Forms of Business Organisation Class 11 Notes, Solved Questions CBSE Business Studies Chapter 2

Chapter 2 of Class 11 Business Studies provides an overview of various business structures, such as sole proprietorships, partnerships, joint stock companies, cooperative societies, and Hindu family businesses. Pupils also learn more about the traits, advantages, disadvantages, and motivations of each of these business organisations.

Chapter Definitions and Short Notes

Chapter 2: Forms of Business Organisation – Short Notes

Sole Proprietorship

A sole proprietorship is a business structure where a single individual owns, manages, and controls the business. This individual is the sole recipient of all profits and solely responsible for all the risks. The term “sole” means only one, and “proprietor” refers to the owner, making it clear that a sole proprietorship is operated by one and only one owner. This type of business is widely favoured, particularly among small businesses in their initial stages.

Example: An example of a sole proprietorship could be a small neighbourhood stationery store from which you might buy items like registers, pens, and chart papers. Such stores are often owned and run by a sole proprietor, illustrating a practical instance of a sole proprietorship.

Short Pointers:

• A sole proprietorship involves a single individual owning, managing, and controlling the business.
• The owner enjoys all the profits but also bears all the risks.
• “Sole” means only one, and “proprietor” means owner, emphasising the individual ownership aspect.
• Particularly suited for small businesses, especially during their early years.
• Common in personalised service industries and small-scale retail operations.

Features of Sole Proprietorship

A sole proprietorship is a type of business structure where the business is owned, managed, and controlled by a single individual. This form of business is characterised by ease of formation and closure, unlimited liability, sole risk bearing and profit receiving, complete control by the owner, no separate legal identity from the owner, and lack of business continuity.

Short Pointers:

• Formation and Closure: Setting up and closing a sole proprietorship requires minimal legal formalities, sometimes just a licence.
• Unlimited Liability: The owner’s assets can be used to cover business debts if business assets are insufficient.
• Sole Risk and Profit: The owner alone bears all risks and enjoys all profits, directly linking rewards to personal risk.
• Control: Sole decision-making authority rests with the owner, ensuring unilateral control over business operations.
• No Separate Entity: Legally, the business and the owner are the same, making the owner responsible for all business actions.
• Lack of Continuity: Factors like death, insanity, or bankruptcy of the owner directly threaten the business’s existence.

Example: If XYZ dry cleaner, owned by a sole proprietor, dissolves with debts of Rs. 80,000 but only has assets worth Rs. 60,000, the owner must contribute Rs. 20,000 from personal assets to settle debts. This illustrates unlimited liability, where personal assets may be sold to repay business debts.

Merits of Sole Proprietorship

A sole proprietorship is a business structure that offers significant advantages due to its simplicity and individual control. Key merits include quick decision-making as the owner has complete freedom to make business decisions, leading to swift action on market opportunities.
Confidentiality is maintained since the owner doesn’t need to disclose business secrets or decisions to others. There’s a direct incentive for hard work as the owner directly benefits from all profits, enhancing motivation. A sense of accomplishment from business success boosts the owner’s confidence and work ethic.
Additionally, this business form is easy to start and dissolve due to minimal legal requirements, making it flexible and accessible for many entrepreneurs.

Short Pointers:

• Quick Decision-making: Sole proprietors can make fast decisions without consulting others, capitalising on market opportunities quickly.
• Confidentiality: Business information remains private, with no legal requirement to disclose accounts or decisions.
• Direct Incentive: Owners receive all profits, providing a strong incentive to work hard.
• Sense of Accomplishment: Success brings personal satisfaction, confidence, and motivation to the proprietor.
• Ease of Formation and Closure: Minimal legal formalities are required to start or close the business, offering flexibility.

Demerits of Sole Proprietorship

The sole proprietorship, while offering distinct advantages, also comes with significant limitations. These include limited resources, as the business’s capital is confined to the owner’s savings and their ability to borrow, which restricts the business’s growth potential.
The business faces a limited lifespan due to its reliance on the proprietor’s well-being; any event affecting the owner (like illness, death, or insolvency) directly impacts the business’s continuity. The structure also imposes unlimited liability on the proprietor, meaning personal assets are at risk in the event of business failure.
Additionally, the sole proprietor may face challenges in managerial capabilities due to limitations in expertise across different business domains and the inability to afford specialist staff.

Short Pointers:

• Limited Resources: Capital is restricted to personal savings and borrowings, limiting growth.
• Limited Life: The business’s continuity is directly tied to the proprietor’s circumstances.
• Unlimited Liability: Personal assets are at risk if the business incurs debt or fails.
• Limited Managerial Ability: Sole proprietors may lack expertise in all areas of business management and cannot always afford to hire experts.

Joint Hindu Family Business

A Joint Hindu Family Business, also known as a Hindu Undivided Family (HUF) business, is a unique form of business organisation found only in India. It is the oldest form of business in the country, governed by Hindu Law. Ownership and management of the business are vested in the members of the HUF. The family head, known as the Karta, who is the eldest member, controls the business. Membership in the HUF business is based on birth within the family, and up to three successive generations can be involved. All members have equal rights to the property as co-parceners.

Short Pointers:

• Exclusively Indian: Found only in India, governed by Hindu Law.
• Oldest Form: It is the oldest business organisation in India.
• Ownership by Birth: Membership is based on being born into the HUF.
• Managed by Karta: The eldest family member controls the business.
• Co-parceners: All members have equal ownership rights over ancestral property.
• Three Generations: Up to three generations of the family can be involved in the business.

Features of HUF Business

A Joint Hindu Family (HUF) business is a distinctive form of business organisation underpinned by the Hindu Succession Act, 1956, requiring at least two family members and ancestral property for its formation. In this business structure, the Karta (the eldest male member) bears unlimited liability, whereas other family members have liability limited to their share in the ancestral property. The Karta also holds control over the business, making all major decisions. The business enjoys continuity beyond the Karta’s demise, as the next eldest member assumes the role, ensuring business stability. Membership in the HUF business is by birth, allowing even minors to be part of the business.

Short Pointers:

• Formation Requirements: At least two members and ancestral property.
• Liability: Karta has unlimited liability; other members’ liability is limited to their share.
• Control: Exercised solely by the Karta, who makes binding decisions.
• Continuity: Business continues after Karta’s death with the next eldest member taking over.
• Minor Members: Individuals become members by birth, including minors.

Merits of HUF Business

The Joint Hindu Family (HUF) business, an exclusive business model to India, boasts several advantages. With the Karta holding absolute decision-making power, this structure allows for effective control and swift decision-making. The business enjoys uninterrupted continuity, as the demise of the Karta does not affect its existence; the role simply passes to the next eldest member. Additionally, all co-parceners, except the Karta, benefit from limited liability to the extent of their share in the business, which defines and limits their financial risk. The HUF business model fosters a heightened sense of loyalty and cooperation among members, as they are all part of the same family and work towards common goals with familial pride and unity.

