The three most common legal forms of business organization are the sole proprietorship, the partnership, and

the corporation.
Other specialized forms of business organization also exist. Sole proprietorships are the most numerous.

Sole Proprietorship :
This is the simplest kind of business organization, which is owned and controlled by a single individual. Alternatively,
it is referred to as a ‘one-man business’. The sole proprietor may have any number of persons working for him. Still,
these individuals will be either paid employees or family members with no ownership stake in the business.
Merits:
1. It is easy to establish. With minimal formalities, one can go through the formation of the firm.
2. There is an incentive to earn more in a sole proprietorship. The entrepreneur puts their best effort into the business
and receives the appropriate reward for it.
3. There is independence of control over the business.
4. The decision-making is very prompt.
5. The secrecy of the affairs of business can be maintained.
6. The proprietor, being in touch with the work of the firm, can ensure efficient performance.
7. The operations become flexible according to the conditions prevailing in the business. He can expand or
curtail production, if the situation demands, without any hitch.
8. Sole Proprietorship eliminates concentration of wealth and provides equal opportunities to everyone to
use his talents and resources to his maximum advantage.
Demerits:
1. There will be limitations both in resource mobilization and managerial capabilities. He may not receive
adequate finances, raw materials, etc., in a timely manner, and being alone, cannot manage every
department of his business efficiently.
2. The sole proprietor will be personally liable for all kinds of risks attached to his business. His liabilities
will be unlimited. Because of this, he may be very orthodox and conservative in the management of his
business. This may introduce some efficiency as one can reduce risks at the cost of profits.
3. The life of a firm having sole proprietorship is uncertain. After the proprietor’s
death, there is no guarantee that the business will continue.
4. All the qualities required for success in business are rarely found in one man. A
sole proprietor is likely to commit certain errors while conducting his business.
There will be no one else to correct him.

Sole proprietorship is suitable when the markets are small and highly localized, and
the commodity or service is to be provided according to individual requirements.
Many examples can be cited for this, such as tailoring, ornament manufacturing,
printing, book-binding, etc.
Partnership
A partnership is a type of business organization where two or more people agree to
run and manage a business together. They share profits, losses, responsibilities, and
liabilities as outlined in their partnership agreement (also known as a partnership
deed). It is governed by the Partnership Act, 1932, in many countries like India.

Key features: 2 to 20 Persons.

Agreement-Based.
All partners share profits and losses, usually in a pre-agreed ratio.
Partners are personally liable for the debts of the business. Their personal assets can
be used if needed.
 •A partnership is simple to form with minimal legal formalities. A simple agreement between partners
is often sufficient (registration is optional in many places). No need for complex government approvals
to begin.

• Since it involves more than one person, multiple partners contribute funds. A capital base is generally
stronger than that of a sole proprietorship. Therefore, it is easier to invest in better infrastructure,
inventory, and expansion.

•Partnerships also benefit from better decision-making. Since multiple partners are involved, each with
unique skills and experiences, the quality of business decisions tends to improve. Through consultation
and discussion, the firm is less likely to make poor choices, resulting in more efficient and thoughtful
operations.
• Lastly, a partnership offers a more balanced workload. Partners can divide responsibilities based on
their skills and preferences—one may handle accounts, another marketing, and another operations. This
division of labor enhances specialization and contributes to smoother functioning.

• Demerits of Partnership:
• One of the major demerits of a partnership is the principle of unlimited liability. This means that if the
business suffers a loss or is unable to repay its debts, the partners are personally liable. Their personal
assets—such as house, savings, or car—can be used to pay off business debts. This discourages risk-
taking and creates fear among partners, especially when the business operates in a competitive or
uncertain environment.
• Although partnerships usually have more capital than sole proprietorships, the amount of capital is still
limited because the maximum number of partners is restricted (usually up to 20 in many countries).
Moreover, compared to large companies, partnerships cannot raise funds from the public or issue
shares. This limits their ability to expand or undertake large-scale operations.
• Because partnerships are not legally required to publish their accounts or undergo audits like
companies, the general public and financial institutions often lack confidence in them. Potential
customers, investors, or lenders may be hesitant to deal with the firm due to the lack of transparency
and official oversight.

