Business is a wide field that can not be explained in a single post, here in this article we will discuss the main types of business organizations such as sole traders, partnerships, limited partnerships, and limited liability partnerships.

What Is Business Organizations

A business organization can be defined as:

  • A group of people that are grouped together for getting a common goal and objective
  • A place where productions are taken place for generating revenue

What Is Sole Trader In Business Terms

A business that is handled by an individual whose liabilities are unlimited is said to be a sole trader. Profits and losses are enjoyed by a single person.

Types of business organization
Types of business organization

What Is Partnership In Business Terms

Two are more people join together and start a business. Profits and losses are divided according to capital and sometimes in ratios

How Many Partner Types Are There

1. General partner: active and involved in day-to-day operations.

2. Sleeping partner: These are not involved in the day-to-day operation but are liable for debts in the business.

3. Limited partner: Contribute a limited amount of capital

4. Salaried partner: Works on a salary base, and receive income but it is not a real partner until it has some shares in the business.

What are The Main Types of Partnership

Usually, there are two main types of partnership businesses that are described below.

1 Limited Partnership: In a limited partnership one or more partners may have limited liability as per their capital.

  1. Limited partnership Act 1907 says that it will happen if there is one partner whose liability is unlimited.
  2. Partnership business should be registered by the registrar of companies as a partnership limited.
  3. partners who are limited can not take part in the management
  4. A limited partner can not do any contract from third parties

2 Limited liability Partnership: A legal entity that has limited liability according to their capital or investment.

Characteristics Of Partnership

The partnership only exists under the view of making a profit means business takes place to make a profit and if a loss occurs all the partners are liable for that loss as well.

The following are the not necessary for creating a partnership:

  • Jointly ownership of a property
  • Gross return should distribute equally among the partners
  • Expenses are divided equally among the partners

Note: It is not necessary that the partnership is based on a contract but yeah once the operation in a business starts then the partnership starts as well. “NO” documentation is necessary to start the business in the general partnership. Partnership Act 1890 applies to every partnership whether it is oral or written. Partners are bound with each other as per their agreed terms whether it conflicts with the partnership Act 1890.

Authority of Partners

If there are three partners in the business then they all have equal rights, power, and authority to take or sign the contract.

If there is an express contract then maybe one or two partners have permission to take or sign the contract or if there is no express contract then they will deal according to the partnership act 1890 and which tells that every partner has an equal right to accept or sign the business contract to third parties.

Implied Authority of a partner

He can:

  • Sell the firm’s products
  • Buy needful goods for the business
  • Receive payments from debts
  • Hire the employees
  • He can hire an advocate if there is any case in the business

Liability for Partnership debts

The firm is liable for the contract if the partner is authorized to accept the contract. The firm will not be bound if:

  • Third-party knows there is no express authority or
  • Third-party does not believe that he is a partner

Note: If there is anyone who represents himself as a partner of a company even if he is not then he is liable for partnership and this refers to “Holding Out”.

What Is Liability in Tort

If any partner commits something in a business for which he was authorized and that cause of loss of a client then partners are jointly liable for the client loss.

Misapplication Of Money Or Property

If during the business third party’s money or property is misused or misapplied then partners are liable for the loss.

Partners are liable or not

General RuleEvery partner is liable for the debts and contract in the partnership business
New PartnerThe new partner is not liable for the debts which are already taken before he joins
Retiring PartnerHe is liable for whatever was incurred before the retirement notice and after the retirement notice, he will be liable for everything which has done before his retirement.
Change in PartnersOld partners will remain liable whether the partner changes or not
NovationIf a creditor has some due on company partners are liable to pay even a new partner as well
IndemnityIncoming partner may offer outgoing partner for his debts incurred and post-retirement
Types of Business Organization

Note: If a Partnership company or a firm is going to close or end its business operations this term is referred to as “Dissolution“.

What Is Dissolution In A Business

Dissolution without Court Order

The partnership will automatically dissolute under the following conditions:

  • The expiry or fixed term for business
  • Partner gives notice for leaving the business
  • Death or bankruptcy
  • If the business becomes illegal

Dissolution with Court Order

According to Partnership Act 1890, Court can close the business in the following situation:

  • Partner mental disorders or incapacity
  • If a partner breaches the contract
  • If the only loss occurs

Distribution of Assets In Dissolution Of Partnership

If the company is going to close then how or whom to distribute the money? The following will be paid first:

  • Outside debts
  • If a partner gives a loan in the business
  • Partners contribution

What are the main types of business organization in commerce?

  1. Soles proprietorship
  2. Partnership
  3. Company
  4. Cooperative society

What types of business organization generates the most total sales?

The food and clothes industries are the most revenue-generated industries in the globe.

What is the main purpose of an organization?

Making a profit is the first purpose of all types of business organization, but yeah there are also some other organizations that are made for the purpose of giving facilities to the people such as NGOs.