Short Pointers:

• Effective Control: The Karta has absolute control, ensuring quick, conflict-free decisions.
• Continuity: The business does not end with Karta’s death; leadership passes to the next eldest member.
• Limited Liability for Members: Except for the Karta, all members’ financial risk is limited to their business share.
• Increased Loyalty and Cooperation: Family members share a common goal and pride in the business, boosting cooperation.

Demerits of HUF Business

The Joint Hindu Family (HUF) business model, while unique to India and deeply rooted in tradition, presents several challenges. The business often faces limited capital resources, as it primarily relies on ancestral property, which restricts expansion opportunities. The Karta, or the head of the family business, bears unlimited liability, meaning his personal assets are at risk for business debts, potentially stifling bold business initiatives and expansion due to the fear of personal loss. Karta’s dominance in decision-making, although central to the HUF business model, can lead to potential misuse of power and family conflicts if not managed judiciously. Moreover, Karta’s limited managerial skills across diverse business areas can hinder the business’s performance and growth. These limitations have contributed to the decline in the prevalence of HUF businesses.

Short Pointers:

• Limited Resources: Capital is confined mainly to ancestral property, limiting growth.
• Unlimited Liability of Karta: Puts personal assets at risk, deterring risk-taking.
• Dominance of Karta: Centralised control can lead to misuse of power and family disputes.
• Limited Managerial Skills: Karta’s potential lack of expertise in all business areas can affect decisions adversely.

Partnership

A partnership is a business structure where two or more individuals collaborate to pursue mutual business interests. It emerges as an enhancement to sole proprietorship, addressing its limitations by pooling more capital, combining diverse professional and managerial talents, and distributing risks among the partners. According to the Indian Partnership Act, of 1932, a partnership is defined as the relationship between individuals who have agreed to share the profits of a business operated by all or any of them acting on behalf of everyone.

Short Pointers:

• Definition: A collaborative business effort by two or more people.
• Legal Basis: Governed by the Indian Partnership Act, 1932.
• Advantages over Sole Proprietorship: Offers more capital, varied skills, and risk sharing.
• Profit Sharing: Partners agree to share business profits.
• Risk Distribution: Risks are divided among partners, unlike in a sole proprietorship where the owner bears all risks.

Features of Partnership

Partnership, as defined by the Indian Partnership Act, of 1932, is a business structure where two or more individuals (up to 50 as per the Companies Act, 2013) enter into an agreement to conduct a business for profit. Key characteristics include formation through agreement without the necessity for registration, unlimited liability of partners, joint risk bearing, shared decision-making and control, and the principle of mutual agency. The continuity of the partnership is susceptible to termination upon the death, retirement, insanity, or bankruptcy of any partner. Each partner acts as both an agent and a principal, representing the partnership in dealings with third parties and being equally responsible for the actions of other partners.

Short Pointers:

• Formation: Can be formed with a simple agreement, registration is optional.
• Liability: Partners face unlimited liability, with personal assets at risk for business debts.
• Risk Bearing: Losses and profits are shared among partners according to their agreement.
• Decision-making and Control: All partners participate in management and decisions require mutual consent.
• Continuity: The partnership may dissolve due to the death, retirement, insanity, or bankruptcy of a partner.
• Membership: Requires at least two members, with a maximum of 50 as per current law.
• Mutual Agency: Each partner is an agent and principal, bound by the partnership’s activities.

Merits of Partnership

The partnership form of business organisation offers several key advantages. Firstly, it is characterised by ease of formation and closure, requiring only an agreement among the partners to establish and similarly straightforward measures to dissolve. Balanced decision-making is another significant benefit, as partners consult each other and leverage their individual areas of expertise, leading to more informed and well-rounded decisions. Risk sharing among partners reduces the stress and burden on any single member. The firm benefits from financial privacy, as there is no obligation to publish accounts or submit reports, maintaining operational secrecy. Moreover, the ability to pool resources from multiple partners enables the gathering of more funds than a sole proprietorship, facilitating greater business operations and expansion.

Short Pointers:

• Ease of Formation and Closure: Simple agreement needed, no compulsory registration.
• Balanced Decision-Making: Partners’ expertise leads to informed decisions.
• Risk Sharing: Risks are distributed, reducing individual stress and burden.
• Secrecy: No requirement to publish financials, maintaining business confidentiality.
• More Funds: Collective capital contribution allows for greater financial resources.

Demerits of Partnership

While partnerships offer several benefits, they also come with distinct disadvantages. One primary concern is the unlimited liability faced by partners, meaning both individual and collective responsibility for the firm’s debts, potentially involving personal assets. The firm’s capital is inherently limited due to restrictions on the number of partners, hindering large-scale business expansion. Decision-making within a partnership can lead to conflicts due to differences of opinion, which may impact the firm’s operations and harmony. The structure suffers from a lack of continuity, as the partnership may dissolve upon a partner’s death, retirement, insolvency, or lunacy, presenting a challenge for long-term business planning. Lastly, partnerships often lack public confidence because they are not required to publish financial reports, making it difficult for outsiders to assess the firm’s financial health.

Short Pointers:

• Unlimited Liability: Partners’ personal assets may be at risk for business debts.
• Limited Resources: Restrictions on the number of partners limit capital, affecting expansion.
• Conflict Potential: Shared decision-making can lead to disagreements among partners.
• Lack of Continuity: The partnership can end with a partner’s death, retirement, insolvency, or lunacy.
• Public Confidence: The absence of mandatory financial disclosures reduces public trust.

NCERT Solutions

NCERT Solutions for Class 11 Business Studies – Chapter 2: Forms of Business Organisation

NCERT Questions

Short Answer Questions

1. Compare the status of a minor in a Joint Hindu family business with that in a partnership firm.

Answer: In a Joint Hindu Family business, a minor automatically becomes a member at birth. This is because membership is based on birth in the family, and all family members, including minors, are considered coparceners. On the other hand, a partnership firm is based on a legal contract between partners who agree to share profits and losses. Since a minor is legally incompetent to enter into a contract, they cannot become a partner in a partnership firm. However, a minor can be admitted to the benefits of a partnership firm with the consent of all other partners.

Mindmap to remember this answer:

• Joint Hindu Family Business: Membership by birth. Minors are coparceners.
• Partnership Firm: Based on legal contract. Minors cannot enter contracts. Minors can only be admitted to benefits with all partners’ consent.

2. If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.

Answer: Even though registration is optional for a partnership firm, most firms willingly go through this legal formality and get themselves registered. This is because an unregistered firm faces several disadvantages:

• A partner of an unregistered firm cannot file a suit against the firm or other partners.
• The firm cannot file a suit against third parties.
• The firm cannot file a case against the partners.

To avoid these problems, partnership firms usually choose to register themselves.

Mindmap to remember this answer:

• Unregistered Firm Disadvantages: No lawsuit by partners against firm/other partners. No lawsuit by firm against third parties. No lawsuit by firm against partners.
• Solution: Get the partnership firm registered.

