Name: Usman Manzoor

Roll #: 08
MBA 1st (4 Years)
Assignment: Types of Business
Subject: Introduction to Business &
Business Ethics
Department: Management Science
Submitted to: Mam Arooj Fatima
Business
Introduction

Business is very common learn today activity. It is spoken & Understood by a common man like
shopkeeper, Industrialist, Insurer, Banker, doctor etc.

Definition

Business is a gainful procedure through which individuals & group exchange goods and services among
themselves.

In Simple Words

Business is any legal activity that is done for the purpose of profit.

Types of Business Organization

Three Major Types of Business Organization

●Sole Proprietorship

●Partnership

●Corporation

Other Forms of Business Organization

●Cooperative

●Non-Profit Organization

●Franchise

Sole Proprietorship
The sole proprietorship is the simplest business form under which one can operate a business.
The sole proprietorship is not a legal entity. It simply refers to a person who owns the business
and is personally responsible for its debts.
Sole Proprietorship examples include small businesses, such as a single person art studio, a local grocery,
or an IT consultation service. The moment you start offering goods and services to others, you form a Sole
Proprietorship. It's that simple.

Features of Sole Proprietorship

 Single Ownership. A sole trading concern is owned by one individual. ...
 Personal Organization or Common Identity. ...
 Capital. ...
 Unlimited Liability. ...
 One Man Control. ...
 Profits and Losses. ...
 No Special Legislation.
1] Lack of Legal Formalities
A sole proprietorship does not have a separate law to govern it. So there are not many
special rules and regulations to follow. It does not require incorporation or registration
of any kind. In most cases, only a license is required to carry out the desired business.

And just like in its formation, there is hardly any legal process involved in its closure.
Overall it allows for ease of doing business with minimum hassles.

2] Liability
Since there is no separation between the owner and the business,
the liability of the owner is also unlimited. So if the business is unable to
meet its own liabilities, it will fall upon the proprietor to pay them. All of
his personal assets (like his car, house, other properties etc) may have to
be sold to meet the liabilities of the business.
3] Risk and Profit
The owner is the only risk bearer in a sole proprietorship. Since he is the
only one financially invested in the company, he must also bear all the
risk. If the business fails or suffers losses he will be the one affected.

However, he also enjoys all the profits from the business. He does not
have to share his profits with any other stakeholders since there are none.
So he must bear the full risk in exchange for enjoying full profits.

4] No Separate Identity
In legal terms, the business and the owner are one and the same. No
separate legal identity will be bestowed upon the sole proprietorship. So
the owner will be responsible for all the activities and transactions of the
business.

5] Continuity
Just as we saw above the business and the owner have one identity. So a
sole proprietorship is entirely dependent on its owner.
The death, retirement, bankruptcy. insanity, imprisonment etc will have
an effect on the sole proprietorship. In most of such cases, the
proprietorship will cease to exist and the business will come to an end.

Advantages of Sole Proprietorship

A proprietor will have complete control of the entire business, this will
facilitate quick decisions and freedom to do business according to their
wishes

Law does not require a proprietorship to publish its financial accounts or

any other such documents to any members of the public. This allows the
business a great deal of confidentiality which is sometimes important in
the business world
The owner derives maximum incentive from the business. He does not
have to share any of his profits. So the work he puts into the business is
completely reciprocated in incentives

Being your own boss is a great sense of satisfaction and achievement.

You are answerable only to yourself and it is a great boost to your self-
worth as well

Disadvantages of Sole Proprietorship

One of the biggest limitations of a sole proprietorship is the unlimited
liability of the owner. If the business fails it can wipe out the personal
wealth of the owner as well and affect his future business prospects too
Another problem is the limited capital a sole proprietor has access to. His
own personal savings and money he can borrow may not be enough to
expand the business. Banks and financial institutions are also wary
lending to proprietorships
The life cycle of a sole proprietorship is undecided and attached to its
owner. If the owner is incapacitated in any way it has a negative effect on
the business, and it may even lead to the closure of the business. A sole
proprietorship cannot carry on without its proprietor.

