Complete information on the Forms of business organization

Sole Trade-Partnership-Joint Hindu Family

All branches of Industry, Trade and commerce as well as the “Aids to Trade and Industry” are carried on through one of three forms of organisation, namely-

(i) Sole Trader,

(ii) Partnership or

(iii) Joint-Stock company

The Joint Hindu family firm is also a form of organisation peculiar to India. The working as well as the relative merits of these forms of organisation will now be explained. Besides, the peculiarities of co-operative societies and public utilities will also be detailed.

Sole Trader

In the Sole Trader or Sole Proprietorship type of business organisation, there is only one proprietor or owner although there may be number of employees.

The sole trader enjoys certain advantages-

(i) He knows his customers personally and knows to whom he can safely give credit.

(ii) He employs his own capital in the business which he mainly runs with the help of members of his own family.

(iii) Where fashion is important or where personal sill or talent is involved such as in custom-made dress shops or the confectionery business, the small trader can be very much in demand..

(iv) He does not need much capital to start with and very often his shop is a room in its own home.

(v) He is his own master and open and close the shop when he pleases.

(vi) He can make concessions and allowances to please good customers which a paid manager has no authority to do.

There are also disadvantages of the system under which provided for by one man is very limited.

(i) The sole trader has to rely mostly on his own judgement.

(ii) The scope for capital as well as the organization provided for by one man is very limited.

(iii) The sole trader’s liability is unlimited which is a great handicap as compared with the limited liability of a shareholder in case of a joint stock company

(iv) The limitation of capital restricts enterprise.

(v) It is not a legal entity unlike the joint stock company.

Thus the sole traders business is generally done by very small retailers, whereas business on a larger scale is usually on the footing of a combination of two or more persons in partnership.

Such a business is known in business language as a ‘Partnership Firm.’