Unit-2 Forms Of Business Organization I

In this unit you will study in detail the features, classification, merits and limitations of these different forms of business organisations.

Partnership organizations emerged essentially because of the limitations and failures of the sole proprietorships. Discuss.

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Written on Apr 15, 2019 5:12:01 PM

  • You have learnt that the sole trader organizations have limited financial resources, limited managerial ability and skills, and unlimited liability. In case of expansion more capital and more managerial skills are required. At the same time, the risk will also increase. A sole proprietor may not be able to fulfil all these requirements. A person who lacks, managerial skills may be having capital. Another person who is a good manager may not be having sufficient capital. This calls for a situation where two or more persons come together, pool their capital and skills, and organize the business. This type of business organization is called partnership organization. It grew essentially because of the limitations and failure of the sole proprietorships.
  • As defined by J.L. Hanson, "a partnership is a form of business organization in which two or more persons up to a maximum of twenty join together to undertake some form of business activity".
  • The Indian Partnership Act, I932 defined partnership as "the relation between persons who have agreed to share the profits of business carried on by all or any of them acting Tor all".
  • The Uniform Partnership Act of the USA defines a partnership "as an association of two or more persons to carry on as co-owners a business for profit".
  • Based on the above definitions, we can state that partnership is an association of two or more persons who have joined together to share the profits of business carried on by all or any of them acting for all.
  • The persons who own the partnership business are individually called 'partners' and collectively known as the.'firm or 'partnership firm'. On an agreed basis, partners contribute to capital and share the responsibility of running the business. However, in some cases one partner may provide the whole or major portion of the capital and others contribute technical and managerial skills with or without some capital. All such terms and conditions of partnership are usually mentioned in the partnership agreement.

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