Friday, 28 January 2022

Various forms of business

 In this article, we will deal with the various forms of business. Below are the various forms of business we found in India-


Sole proprietorships businesses do not have the concept of a separate legal entity. It is owned by one individual and all the assets and profit generated belong to the proprietor. Similarly, all the liabilities of the business belong to the owner and it is unlimited and personal assets can also be sold to meet the liabilities. This kind of business does not have any separate law to govern it. Sole proprietorship business ends when the owner dies as it does not have the concept of perpetual succession.


Partnership business is governed under The Indian Partnership Act, 1932. A partnership can be termed as the relation between two or more persons carrying on business and agreeing to share profits. It is not separate from its owner and the partners carry unlimited liability i.e., individually and jointly.

Types of partners- a) Active partners- Active partner is one who participates in the business very actively. b) Dormant partner- This type of partner contributes to the capital and has shared in the profit but does not participate in the business. A dormant partner is also known as a sleeping partner. c) Secret partner- The public does not know anything about the sleeping partner and the sleeping partner cannot represent the company to outsiders. The liability, profits, capital will be similar to other members as per the agreement. d) Nominal partner- Nominal partner does not contribute to the capital and does not have any shares in the profit. 


Limited liability is different from the partnership business. LLP has a separate legal entity and it is treated differently from its members. LLP has features of firm, company, and partnership as well.

  1. COMPANY- 

It is a business having a separate legal entity as it is separate from the person who owns it. The company has perpetual succession, as the members may come and members may go but the company will not wind up unless it is done by the due procedure of law. All the companies are governed under the Indian Companies Act, 2013.

Company is generally divided into two types- a) Public Limited Company- A public limited company is formed for a lawful purpose and must have a minimum paid share capital of rupees five lakhs. A public company can raise capital from the public through the stock market. The liability of the shareholders is limited up to the shares held. A public company should have at least 3 directors and there is no limit prescribed by the law for the maximum number of directors. b) Private Company- A private company is formed by a minimum of 2 members and can have up to 200 members. A private company shall have a minimum of 2 directors compulsorily. A private company cannot raise capital from the public. c) One-person company- The concept of one person company has been introduced in the Companies Act, 2013.  It is defined under section 2(62) of the Act. This is a company where there is only one person as a member.

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