[Tutorial]: Knowing About the Types of Businesses in the Construction Industry

Often the ones related to the construction world come across different types of business units, which might have baffled us as to what does they actually mean. This article is basically written to let the readers understand the main types of business setups that one may come across. This article would also try to let the readers understand as in what ways and what forms do such different units generate the required finances to run their works. So, here we go...

Types of Business Units & their Finances

The construction world is marked by a wide variety of business units, which generally have their own respective style of working and arranging finances. The main types of business units are:
  • Single person enterprise
  • Partnerships
  • Companies
  • Co-operatives
These types will now be discussed briefly hereunder to let the readers understand them closely.

Single person enterprise

As the name suggests, the single person enterprises are owned and managed by an individual who, as in most of the cases, arranges the requisite finances by himself at least in the early stages of setting up the business. This self-managed capital could well be arranged by borrowing from other individuals or from financial institutions. Such borrowings are generally on loan basis against the owner’s own personal assets.

Such business units are generally small in nature since they rely upon the owner’s technical and personal capabilities, and employ few people. The work that such enterprises undertake is also small in nature and size. However, such units are ideal for small time entrepreneurs who like to work on their own with the assistance of a few assistants and labour only.

Partnerships

These are the firms, which dwell among the inter-relation of two or more persons with almost similar targets and business goals. Thus, as the name suggests, the business units, which run in collaboration of more than one person, are commonly termed as Partnership units.
The finances of such units are arranged by all the partners in the pre-decided ratio amongst them. The profits earned are also shared by the partners in some pre-decided ratios after catering to the projects and working capital needs.

The partners of such units enter into an agreement legally or quasi-legally, which basically defines such important aspects as the capital contributed by respective partners, their roles in the firm, any interest payments in respect of the partners’ capital investments, the method of sharing the profits, and so on. Such an agreement also protects the partners from dubious activities of any of the partner, if at all it happens, thereby safeguarding the interests of the other partners.

Companies

This type of business units may be understood as an extension to partnership only, which usually is regarded as ‘incorporated associations’. As such, it is mandatory to obtain a ‘Certificate of Incorporation’ by the partners/ promoters of the assumed company. The partners/ promoters also do need to deliver a Memorandum of Association and/or the Articles of Association to the Registrar of Companies together with a statement of the proposed Company’s nominal capital and a list of people who shall be assigned Director’s position. The Certificate of Incorporation signifies that the Company is a body corporate and has perpetual existence, independent of its members.

The Companies may further be termed as ‘Private Limited’, ‘Public Limited’ or ‘Limited’ based upon the structuring and control of the directors and the articles of association defined. The most prevalent form of generating finances is by institutional borrowings and/or offering equity shares in the markets.

Co-operatives

Such business units are the least popular ones, and are formed as associations, which primarily operate on an apparent idealistic basis of fulfilling a need and sharing the proceeds of the work equally, without having a prima-facie motive of profit generation from the works.
Such units are mostly seen in the group housing industry where societies work with a common goal of achieving the goal right from project conceiving and up to its entire completion.

Generation of capital is quite problematic for most of co-operatives since the source of income are the members themselves in addition to small time borrowings from banks or other financial institutions against some indemnity.


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