Forms of Business Organization I (Sole Proprietorship and Partnership)

Week: 8 (Eight)

Topic: Forms of Business Organization

Meaning of Business Organization

A business organization refers to how the factors of production are arranged or structured to deliver goods and services to consumers at a profit.

Forms of Business Organization I

Sole Proprietorship: A sole proprietorship is a form of business organization which is established, owned and managed by one person. It is also called one man business because everything about the business is connected with the person that established it.

 Features of Sole Proprietorship

1. All decisions are made by one person (the owner).
2. It is owned by one person.
3. It is usually small.
4. The sole proprietor employs other people only when the business has grown big.
5. It is the most common form of business organization.
6. It is not regarded as being different from the owner.

Advantages of Sole Proprietorship

1. The owner enjoys all profit alone.
2. Making business decisions is fast.
3. There is no room for quarrels and disagreements in the business.
4. It is very easy to start.
5. It requires small capital to start.

Disadvantages of Sole Proprietorship

1. There is usually small amount of capital provided for the business.
2. There is a limit in management capacity.
3. The death of the owner can lead to the end of the business.
4. The business does not have the capacity to borrow funds or money.
5. There is a limit to the level of growth and expansion the business can experience.

Partnership: A partnership is another form of business organization where the owners can be from two persons to twenty persons. Such a business organization is formed when two or more persons bring their monies and other resources together to establish the business and manage it together. The persons who came together to form the business are known as partners.

 Features of partnership

1. It is owned by two or more persons, up to twenty.
2. Each partner has the right to represent the business anywhere.
3. The partners share profits and losses.
4. Any partner can choose whether to work in the business or not.
5. There is a document, known as Partnership Deed, which gives the business its existence.

Advantages of Partnership

1. It provides more capital when compared to sole proprietorship.
2. Better and more managerial skills are made available.
3. The business can continue even at the death of one or more partners.
4. Sharing losses among the partners helps the business survive such negative occurrences.
5. It is also easy to establish.

Disadvantages of Partnership

1. It experiences disagreements and fights which often leads to the end of the business.
2. There is delay in making business decisions.
3. It is not recognized by law as being separate from its owners.
4. Sometimes the amount of capital provided is not adequate.
5. The death of a partner may lead to the end of the business.

Homework

As an entrepreneur, which is preferable to you between sole proprietorship and partnership. Give reasons for your answer.