Legal Forms of the Firm

Sole proprietorship

Partnership firm
Joint Stock Company Cooperative society

Sole proprietorship
Features:

1.
2. 3. 4. 5. 6.

Sole ownership No separate entity of the firm No difference between manager and owner Unlimited liability All profits or losses to proprietor Less legal formalities

Advantages
1.

2.
3. 4. 5. 6. 7. 8. 9.

Easy and simple formations Direct control Promptness in Decision Making Direct motivation and incentive to work Maintenance of secrecy Personal touch with customer Economy in Management Minimum Gov. Regulations Socially significant

Disadvantages
1.

2.
3. 4. 5. 6.

Limited financial resources Limited managerial ability Unlimited liability Uncertainty of continuity Diseconomies of small scale Limited growth

2. Partnership
The Indian Partnership Act, 1932, Section 4 Partnership as an association of two or more persons who have agreed to share the profits of a business which they run together . This business may be carried on by all or any one of them acting for all.

 Features 1. 2. 3. 4.

5.
6.

7.
8.

More persons Profit and loss sharing Contractual relationships Existence of Lawful Business Utmost good faith and honesty Unlimited Liabilities (LLP- Limited liability Partnership) Restrictions on transfer of share Principal agent relationship

Advantages
Easy formation Larger Financial resources Flexibility Combined abilities and balanced judgement Combined abilities and balanced judgement Direct motivation Division of risks Business secrecy Protection of minority interest Encouragement of mutual trust interdependence 11. Easy dissolution
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

and

Disadvantages
Unlimited Liabilities

Limited Resources
Instability Non Transferability of Interest Lack of Public Confidence Risk of Implied Authority Lack of Centralised Authority

3. Joint Stock Company

It is an artificial person created by Law, with a distinctive name, a common seal and perpetual succession of members. It can sue and be sued in its own name.

Features
Artificial legal person

Separate legal entity

Perpetual Succession Limited liability Common Seal Transferability of shares Separation of ownership and management Incorporated association of persons

Distinction between Private and Public Companies

Numbers of members Name Numbers of directors Article of association

Memorandum of association 2. Article of association 3. Prospectus Public subscription Prospectus Allotment of shares Commencement of business
1.

 Transfer of shares

Share warrants
Statutory meeting and reports Directors Managerial remuneration Index of members Filing of balance sheet