3. State the important privileges available to a private company.

Answer: The important privileges available to a private company include:

• Minimum Members: A private company requires only two members to form, while a public company needs at least seven members.
• No Prospectus Needed: A private company does not need to issue a prospectus.
• Share Allotment: Shares can be allotted without receiving the minimum subscription.
• Business Commencement: A private company can start business as soon as it receives the certificate of incorporation, without waiting for a certificate of commencement of business.
• Directors: A private company needs only two directors, compared to a minimum of three in a public company.
• No Index of Members: A private company is not required to maintain an index of members.
• Loans to Directors: There is no restriction on the amount of loans given to directors in a private company, while a public company requires government permission.

Mindmap to remember this answer:

• Privileges for Private Companies: Minimum Members: 2 members. No Prospectus Needed. 
• Share Allotment: No minimum subscription required. Business Commencement: Certificate of incorporation sufficient. 
• Directors: Only 2 required. No Index of Members. Loans to Directors: No restrictions.

4. How does a cooperative society exemplify democracy and secularism? Explain.

Answer: A cooperative society exemplifies democracy and secularism in its functioning. The decision-making power lies in the hands of an elected managing committee, and every member has one vote. This “one member, one vote” system gives all members an equal opportunity to elect the managing committee, ensuring a democratic structure.

Additionally, the membership of a cooperative society is open to all, irrespective of their religion, caste, or gender, highlighting the secular nature of the society. Thus, cooperative societies operate based on democratic and secular principles.

Mindmap to remember this answer:

• Cooperative Society: Democracy & Secularism

• Democracy: Decision-making Power: Elected managing committee. Voting System: One member, one vote. Equal Opportunity: Every member can vote.
• Secularism: Open Membership: Irrespective of religion, caste, gender. Inclusivity: No discrimination in membership.

5. What is meant by ‘partner by estoppel’? Explain.

Answer: A partner by estoppel is a person who gives others the impression that he or she is a partner of a firm through their initiative, conduct, or behaviour. Because of this impression, such partners are held liable for the debts of the firm, even if they do not contribute capital, share profits or losses, or take part in its management.

Mindmap to remember this answer:

Partner by Estoppel

• Definition: Person gives an impression of being a partner through their initiative, conduct, or behavior.
• Liability: Held liable for firm’s debts. Considered a partner in the eyes of others.
• Key Points: No contribution to capital. No sharing in profits/losses. No role in management.

6. Briefly explain the following terms in brief.

(a) Perpetual succession (b) Common seal

(c) Karta (d) Artificial person

Answer:

(a) Perpetual succession: This means that a company has a continuous existence, separate from its members. It’s created by law, and only the law can bring it to an end. The death, insolvency, or incapacity of any member doesn’t affect the company’s existence.

(b) Common seal: Since a company is an artificial person and can’t sign, a common seal with the company’s name engraved on it is affixed on all legal documents. Any document that doesn’t have the common seal isn’t binding on the company.

(c) Karta: The head of a Hindu joint family business, usually the eldest member, is called the Karta. He manages the business, makes decisions, and has unlimited liability.

(d) Artificial person: A company is considered an artificial person because it can own property, borrow money, and enter contracts, just like a natural person. However, unlike humans, it can’t breathe, talk, or eat.

Mindmap to remember this answer:

• Perpetual Succession: Continuous existence; created by law; not affected by member death or incapacity; common seal; artificial person (can’t sign); company’s name engraved; binding on all legal documents.
• Karta: Head of Hindu Joint Family; eldest member; unlimited liability.
• Artificial Person: Company acts like a person; owns property, borrows money; can’t breathe, talk, or eat.

Assignments

Sonam and Sameer decided to begin a food processing business in District Kangra of Himachal Pradesh. Help them in developing the partnership deed to avoid any dispute in future.

Answer: As part of our business studies project, our team took on the task of understanding the dynamics of various business forms. In this context, we studied the partnership form of business organisation in depth, culminating in drafting a partnership deed.

Sonam and Sameer decided to start a food processing business in Kangra, Himachal Pradesh. To ensure smooth functioning and to avoid future disputes, we helped them draft a partnership deed by considering the following aspects:

• Name and Nature of Business: We decided on “Kangra Fresh Foods” as the firm’s name, and the business involves food processing.
• Location of Business: The business is situated in District Kangra, Himachal Pradesh.
• Duration of Partnership: This partnership was formed with no specific end date, thus establishing it as a partnership at will.
• Capital Contribution: Sonam and Sameer each contribute ₹5,00,000 as their initial investment.
• Profit and Loss Sharing: Profits and losses will be shared equally between Sonam and Sameer.
• Duties and Obligations: Sonam manages the production, and Sameer handles marketing and sales.
• Salaries and Withdrawals: Both partners can withdraw a monthly salary of ₹30,000 each.
• Admission, Retirement, and Expulsion: Admission of a new partner requires unanimous consent. Retirement or expulsion will follow standard procedures outlined in the Indian Partnership Act, 1932.
• Interest on Capital and Drawings: Interest on capital is set at 6% per annum, and interest on drawings at 8% per annum.
• Dispute Resolution: Any disputes will be resolved through mutual discussions. If unresolved, arbitration will follow.
• Dissolution Procedure: In the event of dissolution, assets will be liquidated, and liabilities paid off before distributing the remaining assets as per the profit-sharing ratio.
• Account Preparation and Auditing: Accounts will be prepared annually and audited by a Chartered Accountant.
• Specimen Partnership Deed: A specimen partnership deed is available via the QR code in the textbook’s e-resource section.

By understanding these key points, Sonam and Sameer can effectively manage their partnership business with clarity and confidence.

MCQ Questions

Chapter 2: Forms of Business Organisation – MCQ Questions

1. Which of the following is a characteristic of a sole proprietorship?

Answer: (b) Unlimited liability

2. In a Joint Hindu Family Business, who holds the responsibility for managing the business?

Answer: (b) Karta

3. What is the minimum number of members required to form a cooperative society in India?

Answer: (d) 10

4. Which of the following is NOT a feature of a Joint Stock Company?

Answer: (d) Mutual agency

5. What is the maximum number of members allowed in a private limited company?

Answer: (c) 200

6. Which of the following forms of business organisation involves the principle of ‘one man one vote’?

Answer: (d) Cooperative society

7. Which of the following partnerships is formed to accomplish a specific project or for a particular time period?

Answer: (c) Particular partnership

8. Which of the following features is unique to the partnership form of a business organisation?

Answer: (a) Mutual agency

9. In which of the following forms of business organisation is the ownership and management completely separated?

Answer: (b) Joint Stock Company

10. Which feature of a joint Hindu family business allows it to continue even after the death of the Karta?

Answer: (b) Perpetual succession

11. In a partnership firm, who is liable for the firm’s debts if business assets are insufficient?

Answer: (d) All partners

12. Which of the following documents specifies the terms and conditions that govern a partnership?

Answer: (a) Partnership deed

13. Which form of partnership does NOT involve active participation in the management of the firm?

Answer: (c) Nominal partner

14. Which form of cooperative society aims to protect the interests of small producers?

Answer: (d) Producers cooperative society

15. What term is used for the common signature of a Joint Stock Company?

Answer: (c) Common Seal

16. What is a voluntary association of persons with the motive of welfare of the members called?

Answer: (c) Cooperative Society

17. Which partnership involves both general partners and partners with limited liability?

Answer: (d) Limited Partnership

18. In a cooperative society, who makes decisions on behalf of all members?

Answer: (a) Managing Committee

19. Which form of business organisation is characterised by the term ‘Karta’?

Answer: (c) Joint Hindu Family Business

20. In a public limited company, what is the minimum number of members required to start?

Answer: (b) 7

Very Short Answer Type Questions

Chapter 2: Forms of Business Organisation – Very Short Answer Type Questions

1. Define sole proprietorship.

Answer: Sole proprietorship is a business owned, managed, and controlled by a single individual.

