3 TYPES OF BUSINESS UNITS

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1.Sole Traders

Sole proprietorship or sole trading is a business that is owned and usually operated by one person. Employees or member of his family sometimes assists him.

This person bears the risks of a business in which he owns or borrows the capital, rent the land and employs the necessary labour.  

He directs the business, makes decisions about the method and amount of trade and takes the profits and bears the losses.

The business is usually fairly small.The law doesn’t recognize him as a separate entity from his business.The range of activities range from wholesaling and retailing. Some are in small scale farming, manufacturing, decorations, restaurants, guest houses etc. 

2. Partnerships

The law defines partnership as “The relationship that subsists between persons carrying on a business in common with a view to making a profit.

Each of these persons is called a partner.

Features of a partnership

The partnership may be a temporary partnership (joint ventures) or permanent partnership.

With a temporary partnership, the relationship is for either a specified period or a specified purpose at the expiry of which the partnership is dissolved.

Permanent partnership are intended to continue indefinitely

Membership is between two to a maximum of twenty.

However, legally for a professional services the number may be up to fifty if each of the partners is a qualified person e.g. Accountants.

  A person who doesn’t have a contractual capacity can’t be a partner.

This means a person who in the eyes of law is not a fit and proper person or who doesn’t have enough mental capacity to conduct his own affairs is not entitled to enter into any sort of a contract e.g. insane, mentally incapacitated person and bankrupt person etc.

No complex formality is required in the formation of a partnership, it is brought into existence simply by agreement by the parties to carry on business and divide the profit.

Types of Partners

Partners may be classified on the following basis:-

Role

(a)Active partner

This is a partner who in addition to providing capital and sharing profits and losses plays an active role in the affairs of the business.

He takes part in the Management of the firm and may often be given a fixed area of responsibility. 

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