Types of Businesses and Their Characteristics

This article discusses the different types of businesses such as sole proprietorship, partnership, private limited company, public limited company, and cooperative organization. It explains their characteristics, features, and benefits. The article also provides examples of each type of business.

BSC (Hons) BUSINESS MANAGEMENT WITH
FOUNDATION
SEMESTER 1, EXAMINATION 2021/22
BUSINESS IN PRACTICE
MODULE NO: BMP3002
Exam Paper Release Date & Time: Saturday 13 August 2022 at 10:00am
Submission Cut-off Date & Time: Monday 15 August 2022 at 10:00am
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ANSWER BOOKLET
All the pages of the answer booklet should be submitted including blank ones.
Please type your answers in the spaces provided.
Insert additional pages where required.
Student Name
ID Number
[Start writing you answer from this page. There are THREE questions. You are required to
answer any TWO questions. For each sub-questions, use heading such as “Answer to the
Question no. 1(a)” or “Answer to the Question no. 3(b)” etc]

Question 1
1(a) Every type of business has several criteria to start the business. These business requires money,
labour and land according to their size or operations. These supports the company who can start the
business with low or higher capital. It develops the backward areas, unprivileged zones or semi
backward areas. In micro industry the norms for making investment in plants and machinery is 1
crore and the turnover will not exceed from 5 crore. The small industry requires capital invested in
assets should not be less than crore and the sales will be 50 crore. The investment require in
medium industry is 50 crore and the turnover should not exceed with 250 crore. There are several
micro or large financing companies which provide loans to the industries with or without
mortgaging the security. These industries provides benefits to grow in the economy at domestic
level. Industry can expand the business at global level which aids in promoting the international
trade of the economy. It encourages the exports in the country which will improves the value of
national currency in terms of other currency. It provides ample of benefits or value to the society.
(Adegboye and Iweriebor, 2018)
1(b) It is the part of the small business which is started by individual or group of people with less
amount of money. It helps in emerging the economy by helping the people to run their business in
the rural sector. It provides lot of employment opportunities in the rural areas, villages and town
sector. It aids to promote sustainable financial development in the country. It will help the
government not to develop only rural areas but also urban areas. The main aim of the micro
business is to improve the backward zones by establishing the business in local areas. These
enterprises uses limited resources, fund and renders job to employees and workers. It aids the lower
or middle class people to transfer their ideas of start up in to reality. For this there are several credit
financing agencies which is initiated by the government to provide finance to local people. It also
encourages women empowerment to help the women to run their business. It helps to bridge the gap
between rich and poor by giving them equal privileges to all the sectors. (Buer, Semini, and
Strandhagen, 2020). It helps to bring out the talented youth who prefer to become entrepreneur
rather doing job under the employer. For setting up the business the owner has to take permission
from the government and to comply with the various formalities. It also enhances the regional
development in the country. It increases the purchasing power, national income and provides the job
in the country. Example- Plumbers, artisans, machine operators, street vendors and freelancers.
1(c) It refers to the business which operates on the level of small scale, requires more investment as
compared to the micro business, needs few machines to initiate the business. These kinds of
industry manufactures the product and services on few scale. The capital invested once time in
plants and machines or either they hire the equipment on lease. The owner hire the few number of
employees in the industry. Small industries is the major part of economic development in the
nation. These type of enterprises can’t invest fund more than 1crore. These business is mostly set up
in urban areas. Small enterprises is based on the labour intensive method rather than the capital
intensive. They more relay on the staffs, workers and less depends on the technology. They have an
advantage that small industries are flexible in nature in against with large scale industries and have
the ability to deal with any circumstances. It can be started by the single person or in partnership
firm. It can be begin by the women in individual form or in group by sharing minimum capital
which is 51%. The government has provide several benefits for them and can raise the fund with
lower interest rate (De Araújo Lima, Crema, and Verbano, 2020). These industries fully optimize
the all available resources and reduce the wastage of resources. The owner has the responsibility to
managed and controlled the business. It also includes ancillary industries which helps to develop the
main products by producing machine parts, tools for the parent company. Example- Cottage
enterprises, village industry and tiny business
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1(d) Medium scale industry needs more investment as compared to small enterprises and capital
investment should not be more than 50 crore. These industries operate on moderate scale and have
larger budget to start its operations. This type of industry has sound financial background and banks
or financial institutions provide them loan on the feasibility of the project. These type of industries
investment more money on technology and they upgrade the old technology. It also gives lots of
employment opportunities to large number of employees. Many people migrated from rural areas to
urban areas in search of job and they get self-employed in these kinds of business. Government has
provides many relaxations and many norms which owner has to fulfilled it before starting the
business. They are expanding its business in national as well as international country which helps to
increase the exports of the country. It will appreciate the value of national currency in the foreign
country to reduce the deficit in the economy. It helps to take the position of large scale industry in
future by modernise or diversifying its operations (Expósito, and Sanchis-Llopis, 2019). Through
this country will get new entrepreneurs in our new generation with new inherent talent, mind and
with fantastic skills. Unemployment rate is high in India this type of business renders relief in the
country. It also increases the gross domestic product of the country. It increases the standard of
living people and increases the salary of the people which helps to them live a better life. Example:
Aluminium industry, leather manufacturing unit
1(e) It denotes those business which requires huge amount of finance to run the industry on big
scale. These industries requires big infrastructure facility, large labours, and more capital. The
investment required in the fixed assets should not be more than 100 crore. The country is in
recession or boom is depends on the performance of this company. The main objective of large
scale industry is to provide good quality products and services to the customers. They spend major
proportion of the capital on research and development and to acquire latest technology which will
enhance the production. When company will manufacture the goods on large scale it will ultimately
reduce the cost of the product. It helps in the progress of industrial area in the country. It hires the
skilled employees in the company and also trained the unskilled workforce in the national country.
