This document discusses different types of business organizations including sole proprietorship, partnership, and limited liability partnership (LLP). It describes the key features of sole proprietorship where one individual owns and manages the business and bears all risks and profits. Partnerships involve two or more individuals jointly owning and managing the business where profits and risks are shared. LLPs provide limited liability to partners similar to a corporation but partners can directly manage the business. The document outlines the merits, limitations, types of partners, and registration process for partnerships.

1. TYPES OF BUSINESS
ORGANIZATIONS
SOLE PROPRIETORSHIP
PARTNERSHIP

2. Sole proprietorship refers to
a form of business
organization which is owned,
managed and controlled by
an individual who is the
recipient of all profits and
bearer of all risks.

3. FEATURES
Easy formation
and closure
Lack of
business
continuity
Unlimited
liability Absolute
control
Sole risk bearer
and profit
recipient
No separate
entity

4. MERITS
Sense of
accomplishment
Quick
decision
making
Confidentiality
of information
Ease of
formation
and closure
Direct
incentive

5. LIMITATIONS
Unlimited
liability
Limited life
of a business
concern
Limited
Resources
Limited
managerial
skills

6. OPTIONS FOR A SOLE PROPRIETOR

7. Example of a Sole Proprietor

8. This storyboard shows that Jill started a lemonade shop according to
her wish and hired a few people. She received all the profits alone
but when the shop caught fire, the whole responsibility of rebuilding
it came upon her.
Rebuilding the shop was easy but the shop closed down with the
unexpected death of Jill as there was no one else to take care of the
shop.

9. Partnership
According to The
Indian Partnership
Act, 1932,
“Partnership is the
relation between 2
persons who have
agreed to share the
profit of the
business carried on
by all or any one of
them acing for all.”

10. Joint decision
making
Equal Risk
bearing
FEATURES
Maximum
members in
other
business-10
Maximum
members in
banking-10
Continuity
is ensured
Mutual
Agency
Minimum
members
required-2

12. Mutual Agency
• Mutual agency is the right of all partners to represent the company’s
normal business operations and the authority to bind it to mutual
contracts and agreements. In leman’s terms, it is the authority given to a
person doing business on behalf of the company, usually a business owner
or partner. Each partner is responsible for one another in a basic sense
however; each acts as individuals in the business operations and has such
authority.
• So how do partners ensure a mutual agency in their business? Put
everything in writing from the very beginning so as to lessen the confusion
later down the road when things begin to get hectic as the company
grows. A partnership agreement should be established that will guarantee
each position in the partnership and the benefits of the partnership.
• For example, typical characteristics of a partnership agreement would
state that two or more persons were entering in the agreement. The
agreement, a legally binding contract, would also stipulate how profits will
be shared and split or who will hold the majority of financial gain. Finally,
that there is a mutual agency or how the company will be ran.

14. MERITS
Balanced
decision
making
More funds
Ease of
formation
and closure
Sharing of
risks
Secrecy

15. LIMITATIONS
Lack of public
confidentiality
Unlimited
liability
Possibility
of conflicts
Limited
Resources
Lack of
continuity

16. A limited liability partnership (LLP)
is a partnership in which some or all partners (depending on the jurisdiction) have
limited liabilities.
It therefore can exhibit elements of partnerships and corporations.
In an LLP, each partner is not responsible or liable for another partner's misconduct or
negligence.
This is an important difference from the traditional partnership under the UK
Partnership Act 1890, in which each partner has joint (but not several) liability.
In an LLP, some or all partners have a form of limited liability similar to that of the
shareholders of a corporation.
Unlike corporate shareholders, the partners have the right to manage the business
directly.
In contrast, corporate shareholders must elect a board of directors under the laws of
various state charters.
The board organizes itself (also under the laws of the various state charters) and hires
corporate officers who then have as "corporate" individuals the legal responsibility to
manage the corporation in the corporation's best interest.
An LLP also contains a different level of tax liability from that of a corporation.

17. In India, for all purposes of taxation (service tax or any other stipulated tax payment), an LLP is
treated like any other Partnership firm.
Liability is limited to each partners agreed upon contribution to the LLP.
No partner is liable on account of the independent or unauthorized actions of other partners,
thus allowing individual partners to be shielded from joint liability created by another partner's
wrongful business decisions or misconduct.
An LLP shall be a body corporate and a legal entity separate from its partners. It will have
perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall
not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm
where the maximum number of partners can not exceed 20.
The LLP Act has a mandatory requirement that one of the partners in the LLP must be an Indian.
Provisions have been made for corporate actions like mergers and acquisitions.
While enabling provisions in respect of winding up and dissolutions of LLPs have been made,
detailed provisions in this regard would be provided by way of rules under the Act.
The Act also provides rules for Limited Partnerships.
The Registrar of Companies (RoC) shall register and control LLPs too.

