Saturday, December 10, 2016

Business Studies - Class 11: Forms of Business Organisation

Unit – II: Forms of Business Organisation
Short Question and Answer (1/2/3 Marks)
1. Varun is the only owner of his restaurant. Name the form of business organization.       
Ans: Sole proprietorship.
2. Name the form of organization found only in India   
Ans: Joint Hindu Family or Hindu Undivided Family
3. List two merits of Sole proprietorship.
Ans: (i) Single ownership (ii) Full control.
4. Name any one business in which sole proprietorship is most suitable.
Ans: Tailoring
5. Name the type of partnership which is formed to accomplish a specific project for a specific time.
Ans: Particular partnership
6. State any one consequence of non registration of a partnership firm.
Ans: An unregistered firm cannot file a case against third parties.
7. What is the minimum number of persons required to form a cooperative society?        2008
Ans: Ten
8. Name the type of company which can invite the public to subscribe for the shares or debentures.
Ans: Public.
9. Name the process by which a joint stock company is registered.

Ans: Incorporation.
10. Name the document which defines the object and powers of the company.
Ans: Memorandum of Association.
11. What is the minimum and maximum number of members in a private company?
Ans: Minimum number of members is 2 and the maximum 50, excluding its present or past employee members.
12. What is the minimum and maximum number of members in a public company?       2009
Ans: Minimum number of members is 7 and there is no limit as to maximum numbers.
13. What is the minimum and maximum number of members in a partnership business?                            2010
Ans: In a partnership firm there must be at least two people and maximum numbers of person is 10 for a partnership carrying on banking business and 20 in case of other kinds of business.
14. What is sole tradership?                                       2000, 02, 10
Ans: Sole proprietorship is the form of business, which is owned, managed and controlled by an individual. It is the simplest form of business, established with the limited resources, ability and capital of the individual known as sole trader or entrepreneur.
Q.15. When sole trade business is considered suitable?                                               2008, 2015
Ans: Sole traders are recommended for people who:
a)      Are setting up a new business.
b)      Do not require a lot of capital for their business.
c)       Require direct contact for customer service.
Q.16. When partnership business is considered suitable?
Ans: Partnership firm is suitable under the following conditions:
a)      The business is run on a small or medium scale
b)      Personal touch with the customers or clients is essential
c)       It is convenient for the professionals to form partnership
d)      It facilitates partnership between those having capital and those having technical qualifications.
Q.17. What do you mean by Goodwill?                                 1999, 2001, 2003
Ans: Goodwill: Goodwill is the value of the reputation of a firm in respect of profits expected in future over and above the normal profits.
Q.18. What is unlimited liability?                            2003, 07, 09
Ans: When the liability of partners exceeds the amount invested by them in business, such liability is called unlimited liability.
Q.19. What is dissolution of firm?                           2000, 01
Ans: Dissolution of a firm means discontinuation of the firm’s business and the relationship between the partners. According to Sec. 39 of Indian Partnership Act 1932, “Dissolution of firm means dissolution of partnership between all the partners in the firm."

Long answer type questions
Q.1. What is sole proprietorship? Mention its features. What are its merits and demerits?        01, 02, 04, 05, 06, 09
Ans:  Sole proprietorship is the form of business, which is owned, managed and controlled by an individual. It is the simplest form of business, established with the limited resources, ability and capital of the individual known as sole trader or entrepreneur.
a)      Easy to form and close
b)      Unlimited Liability
c)       One bearer of profit and loss
d)      One man Control
e)      No separate entity
f)       Lack of business continuity.
Merits of sole proprietorship:
a)      A sole proprietor can take decision quickly.
b)      Information can be kept secretly without any leakage.
c)       No need to share profits.
d)      He gets self satisfaction for the work he has done.
e)      Easy to start and to close because of less rules and regulations.
Limitations of Sole Proprietorship
a)      Unlimited liability.
b)      Limited finance/capital, business will remain small.
c)       The owner normally spends long hours working.
d)      Some parts of the business can be inefficient because of lack of specialists.
e)      Does not benefited from economies of large scale.
f)       No continuity, no legal identity.

