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Why, When, how and which type of organization to set up

The three types of organizations we are selecting here are 1) Sole Entrepreneurship/Proprietorship; 2) Partnership (Firm) and 3) a Company/Corporation. All the three are different in structure. We will discuss here the scope of innovation and adavantages/disadvanteges of each of them, and their structure etc.

When to set up which type and how are the problems faced by the businessmen. Each type has its own plus and minus points and require to be dealt with properly. An individual can not set a firm or a company legally. He has to restrict his operations within a sole enterprise unit system, but the need of coping with demand of the product may provide avenues as well as dictate for expansion.

This expansion again will depend on the type of the organization that will cater to the demand of the product, opportunities available and above all the capability of the original promoters.

Solution Preview

The three types of organizations we are selecting here are 1) Sole Entrepreneurship/Proprietorship; 2) Partnership (Firm) and 3) a Company/Corporation. All the three are different in structure. We will discuss here the scope of innovation and impact of strategy, process, product or services in each of them.

We will also touch the structure of each of these organizations to understand better where, how, what and when either of these be set up.

1) Sole Entrepreneurship:

This is the simplest form of business entity owned and managed by an individual. All the decisions are taken by him. He takes the entire profit as well as suffer the losses. He is ever exposed to unlimited liability and faces the constraint of finance.

2) Partnership (Firm):

Any two individuals can form a partnerships firm entering basically in any type of business, sharing all the profits and losses in the proportion agreed upon, generally depending on the quantum of investment made and incorporated in the firm's deed. Each partner and the firm are individually as well jointly liable to the outside liabilities. It is said that partners should be chosen more carefully than life partners. Actions of any of the partners can bring an end to its existence.

3) Company:

A company is an incorporated association, which is an artificial person created by law, having a separate legal entity, with a perpetual succession & a common seal. The people who initially contribute funds to create the company are known as members and those who buy its shares ...

Solution Summary

Let us take the example of an innovator. He has invented some particular item and feels he should introduce it to the public. For this he requires the minimum of "four factors of production" - capital land, labor and enterprise. But to acquire these he needs minimum of funds which he can I either supplement from his own savings or convince a bank to sanction him funds. With all these resources he sets up a sole enterprise business unit in which he is all. Fruits of his enterprise is entirely his simultaneously the losses, if any.

Popularity of his product forces him to increase the production. Being an enterprising man he has no option but to expand. He has to expand. He looks for a dependable, trustworthy partner. His wife comes forward to help him in all respects. Both of them set up a partnership firm. But mind you both of them and the firm are jointly and severally liable to the creditors and other stakeholders like suppliers of raw-material, transporters, dealers of their product etc.

Good fortune is with the couple and they feel it is foolish to restrict the production of their product and doing injustice to the increasing number of customers/consumers and ethically to the society as a whole.

Their popularity brings them in touch with financiers, investors, their employees and bankers come forward and courage them to form a private/public limited company. Well according to their needs they can establish either or the type of companies.

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