A sole proprietor also has limited managerial ability. He cannot be an

expert in all the fields of the business. And limited resources may mean
that he cannot even hire competent people to help him out. This may lead
to the business suffering from mismanagement and poor decisions.
Partnership as such is an agreement between two or more persons to
carry on business with profit motive, carried on by all or any one of them
acting for all.

FEATURES OF PARTNERSHIP
1. Agreement: The partnership arises out of an agreement between two
or more persons.
2. Profit sharing: There should be an agreement among the partners
to share the profits of the business.
3. Lawful business: The business to be carried on by a partnership must
always be lawful.
4. Membership: There must be at least two persons to form a
partnership. The maximum number is 20. But in case of banking
business the maximum is 10 members.
5. Unlimited liability: The liability of every partner is unlimited, joint
and several.
6. Principal-agent relationship: Every partner is an agent of the firm.
He can act on behalf of the firm. He is responsible for his own acts and
also for the acts done on behalf of the other partners.
7. Collective management: The firm and the partners are one. When a
contract is made in the name of the firm all the partners are responsible
for it individually and collectively.
8. Non-transferability of shares: A partner cannot transfer his share of
interest to others without the consent of the others.
ADVANTAGES OF PARTNERSHIP
1. Easy to form: A partnership firm can be formed without any legal
formalities and expenses. Even if the fum is to be registered, the
expenses are not much compared to company form of organization.
2. Access to more capital: A firm consists of more than one person.
Therefore it can secure more capital from combined resources.
3. Skill and talent: Talented persons may be taken as partners. More
skill and talent will be available..
4. Division of labor: Division of labor can be introduced which
increases the efficiency in the management. One partner may take care
of purchases, another sales, a third accounts and so on.
5. Contact with customers: All the partners in a firm may take part in
the management of the business. So, they get in touch with the
customers during the course of the business. It enables them to study
the tastes and needs of the customers.
6. Borrowing capacity: The creditors will lend Loans not only on the
basis of the firm’s assets but also based on the personal properties
of the partners. So the borrowing capacity of a firm is more.
7. Incentive to work hard:
Every partner is liable for the debts of the
firm. Also every partner has a share in the profits. This makes
them to work hard for the success of the business.
8. Expansion of business: Due to the availability of sufficient finance
and skill the business can be expanded very easily.
9. Wise decisions: In partnership, decisions are taken with the
consultation of all the partners. So naturally the decisions are wiser and
more beneficial.
10. Co-operation between partners: The partnership enables partners
to provide mutual help to each other. Partners behave as members in a
joint family.

Disadvantages of Partnership
The disadvantages of partnership include the fact that each owner or member is exposed to
unlimited liability for their activities within the business, transferability can be difficult to
 achieve, and a partnership is unstable as it can automatically dissolve when just one partner
no longer wants to participate in the business or can no longer do so.
Partnerships can have many drawbacks. For example, partners are still liable for the profits
of the business and will have to report the partnership's income on their tax returns. Profits
and losses are a part of each partner's personal responsibility. Furthermore, in most of the
partnership models, the partners will have unlimited personal liability for the company's debts.
Additional disadvantages include:

 Having more people in a business can also complicate decision-making and decrease
profits.
 Liability may be less for limited partners but general partners retain full liability among
the owners for their own actions as well as all other general partners.
 Disagreement between equally sharing partners is one of the biggest reasons that
companies dissolve.
 Losing a partner will be costly as you will have to value that person's assets plus
replace an essential person who has taken on a lot of liability/responsibility

Corporation
A corporation is a legal entity that is separate and distinct from its
owners. Corporations enjoy most of the rights and responsibilities that individuals
possess: they can enter contracts, loan and borrow money, sue and be sued, hire
employees, own assets, and pay taxes. Some refer to it as a "legal person."