Q.2. What is Joint Hindu Family? Mention its features. What are its merits and demerits?
Ans: A Joint Hindu Family Business may be defined as a form of business organization in which all the male members of a Hindu Undivided Family Carry on business under the management and control of the head of the family called “Karta”. The members of the family are known as 'Co-parceners'.
a)      Formation by operation of Hindu Law
b)      Unlimited Liability of Karta
c)       Full Control by Karta
d)      Continuous existence
e)      Minor can also be members.
Following are the important advantages of Joint Hindu Family business:
a)      Easy Formation: A joint Hindu family Business comes into existence by operation of Hindu law. There are no legal formalities or contracts required to bring it into existence.
b)      Economy: The liability of "Karta" i.e. the head of the family is unlimited, so he is careful, judicious and economical in business expenditure.
c)       Secrecy: The secrets of business are known to Karta only.
d)      Continuity of Operations: The joint Hindu family business enjoys continuous existence even after the original karta is no more. It is stable and comes to an end only after the total breakdown of the joint family
e)      Direct contact with customers: It has direct contact with customers. The company can provide personal attention to the requirements of its customers resulting in growth of the business.
Limitations of Joint Hindu Family
a)      Limited resources
b)      unlimited liability of karta
c)       Karta’s dominance over Joint Hindu Family
d)      Limited managerial skills.
Q.3. What is Partnership? Mention its features. What are its merits and demerits?        99,
Ans: According to section 4 of the Company’s act 1932," Partnership is a relation between two or more persons who have agreed to share the profits of a business carried on by all or any one of them acting for all."
Partnership in this way is an agreement, between two or more persons to carry on legal business with profit motive, which is carried on by all or any one of them acting for all.
Essential (Characteristics) of Partnership:
a)      Contract: Partnership is the result of contract between the partners.
b)      Number of Persons: In a partnership firm there must be at least two people and maximum numbers of person is 10 for a partnership carrying on banking business and 20 in case of other kinds of business.
c)       Profit-Sharing: The agreement between/among partners must be to share profit or losses.
d)      Business: Business must be carried on by all the partners or any one of them acting as agent of other partners.
e)      Motive: For a partnership firm there must be motive to earn profit. A partnership firm cannot be formed with service motive.
f)       Legality of the Business: The business to be carried on by the partners must be legal.
Merits of partnership:
1. Easy to form a partnership firm  2. Facility of large financial resources  3. Better management of operations 4. Sound decisions 5. Sharing of risks 6. Flexibility in operations 7. Greater motivation because of unlimited liability 8. Maintenance of secrecy 9. Easy to dissolve the firm
Limitations of Partnership:
1. Less capital as compared to a company 2. Unlimited liability 3. Conflict between partners 4. Slow decision making  5. Non- public confidence  6. Uncertain life of the firm
Q.4. What are various types of partners and partnership?            1999, 00, 03, 04, 05, 08,
Ans: Types of Partners :
a)      Active partner: An active partner is a partner who gives capital, participates in management, shares the profits and losses and has unlimited liability.
b)      Sleeping partner or Dormant Partner: A Partner who do not take part in the business activities.
c)       Secret partner: A partner who has association with the firm but unknown to the public.
d)      Nominal partner: A partner who allows his name to be used by the firm
e)      Partner by estoppel: A person who by behaviour sets an impression to others that he/she is a partner of the firm.