Through providing employment on rapid scale it helps to mitigate the unemployment rate (Kotarba,
2018). These companies are the major revenue of the government because they pay taxes which
helps to improve the social welfare. These enterprises share big amount of their profit in the
corporate social responsibility. It also improves the status of employees and helps in career
development by providing incentives and perks. It helps micro, small, medium scale industry to
grow with the large scale industry. It purchase the products from ancillary or cottage industry.
Example- Steel and iron industry, Textile business, Automobile industry, Fertiliser business and IT
industry.
Question 2
2(a) It is the business which is started by the single individual. The single person has the rights in
the whole profit and also shared the losses. The owner bear all the risks alone and managed the
business by self. The sole proprietor has the liberty to take instant decisions because they don’t have
to rely on other permission. Being a single owner there is confidentiality of the data in the business
(Lo Schiavo, 2018). There is no risk of leakage of any information or threats of privacy. The
problem faced by the owner is that they have limited resources and have financial constraints in the
business. Example- Grocery shops, salons
Features of sole proprietorship
1. Entry and exit: There is full freedom to owner can start or close the business on voluntary
basis. There is no legal compliances to begin the business. In some case it is essential to
obtain the license or certificate from government to run the business.
2. Liability: The liability of the individual is unlimited in the sole trader business. If the owner
has taken loan for the business then sole person is personally liable for all the obligations.
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The owner has to make payment of all the debts and their personal property is liable if they
are insolvent (Masood, and Sonntag, 2020) .
3. Perpetual succession: If there is the case of insolvency, bankruptcy, death, insanity or mental
conditions of individual is not good then it may have direct effect on the business. Person
can shut down the business in that situation. If there is legal heir or successor of the person
than he can further continue the business.
2(b) It refers to that type of business where there is partnership deed between two or more persons
who will share the profit or losses equally or according to the ratio mentioned in the deed .The
partners contribute the capital to start the business and controlled the business. At the time
dissolution of partnership they share the capital, goodwill and resources according to the ratio.
There is disadvantage of starting the business in partnership is disputes is created among the
partners. On the other hand there is several merits like they can share the risk and can acquire
additional resources and capital. There is no problem of shortage of fund (Parker, Stoborod, and
Swann, 2020)
Features of partnership
1. Agreement: Person can start the business in partnership form by creating an agreement. The
agreement can be oral or written shows the association of people. It is legal proof of starting
the business. In order to avoid conflicts in future it is essential to have copy of written
partnership.
2. Number of people involved: For creating a partnership deed it is necessary to have two or
more partners. Because single person cannot start the partnership firm. In firm there should
be minimum 2 partners and maximum there is no limit of partners.
3. Profit: The next feature of this business is to sharing the income and losses. If there is
condition mentioned in the deed it will be shared in that ratio otherwise if nothing is written
on the deed than losses or gain will be shared equally .
2(c) Private Limited Liability Company is run by the private individuals where there is no
ownership of the government in the company. These company use private limited at the end of their
names. There should be minimum 2 or maximum 200 members needed to initiate the business.
There are several restrictions imposed on these company. Shareholders of these company cannot
publicly trade the shares. These company limit the right for transmission of the shares. It also
prohibits the public to invitation for subscription of stocks. These company has few number of
shareholders (Rizun, Revina, and Meister, 2021).