Corporation:
Private Limited Company
Public Limited Company

Why Is It Called "Limited"?

Limited liability means that the owners or shareholders of a company are only financially
responsible up to the amount they have invested in the company’s shares. If the
company incurs losses or fails (goes bankrupt), the personal assets of the shareholders—
such as their house, savings, or car—cannot be used to pay off the company’s debts.
• Suppose you invest BDT1,00,000 in a company by buying its shares. Later, the company
goes into debt and fails. You will only lose your BDT1,00,000 investment. Creditors
cannot come after your personal property to recover their money—unless you personally
guaranteed a loan (which is a separate legal matter).
 Why it matters

• Encourages people to invest in companies without fear of losing personal wealth

• Protects entrepreneurs and shareholders in case the business fails.
• Helps attract more investors to fund companies
• Allows large-scale projects.
• Helps the economy to grow

Private Limited Company

owned by a small group of shareholders (min 2 & max 50).
It has a separate legal identity, limited liability, and is not allowed to sell shares to the general public.
Merits:
Limited Liability
One of the most important advantages of a private limited company is limited liability. Shareholders are
not personally liable for the company’s debts or losses beyond their shareholding. Their personal property
remains safe even if the company faces bankruptcy.
Separate Legal Entity
A private limited company has its own legal identity, separate from its owners. This means it can
own property, sue or be sued, and enter into contracts independently. The continuity of the
business is not affected by the death or departure of any shareholder, giving the firm long-term
stability.
Easy Decision-Making
Since the number of shareholders is small, decisions can be made quickly and efficiently. The
business is usually run by the directors or managing shareholders, making communication and
planning easier and faster compared to larger companies.
• Greater Privacy
Unlike public companies, private limited companies are not required to disclose all financial details to the public. This
allows them to operate with more privacy and flexibility, keeping sensitive business information confidential from
competitors.
• Attracts Serious Investment
Although it cannot raise funds from the public, a private limited company can still attract investment from family,
friends, or angel investors. The company structure provides greater legal protection and professionalism, which
fosters investor trust.

Demerits of Private Limited Company

• Restricted Capital Raising

A major drawback of a private limited company is that it cannot raise funds from the general public. It is limited to
private funding sources, which may not be enough for large-scale expansion or high-investment projects.
• Limited Share Transferability
The shares of a private limited company cannot be transferred freely without the approval of other shareholders. This
restricts investors' ability to exit the company easily and may reduce the attractiveness for new investors.
Complex Legal Formalities
Starting and running a private limited company involves complex legal processes. It must be registered with the
government, maintain proper records, and follow regulatory compliance such as filing annual returns and audits.

Increased Cost of Operation

Compared to sole proprietorships or partnerships, private limited companies face higher operating costs due to legal
compliance, accounting, and audit fees. This can be a burden for small businesses or startups.

Conflict Among Shareholders

Since the business is owned by a few individuals, disagreements among shareholders can affect the company's
management. If mutual understanding is not maintained, internal conflict may hurt growth and decision-making.
Public Limited Company
• Offers its shares to the general public through the stock market.
• It must include “Public Limited” or “PLC” in its name.
• It is governed strictly by the Companies Act and is required to disclose its financial details publicly.
• A minimum number of shareholders is needed (usually 2), but there is no upper limit.
• It must hold annual general meetings and comply with more regulations than private companies.
 The step-by-step conversion process from a Private Limited Company to a
Public Limited Company.