f)       Partner by holding out: A person who is not a partner but allows himself to be represented as partner in a firm.
Kinds of Partnership:
Partnership firms are of two type’s viz., General Partnership and Limited Partnership.
1. General Partnership: In this case the liability of all the partners is unlimited. General Partnership can be further divided into two types i.e. (i) Partnership at Will, and (ii) Particular Partnership. These are explained as under:
(i) Partnership at will: When a partnership firm is constituted for unspecified period, it is known as Partnership at will. It can be dissolved by any partner by giving a notice indicating that he wants to withdraw his interest from the firm.
(ii) Particular partnership: As the very name suggests, this type of partnership is formed for conducting business of specific or temporary nature. The partnership comes to an end either on the accomplishment of the task for which the partnership was undertaken or on the expiry of the time period for which the firm was constituted.
2. Limited Partnership: Under this type of partnership some of the partners have unlimited liability while others have limited liability up to their individual share in the capital of the firm.
Q.5. What is partnership deed? Mention its contents.                   99, 05, 07, 10, 15
Ans: Partnership deed: It is a written agreement between the partners of a firm. It contains several clauses regarding name and address of partners, nature of business, Capital, profit sharing ratio etc.
Contents of Partnership Deed:
a)      Names and address of partners
b)      Nature and scope of business
c)       Duration of partnership
d)      Contribution of capital by the partners
e)      Sharing of profit or loss
f)       Loans to and by the partners
g)      Commission and salary of partners
h)      Amount of drawings and interest on drawings for each partner.
i)        Rights, duties and liabilities of partners
j)        Admission and retirement of partners
Q.6.  What are the consequences of non-registration of a Partnership?                                03, 05, 08
Ans: An unregistered partnership firm suffers from the fol­lowing limitations:
a)      It cannot enforce its claims against a third party in a court of law.
b)      It cannot claim adjustment for any sum exceeding Rs. 100.
c)       It cannot file a legal suit against any of its partners.
d)      Partners of an unregistered firm cannot file any suit to enforce a right against the firm.
e)      A partner of an unregistered firm cannot file a suit against other partners.
Non-registration of a firm, however, does not affect the following rights:
a)      The right of a partner to sue for the dissolution of the firm or for the accounts of a dissolved firm.
b)      The power of an Official Assignee or Receiver to realise the property of an insolvent partner.
c)       The rights of the firm, or its partners, having no place of business.
d)      Any suit or set off in which the claim does not exceed rupees one hundred.
e)      The right of a third party to sue the unregistered firm or its partners.
Q.7. Mention the procedure for registration of partnership.                                       2000
Ans: Procedure for Registration:  In order to get a partnership firm registered an application in the prescribed form must be filed with the Registrar of Firms. The application should contain the following information:
(i) The name of the firm
(ii) The principal place of business of the firm.
(iii) Names of other places where the firm's business is carried on.
(iv) Names in full and permanent addresses of the partners.
(v) The date on which each partner joined the firm,
(vi) Duration of partnership, if any.
The application should be signed and verified by each partner. A small amount of registra­tion fee is also deposited along with the application. The application submitted to the Registrar is examined.