2. Who owns and controls a sole proprietorship business?

Answer: A sole proprietorship business is owned and controlled by a single individual.

3. What is the liability of a sole proprietor?

Answer: A sole proprietor has unlimited liability and is responsible for all business debts.

4. What type of services is sole proprietorship most suitable for?

Answer: Sole proprietorship is most suitable for personalised services like beauty parlours and retail shops.

5. List any two salient characteristics of sole proprietorship.

Answer: (i) Unlimited liability (ii) Ease of formation and closure.

6. Name two limitations of sole proprietorship.

Answer: (i) Limited resources (ii) Unlimited liability.

7. Which form of business organisation allows the sole proprietor to directly receive all profits?

Answer: Sole proprietorship.

8. Which limitation of sole proprietorship is highlighted when personal assets of the owner are used to repay business debts?

Answer: Unlimited liability.

9. What is the governing law for the Joint Hindu Family business?

Answer: Hindu Succession Act, 1956.

10. Who is the head of a Joint Hindu Family business?

Answer: The head is the eldest member known as the karta.

11. What is the liability of the karta in a Joint Hindu Family business?

Answer: The karta has unlimited liability.

12. Define coparceners.

Answer: Coparceners are members of the Hindu Undivided Family with equal ownership rights.

13. Which form of business organisation is governed by the Hindu Succession Act, 1956?

Answer: Joint Hindu Family Business.

Short Answer Type Questions

Chapter 2: Forms of Business Organisation – Short Answer Type Questions

1. What is a sole proprietorship?

Answer: A sole proprietorship is a business owned, managed, and controlled by a single individual who receives all the profits and bears all the risks. This form of business is common for small enterprises offering personalised services.

Mindmap to remember this answer:

• Single owner: Profit and risk; small enterprises; personalised services.

2. Describe any three characteristics of a sole proprietorship.

Answer:

• Ease of Formation and Closure: Minimal legal formalities for starting and closing the business.
• Unlimited Liability: Sole proprietor is personally liable for business debts.
• Control: The owner has complete control over all business decisions.

Mindmap to remember this answer:

• Ease of formation/closure, Unlimited liability, Full control

3. Why is sole proprietorship known as “one-man control”?

Answer: A sole proprietorship is called “one-man control” because a single individual owns, manages, and controls the entire business, making all key decisions and bearing all risks.

Mindmap to remember this answer:

Single owner, Full control, Decision-making, Risk bearer

4. State two examples of businesses where sole proprietorship is common.

Answer: Two examples where sole proprietorship is common:

1. Beauty Parlours
2. Small Retail Shops

Mindmap to remember this answer:

• Beauty parlours, Retail shops

5. What does “unlimited liability” mean in the context of a sole proprietorship?

Answer: Unlimited liability means that the owner is personally responsible for business debts. If business assets are insufficient to pay off debts, the owner’s personal property can be used.

Mindmap to remember this answer:

Personal responsibility, Business debts, Personal property

6. List any two advantages of sole proprietorship.

Answer:

• Quick Decision-Making: Sole proprietor can make decisions promptly without consulting others.
• Confidentiality: Business information remains private due to sole control.

Mindmap to remember this answer:

• Quick decisions, Confidentiality, No need to consult

7. Explain how the continuity of business is affected in sole proprietorship.

Answer: In sole proprietorship, the continuity of the business is directly impacted by the owner’s health, death, or other personal circumstances, which may lead to business closure.

Mindmap to remember this answer:

Business tied to owner, Health/death impacts continuity, Closure risk

8. Define Joint Hindu Family Business.

Answer: A Joint Hindu Family Business is a form of business owned by members of a Hindu Undivided Family and managed by the eldest member, known as the “karta.”

Mindmap to remember this answer:

• Hindu Undivided Family (HUF), Eldest member (karta), Inherited property

9. What role does the “karta” play in a Joint Hindu Family Business?

Answer: The karta, as the head of the Joint Hindu Family Business, manages and controls the business, taking all major decisions while representing the interests of all coparceners.

Mindmap to remember this answer:

• Head of family, Full control, Decision-maker, Represents coparceners

10. Mention any two characteristics of a Joint Hindu Family Business.

Answer: 

• Control by Karta: The eldest family member (karta) manages the business.
• Limited Liability for Members: Coparceners have limited liability, but the karta has unlimited liability.

Mindmap to remember this answer:

• Karta manages, Coparceners (limited liability), Karta (unlimited liability)

11. List two merits of Joint Hindu Family Business.

Answer: Two merits of Joint Hindu Family Business are:

1. Effective control: The karta has absolute decision-making power, avoiding conflicts.
2. Continued business existence: Death of the karta doesn’t affect business continuity.

Mindmap to remember this answer:

• Effective control: Karta decision power, no conflicts.
• Continued business existence: Death of karta, next eldest replaces.

12. Why does the Joint Hindu Family Business suffer from the dominance of the karta?

Answer: Joint Hindu Family Business suffers from the dominance of the karta because he controls all business decisions individually. Other members can’t interfere, leading to potential conflicts and dissatisfaction.

Mindmap to remember this answer:

• Karta controls all decisions: No interference from others; conflicts, dissatisfaction.

13. What is the extent of liability of coparceners in a Joint Hindu Family Business?

Answer: In a Joint Hindu Family Business, coparceners have limited liability. They are liable only to the extent of their share in the ancestral property, while the karta has unlimited liability.

Mindmap to remember this answer:

• Coparceners: Limited liability. 
• Karta: Unlimited liability. Liability extent: Share in ancestral property.

14. How does the continuity of business occur in a Joint Hindu Family Business?

Answer: The continuity of business in a Joint Hindu Family Business is ensured because the eldest member becomes the karta after the previous karta’s death, ensuring stability and uninterrupted operations.

Mindmap to remember this answer:

Eldest member becomes karta:

Stability, uninterrupted operations. Death of karta doesn’t affect continuity.

15. What is the definition of partnership according to the Indian Partnership Act, 1932?

Answer: According to the Indian Partnership Act, 1932, partnership is “the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.”

Mindmap to remember this answer:

• Indian Partnership Act, 1932.
• Relation between persons.
• Share profit, business carried by all/one for all.

