Forms of commerce is a rather intricate and technical topic to understand. To facilitate easy comprehension, it is important to know a few fundamental introductions.
Introduction to Commerce
Commerce refers to the elaborate and conscious process of buying and selling either/both products and/or services. This process of buying and selling is usually on a large scale. Commerce includes the buying or selling of products or services along with the exchange of monetary compensation. In simple words, commerce refers to the trade between 2 entities.
For example: importing steel from the UK is global commerce. This is so because the steel is passing ports. Also, in exchange for importing the steel, the importing country pays the steel manufacturer, a bulk of the money, in exchange for the goods purchased.
Business and an Entrepreneur
Business refers to a commercial activity of selling products or offering services in exchange for returns of a sort (either in terms of money or kind). These business activities are commercial in nature which means that the emphasis is on the process of commerce and trade.
An entrepreneur is a person who initiates a novel idea and implements it. In simple terms, an entrepreneur is one who starts his/her own business. The business activities focus on maximizing profits.
Forms of Commerce (Forms of Business)
There are many forms of commerce in the global market. The most critical and important forms of commerce are as follows:
A sole proprietorship form of commerce is that kind of business wherein only one individual runs the functions. This particular individual is usually the owner of the business as well. In other words, a single person who owns the business is responsible for the fair running and management of the firm. The process of formation and closure is rather simple. The sole proprietor is the sole recipient of profit and risk bearer. There are high chances of lack of business continuity in this form of commerce. Moreover, the business is not considered to be a separate entity in case of this form of commerce.
A sole proprietorship has its own merits as well as demerits. Some of the benefits of this form of commerce are as follows:
- Decision making does not take as much time and are rather quick and simple with low-cost investments.
- The insider information of the firm will always be confidential at all times unless the sole proprietor decides the otherwise.
- Any incentive or increment changes, the sole proprietor enjoys the benefits all by themselves.
- Managing a firm single-handedly can lead to the attainment of a sense of accomplishment.
- Moreover, the most important merit is the ease of establishment and closure of the firm.
A sole proprietorship has its own demerits as well. Some of the disadvantages of this form of commerce are as follows:
- The business runs with only scarce resources that the sole proprietor can afford to bring in.
- Also, there is a very likely high chance that this business concern has a limited life.
- Unlimited liability of the sole proprietorship form of commerce makes it a rather challenging demerit.
- The sole proprietor brings into the business only limited managerial ability and skills.
Joint HUF Businesses (HUF – Hindu Undivided Family)
Joint Hindu Undivided Family business is one of the oldest forms of commerce in India. The eldest male member of the family owns, manages and runs the intricate decision making of the HUF. However, this ruling male member of the HUF is known by the name ‘Karta”.
Moreover, there are two primary conditions/criteria for the existence of the Joint Hindu Undivided Family businesses.
- The family must have at least 2 male members.
- The family should own ancestral properties.
Further, the formation of a HUF business is rather simple because it has been established from generations. The control of this form of business can be both, challenging and simple, depending on circumstances. Minor members of the family are not permitted in the decision making and functioning of the business as a whole.
HUF businesses have its own merits as well as demerits. Some of the benefits of this form of commerce are as follows:
- Effective control over actions.
- Continued business existence.
- Limited liabilities of members.
- Increased loyalty and cooperation.
HUF businesses have its own demerits as well. Some of the disadvantages of this form of commerce are as follows:
Limited resources and capabilities.
- Unlimited liability of the Karta.
- The dominance of the Karta with minimum managerial skills.
This form of commerce refers to the association of 2 or more persons who agree to share the profits and losses from the business. In addition, this requires the partners to work in coordination for the success of the firm. The partners must bear the loses that the firm incurs in an orderly fashion. Decision making and control run in the hands of active partners. There are 3 kinds of partnership: (a)Partnership at will; (b) Fixed Period Partnership; and (c) Particular Partnership.
However, the partnership firm binds by the rules, laws and regulations as per the partnership deed. This deed is an official document that states the dos and donts of the partnership.
A partnership firm has its own merits as well as demerits. Some of the benefits of this form of commerce are as follows:
- Easy formation and closure of partnership firms.
- There are more fund inflows and capital investments.
- The partners share the risk.
- Secrecy of the company intricacies is well maintained.
A partnership firm has its own demerits as well. Some of the disadvantages of this form of commerce are as follows:
- Unlimited liabilities of the partners.
- High possibility of conflicts and disputes.
- Limited resources and lack of continuity.
A cooperative society is a form of commerce that is a cooperative form of business enterprise. The primary motive of cooperative societies is not to earn profits but to engage in mutual help. It is a voluntary membership and works well with ‘Each for all and all for each!’.
Further, there exist limited liabilities and all the functions are considered legal due to its legal status.
Joint Stock Company
A JSC (Joint Stock Company) is a voluntary association of individuals for profit. The ownership of shares of the company is known as membership. A joint stock company is an artificial person that is created by law. This company has a separate legal entity. Moreover, there exists a perpetual succession and a common seal for JSCs.
There are 2 kinds of companies: (a) Private company; and (b) Public company.
The choice of the forms of commerce depends largely on the following factors:
- Cost of setting up
- Ease of establishment
- Continuity and liability
- The degree of control and
- Nature of business