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Definition of Firm: Characteristics, Types, and Steps of Firm Establishment

Timesofummah.comThe word firm comes from the Dutch language, namely vennootschap onder firma or VOF which can be interpreted as a trade union between several companies.

In general, the firm itself is usually called a form of partnership between two or more companies to run a business using a common name. In the division of ownership, a firm is owned by several persons or allied companies provided that each member of the partnership submits personal assets as stated in the deed of establishment of the company.

Understanding Firms According to Experts

Definition of Firm Characteristics, Types, and Steps of Firm Establishment

1. Willem Molengraaff

According to Willem Molengraaff, a firm is a partnership, association or association established to run a company under a common name and whose members are not limited to liability for the company’s engagements with third parties.

2. Wery

Meanwhile, Wery argues that the firm is a company operating under a common name, but not as a limited liability company.

3. Slagter

Furthermore, Slagter revealed that the word is a cooperation agreement between two or more people with a common name to carry out the activities of a company, with the aim of obtaining benefits from joint property rights. This is done so that the company can achieve the objectives of the parties between them which requires to bind themselves by entering money, goods, good names, rights or a combination thereof into the association.

4. Indonesian Commercial Law

In accordance with the Commercial Law of the Republic of Indonesia, a firm is any company established with the aim of running a company under a common name.

In conclusion, a firm is a business entity founded and run by two or more people (called Firmant) using a common name or one name that is used together to develop the company.

According to Article 16 and Article 18 of the Commercial Code of the Ministry of Finance, a Firma Company is each company (maatschap) established to run a company or business under one common name, where each member is directly responsible for all actions carried out under the same name. third party people.

However, the firm is not a legal entity. Conceptually, the firm does not recognize the term separation of assets between its members, each member is personally responsible for the overall and sustainability of the company. In addition, the reason the firm cannot be said to be a legal entity is because the firm has fulfilled the material requirements but does not yet have formal requirements in the form of ratification or recognition from the State in the form of legislation.

What is Theory of the Firm?

The Theory of the Firm or commonly called Firm Theory contains several economic theories that describe and imagine the nature of the company (company), from its structure, relationship to the market, behavior, to its existence.

The theory aims to answer the following questions:

1. Existence

Existence is important because it is the basis for why companies exist.

A common question that arises is: Why are not all transactions in an economy mediated in markets?

2. Limit

Boundaries become indispensable as to why the boundary between market and company lies exactly there. It is closely related to the variation and size of the output.

A common question that arises is: Which transactions are negotiated in the market and which are carried out internally?

3. Organization

The existence of an organization can be a picture of a frima so that it can answer the question, why is the company structured as it is, with hierarchies, central points, etc.?

4. Heterogeneity of Company Actions/Performance

Company performance serves to answer the question why do companies do things, what drives them?

5. Evidence

Evidence is crucial because what tests currently exist for each theory?

A Scottish moral philosopher who pioneered the science of political economy, Adam Smith. Adam Smith is still known by many as the ‘father of modern economics’, in his monumental work
– The Wealth of Nations. He emphasized that in the world of manufacturing, they are more efficient in producing than laborers or craftsmen when working alone.

Adam Smith reveals that a manufacturing company employs a more intense form of division of labor than can be regulated through market exchange. His perspective of the enterprise in terms of different types of division of labor was widely shared by classical economists.

Firm Features

Some of the characteristics that can characterize a firm’s business entity compared to other business entities. Understanding the characteristics and characteristics of firms can provide knowledge about the various business entities in the business world. This insight can certainly be a provision if you want to set up companies and firms. Following are the characteristics of firms in Indonesia:

  • Firm members generally are familiar with each other and know each other so they already trust each other.
  • Firm agreements can be entrusted to a notary or under the hand.
  • Using one common name in business activities.
  • Has unlimited liability and risk of loss.
  • If there is an unpaid debt, then each owner is obliged to pay it off with personal assets.
  • Every member of the Firm has the responsibility and right to be a leader.
  • As a member of the Firm, you are not entitled to enter new members without the permission of the other members.
  • Firm membership is valid for life.
  • Firm members have the right to dissolve the firm.
  • It is easier to add capital from business loans.
  • Firm establishment does not need a deed of establishment.

What are the Types of Firms?

After understanding the definition of a firm, the next step is knowledge about the types of firms in Indonesia.

1. Trading Firm (Trading Partnership)

A trading firm is one of many types of firms engaged in trading. Trading activities which mainly focus on buying and selling products.

Examples of trading firms in Indonesia are: Nike, Diadora, Crocs, and so on.

a. Nike Firm Company

The Nike company is well known in almost all parts of the world. The Nike company comes from Uncle Sam’s country, United States. Nike does not only provide sports equipment such as clothing, Nike’s flagship product is shoes. Nike has become a brand for sports fans, the application of technology in each of its products makes people really like Nike products. As a result, it is very fast for Nike to develop and expand its market to various countries, one of which is Indonesia.

Until now, the Nike company has quite a lot to expand its branches in Indonesia. This development is carried out starting from the production process and its management. However, not only that, Nike continues to use standards for its implementation and management procedures according to Nike’s central company in the United States.

b. Diadora Firm Company

Diadora Firm has activities in producing sports equipment. Various sports equipment produced for sports such as rugby, sports shoes, athletes, football, tennis, bicycle sports, and so on. The Diadora Company was founded by an Italian businessman named Marcello Danieli along with several other people.

c. Crocs Firm Company

The type of firm that is also engaged in fashion in Indonesia, one of which is the firm Crocs which has fashion products with the type of shoes and sandals.

This proves that the Crocs firm is one of the many types of trading firms that have succeeded in producing goods for the community. Crocs produces sandals and shoes with rubber material to make various shapes and colors that attract the public.