The conversion of a Private Limited Company into a Public Limited Company is a significant
corporate transformation. It allows a business to access capital from the public and enhances its
credibility and expansion opportunities. This process is governed by the legal framework set by
the Companies Act of Bangladesh and the regulatory authority, the RJSC (Registrar of Joint
Stock Companies and Firms). Below is the detailed step-by-step explanation of how such a
conversion takes place:
Step 1: Passing a Board Resolution:
The first step in the conversion process is for the company’s Board of Directors to meet and pass a
formal board resolution approving the conversion. This resolution indicates the board’s intention
to convert the private limited company into a public limited one. Along with this, the board must
approve the draft of the altered Memorandum of Association (MoA) (external structure and
fundamental details of a company) and Articles of Association (AoA)(internal rules and
procedures for operating the company), which will reflect the changes required under the
public company format. For example, the company’s name must change from “ABC Ltd.” to
“ABC Public Ltd.” This step marks the beginning of the formal transformation process and
ensures that the directors agree with the strategic decision.
 Step 2: Altering the MoA and AoA
Once the board approves the conversion, the company must proceed to alter its MoA and AoA. In
the MoA, the name clause must be updated to reflect the new status (e.g., from "Limited" to
"Public Limited"). Additionally, the object clause may be expanded if the company plans to enter
into new lines of business after becoming public. The AoA must be amended to comply with the
requirements of a public company. For instance, the restrictions on the number of shareholders
and the prohibition on public invitations to subscribe to shares must be removed. The AoA
should also include provisions for holding annual general meetings (AGMs), appointment of
independent directors, and other governance practices applicable to public companies.
 Step 3: Convening an Extraordinary
General Meeting (EGM)
The next essential step is holding an Extraordinary General Meeting (EGM) of the shareholders.
During this meeting, the company must pass a special resolution (with at least 75% approval) to
officially adopt the proposed changes in the company’s structure, name, MoA, and AoA. This
step ensures shareholder consent and is a legal requirement under the Companies Act. The
resolution is not only a legal formality but also a reflection of the shareholders’ commitment to
moving forward with the transformation and taking on the responsibilities and transparency that
come with being a public company.
 Step 4: Filing Required Documents
with RJSC
After the EGM and the passing of the special resolution, the company must file several
documents with the Registrar of Joint Stock Companies and Firms (RJSC). This
includes the certified copy of the special resolution, updated MoA and AoA, and forms such as
Form I (for changes in shareholding), Form VI (for directors’ list), and Form VIII (consent of
directors). These documents are submitted to RJSC for approval and processing. Once the RJSC
verifies the records and confirms their accuracy, it will issue a new Certificate of Incorporation
that reflects the company’s new legal identity as a Public Limited Company. At this stage, the
company officially becomes a public entity in the eyes of the law.
 Step 5: Complying with BSEC Regulations
(If Listing on Stock Exchange)
If the newly converted public company intends to raise capital from the public and get listed on
the stock exchange, it must comply with the regulations set by the Bangladesh Securities and
Exchange Commission (BSEC). The company needs to appoint a registered Issue Manager
who will prepare a detailed prospectus, a legal document containing the company's background,
financial information, risk factors, and the intended use of the funds. The company must meet
minimum criteria, including a paid-up capital of at least BDT 30 crore (with at least 30
crore BDT already invested by shareholders), a 3-year operational track record, and a
positive net worth (owns more than it owes ). After BSEC approves the prospectus, the
company can proceed with the Initial Public Offering (IPO).
 Step 6: Issuing IPO and Getting Listed
on Stock Exchange
Once BSEC approval is received, the company offers its shares to the public through the IPO
process. After a successful subscription, the company applies for listing on the Dhaka Stock
Exchange (DSE) or the Chittagong Stock Exchange (CSE). Upon approval from the stock
exchange, the company becomes a publicly traded company. From this point forward, the
company must comply with public company norms, including financial reporting, disclosure of
board meetings, quarterly reporting, and maintaining investor relations. This final step
completes the conversion process, providing the company with access to capital markets for future
growth.
 How the company starts selling shares to the public
Step 1
Board Decision to Raise Capital and Appoint IPO Professionals: Once the company becomes
a public limited company, its Board of Directors passes a formal resolution to raise capital by
offering shares to the public and to appoint licensed IPO professionals who will manage and
certify the process.
• Manager / Merchant Bank
• Auditors
• Legal advisors
• Valuer (if required)
• Credit Rating Agency (if required)
This step is necessary because IPO is a regulated process and must be managed by certified
professionals.
Step 2
Preparing IPO Compliance, Corporate Readiness, and the Prospectus:

