1st Year Notes:

Principles of Commerce

CHAPTER 3- TYPES OF ORGANIZATION 

(Short Question Answer)

Q1- Explain sole proprietorship?


SOLE PROPRIETORSHIP
It is the business which is owned by a single owner who is also referred to as sole proprietorship. It enjoys many benefits which other ownership cannot. Secrecy and ownership of full profit are some of its chief characteristics. However, it inherently suffers some setbacks embodying uncertain life, limited capital, and difficulty in operations.

Q2-Describe the advantages of sole proprietorship?
  
Advantages of a Sole Proprietorship

• A sole proprietor has complete control and decision-making power over the business.
• Sale or transfer can take place at the discretion of the sole proprietor.
• No corporate tax payments
• Minimal legal costs to forming a sole proprietorship
• Few formal business requirements

Q3-Describe the disadvantages of sole proprietorship?

 The disadvantages of a sole proprietorship include:

• Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.
• Owners cannot raise capital by selling an interest in the business.
• Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.

Q4- Define partnership?

PARTNERSHIP:

“Partnership is an association of two or more persons to carry on as co owners a business for profit”.
It is a business ownership, which must have at least two partners. The maximum number is 20 but in the case of banking it is only 10. Sole proprietorship, partnership is the commonest form of ownership in the business world.

Q5-Describe the advantage of partnership?

ADVANTAGES OF PARTNERSHIP

The partnership business enjoys the following advantages.
1.   Larger Capital:
In partnership capital of the business may be greater than the sole proprietorship. Capital can be increased any time by increasing the number of partners. But in sole proprietorship the capital is limited to only one man’s contribution.
2.   High Credit Standing:
Assuming equal size, the partnership enjoys the highest credit standing of all three types of business ownerships (sole proprietorship, partnership, and company). If the assets of the business are insufficient to pay off debts, the personal property of partners can be utilized. 

3.   Combined Judgment And Skills:
It is a common belief that two heads are better than one, and it is true especially in partnership where partners have different skills, experiences, abilities and qualifications.

4.   Personal Interest:
The business and its success depends upon the enthusiastic involvement of the co owner. Partners are very keen in running their business. The business gets prosperous from their personal interest and efforts.

 Q6-Describe the disadvantage of partnership?

DISADVANTAGES OF PARTNERSHIP
  
1.  Unlimited Liability
This is a serious disadvantage in which the personal property of the partners is very much at stake if the business assets are not enough in the full settlements of the debts. That is, if the assets fall short in the payment of the firm’s debts, the unpaid balance will be recovered from the personal property of the partners in accordance with their profit sharing ratios.
2.   Divided Control And Management:
Management and control is divided among various partners owing to which many administrative problems are created. Divided control causes delayed decision. Duties and responsibilities are difficult to fix. Accountability is weak
3.   Lack Of Continuity:
Partnership lacks in continuity. It has a limited life. It comes to an end in the following situations some of which are very common.
a-   Death of a partner
b-   Admission of a partner
c-   Retirement of a partner
d-   Bankruptcy of a partner
e-   Insanity
4.   Lack Of Transferability:
Partnership has a frozen investment. Whatever once invested in the business cannot be withdrawn. If a partner withdraws his share the partnership will stand dissolve.


Q7-Write any four characteristics of partnership?

•  Mutual Contribution.  There cannot be a partnership without contribution of money, property or industry (i.e. work or services which may either be personal manual efforts or intellectual) to a common fund.
• Division of Profits or Losses. The essence of partnership is that each partner must share in the profits or losses of the venture.
•  Limited Life. A partnership has a limited life. It may be dissolved by the admission, death, insolvency, incapacity, withdrawal of a partner or expiration of the term specified in the partnership agreement.
•  Co-Ownership of Contributed Assets. All assets contributed into the partnership are owned by the partnership by virtue of its separate and distinct juridical personality. If one partner contributes an asset to the business, all partners jointly own it in a special sense.