16. Explain the term “mutual agency” in the context of partnership.

Answer: In partnership, mutual agency means that each partner is both an agent and a principal. They can bind the firm and other partners through their actions and are also bound by the actions of other partners.

Mindmap to remember this answer:

• Mutual agency: Agent and principal.
• Bind firm, other partners.
• Bound by actions of other partners.

17. Describe any two characteristics of a partnership firm.

Answer: Two characteristics of a partnership firm are:

1. Unlimited liability: Partners are personally liable for firm debts.
2. Mutual agency: Partners can bind the firm and each other through their actions.

Mindmap to remember this answer:

• Unlimited liability: Personal liability for debts.
• Mutual agency: Bind firm, other partners.

18. What are the different types of partnerships based on liability?

Answer: Based on liability, partnerships are of two types:

1. General partnership: Unlimited and joint liability.
2. Limited partnership: At least one partner has unlimited liability, while others have limited liability.

Mindmap to remember this answer:

• General partnership: Unlimited, joint liability.
• Limited partnership: One unlimited, others limited liability.

19. What is a partnership deed, and why is it important?

Answer: A partnership deed is a written agreement specifying terms and conditions of a partnership. It is important because it defines rights, duties, and obligations of partners, avoiding future misunderstandings.

Mindmap to remember this answer:

• Written agreement: Terms and conditions.
• Defines rights, duties, obligations.
• Avoids misunderstandings.

20. Give any two differences between a general partnership and a limited partnership.

Answer: Two differences between a general and limited partnership are:

1. Liability: General partnership has unlimited liability, while limited partnership has one partner with unlimited liability.
2. Management: General partners manage the firm, but limited partners can’t.

Mindmap to remember this answer:

• Liability: General unlimited, Limited one unlimited.
• Management: General partners manage, Limited can’t.

21. List two advantages of partnership form of business.

Answer: Two advantages of a partnership form of business are:

1. More funds: Partners contribute capital, enabling larger operations.
2. Balanced decision-making: Partners share responsibilities based on expertise.

Mindmap to remember this answer:

• More funds: Partner contributions, larger operations.
• Balanced decision-making: Shared responsibilities, expertise.

22. What is a sleeping partner?

Answer: A sleeping partner, or dormant partner, is one who contributes capital to a firm and shares profits/losses but doesn’t participate in its daily management.

Mindmap to remember this answer:

• Contributes capital.
• Shares profits/losses.
• No daily management.

23. Define a cooperative society.

Answer: A cooperative society is a voluntary association of persons aiming to protect their economic interests by working together for common welfare and eliminating middlemen.

Mindmap to remember this answer:

• Voluntary association.
• Economic interests, welfare.
• Eliminate middlemen.

24. What are the main characteristics of a cooperative society?

Answer: The main characteristics of a cooperative society are:

1. Voluntary membership: Free to join/leave.
2. Legal status: Separate legal identity.
3. Service motive: Mutual help and welfare.

Mindmap to remember this answer:

Voluntary membership: Join/leave freely. Legal status: Separate identity. Service motive: Mutual help, welfare.

25. State any two advantages of a cooperative society.

Answer: Two advantages of a cooperative society are:

1. Equality in voting status: Each member has one vote, irrespective of capital contribution.
2. Limited liability: Members’ liability is limited to their capital contribution.

Mindmap to remember this answer:

• Equality in voting: One vote per member.
• Limited liability: To capital contribution.

26. Describe the principle of “one man, one vote.”

Answer: The principle of “one man, one vote” means that in a cooperative society, each member has equal voting rights regardless of their capital contribution.

Mindmap to remember this answer:

One man, one vote: Equal voting rights. Irrespective of capital contribution.

27. What is the main objective of a consumer cooperative society?

Answer: The main objective of a consumer cooperative society is to provide good quality products to members at reasonable prices by eliminating middlemen.

Mindmap to remember this answer:

• Good quality products.
• Reasonable prices.
• Eliminate middlemen.

28. Mention two types of cooperative societies and their purposes.

Answer:

1. Credit cooperative society: Provides easy credit to members on reasonable terms.
2. Producers cooperative society: Protects small producers by supplying inputs and buying their products for sale.

Mindmap to remember this answer:

• Credit cooperative: Easy credit, reasonable terms.
• Producers cooperative: Inputs supply, buying products.

29. How does a cooperative society ensure stability in its operations?

Answer: A cooperative society ensures stability through its separate legal identity and democratic control, unaffected by the entry or exit of members.

Mindmap to remember this answer:

Separate legal identity: Democratic control. Unaffected by member changes.

30. Define a joint stock company.

Answer: A joint stock company is an association of persons formed to conduct business activities and has a legal status independent of its members.

Mindmap to remember this answer:

• Association of persons.
• Business activities.
• Independent legal status.

31. What does “separate legal entity” mean in the context of a company?

Answer: “Separate legal entity” means that a company is distinct from its owners, having its own assets and liabilities, and can sue or be sued.

Mindmap to remember this answer:

• Distinct from owners.
• Own assets, liabilities.
• Can sue, be sued.

32. List any two features of a joint stock company.

Answer: Two features of a joint stock company are:

1. Perpetual succession: Continues to exist despite changes in membership.
2. Limited liability: Members are liable only to the extent of their share capital.

Mindmap to remember this answer:

• Perpetual succession: Continues despite member changes.
• Limited liability: Liability to share capital.

33. Explain the significance of a common seal for a joint stock company.

Answer: A common seal acts as the official signature of a joint stock company. Any document with the seal binds the company legally.

Mindmap to remember this answer:

Official signature: Legally binding. Common seal significance: Ensures legality and authenticity.

34. What is the liability of members in a joint stock company?

Answer: In a joint stock company, members have limited liability. They are liable only to the extent of the unpaid amount on their shares.

Mindmap to remember this answer:

• Limited liability.
• Unpaid amount on shares.

35. How does perpetual succession apply to joint stock companies?

Answer: Perpetual succession in joint stock companies means that the company continues to exist despite changes in membership due to death or exit.

Mindmap to remember this answer:

• Perpetual succession.
• Continues despite member changes.
• Death or exit.

36. Differentiate between a private company and a public company.

Answer:

1. Private Company:
   • Restricts share transfer.
   • Maximum of 200 members.
2. Public Company:
   • No share transfer restriction.
   • Minimum of 7 members.

Mindmap to remember this answer:

• Private company: Share transfer restricted, max 200 members.
• Public company: No share restriction, min 7 members.

37. What is the role of the Board of Directors in a joint stock company?

Answer: The Board of Directors manages the company’s affairs, appoints top management, and is accountable to shareholders for company performance.

Mindmap to remember this answer:

• Manages company affairs.
• Appoints top management.
• Accountable to shareholders.

38. Why is it necessary to have a partnership deed?

Answer: A partnership deed is necessary to clearly define partners’ rights, duties, and obligations, avoiding misunderstandings and disputes.

Mindmap to remember this answer:

• Define rights, duties, obligations.
• Avoid misunderstandings, disputes.

