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Business Ownership Structures in India

Instructor: Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

Thinking about going into business and not sure where to start? In this lesson, you'll learn more about the ownership structures of commercial organizations in India and some important features of each.

Owning a Business in India

Jacob is considering starting a business in India. The only problem is, he's not sure what business structure his new venture will take. He has great plans for a unique entrepreneurial concept, but needs to determine exactly what type of format that will be.

To that end, Jacob is doing a little research and has asked us to put together a short list of business structure models so he can determine where his business fits. Read on to see what we've come up with to help Jacob out.

Types of Business Structures

Business structure doesn't refer to what time you open or the types of goods you sell. Rather, a business structure is a way to legally categorize how your business is set up. Largely, how you choose to structure your business is up to you; the government just wants you to pick a structure and let them know.

Here are a few possibilities:

Sole proprietorship

Sole proprietorships have been around since the world's very first artisans starting selling their wares. A sole proprietorship is owned and operated by one person. This works well in situations where the market is local and limited, and one-on-one customer service is at a premium. Complete responsibility also includes complete liability if something bad were to happen, like a customer suing the business.

This form of business structure is easy, because one person controls all the actions and decisions. Examples of this type of business might include jewelry makers, barbers, tailors, and craft artisans. In each of these businesses, the sole owner earns all the profits, and generates all of the capital necessary to keep the business up and running.

Partnership

While a sole proprietorship is owned and operated by one individual, a partnership is a business venture between two or more individuals. As a partnership, all the partners share in the responsibilities, as well as the profits of the business. All of the owners in a partnership are known as partners and, together, as a firm. They arrive at a partnership through a contract, whether verbal or written.

Partnerships provide more stability to a business by increasing monetary resources and tapping into greater skills and expertise of the partners. Businesses on the smaller side are a good fit for a partnership such as those offering professional services or retail shops. More partners means more people shoulder the risks of the business, and share the profit.

Hindu Undivided Family Business (HUF)

Found only in India, the Hindu undivided family business (HUF) is one of the oldest forms of business structure in the country. In this organization, all members of a Hindu undivided family do business jointly under the head of the family's control, a person known as the Karta.

The family members are called coparceners. The two primary conditions for a HUF are that only members of the family are members and there is ancestral property.

All the members of the HUF under the Karta have equal membership in the business, so they also share equal profits. The decision-making and management of the business falls to the Karta. Births and deaths in the family increase and reduce, respectively, the number of coparceners. If the Karta dies, the responsibility falls to the next eldest family member.

Joint Stock Company

Joint stock companies are, at the heart, a voluntary business structure. The business is set up in a number of shares of the company, which individuals called 'shareholders' can buy or sell.

By owning shares of a joint stock company, you function as a partial owner of the business, relative to the number of stocks you own. If it's a small amount, you have less of a stake in the company than someone who owns a large amount. That means there will be an unequal ownership to the business itself.

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