FORMS OF BUSINESS ORGANISATION: sole trade and Joint Hindu Family

There are various forms of business organization that a person having money and vision can start.They are as follows:

·         Sole partnership or Sole Trade

·         Partnership

·         Joint Hindu Family Business

·         Co-operative Societies

·         Joint Stock Company

·         Sole Partnership:-

Sole trade is the most popular form of business organization.This type of business does not require any legal formalities.Its feature are as follows:

1.       Formation and Closure:-

This form of business doesn’t have any legal formality to be fulfilled.Only thing required is a licence.There are not separate entity , and no separate act or law that governs sole trade,so it is very easy to start or close such a business if required.

2.       Liability:-

Sole trade has unlimited liabilities,this means that in case of loss,the debts will be recovered from the personal assets of the trades when the assets of the business are not sufficient.

3.       Sole bearer of loss and Profits:-

There is a risk of business failure which is run by Sole trader alone.They cannot share loss with other person.On the other hand,if the business is successful he will enjoy all the benefits and receive all the profits.(Direct relationship between effort & reward)

4.       Control:-

Sole trader is the only decision maker in the business.The right to make all the decisions lie with the trader.There is no interference of any outsider.

5.       No separate legal entity:-

In the eyes of law sole trader and sole trade are one entity.It means any assets that is purchased will be purchased on the name of the trader.The owner is held responsible for all the activities of the business.

6.       Lack of Business continuity:-

The businessman dies or in case of any physical accident,insanity,bank ruptercy.The business will come to an end because sole trade does not have a separate legal entity.

 Merits of Sole Trade:

1.       Quick Decision Making:Trade enjoys high degree of freedom in decision making.He is the sole decision maker,there is no one he has to consult,this improve the way and the time taken in decisions.

2.       Sole Recipient of Profits:The sole trader enjoys all profits by himself.There is no one to share the profit with.Thus,there is a direct relationship between efforts and reward.

3.       Easy to form and close:There is no separate law that examine sole trade,due to which there are no legal formalities to be fulfilled to start and close business.It can be done as per the wish of the owner.

4.       Confidentiality of Information:The biggest advantage of sole trade is,secrecy can be maintained,there is no law which asks the trader to publish his accounts.This saves the business from lot of risks.

5.       Direct Insentives:The trader is the sole recipient of profits thus there is a direct relationship between effort and reward,if he works hard then all profit can be enjoyed solely by him.

Demerits of Sole Trade:

1.       Unlimited Liability:The major disadvantage of sole trade us that the private of the trader is exposed to recover the losses of business.A poor decision or circumstancecan create serious financial burden on the trader.

2.       Limited Managerial Ability:The sole trader is the only decision maker.Business required various managerial skills in purchasing,selling,financing,etc.It is mean that a person excels in all these areas thus this business forms suffers the risk of bad Managerial decision making.

3.       Limited Life of Business:In the eyes of law sole trade and sole trader are one entity.So,death,insolvency or illness of businessman will lead to closer of business.

·         Joint Hindu Family Business:

This form of business organization found only in India.It is one of the oldest form of business organization.It refers to a business which is carried by a Hindu Undivided Family.It is governed by the hindu law.It is controlled by the head of family known as Karta.There are two types of such business:

a.       Dayabhaga:This form of business is prevalent in West Bengal where both male and female members are co-parceners.

b.      Mitakashara:This form of business is prevalent all over India except West Bengal.Only the male members are co-parceners.

Its feature are as follow:

                                 i.            Formation:In a Joint Hindu Family Business requires at least two members in the family and property which is inherited by them.

It is governed by Hindu Successor Act,1956.The membership is by birth.

                               ii.            Liability:Karta is the sole decision maker.So,his liability is unlimited,rest all the members have limited liability.

                              iii.            Contract:Karta is the owner and manager of the business.No other person can take decision.

                             iv.            Continuity:If business is get affected by the death of KARTA as the next oldest member take the position of KARTA.This is known as Perpetual Successor.

                               v.            Minor Members:The membership in this form of business is registered by birth.So,newly born baby becomes a member of business according to Hindu law.Hence,Minors can also be a part of business.

                             vi.            Loyalty and Honesty.

Merits of Joint Hindu Family Business:

                                I.            Effective Control:JHF has effective control because KARTA has the full decision making power.No one can interfere with his decision making power,this helps in quick decisions.

                              II.            Perpetual Successor:In case of the death of KARTA the next oldest member in the family take his position.This ensures continuity of the business.

                            III.            Limited Liability:The liability of all the members except KARTA is limited.So the personal property is protected against the risk of loss.

                            IV.            Increases Loyalty:All the members in the business are part of a family.So,there is a great degree of loyalty towards one another.A family pride stops them from doing any activity which is harmful for the business.

                              V.            Minor members:This is the only type of business in which recognizes the interest of Minor members.

Demerits of Joint Hindu Family:

                                I.            Dominance of KARTA:KARTA has the whole power of decision making.Everyone has to follow the decisions regardless of their agreement.This is the biggest demerit of JHF.

                              II.            Limited Resources:This business is depend upon ancestral property.So it faces the problems of limited capital.This limits the scope of expansion.

                            III.            Limited Managerial Ability:KARTA cannot be the expert in all areas of management.Business can suffer from his unwise decisions.So JHF suffers from lack of quality decision making.

                            IV.            Unlimited liability of KARTA:The personal property of KARTA is exposed to loss many times.He avoids decisions which are risky,this does not allow JHF to enjoy Supernormal profit because some decisions are jale of opportunity.