1.1 Concept of Business
Business includes all the activities aimed towards providing goods and services to the members of an economic system to earn profit. Some businesses are involved with providing goods or products as furniture, soap, machinery, etc., while others are involved in providing services as barber shop, banks, insurance company, law firms etc. Some other businesses are involved in distribution as wholesalers and retailers.
1.2 Forms of Business Organization
There are different types of organizations in our society. Some of them are established for earning profits whereas some are not. The organizations which are established for earning profits through production and distribution of goods and services are business organizations. Non-business organizations are different to business organizations since they are established for providing services not for profit. Business organizations are established on different forms. They are as follows:
1. Sole Proprietorship (Sole Trading Concern):
The oldest form of business organization is sole trading concern, in which, a single person or a family invests capital and runs the business. Many small businesses are organized as sole trading. The activities of the business and owner should be separated since they have close relationship. Hence, the business entity concept is very worthful to depict the true and fair view of the business while maintaining the accounting records. It is simple to establish and control a sole trading concern. A sole trading concern suffers from the drawbacks of limited capital, managerial skills and unlimited liability. However, it enjoys tax advantages.
2. Partnership:
Another form of business organization is partnership. A certain number of persons (two or more) join together for their mutual benefit and combine their financial, managerial and technical resources for the purpose of operating a business which is called partnership. A partnership organization is formalized with written agreement called partnership deed. Like a sole trading concern, a partnership is not a taxable entity, since the partners pay taxes on the profit allocated to them. A partnership is simple to establish and enjoys shared control. It also revolves around some limitations as unlimited liability, limited capital, difficult to transfer ownership etc.
3. Corporation (Company):
A corporation is the developed form of business organization which has evolved to overcome the limitations of sole trading and partnership organizations. It is established and terminated by law only. It collects huge amount of capital by issuing shares to the public and has perpetual existence. The liability of the shareholders is limited to the extent of their investment. It is very easy to transfer the ownership of a corporation. It runs with a professional management. Corporation has a separate legal existence, therefore, it is a taxable entity.
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