18. Characteristics
Separate legal entity: Like a company, LLP also has a separate legal entity. So the partners and
the LLP in are distinct from each other. This is like a company where directors are different from
the company.
No requirement of minimum capital: In the case of companies there should be a minimum
amount of capital that should be brought by the members or owners who want to form it. But
to start an LLP there is no requirement of minimum capital.
Minimum number of members: To start a limited liability partnership at least two members are
required initially. However, there is no limit on the maximum number of partners.
No requirement of compulsory audit: All the companies, whether private or public, irrespective
of their share capital, are required to get their accounts audited. But in case of LLP, there is no
such mandatory requirement. A limited liability partnership is required to get the audit done
only if:
the contributions of the LLP exceeds ₹ 25 lakhs or
the annual turnover of the LLP exceeds ₹ 40 lakhs

19. Benefits
It is more flexible to organize the internal structure of LLP. Comparatively, it is complex to organize
the internal structure of a company.
There is no maximum limit for the number of partners in LLP. In the private limited company,
shareholders are limited to the extent of 200 shareholders.
Raising and utilization of funds depends on the partners will. Funds can be bought and utilized
only as per the norms listed under the Companies Act, 2013.
LLP is exempt from Dividend Distribution Tax (DDT). In contrast, a company has to pay DDT on
dividend distribution.
Professionals like Chartered accountant, Cost Accountant(CMA), Advocates, engineers, and
doctors may prefer to register as LLPs.
No requirement of compulsory audit: All the companies, whether private or public, irrespective
of their share capital, are required to get their accounts audited. But in case of LLP, there is no
such mandatory requirement.
Disadvantages
Any act of the partner without the other partner may bind the LLP.
LLP cannot raise money from the public.
Angel investors and venture capital firms generally prefer not to invest in LLPs. Private Limited
companies are preferred over LLPs.

20. TYPES OF PARTNERS

21. 1. Active partner
Contributes capital
Shares profits and
losses
Participates in
management of
firm
Unlimited liability
Takes part in
carrying out
business on others
behalf

22. 2. Sleeping or dormant partner
Contributes capital
Shares profits and
losses
Unlimited liability
Does not
Participate in
management of
firm

23. 3. Nominal partner
Allows the use of
his name by a firm
Does not Share
profits and losses
Does not
Participate in
management of
firm
Unlimited liability
Does not
Contribute capital

24. 4. Secret partner
Contributes
capital
Shares profits and
losses
Participates in
management of
firm
Unlimited liability
His association is
not known to the
general public

25. 5. Partner by estoppel
Gives impression
that he is a partner
of firm through his
behaviour
Does not Share
profits and losses
Does not
Participate in
management of
firm
Unlimited liability
Does not
Contributecapital

26. 6. Partner by holding out
Allows himself to
be represented as a
partner but is not a
partner
Does not Share
profits and losses
Does not
Participate in
management of
firm
Unlimited liability
Does not
Contributecapital

27. Status of a Minor
Cannot become a
partner in any firm as
is incompetent to
enter into a valid
contract with others.
Liability is limited to
the extent of capital
contributed by him.
Can be admitted to
benefits of a
partnership firm with
the mutual consent of
all other partners.
Not eligible to take
part in active
management
When he attains
majority, he decides
whether he would like
to become a partner in
the firm.

29. TYPES OF PARTNERSHIPS
Partnership
duration liability
Partnership
at will
Particular
partnership
Limited
partnership
General
partnership

30. Classification on the basis of
duration
Partnership at will Particular partnership
Exists at the will of partners Formed for the accomplishment of a
particular project.
Terminates when any partner gives a
notice of withdrawal.
Dissolved when project is finished.
Together
forever!
Last
block
and
over!

31. Classification on the basis of
liability
General partnership Limited partnership
Liability of partners is limited and
joint.
Liability of at least 1 partner is
unlimited and the rest have limited
liability.
Partners participate in firm and there
is mutual agency.
Partners don’t participate in firm and
there is no mutual agency.
Registration is optional. Registration is compulsory.

32. EXISTING PARTNERSHIPS

34. Partnership deed
The written
agreement which
specifies the terms
and conditions
that govern the
partnership is
called a
partnership deed.

35. Name
of the
firm
Duties and
obligations
of the
partners
Preparation
and
auditing of
accounts
Investment
made by
each
partner
Duration
of
business
Contents of a
Procedure
for
dissolution
of firm
partnership
deed
Distribution
of profits
and losses
Methods
of solving
disputes
Salaries and
withdrawal
of the
partners
Nature
and
location of
business
Interest on
capital and
drawings
Terms
governing
admission,
retirement
and expulsion
of a partner

36. Registration of a firm means the entering of
firm’s name, along with the relevant
prescribed particulars, I the register of firm
kept with the Registrar of Firms.

37. In case a firm is not registered, it
is deprived of many benefits:
A partner of an
unregistered firm
cannot file a suit
against the firm or
other partners.
The firm cannot
file a case against
the partners.
The firm cannot
file a case against
third parties.

38. Procedure for registration
1.Submission of
application in the
prescribed form
to the Registrar of
firms. The
application should
include:
2. Deposit of required fees with the Registrar of firms.
3.The Registrar after approval will make an entry in the register of firms and will
subsequently issue certificate of registration.

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