Chapter -2 Business Entity And Financial Enviroment ( Business Entity Notes)

Chapter -2 Business Entity And Financial Enviroment ( Business Entity Notes)

# Form of Business Organization :

Business organization can be structure in various ways both as legal entities and in terms of internal management process . The form of business organizations can be classified into following 3 category’s :

Form of business organization

1. Sole Proprietorship : 

In a sole proprietorship business their is only one owner . Their may be employees or helpers assistant and reporting to the owner but their is only one head to administers and run the show  . It is a business enterprise , exclusively owned ,managed and controlled by a single person with all authorities responsibilities and risk .

* Advantage of sole proprietorship are : 

  •  Easy Formation
  • The benefit of secrecy
  • Direct motivation
  • Flexibility in operation
  • It does not fall in co-operate tax bracket

*Disadvantage of sole proprietorship are

  • Limited managerial ability
  • limited amount of capital
  • Not suitable for large scale operation
  • Unlimited liability of the owner

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2.Partnership Firm

A business organization which owned and run by two or more individual agreeing to certain term and condition , sharing profit and loss of the business can be defined as partnership firm . When two or more individual agree to manage to operate a business organization by sharing common profit  is known as partnership firm . A partnership  firm in Nepal is guided and regulated by Nepal partnership act 2020 .

*Advantage of Partnership Firm 

  • Easy to Start
  • raising of fund
  • Sense of ownership

*Disadvantages of partnership firm

  • Unlimited Liability
  • Limited members
  • Lack of harmony
  • Legality

 

 

3.Company Co-operation  (corporation)

A corporation or company is a voluntary  association of individual for profit having a capital divided into transferable shares , the ownership of company is in conditions of membership . Again a company is an artificial person created by law having a separate legal entity with a perpetual (never ending) succession and common seal .

*Advantages

  • Limited Liability
  • Larger Capital
  • Long life
  • Higher profit
  • Transfer Ownership

*Disadvantage

  • Initial difficulties
  • Lack of responsibilities
  • Double taxes
  • Late decision