Introduction

When someone plans to start a new business — or wants to expand one that already exists — one of the earliest and most important decisions is which form of business organisation to adopt. There is no single "best" form; the right choice depends on weighing the advantages and disadvantages of each type against the entrepreneur's own needs, resources and circumstances.

The five main forms of business organisation an entrepreneur can choose from are:

• Sole proprietorship — owned, managed and controlled by one individual.
• Joint Hindu Family business — owned and run by the members of a Hindu Undivided Family.
• Partnership — two or more persons who agree to carry on a business together.
• Cooperative societies — a voluntary association of persons formed for their mutual welfare.
• Joint stock company — an association of persons with a legal identity separate from its members.

These forms move roughly from the simplest to the most complex. Our study therefore begins with sole proprietorship — the easiest form to set up and run — and then works up to the more elaborate forms of organisation.

A story that sets the stage

• Neha, a bright final-year student, was waiting for her results when she decided to put her free time to good use. With a talent for painting, she began decorating clay pots and bowls with her own designs, working out of her home.
• Friends and neighbours loved her work, and she sold several pieces to people in her colony. Operating from home meant she saved on rent, and word-of-mouth publicity built her popularity as a sole proprietor. By the end of summer, her modest investment in colours, pottery and drawing sheets had earned her a profit of Rs 2,500.
• Motivated by this success, Neha decided to turn her hobby into a full-fledged business. She could keep running it alone as a sole proprietor, but scaling up would need more money. Her father suggested she instead form a partnership with her cousin, to raise additional funds and share the responsibilities and risks. He also felt that if the business grew further, it might eventually need to become a company.
• Neha was left wondering: which form of business organisation should she choose? Answering that question — for Neha, and for any entrepreneur — is exactly what this chapter sets out to do.