39. How does “limited liability” benefit the shareholders of a company?

Answer: “Limited liability” benefits shareholders by limiting their liability to the unpaid amount on their shares, protecting personal assets.

Mindmap to remember this answer:

• Limited liability benefit.
• Liability to unpaid share amount.
• Protect personal assets.

40. Describe the term “qualification shares.”

Answer: “Qualification shares” are the minimum number of shares a person must hold to qualify as a director of a company.

Mindmap to remember this answer:

• Qualification shares.
• Minimum shares.
• Director qualification.

41. Why is the Certificate of Incorporation significant for a company?

Answer: The Certificate of Incorporation is significant because it legally establishes the company’s existence, allowing it to commence business.

Mindmap to remember this answer:

• Certificate of Incorporation.
• Legally establishes existence.
• Commence business.

42. Explain the process of forming a cooperative society.

Answer:

• Gather at least 10 adult members.
• Submit application with required details.
• Pay fees to the Registrar.
• Receive Certificate of Registration.

Mindmap to remember this answer:

• 10 adult members.
• Submit application.
• Pay fees to the Registrar.
• Certificate of Registration.

Long Answer Type Questions

Chapter 2: Forms of Business Organisation – Long Answer Type Questions

1. Discuss the important features of sole proprietorship. Why is it considered the most suitable form of business for small enterprises?

Answer: Sole proprietorship is a business owned and managed by a single individual who takes on all profits and risks. Its primary features include ease of formation and closure due to minimal legal formalities, unlimited liability where the owner is personally responsible for all debts, and sole control over decision-making. Moreover, the business lacks a separate legal entity and is affected by the proprietor’s continuity. Despite limitations like limited resources and managerial ability, it’s ideal for small businesses due to quick decision-making, confidentiality of information, and ease of formation and closure. Sole proprietorship thrives in personalised service sectors like salons and retail shops, making it the most suitable form of business for small enterprises due to its simplicity and minimal costs.

Mindmap to remember this answer

• Features: Formation and closure; unlimited liability; sole risk bearer and profit recipient; control; no separate entity; lack of continuity.
• Merits: Quick decision making; confidentiality; direct incentive; sense of accomplishment; ease of formation and closure.
• Limitations: Limited resources; limited life; unlimited liability; limited managerial ability.

2. What is meant by a Joint Hindu Family business? Elaborate on its essential features, merits, and limitations.

Answer: A Joint Hindu Family business, unique to India, is managed by members of a Hindu Undivided Family (HUF) and governed by Hindu Law. Membership is based on birth in the family, and the eldest member (karta) manages the business. Key features include formation based on inheritance, limited liability for all members except the karta, and continuity despite the karta’s death. Merits include effective control by the karta, continued existence, limited liability for members, and increased loyalty. However, its limitations lie in limited resources, unlimited liability of the karta, dominance of the karta leading to conflicts, and limited managerial skills due to lack of expertise.

Mindmap to remember this answer

• Features: Formation; Liability; Control; Continuity; Minor members.
• Merits: Effective control; Continued existence; Limited liability for members; Increased loyalty and cooperation.
• Limitations: Limited resources; Unlimited liability of karta; Dominance of karta; Limited managerial skills.

3. Explain the concept of partnership as a form of business organisation. Discuss its salient features and limitations.

Answer: A partnership is a business organisation where two or more individuals share profits and losses. Governed by the Indian Partnership Act, 1932, it is based on a legal agreement specifying profit-sharing, responsibilities, and management. Key features include formation through an agreement, unlimited liability, mutual agency, and continuity affected by partner changes. Despite benefits like balanced decision-making, increased resources, and shared risks, partnerships face challenges like unlimited liability, limited resources, possible conflicts, lack of continuity, and low public confidence due to non-disclosure of financials.

Mindmap to remember this answer

• Features: Formation; Liability; Risk bearing; Decision making and control; Continuity; Number of partners; Mutual agency.
• Merits: Ease of formation and closure; Balanced decision making; More funds; Sharing of risks; Secrecy.
• Limitations: Unlimited liability; Limited resources; Possibility of conflicts; Lack of continuity; Lack of public confidence.

4. Differentiate between general and limited partnership. How do the types of partners contribute to the management and functioning of a partnership firm?

Answer: A general partnership involves partners with unlimited liability who actively manage the business, whereas a limited partnership has at least one partner with unlimited liability and others with limited liability, typically not involved in management. Types of partners include active (manage daily operations), sleeping (contribute capital but do not manage), secret (unknown publicly but participate in management), nominal (lend their name without active involvement), and partners by estoppel and holding out (liable due to perceived association). Active partners are crucial for management, while sleeping and limited partners offer financial support. Secret and nominal partners add credibility, and estoppel partners can influence external trust.

Mindmap to remember this answer

• General Partnership: Unlimited liability; Active participation; Joint and several liability.
• Limited Partnership: At least one partner with unlimited liability; Limited partners with liability up to their capital; Limited partners generally don’t manage.
• Types of Partners: Active; Sleeping; Secret; Nominal; By Estoppel; By Holding Out.

5. Describe the essential steps involved in the formation of a joint stock company. Why is this form of business organisation complex and time-consuming to establish?

Answer Formation of a joint stock company involves several steps:

1. Promotion: Identifying a business opportunity and gathering resources.
2. Incorporation: Filing necessary documents like the Memorandum and Articles of Association with the Registrar of Companies.
3. Subscription: Public or private issue of shares to raise capital.
4. Commencement: Starting business operations after obtaining a Certificate of Commencement.

This process is complex and time-consuming due to the need for multiple legal documents, regulatory approvals, and compliance with the Companies Act. Promotion involves careful planning, while incorporation requires thorough documentation. Subscription requires SEBI clearance, and commencement needs compliance verification.

Mindmap to remember this answer

• Steps: Promotion; Incorporation; Subscription; Commencement.
• Complexity Reasons: Multiple legal documents; Regulatory approvals; Compliance with Companies Act; SEBI clearance required.

6. What are the distinctive features of a private company and a public company? Give a comparative analysis highlighting their differences.

Answer: A private company restricts share transfer, has a minimum of 2 and a maximum of 200 members, and doesn’t invite public investment. A public company, on the other hand, has a minimum of 7 members with no upper limit, allows free share transfer, and can raise funds publicly.

Comparative Analysis

Mindmap to remember this answer

• Private Company: Share Transfer restricted; Min 2, Max 200 members; No public invitation.
• Public Company: Free share transfer; Min 7 members; Public invitation allowed.
• Comparative Differences: Members; Share Transfer; Invitation to Public; Directors; Commencement.

7. Examine the cooperative society as a form of business organisation. Discuss its features, advantages, and disadvantages.

Answer: A cooperative society is a voluntary association of individuals with a common goal, aiming for mutual welfare. Its features include voluntary membership, compulsory registration, limited liability, democratic control, and a service motive. Advantages include equality in voting, stable existence, government support, and economy in operations due to honorary services. However, it faces limitations like limited resources, inefficiency in management, government control, and lack of secrecy due to open discussions and disclosure obligations.