Examples of Corporation
Microsoft
Google
Apple

Characteristics Of A Corporation
The five main characteristics of a corporation are limited liability, shareholder
ownership, double taxation, continuing lifespan and, in most cases, professional
management.

 Capital acquisition. It can be easier for a corporation to acquire debt and equity, since it is
not constrained by the financial resources of a few owners. A corporation can sell shares to
new investors, and larger entities can issue bonds to obtain a significant amount of debt
financing.

 Dividends. A corporation pays its investors by issuing dividends to them. This differs from
the distributions made from a partnership or sole proprietorship to pay their owners.
 Double taxation. A corporation pays income tax on its earnings. If it also pays a dividend to
its investors, the investors must pay income tax on the dividends received. This constitutes
double taxation of the earnings of the corporate entity.

 Life span. A corporation can theoretically operate forever, outlasting its owners.
Conversely, the owners may decide to terminate the corporation at any time.

 Limited liability. Any liabilities incurred by a corporation are not also transferred to its
shareholders. Instead, anyone trying to enforce a liability can only pursue the corporate
entity for satisfaction.

 Ownership. Ownership in a corporation is based on the number of shares owned. Buying or

selling these shares shifts the ownership of a corporation to a different investor. A public
company that has its shares traded on an active stock exchange may have thousands or
millions of owners.

 Professional management. In many cases, the investors who own a company are not
actively engaged in its management. Instead, they hire professional managers to handle
the oversight of the business on their behalf.

 Separate entity. A corporation is considered to be an entirely separate operating and legal

entity. It operates separately from its owners, and has many of the rights and
responsibilities of a person.

Advantages Of Corporation
Limited liability

The shareholders of a corporation are only liable up to the amount of their investments. The corporate
entity shields them from any further liability, so their personal assets are protected.

Source of capital

A publicly-held corporation in particular can raise substantial amounts by selling shares or issuing bonds.

Ownership transfers

It is not especially difficult for a shareholder to sell shares in a corporation, though this is more difficult
when the entity is privately-held.

Perpetual life There is no limit to the life of a corporation, since ownership of it can pass through many
generations of investors.
Disadvantages Of A Corporation
Double taxation

Depending on the type of corporation, it may pay taxes on its income, after which shareholders pay
taxes on any dividends received, so income can be taxed twice.

Excessive tax filings

Depending on the kind of corporation, the various types of income and other taxes that must be paid
can require a substantial amount of paperwork. The exception to this scenario is the S corporation, as
noted earlier.

Independent management

If there are many investors having no clear majority interest, the management team of a corporation
can operate the business without any real oversight from the owners.

Cooperative
A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons
united voluntarily to meet their common economic, social, and cultural needs and aspirations through a
jointly-owned enterprise".

Common examples of cooperatives include agricultural cooperatives, electric cooperatives,

retail cooperatives, housing cooperatives and credit unions

Nonprofit organization
Nonprofits are tax-exempt or charitable, meaning they do not pay income tax on the money that they
receive for their organization. They can operate in religious, scientific, research, or educational settings.

A number of NGO variations exist, including:

BINGO: business-friendly international NGO (example: Red Cross)

ENGO: environmental NGO (Greenpeace and World Wildlife Fund)

GONGO: government-organized non-governmental organization (International Union for Conservation

of Nature)

INGO: international NGO (Oxfam)

Nonprofits are tax-exempt or charitable, meaning they do not pay income tax on the money that they
receive for their organization. They can operate in religious, scientific, research, or educational settings.

A number of NGO variations exist, including:

BINGO: business-friendly international NGO (example: Red Cross)

Franchise
“An authorization granted by a government or company to an individual or group enabling them to carry
out specified commercial activities, for example acting as an agent for a company's products”.

Examples of Franchises
●McDonald's

● Dominos

● KFC

● Pizza Hut