Definition of Firm: Terms of Establishment, Characteristics, Types, Strengths and Weaknesses

Definition of Firma – In running a business, there are several business entities that can be selected. You can choose it according to your needs. Because choosing the right business entity will affect many things in the future.

These business entities include limited liability companies (PT), firms, limited liability companies (CV), and other business entities. The most frequently found business entities in Indonesia are firms. If you want to know the meaning of a firm further, then there’s nothing wrong with reading all of the following articles about firms.

Definition of Firm Business Entity

Where each member has full responsibility for the progress of the company. So, in Indonesia, firms have entered and are regulated in the Commercial Code (KUHD) and the Civil Code (KUHPerdata).

The definition of a firm in the Indonesian Criminal Code is any association established to run a company under one common name. Then the Big Indonesian Dictionary (KBBI) also mentions the definition of a firm, namely a trade association established to run a joint business under one name in which each member has full responsibility. So when running a firm, each member must play an active role for the progress of the company. Then for business activities that can be run on a small scale or large scale.

It should also be noted that in a Firm Alliance there is only one type of partner, namely complementary or pledge. Complementary partners or the firm are in charge of running the company. This also includes entering into legal relations or cooperation with third parties. So partners are personally responsible for the progress of the company.

Furthermore, it should also be noted that in establishing a firm, its members will hand over all personal assets in accordance with the provisions stated in the deed of establishment of the company. So if the established firm suffers a loss or goes bankrupt, all members of the firm are obliged to take responsibility.

So, this firm cannot be said to be a business with a legal entity. Because there is no separator between the wealth of one member and another. So each member has full responsibility for the firm.

In addition, a firm cannot be called a legal entity because it fulfills the material requirements but does not yet have formal requirements, namely ratification or recognition from the state in the form of legislation.

What Are the Requirements for Establishing a Firm?

1. Founded by a minimum of two people

The first requirement for the establishment of a firm is the minimum number of members consisting of two people. If you want to set up a business independently with your own members, then set up a trading business or UD.

2. Determine the name to be used and registered

Both you and the members have to come up with a name for the firm. Do not decide the name of the firm yourself, because the firm is not privately owned. So have discussions with other members openly to decide on a name.

3. Have a governing body and members who are actively involved

Third, each member of the firm must have their respective positions and responsibilities. With this division of tasks, it is expected that the operational and management activities of business entities can run smoothly and in a structured manner.

4. Having clear and directed business goals

The fourth requirement is to have a clear business establishment objective. That way, the firm will be easier to run. Without a goal, of course the company cannot run well.

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5. Has determined the domicile of the firm’s business

Before setting up a firm, of course you must already have a domicile or place of business. Because this domicile will be the address for your business and members. In addition, this address is also a requirement for registering a firm as a business entity and making a deed of establishment of a business entity later.

What are the characteristics of a firm business entity?

1. Use a name that is approved by all members

The firm’s business entity has members who all must be responsible and take part in the progress of the firm. Therefore, everyone will influence the sustainability of the firm. So that the name used must also be the result of discussion and approval of all its members.

2. Have members who are active in managing the company

The second feature is that each member must be active in managing the company. Because the responsibilities of each member are the same, all members must actively participate in making decisions and running the firm.

3. Liability liability is unlimited

The third feature is unlimited liability. That is, if there are dependent obligations such as debts that must be repaid by the firm, then all members are legally obliged to spend money to pay off these debts.

4. Has a limited time period

Fourth, namely the establishment of a firm business entity in general has a limited period of time or age. That is, if a member decides to leave, then the firm is considered legally dissolved. However, if later a new member joins, the firm is considered to be still operating.

5. Profits and losses are shared over a number of members

The next feature of the firm is the distribution of profits or profits, namely proportionally according to the activeness of the members. So all members, without exception, are entitled to receive profit sharing from the company. The provisions for the distribution of profits and losses are all stated in the deed of establishment of the business entity at the beginning.

6. Wealth belongs together

The final characteristic is that the firm’s assets are shared property. Any wealth owned by members invested in the firm will automatically become shared rights. So every member when they want to use firm funds must obtain approval from all members. The responsibility of a member is also not limited to the amount of investment.

Because all investments in the firm are no longer owned separately. Then the rights of members to the assets of the firm will appear in the final capital balance, which consists of investing in the initial and additional balances, taking prive, adding to profit sharing and deducting from sharing losses.

What Are the Types of Firm Business Entities?

1. Trading firm

The first type of firm is a trading firm, which operates in the trading industry. The main activity is the buying and selling of goods. Examples of trading firms are Nike, Crocks, Diadora, and others.