If everything is in order and all legal formalities have been ob­served, the Registrar shall make an entry in the register of firms. He will also issue a certificate of registration.
Q.8. What is Cooperative Society? Mention its features. What are its merits and demerits?       2006, 08
Ans: A co-operative society is a voluntary association started with the aim of service of its members. It is a form of business where individuals belonging to the same class join their hands for the promotion of their common goals. A Co-operative Society is established by group ten or more persons who voluntary come together for mutual benefit. It is based on the principles of collective effort, mutual self-help, equality and freedom.
Salient features of cooperative societies
a)      Voluntary organization
b)      Suited for relatively economical weaker sections
c)       Objective is mutual help and service motive
d)      Common interest of members
e)      Open membership
f)       Democratic set-up: One person-one vote principle
g)      Separate legislative entity: Registration is required
Advantages of Cooperative Society
a)      Easy to form: The formation of a cooperative society is very simple as compared to the formation of any other form of business organisations.
b)      No obstruction for membership: Nobody is obstructed to join on the basis of religion, caste, colour etc.
c)       Limited liability: In most cases, the liabilities of the members of the society are limited to the extent of capital contributed by them.
d)      Service motive: In Cooperative society members are provided with better good and services at reasonable prices.
e)      Democratic management: Every member has equal rights through its single vote but can take active part in' the formulation of the policies of the society.
Disadvantages or the limitations of a co-operative organisation:
a)      Limited Capital: Co-operative societies are generally formed by the weaker section of the society. The members can invest only a limited capital.
b)      Lack of Competent Management: Co-operative societies are managed by the elected representatives of the members who generally possess neither the experience, nor the technical and professional qualification to run a business organisation.
c)       Lack of Secrecy: The affairs of a co-operative society are openly discussed in the meetings of the members. This makes it very difficult for the societies to keep their secrets closely guarded.
d)      Non-cooperation and Infighting: The members of a society generally belong to the same locality or occupation; they have their own personal prejudices and professional jealousies against each other.
e)      Lack of Motivation: Laws governing the co-operatives prescribe a ceiling on the vote of return. This may dampen initiative and efforts on the part of members.
Q.9. What are various types of Cooperative Societies?
Ans:  Types of co-operatives:
a)      Consumers’ cooperative societies
b)      Credit Cooperative societies
c)       Producers cooperative societies
d)      Marketing cooperative societies
e)      Farmers cooperative societies
f)       Housing cooperative societies
Q.10. What is Joint Stock Company? Mention its features. What are its merits and demerits?                   2007, 15
Ans: A Joint Stock Company is an association of many persons who contribute money or money’s worth to a common stock and employs it for a common purpose. The common stock so contributed is denoted in money and is capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.
Features of a Company
a)      Artificial Person: A company is an artificial person, which exists only in the eyes of law.
b)      Created by law: A company can be formed only with registration.
c)       Perpetual succession: A company has a continuous existence.
d)      Limited Liability: The liability of every member is limited to the face value of shares, held by him.
e)      Voluntary Association: A company is a voluntary association.
f)       Common Seal: As a company is an artificial person, so it acts through its common seal.