Before applying for an IPO, the company undertakes a comprehensive internal

review to ensure it is ready to become publicly accountable and meets regulatory
requirements. This includes establishing a proper corporate-governance structure
with an effective board and independent directors, preparing several years of
audited financial statements, ensuring full tax and legal compliance, and confirming
that there are no major loan defaults, regulatory breaches, or unresolved liabilities.
At the same time, the company prepares its official IPO Prospectus (Public Offer
Document), which sets out detailed information about its business and industry,
historical financial performance, key risk factors, the number of shares to be offered
and how the funds will be used, and profiles of directors and sponsors. Together,
these preparations make the company eligible for listing and provide transparent,
reliable information so regulators and public investors can make informed
decisions.
Step 3:
Submission to BSEC for Approval (Regulatory Permission)
The Issue Manager submits the IPO application and prospectus to BSEC (Bangladesh Securities
and Exchange Commission) for approval. BSEC reviews:
• Financial and legal disclosures
• Valuation and pricing justification
• Corporate governance compliance

BSEC may request corrections or additional information. Only after BSEC approval can the
company proceed to public subscription.
Step 4:
IPO Pricing and Subscription Opening (Shares Offered to the Public)
Once approved, the IPO is announced and subscriptions open. Shares are offered to:
• General investors
• Institutions
• NRB investors
Investors apply through banks and BO (Beneficiary Owner) accounts. This is the stage at which
the company begins selling shares to the public.
Step 5: Share Allotment and Refund
Once the subscription closes, shares are allotted according to regulatory rules (often
proportionately if oversubscribed). Excess application money is refunded, and allotted shares are
credited electronically into investors’ BO accounts.
Step 5:
Listing on Stock Exchanges and Start of Trading
After allotment, the company applies for listing on the stock exchanges — primarily the Dhaka Stock
Exchange and/or the Chittagong Stock
Exchange.
Once listed, the shares begin trading in the secondary market, allowing investors to freely buy and sell
them.
Step 6:
Profit Realization and Dividend Distribution

After listing, the company operates throughout the year and reports its profits or losses in audited
annual financial statements; if profits are available, the Board of Directors decides whether to
distribute part of those earnings as dividends or retain them for reinvestment and proposes the
dividend type (cash or stock), rate, and payment schedule, which are then publicly announced along
with the AGM and record date so all investors receive the information simultaneously; shareholders
vote on the proposal at the AGM, and once approved the dividend becomes legally payable; the
company fixes a record date to determine eligibility—only investors whose names appear in the
register on that date will receive the dividend—while the shares begin trading ex-dividend shortly
beforehand, meaning buyers after that date do not qualify but sellers before it still do; finally, on the
declared payment date, dividends are transferred electronically to shareholders’ linked bank or BO
accounts.
 Merits of Public Limited Company
• Large Capital Raising Ability
The greatest advantage of a public limited company is its ability to raise huge amounts of capital by
issuing shares and debentures to the public. This allows the company to expand rapidly, invest in
infrastructure, and take up large projects.
• Limited Liability
Like private companies, public limited companies also offer limited liability protection. Shareholders are
only liable up to the amount of their investment. This attracts more people to invest without the fear of
personal financial loss.
• Perpetual Succession
A public limited company continues to exist even if shareholders or directors change, die, or resign. Its
existence is independent of its members, which provides long-term stability and continuity to the business.
• Free Transfer of Shares
In a public company, shareholders can freely buy and sell shares in the stock exchange. This liquidity
makes investing in public companies attractive and helps maintain a steady flow of capital.
• Public Confidence and Reputation
Due to strict government regulations, mandatory audits, and public financial disclosures, public
companies often enjoy greater trust and credibility. This helps in building partnerships, attracting skilled
employees, and gaining customer loyalty.

