Already we have
learned that business is the combination of all the activities from
manufacturing of various goods and services, distribution and all the
supportive economic activities in a legitimate way. Various demand aspects of
the consumers, ownership, own mentality of the businessmen, size and features
are the reason for formation of different types of business. In this chapter,
we shall know about various types of business organization and their aspects on
the basis of ownership.
After completing this chapter, we shall be able to
·
Describe
different types and legitimate features of business
·
Explain
the definition, features, and advantages and disadvantages of sole
proprietorship firm
·
Explain
the suitable area for sole proprietorship and reasons for the popularity of
sole proprietorship
·
Give
example of the idea of state run business and its features.
Different Types of Business Ownership
Different types
of business have been formed on the basis of ownership and of various features
to meet up different demands of the people over the decades. Though, there is
similarity in the objective of earning profit, there are some differences on
the basis of nature, features, area, size and activities among various types of
business organization. On the basis of ownership business can be classified as
the following ways:
1.
Sole
Proprietorship Business
5.
State
Enterprises
Sole Proprietorship Business
Sole proprietorship
is the business formed, operated and controlled by single person. Business in
this world started at first on sole ownership. For this reason, this is called
the most ancient business firm. Considering the present scenario, we can say
that when a single person out of his own responsibility arranges capital and
forms and run business with the objective to earn profit and singly shoulders
the profit or loss of the company is called a Sole Proprietorship Business.
Formation of sole proprietorship business is very easy. Any individual can
start this type of business with small sum of money of his/her own initiative.
Generally, size of this sort of company is small. But, the owner can employ
more than one individual and engage more capital if necessary. There are not so
much limitations for sole proprietorship business under the law. Anybody can
start the business at any place whether it is in the village market, hat-bazar and
road side or in one’s own house. But, in cities and towns the entrepreneur has
to collect trade license before starting business. Most of the business
organization in our world is formed as sole proprietorship. Not only this, 80%
of the business is based on sole proprietorship in Europe and America.
Generally, in our country, the groceries, tea stall, vegetable shop and most of
the retail shop are formed as sole proprietorship firm.
Characteristics of Sole Proprietorship Business
Sole
Proprietorship Business is such type of business where entrepreneur,
owner, operator and supplier of fund is the same person and he/she singly bears
the risk, liabilities, profit and loss of the firm. The characteristics of sole
proprietorship firm are mentioned below:
·
The
owner is a single person in sole proprietorship farm who arranges to supply the
capital, operates the business and bears the risk.
·
Formation
of this kind of business is very easy. Since, there is no legal complexity anyone
can form this if he/she wants.
·
This
sort of business can be formed with less capital. The owner himself supplies
the capital. Generally, own savings, if necessary he/she can borrow form
friends, relatives and Banks and operate business.
·
In
most of the cases, sole proprietorship is of small size. Because of less
capital and ownership of a single person, the size of the firm is small.
·
In
a sole proprietorship firm, the owner has to bear all the risk of the business.
·
Sole
proprietorship firm does not have a legal entity. Owner and the business are
same.
·
The
owner bears all the responsibilities in this business. Thus, his liability is
unlimited. If necessary, one is supposed to sell personal property to meet up
the business liability.
·
Because
of the single ownership of the whole business, the owner enjoys the whole share
of profit. On the other hand, he has to bear all the loss singly.
·
The
existence of sole proprietorship business depends upon the willingness of the
owner. Because, to run the business or to close solely depends upon the
willingness of the owner.
Sole Proprietorship Business Examples
As the ancient
business, sole proprietorship business has been acknowledged among the under
developed, developing and developed countries of the world. Though it is the
oldest business, it is still popular and has survived the competition with
large scale of business. Sole proprietorship business is popular to all because
of the some its features and advantages. Suitable areas of sole proprietorship
business are depicted below:
·
There
are many people who want to start a business but cannot do so because of not
having sufficient fund in hand. Sole proprietorship is suitable for the
thousands of people interested for self-employment. Such as tea stall, small
food shop, cottage industry, pottery shop etc.
·
There
are some businesses which do not require much capital. Those businesses are
considered more appropriate for sole proprietorship concern. Like Betel Shop,
Vegetable Shop.
·
The
business having very low risk is suitable for sole proprietorship business.
Because, low income people want to avoid risk, thus they like this sort of
business. Such as Rice shop, pharmacy.
·
There
are some businesses which provide goods and services with demands stipulated to
a particular region or particular group of customer. Sole proprietorship
business is more suitable for that kind of business. Like library in front of
school, restaurant in front of an industrial factory.
·
Sole
proprietorship business is formed for the business of perishable goods such as
fruits, vegetables, fish, meat etc.
·
Profession
based business like Doctors, Architecture and lawyers and direct service based
business like Laundry, Saloon, Beauty Parlor, etc. are formed as sole
proprietorship business.
·
There
are some business which depends on the changed taste, interest and fashion of
the customer. Sole proprietorship business is more suitable for this kind of
business. Such as tailoring.
·
Sole
proprietorship business is suitable for business of goods and services involved
with individual efficiency, art and fame. Such as painting, photography, jewelry,
furniture and sweet shop.
·
Sole
proprietorship business is also suitable for agro based products. Such as
trading of paddy, potato and other raw items.
·
For
publication of books, papers and newspapers at local and national level,
Business of sole proprietorship is more suitable.
From the above
analysis it is understood sole proprietorship business can be started at any
time and at any place with individual initiative, independent mentality and
endowment of less capital and labor. This business is free from legal
complexity and risk is also a lesser amount. On the other hand, sole
proprietorship business can supply with goods and services from staying very
close to the consumers. As a result, though the business is the oldest one, it
has vast scope and popularity. So, it is necessary to make easier of
availability of loan and other government assistance to eliminate the
prevailing unemployment in the country and creation of new job opportunity by
motivating the youth of the society to form sole proprietorship business.
State Enterprise
Generally,
companies formed, operated and controlled by the state are called State
Enterprise. This kind of business can be established by the state. For the
necessity of the state, business formed in other types can also be converted in
to state enterprise trough nationalization. Normally, state enterprises are
established to ensure industrialization, employment generation, controlling
money and banking system, proper uses and distribution of all the assets
including natural resources and public welfare in some specific sectors.
Besides, state enterprises are also formed and operated to control Arms
Factories for the safeguard and security of the nation. At present, in all the
countries of the world there are some state run business operated.
Characteristics of State Enterprise
State Enterprises
have some unique characteristics. These are described below:
·
State
Enterprises are formed by the ordnance of the Head of State of passing bill in
the National Parliament. Besides, this type of business can also be formed by
nationalization by state ordnance.
·
The
ownership of the state enterprises belongs to the state and the government
supplies all the required capital. But, in some cases partial amount of share
can be sold to the public. In that case, suppliers of capital are government
and public.
·
This
type of business is formed under specific law and has legal and separate
entity. Because of legal entity and separate entity, state enterprises have
eternal existence.
·
Like
other business, the objective of state enterprises are not earning or
maximizing profit, Public welfare or public service is its main objective.
·
The
profit of this business are deposited to the government treasury and spent for
the public welfare. The loss has to be borne by the government.
·
For
the success or failure of state enterprises, the government is accountable to
the parliament.
End
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