Mindmap to remember this answer

• Features: Voluntary membership; Legal status; Limited liability; Control; Service motive.
• Advantages: Equality in voting; Stable existence; Government support; Economy in operations.
• Disadvantages: Limited resources; Inefficiency in management; Government control; Lack of secrecy.

8. Provide a comparative evaluation of the various forms of business organisation (sole proprietorship, partnership, Joint Hindu Family, cooperative society, company) based on factors like formation, liability, continuity, and management ability.

Answer:

Formation

• Sole Proprietorship: Easiest, minimal legal formalities
• Partnership: Relatively easy, governed by Partnership Act
• Joint Hindu Family: Inherited membership
• Cooperative Society: Registration required
• Company: Complex and expensive, multiple approvals

Liability

• Sole Proprietorship: Unlimited
• Partnership: Unlimited and joint
• Joint Hindu Family: Unlimited (karta), Limited (members)
• Cooperative Society: Limited
• Company: Limited

Continuity

• Sole Proprietorship: Unstable, linked to owner
• Partnership: Ends with a partner’s exit
• Joint Hindu Family: Stable due to inheritance
• Cooperative Society: Stable, separate legal entity
• Company: Stable, separate legal entity

Management Ability

• Sole Proprietorship: Limited to owner’s skills
• Partnership: Combined expertise of partners
• Joint Hindu Family: Karta’s managerial skills
• Cooperative Society: Managing committee, limited skills
• Company: Professional management

9. What factors should be considered while choosing an appropriate form of business organisation? Illustrate with examples.

Answer: Choosing an appropriate business form requires considering factors like:

• Cost and Ease of Formation

• • • Example: Sole proprietorship for small retail shops due to minimal costs.

• Liability

• • • Example: Company for large manufacturing units to limit investor risk.

• Continuity

• • • Example: Joint Hindu Family for continuity in family-run businesses.

• Management Ability

• • • Example: Partnership for professional services needing diverse expertise.

• Capital Considerations

• • • Example: Company for large-scale projects requiring extensive funds.

• Degree of Control

• • • Example: Sole proprietorship for direct customer contact like beauty salons.

• Nature of Business

• • Example: Cooperative society for farmers to secure better seeds and equipment.

10. Define a joint stock company. What are its unique characteristics? Discuss the merits and limitations of this form of business organisation.

Answer: A joint stock company is an association of individuals for business purposes, recognized as a separate legal entity. Unique characteristics include perpetual succession, limited liability, artificial legal personhood, and ease of share transfer. Merits include limited liability for shareholders, transferable ownership, perpetual existence, large-scale funding, and professional management. However, it also has limitations like complexity in formation, lack of secrecy, impersonal work environment, numerous regulations, delays in decision-making, oligarchic management, and conflicting interests among stakeholders.

Mindmap to remember this answer

• Unique Characteristics: Perpetual succession; Limited liability; Artificial personhood; Share transfer.

• Merits: Limited liability; Transfer of interest; Perpetual existence; Scope for expansion; Professional management.

• Limitations: Complexity in formation; Lack of secrecy; Impersonal work environment; Numerous regulations; Delays in decision-making; Oligarchic management; Conflict in interests.

11. Discuss the types of cooperative societies and explain how each type serves the specific needs of its members.

Answer: Cooperative societies cater to diverse needs:

• Consumers Cooperative Societies: Protect consumer interests by offering quality products at reasonable prices, eliminating middlemen.
• Producers Cooperative Societies: Support small producers by providing raw materials and marketing finished products.
• Marketing Cooperative Societies: Help small producers secure fair prices and better market their goods.
• Farmers Cooperative Societies: Empower farmers by providing better seeds, fertilisers, and machinery.
• Credit Cooperative Societies: Offer affordable credit to members, protecting them from high-interest lenders.
• Cooperative Housing Societies: Help members acquire affordable housing.

12. Explain the concept and significance of a partnership deed. What are the essential clauses that should be included in a partnership deed?

Answer: A partnership deed is a legal document outlining terms and conditions between partners. It provides clarity, prevents disputes, and ensures smooth business functioning. Essential clauses include:

• Name and Nature of Business
• Location and Duration
• Capital Contribution
• Profit/Loss Sharing
• Duties and Obligations
• Salaries and Withdrawals
• Admission/Retirement
• Interest on Capital/Drawings
• Dispute Resolution
• Dissolution Procedure

Mindmap to remember this answer

• Concept and Significance: Legal Document; Prevent Disputes; Smooth Functioning.

• Essential Clauses: Name and Nature; Location and Duration; Capital Contribution; Profit/Loss Sharing; Duties and Obligations; Salaries and Withdrawals; Admission/Retirement; Interest on Capital/Drawings; Dispute Resolution; Dissolution Procedure.

13. Describe the features and limitations of the cooperative society. What government support is provided to cooperative societies, and how does it contribute to their functioning?

Answer:

• Features

• • • Voluntary Membership
    • Legal Status
    • Limited Liability
    • Control via Managing Committee
    • Service Motive

• Limitations

• • • Limited Resources
    • Inefficiency in Management
    • Lack of Secrecy
    • Government Control
    • Differences of Opinion

• Government Support

• • Low Taxes and Subsidies: Reduces financial burden.
  • Low-Interest Loans: Eases credit access.
  • Supportive Regulations: Simplifies formation and operations.

Mindmap to remember this answer

• Features: Voluntary Membership; Legal Status; Limited Liability; Control via Managing Committee; Service Motive.

• Limitations: Limited Resources; Inefficiency in Management; Lack of Secrecy; Government Control; Differences of Opinion.

• Government Support: Low Taxes and Subsidies; Low-Interest Loans; Supportive Regulations.

14. How is the liability of partners in a partnership firm different from the liability of shareholders in a joint stock company?

Answer: In a partnership firm, partners have unlimited liability. They are jointly and individually responsible for debts, risking personal assets. Conversely, shareholders in a joint stock company have limited liability. They are only liable up to the unpaid amount of their shares, safeguarding personal assets.

Mindmap to remember this answer

• Partnership Liability: Unlimited; Joint and Several; Personal Asset Risk.

• Company Shareholder Liability: Limited; Unpaid Share Amount; Personal Assets Safe.

15. Evaluate the impact of unlimited liability on the decision-making and risk-bearing capacity of sole proprietors and partners in a business organisation.

Answer: Unlimited liability exposes sole proprietors and partners to personal financial risk. This risk leads to conservative decision-making and limits expansion due to fear of failure. They avoid high-risk, high-reward ventures, reducing their risk-bearing capacity. However, this caution sometimes prevents innovation and growth, hindering business scalability.

16. What role does the karta play in the management of a Joint Hindu Family business? How does his role compare with that of a managing director in a company?

Answer:
Karta’s Role

• Control: Takes key decisions.
• Management: Manages daily operations.
• Unlimited Liability: Bears financial risk.