2. Service or non-trade firms

Then the second type of firm is a non-trade (service) firm that operates in the service sector or focuses on selling services based on expertise. Examples are accounting firms (public accounting firms) and law firms (legal consultants).

3. General firm (general partnership)

That is a firm whose all members have unlimited power. So all members are responsible for the operational activities and accounts payable of the company.

4. Limited Partnership

Fourth is a limited firm, where all members in this firm do not have free powers like a public firm. So the responsibilities and obligations of each member are also limited.

What are the Firm’s Strengths and Weaknesses?

  1. The amount of capital that can be obtained is far greater than that of an individual. Because capital is a combination of each member, making it possible for firms to obtain large amounts of capital. That way, expanding the network of cooperation and business will be easier to do.
  2. If you still need additional capital, then a fairly large initial capital can be used to seek credit. In addition, applying for credit will also be easier because there is a notarial deed.
  3. Because it has several members, the division of tasks can be done more evenly. Management within the firm has also become more organized, because everyone will play a role according to their expertise in their respective fields.
  4. Each member has a genuine concern for the company. Because in the firm, all members have responsibility for the progress of the company.
  5. The procedure for establishing a firm business entity can also be said to tend to be easier and less complicated.
  6. Distribution of profits or profits is based on the initial capital, so the system is almost the same as investing in shares. The difference is, every member of the firm who invests has the right and responsibility to manage the company.
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Besides having advantages, firms also have disadvantages. By knowing the firm’s deficiencies, you will be able to map out a strategy to overcome these deficiencies. So that when running the firm, all the problems that arise have a solution. The deficiencies of the firm are as follows:

  1. All members of the firm have responsibility for the firm’s debts. So each member must participate in paying off the debt that is the obligation of the firm.
  2. There is no separation between ownership rights and company-owned assets.
  3. Because the company is run by more than one person, it is also prone to conflict between members. Especially when their respective opinions for the betterment of the firm conflict.
  4. Because all members are fully responsible for the firm, if one day the firm goes bankrupt, the assets owned by its members can be confiscated to serve as collateral for the company’s losses.
  5. If one member gets into trouble with the law or whatever, the other members will get involved.
  6. The survival of the company is not guaranteed, because if a member leaves, the firm will automatically disband.

So, those were some of the firm’s advantages and disadvantages. By knowing both, you can make judgments when choosing a firm as a joint venture. If each member understands the above matters, then the firm’s journey after its establishment will certainly be much better.

This is because all members are well aware of the ins and outs of a firm and what the consequences will be if they choose to set up a firm. Apart from that, you and your allies can also make an agreement in advance to prevent as well as find alternative solutions if you encounter problems that were previously known.

What are the Procedures and Conditions for Dissolving a Firm Business Entity?

  1. The term of the firm has expired in accordance with the deed of establishment
  2. One of the partners or members has resigned or left
  3. The destruction of merchandise or the completion of the business carried out by the firm
  4. There is a will to dissolve the firm by one or several partners
  5. If one of the partners dies or is declared bankrupt.

Apart from things that can dissolve a firm, Articles 31-35 of the Criminal Code also explain the following matters:

  1. Changes to the firm must be stated in the deed
  2. Changes to the deed must be registered with the Registrar of the District Court
  3. Changes to the deed must be announced in the state news
  4. As for changes to the deed that are not announced, they will be binding on third parties
  5. Settlements made by the company are other parties that have been mutually agreed upon or have been appointed by the court.

It should also be noted that the documents that will be needed to dissolve the firm include a deed of dissolution, a court decision declaring the dissolution of the firm, as well as other supporting documents declaring dissolution. Then, after the dissolution process is complete, it is necessary to carry out a settlement or liquidation. So, in Article 32 of the Criminal Code it is stated that the election of a liquidator can be carried out under the following conditions:

  1. The first step is to look back at the provisions in the partnership establishment agreement that existed at the beginning of the establishment
  2. If it is not listed in number 1, then the management’s partners are obliged to make arrangements
  3. In the establishment agreement, one person who is not a partner can be appointed to be the liquidator.
  4. The partners may jointly discuss and appoint one partner who is not an administrator to make arrangements.
  5. If the majority of votes from the results of discussions or deliberations have been obtained, the partners can ask the court for help to determine a liquidator.

That was the meaning of the firm and various other things about this business entity. There are various types of business entities that can be established. But of course it’s much better when you understand the ins and outs of each business entity, because that way the business you run will be more optimal.