freely. 

Anyone who owns even a single share of a company is considered its owner. These shares can be transferred freely from one person to another in the share market or the stock market. The profits and losses are shared by all owners to the extent of their contribution in the capital, that is, the number of shares they hold.