FORMS OF BUSINESS ORGANIZATION

FORMS OF BUSINESS ORGANIZATION

Accounting always applies to an Economic Organization or Economic Unit, whether Profit-making or Non-profit-making. Economic Units have business transactions that must be recorded, classified, summarized and interpreted. The accounting principles, as applicable to Economic Units for profit-making necessitate understanding of the forms of Business Enterprises which may be broadly of the following three types.

(These are differentiated on the basis of Ownership)

Sole Proprietorship
A business owned by one person is called Sole Proprietorship.

Partnership
An un-incorporated business owned by two or more persons, voluntarily acting as partners (co-owners) is called Partnership.

Limited Company / Corporation
A Company is a Legal Entity formed under the laws of the country (Companies Act or Companies Ordinance).
In other words, a Corporation is the only type of business organization recognized under the law as an entity separate from its owners.
The ownership in the Company is divided into shares owned by its shareholders and the owners of the Company are not personally liable for the debts of the business.
A company may be Private Limited Company or a Public Limited Company.


TYPES OF BUSINESS ORGANIZATION

The above stated forms of business organizations may carry out any of the following types of business.

TRADING (NON-INDUSTRIAL)
(Buying and Selling, Imports and Exports) (Products remaining the same)
(This also includes Retail and Wholesale Business)

MANUFACTURING (INDUSTRIAL)
(Industries) (Input products and Output products being different)
(This may also include Construction)

SERVICES
(Lawyers, Doctors, Consultants, Engineers)
(Professional and Business Services) (Provide services not goods)

Other examples are Leisure and Hospitality, Information, Financial Activities, Government, Education and Health Services, Transport, Warehousing, and Utilities, etc.

There may be combinations of the above as well.