.
Characteristics of private company
1. Limited liability: The owners of private company has limited liability. It means their
personal assets will not be liable if there is insolvency in the business. The shareholders will
pay from their investment in the company but not from the savings or other private
investment.
2. Perpetual succession: It means business will continue their operations forever. It is not
affected by the every single person. It will exist in the law in the situation of death or
bankruptcy of any member. The company has long life and carry the business for long
duration in future.
3. Prospectus: In the case of private limited organisation there is no need to issue prospectus. It
is the document which show the details of company affairs to the public. Here people cannot
subscribe the shares so no need to issue prospectus.
2(d) It refers to that company in which major ownership is owned by the government. In this
company the maximum share of 51% capital is contributed by the government. These company is
listed on the stock exchange. The public limited company has limited liability it means their
personal investment will not be liable for any debts. Their shares can be acquired by the public
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through initial public offer. These companies have norms and conditions which has to follow
written in memorandum or article of associations. The companies act has enforced strict regulations
on the company because the money invested in the organisation is the public (Roberts, 2021).
Features of public limited company.
1. Transfer of shares: The Company can transfer its shares to anyone one. The members of the
organisation can transfer its shares to other member. The transferor of shares issues the new
share certificate to the transferee.
2. Separate legal entity: The main feature of the public limited company is that it has separate
legal entity. Company and its members are two separate persons. The company have their
own capability to run the operations of the company. Any case will be filled against the
name of the company not its owners. It means company can sue or can be sued.
3. Liability: The liability of the members is limited in the public company. In case of any
insolvency the share of the capital is liable in the proportion of the capital they have
contributed. They have to use limited at the end of name of the company.
2(e) Cooperative organisation is the voluntary association of two or more persons for the welfare of
the society. The main objective of the cooperative organisation is to help the society not to earn the
profit. It includes not for profit organisation. It is established in national as well as international
country serving in different sectors like agriculture, food, funds and medicine. The cooperative
society is framed to protect the interest of weaker sections of the society (Tiwari, and Korneliussen,
2018).
Features of cooperative society
1. Voluntary membership: In the cooperative society there is no compulsion for the members
to become the part of the society. They can join or leave the organisation at their own wish.
There is no discrimination on the basis of the religion, caste and sex. It is open to all the
members.
2. Distinct legal entity: The cooperative society has distinct legal entity. The society is
separated from its members. The society can come in in to the contract and can buy or sell
the properties in its own name. The society can sue or sued by the others.
3. Society welfare: The special features of this cooperative societies is to provide the benefits
to the society. They work for the values of the society. They wants to provide all the equal
opportunities to the backward sections of the society (Umarhodjaeva, 2020)
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Reference List (if Any)
Adegboye, A.C. and Iweriebor, S., 2018. Does access to finance enhance
SME innovation and productivity in Nigeria? Evidence from the World
Bank Enterprise Survey. African Development Review, 30(4). pp.449-
461.
Buer, S.V., Strandhagen, J.W., Semini, M. and Strandhagen, J.O., 2020. The
digitalization of manufacturing: investigating the impact of production
environment and company size. Journal of Manufacturing Technology
Management.
de Araújo Lima, P.F., Crema, M. and Verbano, C., 2020. Risk management in
SMEs: A systematic literature review and future directions. European
Management Journal, 38(1). pp.78-94.
Expósito, A. and Sanchis-Llopis, J.A., 2019. The relationship between types
of innovation and SMEs’ performance: A multi-dimensional empirical
assessment. Eurasian Business Review, 9(2). pp.115-135.
Holbeche, L., 2018. The agile organization: how to build an engaged,
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Kotarba, M., 2018. Digital transformation of business models. Foundations of
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Lo Schiavo, G., 2018. Burden Sharing Arrangements vs. Shareholders and
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pp.581-613.
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Parker, M., Stoborod, K. and Swann, T. eds., 2020. Anarchism, Organization
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anarchism, and organization. In Anarchism, Organization and
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Politics of Organization, by Carl Rhodes. Abingdon, UK: Routledge,
2020. 148 pp. Business Ethics Quarterly, 31(3). pp.481-484.
Tiwari, S.K. and Korneliussen, T., 2018. Exporting by experiential
knowledge: a study of emerging market micro firms. International
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Umarhodjaeva, M.G., 2020. Issues of using the world experience of an
effective corporate governance organization under the conditions of
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поиск механизмов согласованного развития (pp. 113-117).
Wiesner, R., Chadee, D. and Best, P., 2018. Managing change toward
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