Advantages of a company
1. Huge capital
2. Limited liability
3. Perpetual existence
4. Transferability of shares
5. Specialized management
6. Scope for expansion
7. Wider distribution of risk
8. Public confidence
Disadvantages of a Company
1. Difficulties in formation
2. Excessive government regulations
3. Lack of secrecy
4. Slow decision making
5. Lack of Personal touch
6. Conflicts among shareholders
7. Fraudulent practices by promoters /directors
8. Difficulty in winding up

Q.11. What are various types of a Company? Distinguish between Private and Public company.
Ans: Types of Companies
A. Classification on the basis of liability
1. Companies with limited liability : (a)    Companies limited by shares (b)   Companies limited by guarantee.
2. Unlimited companies.
B. Classification on the basis of number of members
1. Private company
2. Public company
C. Classification on the basis of control
1. Holding company
2. Subsidiary company
D. Classification on the basis of ownership
 1. Government company
2. Non-government company
3. Foreign company
Q.12. Distinguish between private and public company.                                               08, 10
Ans: Difference between Public Limited Company and Private Limited Company
Basis of Difference
Private Company
Public Company
Number of persons

Minimum number of members is 2 and the maximum 50, excluding its present or past employee members.
Minimum number of members is 7 and there is no limit as to maximum numbers.
Transfer of Shares
Transfer of shares is generally restricted by the articles of association of a private limited company.
The shares of a public company are freely transferable.
Paid-up Capital
Minimum paid-up Capital should be Rs. 1, 00,000.
Minimum paid-up Capital should be     Rs. 5, 00,000.
Number of Directors
A Private Company must have at least two directors.
A Public Company must have at least three directors.
The word ‘Private Limited’ must be used as a part of the name.
The word ‘Limited’ must be used as a part of the name.
Q.13. What are various factors to be considered for starting a business?                              2008
Ans: Basic factors to be considered before starting a Business:
a)      Selection of Line of Business: Based on the requirements in the market nature and type of business to be selected.
b)      Size of the Firm: Based on the amount of funds available and demand for the product in the market size of the firm i.e. small scale or medium or large scale to be decided.
c)       Choice of form of ownership: Based on the amount of capital required, legal formalities to be filled in, liability of the owner, etc. the form of ownership is to be decided.
d)      Location of the Business enterprise: Based on the availability of raw material and infrastructure facilities location of the Business is to be selected.
e)      Financing the Proposition: Requirement of Capital and its sources must be decided.
f)       Physical facilities: Availability of physical facilities including machines and equipment, building and supportive services to be considered before starting a business.
g)      Plant layout: Plant layout should draw to show the arrangement of these facilities.
h)      Competent and committed worked force: Every business needs work force. So careful planning should be about selection, training and motivation of employees.
i)        Tax Planning: Tax liability and its impact on business to be considered.
j)        Launching the enterprise: After fulfilling the formalities entrepreneur can launch the business.
Q.14. Explain the factors that determine the choice of the form of business organisation.           2007, 10
Ans: Criteria for the Choice of Organization
Before undertaking a description of the various forms of organisation and their respective merits and weaknesses it will be desirable to refer to the features which make for an ideal form of business organisation. These characteristics will be found applicable to the various forms of organisation in varying degrees. In choosing a particular form of organisation an entrepreneur will try to find out how far his requirements will be met by a particular form of organisation. The following factors will be taken into account.
(i) Ease of formation: An ideal form of organisation is one which can be brought into existence with the least difficulty, i.e., in the form of least expenses in formation and minimum legal formalities.
(ii) Ease of financing: Another important feature of a good form of organisation is the facility of raising the required amount of capital.
(iii) Limited liability: From the point of view of risk, the entrepreneurs will naturally prefer limited liability. In case of insolvency or winding up owner or owners must be in a position to lose only to the extent of their investment in the business.
(iv) Direct relationship between ownership and control of management: As a rule, the control should lie where the ownership lies. It will ensure that the management takes active interest in running the business efficiently and effectively. If the control is not with the owners, the management may not show required interest in maximising profits through increase in efficiency
(v) Flexibility of operations: The organisation should lend itself to change and adjustment without much difficulty as and when the need arises. A good form of organisation offers the maximum flexibility and adaptability.
Q.15. What are various mode of dissolution of a Partnership Firm? Explain them briefly.             2000, 04, 06, 09
Ans: Modes of Dissolution of a Partnership Firm:
i.         Compulsory dissolution;      
ii.       Dissolution on the happening of certain contingencies;
iii.      Dissolution by notice of partnership at will;
iv.     Dissolution by the court.      
i) Compulsory Dissolution: A firm is dissolved compulsorily by the adjudication of all the partners or of all the partners but one as insolvent, or by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.
ii) Dissolution on the Happening of Certain Contingencies: Subject to contract between the partners, a firm is dissolved:
i.      if constituted for a fixed term, by the expiry of that term;
ii.    if constituted to carry out one or more adventures or undertakings, by the completion thereof;
iii.   by the death of a partner; and
iv.  By the adjudication of a partner as an insolvent.
iii) Dissolution by Notice of Partnership at Will: Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.
iv) Dissolution by Court: A court may order a partnership firm to be dissolved in the following cases:
i.         When a partner becomes of unsound mind
ii.       When a partner becomes permanently incapable of performing his/her duties as a partner,
iii.      When partner deliberately and consistently commits breach of agreements relating to the management of the firm;
iv.     when a partner’s conduct is likely to adversely affect the business of the firm;
v.       when a partner transfers his/her interest in the firm to a third party;

vi.     When the court regards dissolution to be just and equitable.


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