2. Non-Trading Firm (Service Firm)

In contrast to trading firms, non-trading firms are engaged in services. The company’s main activity focuses on selling a product by relying on certain skills or so-called services or services.

The following are examples and explanations regarding non-trading firms in Indonesia, including law firms, accounting firms, management consulting, and many more.

a. Law Firm

As we often see, law firms and legal consulting firms are commonly called law firms. Law firms are included in the category of firms whose activities are non-trade because their activities are related to legal institutions.

The law firm is an example, one of many firms in Indonesia because it was founded and run by a group of people. Law firms are formed from active and passive allies with the aim of providing legal services to the community.

b. Accounting Firm

Not only law firms, there are also accounting firms which are one type of non-trading firm in Indonesia. The establishment of this accounting firm aims to provide accounting services outside the accounting agency of a company.

This accounting firm is coordinated by a small group of people who aim to provide accounting services, both services needed by individuals, legal entities, and companies.

4. General Partnership

Different from trading and non-trading firms. A general firm is a type of firm in which each member has unlimited responsibility or power. This means that every member of a public firm must be fully responsible for the survival of the company.

If the company has debts and is unable to pay it off, then each member of the public firm is obliged to pay the debt with his personal wealth.

5. Limited Partnership

Almost the same as general firms, only limited firms limit the power of its members. While in a general firm the members of the company have unlimited power, in a limited firm each member holds a limited power.

Examples of limited firms in Indonesia include the Sumber Sustenance Firm, Multi Marketing Firm, Indo Eternity Firm, and so on.

Firm Advantage

  • The firm’s business entity management system has proven to be more professional due to clear coordination regarding the division of tasks for each organizational structure.
  • The initial capital to build a firm is large because the source of funds comes from the collaboration of each member who is a member of the firm.
  • Leaders are chosen based on their expertise, skills, abilities and skills, thereby minimizing the selection of leaders due to excess power. In addition, there are many firms that have more than one leader in their corporate entity.
  • Profit sharing is fair because it is based on the initial paid-up capital so the system resembles investing in shares. The difference is, all members who provide capital in the firm have the right to actively manage the running of the company.
  • The existence of a notarial deed can make it easier for a firm to obtain a capital loan if it requires a very large additional capital.
  • The firm’s decision departs from the considerations and decisions of all members.

Firm Disadvantages

  • When the company goes bankrupt, as a result the wealth and personal assets of the company owner can be used as confiscated goods as collateral to compensate the company for losses.
  • Firm members are not only responsible for capital. Firm members as company owners are also responsible for their personal wealth or property.
  • If one member of the firm suffers a loss, all members who are members of the firm are obligated to share in the loss. In short, the firm’s losses are shared by all the owners of the firm, including if it requires the use of personal assets to cover losses.
  • The firm does not recognize the term separation between personal assets and company assets.
  • The threat of dispute will usually arise if there is an unfair distribution of benefits.

Difference between Firm and Company

Registering your business as a company or firm is more important than developing the right products to meet business needs and provide growth in the years to come.

In the business world, the terms company and firm are very often used interchangeably, but conceptually they have different meanings, properties, and characteristics. The most prominent differences between companies and firms are as follows:

1. Number of Members

The main difference between a company and a firm is the number of members. The firm itself must have a minimum of two people in the company and a maximum of 20 people required to register the firm. Meanwhile, the company only has a maximum number of people or employees when it registers itself.

2. Accountability

Another difference between a company and a firm is responsibility. Each member of the firm has unlimited liability and may be personally liable for the firm and its personal assets. As a result, if the company fails to pay its debt, then the company members are obliged to pay off the debt from the company. This is one of the main weaknesses of the firm, but all can be overcome if it is based on fairness and professionalism.

In contrast to a company, in a business entity in the form of a company, the founder or partner only has limited obligations. This means that they are limited to shares only due to their investment in the company, but have no personal liability for debtor matters. In short, they have no liability if the company goes bankrupt or corrupt.

3. Share Ownership

Registered companies are shareholders who are in the company, it does not include company employees. In contrast, a firm is a partnership of many members. It can distinguish related who may differ slightly from stakeholders and shareholders

In firm membership, members who have a lower number of individuals, partners have greater power to influence decision-making in the company when compared to the company’s operations.

4. Annual and Financial Report

Business actors who have registered as a public limited liability company are required to follow public company policies and are required to disclose results and issue annual reports for investors and public shareholders.

Meanwhile, business entities registered as firms have no obligation to report their financial information to external parties or third parties and they are not required to publish any reports or maintain their business at their discretion.

Firm Establishment Procedure

The procedure for establishing a firm with a group is what you need to do is to understand the process of establishing a firm properly and carefully. Regulations and procedures regarding corporate business entities are already listed in Article 22 of the KUHD. Article 22 of the KUHD explains that the establishment of a firm must be based on an authentic deed without the possibility of being denied by a third party.

In accordance with articles 23 and 28 of the KUHD, it also explains that the deed must be registered at the Registrar’s Office of the District Court. This means that the deed is made and then the deed must be announced in the News of the Republic of Indonesia.

The deed can contain everything about the firm such as a business agreement, type of business, when the business was founded, and when the business will end. As a result, establishing a firm is closely related to the legal court process for registering a firm deed. If you establish a firm but do not yet have an authentic deed from the court, then your firm is considered to have run various businesses and for an indefinite period of time.

Referring to the previous definition of a firm, a business entity can be said to be not a legal entity if the company has met the material requirements and does not meet the formal qualifications. Firm business entities have the obligation to register a TIN that is separate from the obligations of the owner members, in this case including taxpayers.

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