Types of Businesses in India

Like many things we encounter, businesses are of several types. They can be started by a single person, a group of people, or a family. Let’s look at the four main types of non-registered businesses found seen in India, namely:

1. Sole Proprietorships

2. HUF

3. Partnership

4. Cooperative Societies

Sole Proprietorships

Sole proprietorships are businesses with a single owner, who receives all profit and bears all risks and liabilities. Though easier to manage at a small scale, there can be some problems upon expansion and growth.

Some merits of this business organization include:

• There is quick decision-making as there is only one person in control of the business.

• All the profit is received by the owner.

• All information about the company remains confidential as there is one owner only.

• The organization is easy to form and close.

Some demerits of this business organization include:

• The business has access to limited resources and capital.

• The business cannot be passed on from one person to another, it ends with the owner.

• The owner of the business bears all risks and liabilities of the business.

• The organization may lack in management as one person cannot be skilled at all aspects required in a business.

Hindu Undivided Families (HUF)

This form of business organization is formed by at least two members of the same family possessing ancestral land, and membership is by birth into the family. Controlled by the karta or the eldest member of the family, it is usually a small business meant to only sustain the family.

Some merits of this business organization include:

• There is quick decision-making and all control of the business lies with the karta.

• All members, except the karta enjoy limited liability.

• The business can continue by being passed down generations, upon the death of the initial karta.

Some demerits of this business organization include:

• There are limited resources and capital available as mostly only ancestral property and inheritance is used.

• The karta has unlimited liability.

• Similar to sole proprietors, the members, especially the karta may lack managerial skills, which can hinder the business.

• Due to the dominance of karta as the head of the business, other members may not have a say in the running o the business.

Partnerships

When two or more people come together to start a business, it is known as a partnership. In this organization, business is carried out by all partners or one acting for all, who have agreed to share all profits and losses.

Some merits of this business organization include:

• The business can be easily formed and closed upon approval of all partners, if not registered.

• Decision-making is balanced as all partners have a say in the business.

• Resources and capital are increased due to the increased number of owners.

• Risks and liabilities are shared amongst the partners.

Some demerits of this business organization include:

• If not registered, each partner’s liability is unlimited.

• Conflicts may arise more frequently due to the presence of several partners.

• Unless agreed upon, business is closed upon the death or leaving of one partner.

Cooperative Societies

A cooperative society is set up by a group of people working together to achieve a common goal, usually to further their economic and/or social interests. Amul is one of the most famous and successful examples of a cooperative society, set up in response to the exploitation of marginal milk producers by traders and agents in small cities.

Some merits of this business organization include:

• Each member has an equal right to vote in the decisions of society.

• The liability of each member is limited.

• The government provides support to these organizations.

• The business is continuous, irrespective of the death or leaving of any member.

• The business is easy to form.

Some demerits of this business organization include:

• Capital is limited to the contributions of the members, and government grants, if any.

• Members may lack the necessary skills to manage and grow the business as their role is voluntary in nature.

• These societies may have restrictions placed upon them due to government aid.

• Secrecy is hard to maintain due to a large number of members.

• There may be a conflict of opinions in the running of the business.

- Siya Heda