Assignment
QUES. 1- Sanjeev Kapoor is an expert in making bakery and confectionary products with loads of talent and encouragement from everyone. He wants to go in for his own bakery and confectionary venture. But he doesn’t have much by the way of money and infrastructure. He knows of some and friends, who might be willing to associate with him to provide necessary funds and infrastructure. What sort of business organization should he go and why?
ANS. – With the expansion of business, it became necessary for a group of person to join hands together and supply necessary capital and skill. Sanjeev may possess exceptional business ability but doesn’t have much by the way of money and infrastructure; he can have a financing partner. In this case his friend is financing partners who provide necessary funds and infrastructure to him for starting his own bakery and confectionary venture. A financier may need a managerial expert as well as a technical expert and all of them may combine to set up a business with common ownership and management.
For starting his own bakery and confectionary venture, he should go for partnership because partnership has many advantages as follows: (i) Easy Formation: Formation of partnership is easier and no legal formalities are to be observed to establish it. At the same time, unlike a company, not much of expenses are incurred for its formation. However, as compared to sole trader’s concern, it may involve certain difficulties, especially in selection and organization of partners etc. (ii) Larger Financial Resources: In a partnership, since several people pool their financial resources into a common business, the amount of capital accumulation becomes much higher than what can be contributed by one person in sole’s trader’s concern. The scale of operations can be enlarged to reap the economies of scale. There is always scope for the introduction of new partners to increase resources. (iii) Flexibility: It’s a highly flexible organization. Changes can be introduced easily. The necessary additional capital can be raised, new partners can be introduced, and the pace and other object of the firm can be changed. Business of the firm can also be expanded or contracted according the requirement of the business. (iv) Combined Abilities and Balanced Judgement: In a partnership firm, better management of the business is ensured; because capital and brain of two or more persons are pool. Combined abilities and balanced judgement produce appreciable results. (v) Direct Motivation: Since the partners themselves manage the business, they are likely to manage it with great care, caution and interest. Moreover, partnership provides fair correlation between rewards and efforts on the part of owners, and as such partners are motivated to apply the best of their energy and capacity fort the success of the business. (vi) Division of Risks: In sole proprietorship, the risks of business are to be shouldered by one person alone; but in partnership, the risks are to be shared by all the partners. Thus, partnership ins more useful for a risky business. (vii) Business Secrecy: The annual accounts and reports of a partnership firm do not require circulation and publicity and, therefore, secrecy can be maintained about the business. (viii) Protection of Minority Interest: The partnership Act provides equal rights and powers for all the partners irrespective of their capital contribution. Every partner has a right to participate in the management of the business. All important decisions are to be taken by the consent of all the partners. If a majority decision is enforced on minority, affected partners can get the business dissolved. (ix) Encouragement of Mutual Trust and Interdependence: each partner is an agent for the others. Therefore, all the partners act with utmost mutual trust. They also develop a sense of interdependence and team spirit. At the same time each partner develops his individuality through his responsibility for others and the firm as a whole. (x) Easy dissolution: A partnership firm can easily be dissolved. It is a kind of voluntary association for carrying on business operation , therefore, it can be dissolved by the partner by expressing to each other their intention to do so. In the case of partnership at will, it can be dissolved by giving 14 day notice to other partners.

QUES.2 – Your friend Yuvraj has consulting you to advice regarding his practice in law. Suggest and justify the forms of organization suitable for the purpose.

ANS. - A business enterprise can be owned and organized in several forms. Each form of organization has its own merits and demerits. The ultimate choice of the form of business depends upon the balancing of the advantages and disadvantages of the various forms of business. The right choice of the form of the business is very crucial because it determines the power, control, risk and responsibility of the entrepreneur as well as the division of profits and losses. The nature of business is the most important factor. Businesses providing direct services like tailors, restaurants and professional services like doctors, lawyers are generally organized as proprietary concerns. So in this case, he may choose sole proprietorship to practice in law.
Characteristics of sole proprietorship: (i) No Separate Legal Entity: legally, the sole trader and his business are not separate entities. In other words, all the assets and liabilities of the businesses are the personal assets and liabilities of the proprietor. (ii) Management and Control: The sole proprietor alone has absolute and over all authority or decision making power on all matters and functioning of the business. It is not necessary for him to consult anybody while taking any decision or action in the conduct of business. (iii) Unlimited Liability: The sole trader’s liability is unlimited. He is responsible for all losses arising from the business. The liability is not limited only to his investments in the business, but his private property is also liable for business organization. (iv) Undivided Profit Earning: Since the sole proprietor bears all the risks of the business, he alone is entitled to all the profits. There is a direct relationship between his efforts and rewards. This serves as a built in motivation for the proprietor for expanding his business activity. (v) One man Ownership: the business is owned by a single individual. He may contribute capital out of his own saving or borrow it from banks. Since the savings and borrowing capacity of an individual are limited, the capital available for the business is also limited. (vi) Stability: A sole proprietorship firm lasts as long as the proprietor is alive and continues to run it. As the business is identified with the proprietor himself, this form of business/organization has less stability.

The sole proprietorship is the best, if the sole proprietor is in a position to manage everything himself as in this case of Yuri. It is more suitable for him because of the following reasons: * Capital requirements are small; * Risk involved is not heavy; * Personal touch with the people; * Quickness in decisions and prompt actions are important;

Thus, the sole proprietorship is simple and elastic and the most appropriate form of business organization for Yuri.