Forms of Business Organization

Business is the activity with the object of earning an income through profit. As you know, business activities can be production and sale of goods & services or purchase & sale of goods & services. Now you can group these activities into: Commerce, Industry and Service.

• Commerce involves the activities in the movement of goods and services from the producer to the consumer. It includes procurement, grading, storing, transporting commodities through the wholesalers, retailers etc.
• Industrial activities involve manufacture or some definite treatment of materials from which marketable commodities can be manufactured.
• ‘Services’ involve intangibles. It can be professional services like in case of doctors, lawyers etc. or it can be other services like transport etc.

A business can be categorized in one of several ways, and the form its owners select will affect the business’s and owner’s legal liability and income tax treatment. Here are the most common options and their major defining characteristics.

A business unit may start as a sole proprietorship (one man ownership) and gradually expand into partnership firm and then into private limited company and into a big public limited company and finally into a giant business house having a number of subsidiary companies. A particular form of business adopted by a business unit at a particular point of time depends upon the various factors like tax advantages, capital requirements, owners’ preferences etc.

Each organizational form of business can be visualized & related to the business unit as