Demerits of Public Limited Company

• Loss of Control
In a public company, ownership is distributed among many shareholders. The original
founders may lose control over decision-making, especially if major shares are held by
external investors or institutions.
• Strict Legal Compliance
Public limited companies must follow several legal formalities, including issuing a
prospectus, publishing audited accounts, and holding board and general meetings. These
processes are time-consuming and increase administrative burden.
• High Operational Cost
The cost of running a public company is very high due to registration fees, legal services,
regulatory filings, audits, and stock exchange requirements. These expenses can reduce
overall profitability, especially for mid-sized companies.
• Slow Decision-Making
Due to the involvement of a board of directors, shareholders, and regulatory bodies, decision-making
becomes slow. Quick changes or emergency actions often get delayed, which can be harmful in fast-
moving industries.

• Risk of Hostile Takeovers

Since the shares are freely traded, anyone can buy a large portion of them. If an outsider acquires a
majority stake, they can take control of the company, potentially leading to a hostile takeover that may not
align with the original vision of the founders.
Math Problem
(A sole proprietor is personally responsible for all business debts. If business
liabilities exceed assets, personal assets (home, savings) can be seized. )
1. Jane operates a bakery as a sole proprietor. The bakery has tk. 50,000 in assets
(ovens and inventory) and tk. 70,000 in debt (bank loans and unpaid invoices).
What is the total liability of the business, and how much is Jane personally
responsible for if the business closes?

2. Steve owns "Steve’s Smoothies" as a sole proprietor. The business fails and owes
the bank tk. 80,000. The business only has tk. 30,000 worth of equipment that can
be sold. Steve has tk. 60,000 in a personal savings account.
• Question A: How much of the debt is covered by the business assets?
• Question B: How much can the bank legally collect from Steve’s personal
savings?
(Partners are generally responsible for all debts. Creditors can go after any
partner's personal assets to satisfy the partnership's debts. )

3. A partnership between A and B owes tk.100,000 to a creditor. The partnership has only
tk.40,000 in assets. Partner A has tk.100,000 in personal savings, while Partner B has no
personal assets. How much can the creditor collect from Partner A?

4. Don and Trey have a general partnership to sell drones. Don contributes $100,000 to
the business and Trey $75,000. Trey sold a farmer the wrong kind of drone and is being
sued for $150,000 in damages. If they lose the case, how much is Don's liability?

5. Amy and Beth are partners in a bakery. Amy owns 60%, and Beth owns 40%. The
business goes bankrupt owing tk. 100,000 more in assets than it owns.
Question A: Based on their internal profit/loss sharing ratio, how much of the debt is
"assigned" to Amy and how much to Beth?
Question B: If Beth has tk. 0 in personal assets (she is "broke"), how much can the bank
collect from Amy personally? What happens if Beth dies…..
6. Marci and Kerri have a limited partnership. Marci is the general partner, and
Kerri is the limited partner. Kerri invested $100,000. The partnership is sued for
$150,000 due to a defective product. If the customer wins the lawsuit, what is the
maximum amount of personal assets the creditor can take from Kerri?
(A limited partnership has at least one general partner (unlimited liability) and one
limited partner (liability limited to their investment).)

7. Carlos invests tk. 10,000 to buy shares in "TechGiant Inc.," a corporation. The
corporation is sued and goes bankrupt, leaving behind tk. 10 million in unpaid
debt. Carlos has a personal home worth tk. 500,000.
Question A: How much money does Carlos lose from his investment?
Question B: How much can the bank collect from Carlos’s personal home?
8. A pizza shop fails owing tk. 50,000 to a supplier. The shop has tk. 10,000 in the cash
register. The owner, Mr. Pizza, has tk. 100,000 in his personal bank account.
How much does the supplier get if the business was:
• A Sole Proprietorship?
• A Corporation
• Why can’t the supplier touch Mr Pizza's personal money?
• What does the supplier do in this case? File a Claim Wait for Liquidation Receive a "Cents on
the Dollar" Payment

Write Off the Loss

A supplier can only go after Mr. Pizza’s personal money if:
• Personal Guarantee: Mr. Pizza signed a contract specifically promising to pay the
supplier if the business couldn't.
• Fraud: Mr. Pizza was using the company to commit a crime or purposefully trick
creditors.