Different Types of Business Organizations and Their Legal Formation

This article explores the legal formation of different types of business organizations such as partnership, sole trader, and private limited company. It explains how they are managed and funded with their advantages and disadvantages. The article also highlights the importance of partnership deed in the incorporation and dissolution of partnership firms.

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Business Law
Explore how different types of business organisations are legally formed
The owner in order to start their new business or for expanding their
continuing business must be aware of all the other forms of business which are
prevailing in the market. The ascertainment of the correct form of business is one
the major criteria which aids in the growth and success of the business. Each form
comprises of its own negative and positive effects. Some of the major forms of
business are explained below
Sole trader, it is one of the simplest form of business which most of the
business owners in the country chooses for. It is also known by the name of sole
proprietorship where the owners are known by the name of proprietor and trader.
In this form of business, the affairs of the business are solely managed and
controlled by the owner themselves. Other than this with respect to incorporation
and dissolution of the business there lies no such formal process and by the mere
registration the business is said to have its legal existence. Generally, as this type
of form operates on the small level therefore the capital which is required can be
easily assessable by the means of personal savings of the owners (Martin, 2018).
It can also be acquired by the way of retained profits, small bank loans, no
interest borrowings from the relatives, etc. further, with respect to the profits and
liabilities of the business the trader alone is entitled to bear them and also is alone
entitled to enter in to the transaction which takes place in the name of the sole
proprietorship business. One of the major drawback of this form of business is
that because there lies no concept of separate legal entity therefore the owner can
be made liable to settle the creditors out of his personal belongings as well.
Partnership, in this form of business all the affairs of the firm are required to be
carry out in the manner as specified in the partnership deed as it is the only
document which entails all the related details of the firm. For the incorporation of
this form some of the basic requirement are that there must two or more individual
bearing similar objectives in order to earn the profits. All the concerned partners of
the firm are entitled to have the equal share of profits and losses and similarly are
also bound for carrying the affairs of the partnership firm. Moreover, for the
process of incorporation and its dissolution the partnership deed plays a very major
role. Also, the registration of the partnership deed is a mandatory requirement of
this form.
Private limited company, as the form of private limited companies does not
benefited with the status of separate legal entity therefore because of this this
reason both the company base well as its members are treated in the individual
capacity for the purpose of bearing the liabilities and legal implications. Also, the
registration of the company is a mandatory requirement in this form as for that
there lies a separate process to it which comprises of various stages which are the
ascertainment of the name of the company, formation of its MOA and AOA,
availability of number of required directors and shareholders, etc. After the
fulfilment of these information one has to put forward it ahead to the house of
companies in order to acquire the certificate of incorporation in the name of the
company (Monkhouse and Spiro, 2020).

Further for the form of partnership businesses, the partners of the firms in co-
joint manner stands responsible for the management of the affairs of the business.
And similarly all the partners are entitled to be the part of major decisions taken
for the business. Other than this with respect to the funding of the firm, it is
acquired by the means of shares of each partners which at later stage collectively
called as the total capital of the firm. Also, by the means of bonds, personal
saving of each partners, crowdfunding, etc. funds can be collected for the business
of partnership firm. The other being the private limited company, the company
is managed by its directors and shareholders are said to be the owners of the
company. Moreover, the ways in which the capital can be acquired in this form
are by the issuance of shares to the shareholders and also by the trading of goods
and services in the market which results in the acquisition of the profits
Explain how business organisations are managed and funded with advantages
or disadvantage of an organization
The functions of management and funding of each form of business differs
from that of the other based on different aspects. For the business of sole
proprietorship, mainly it is managed and controlled solely by the trader
themselves and he alone stands responsible for carrying out the activities and
transaction of the business. Further, the capital in such business are easy to access
as can be retained by the means of personal savings and retained profits of the
owner. Also by the way of borrowings from the relatives and small bank loans the
capital can be acquired.