Comparison to Managing Director

• Authority: Both have decision-making power.
• Liability: Karta has unlimited liability, unlike MD.
• Accountability: MD accountable to the Board, Karta to family members.
• Management: Both oversee daily operations.

Mindmap to remember this answer

• Karta’s Role: Control; Management; Unlimited Liability.

• Comparison to Managing Director: Authority; Liability; Accountability; Management.

17. Why is there a lack of continuity in partnership firms and sole proprietorships? How do other forms of business organisations address this issue?

Answer:

Lack of Continuity

• Sole Proprietorships: Business ends with owner’s death, insanity, or bankruptcy.
• Partnerships: Dissolves with partner changes unless a new agreement is formed.

Addressing Continuity

• Joint Hindu Family Business: Continues with the next eldest member (karta).
• Cooperative Society: Independent legal entity, unaffected by member changes.
• Company: Perpetual succession due to a separate legal entity.

Mindmap to remember this answer

• Lack of Continuity

• • Sole Proprietorship
  • Partnerships
• Addressing Continuity
  • Joint Hindu Family Business
  • Cooperative Society
  • Company

18. Discuss the concept of perpetual succession and separate legal entities as distinctive features of a joint stock company. How do these features contribute to business continuity and risk management?

Answer:
Perpetual Succession

• Company continues regardless of changes in ownership.
• Liquidation only through a legal winding-up process.

Separate Legal Entity

• Distinct from shareholders.
• Owns property, enters contracts, and incurs liabilities.

Contribution to Continuity and Risk Management

• Continuity: Ensures business operations remain unaffected by member changes.
• Risk Management: Limited liability protects shareholders, reducing personal risk.

Mindmap to remember this answer

• Perpetual Succession

• • • Continues Despite Ownership Changes
    • Legal Winding-Up Required

• Separate Legal Entity

• • • Distinct from Shareholders
    • Owns Property and Contracts

• Contribution

• • Business Continuity
  • Risk Management

19. Compare the features, merits, and limitations of a partnership firm and a cooperative society. Which one would be more suitable for a group of individuals looking to establish a retail business, and why?

Answer

• Partnership Firm

• • Features: Legal agreement, unlimited liability, mutual agency.
  • Merits: Balanced decision-making, more funds, shared risks.
  • Limitations: Unlimited liability, conflicts, lack of continuity.

• Cooperative Society

• Features: Voluntary membership, limited liability, democratic control.
• Merits: Equality in voting, stable existence, government support.
• Limitations: Limited resources, inefficiency, government control.

Suitable Choice
A cooperative society is better suited for a retail business due to its focus on member welfare, stability, and government support. The principle of “one member, one vote” ensures fair decision-making, and its service motive aligns well with customer-centric retail operations.

20. Why is managerial skill an important consideration when choosing the form of business organisation? Compare the managerial abilities required for a sole proprietorship, a partnership firm, and a company.

Answer:

• Importance of Managerial Skill

• Impacts decision-making and efficiency.
• Determines business growth and sustainability.

• Sole Proprietorship

• Skills: Versatile, handling all functions alone.
• Challenges: Limited expertise, overburdened.

• Partnership Firm

• Skills: Combined expertise, specialised roles.
• Challenges: Conflicts, coordination.

• Company

• Skills: Professional management, division of work.
• Challenges: Bureaucracy, delays in decisions.

Mindmap to remember this answer

• Importance of Managerial Skill

• • • Decision-Making
    • Efficiency
    • Growth

• Sole Proprietorship

• • • Skills: Versatile
    • Challenges: Limited Expertise

• Partnership Firm

• • • Skills: Combined Expertise
    • Challenges: Conflicts

• Company

• • Skills: Professional Management
  • Challenges: Bureaucracy

Value Based Type Questions

Chapter 2: Forms of Business Organisation – Value Based Type Questions

Scenario: 1 Rakesh is a talented craftsman who makes exquisite pottery. He plans to open a small pottery store to sell his creations directly to customers. He values transparency and wants to establish a personal relationship with his buyers. However, he has limited capital and prefers a form of business organisation that requires minimal legal formalities.
Questions
(i) Which form of business organisation is suitable for Rakesh?

Answer: The suitable form of business organisation for Rakesh is Sole Proprietorship.

(ii) How does this form align with his values?

Answer: Sole Proprietorship aligns perfectly with Rakesh’s values because it requires minimal legal formalities, allowing him to start his pottery store with ease. This form provides him with full control over his business operations, enabling him to establish personal relationships with customers and maintain transparency.

Scenario: 2 Manoj and his family have inherited ancestral agricultural land and are considering forming a Joint Hindu Family Business to manage the farming activities collectively.
Questions
(i) Which member will control the family business, and what is this role called?
Answer: In a Joint Hindu Family Business, the eldest male member controls the family business, and this role is called the Karta.

(ii) Explain one value that this form of organisation promotes.
Answer: This form of organisation promotes the value of loyalty and cooperation, as all family members work together towards the common goal of managing the business.

Scenario: 3 Arjun and Priya have been friends since college and have decided to start an IT consultancy together. They want to benefit from each other’s expertise while sharing profits and risks equitably. They prefer a business form that enables balanced decision-making and provides flexibility in daily operations.
Questions
(i) Which form of business organisation should Arjun and Priya choose?
Answer: Arjun and Priya should choose a Partnership.

(ii) Identify one value that is important to them and explain how this form supports it.
Answer: The value of balanced decision-making is important to them, and Partnership supports this by enabling them to share responsibilities and make decisions together while benefiting from each other’s expertise.

Scenario: 4 Aman and Anil aim to empower rural artisans by exporting their handmade textiles globally. They decide to register their partnership firm to access global markets.
Questions
(i) Outline the registration process they must follow.
Answer: Aman and Anil should follow these steps to register their partnership firm:

• Submission of application in the prescribed form to the Registrar of Firms, including details like the firm’s name, location, partners’ names and addresses, and duration of partnership.
• Deposit required fees with the Registrar of Firms.
• Approval and registration: The Registrar, after approval, will issue a certificate of registration.

(ii) What value do they intend to promote through their partnership firm?
Answer: They intend to promote the value of empowerment by providing global market access to rural artisans and helping them achieve economic growth.

Scenario: 5 A group of small farmers, led by Ravi, is facing challenges in accessing modern agricultural equipment. Ravi proposes forming a cooperative society to provide equipment and resources to its members at reasonable rates.
Questions
(i) Which type of cooperative society should they form?
Answer: They should form a Farmer’s Cooperative Society.

(ii) How will this form of organisation serve the values of Ravi and the farmers?
Answer: This form will promote the value of mutual help and welfare by providing farmers with modern agricultural equipment and resources at reasonable rates, thus supporting their collective growth and well-being.

Scenario: 6 Shalini, a homemaker, lives in a cooperative housing society and finds that many members are struggling with limited financial resources. She plans to set up a credit cooperative society to help them obtain loans easily at low interest rates.
Questions
(i) What type of cooperative society does Shalini want to establish?
Answer: Shalini wants to establish a Credit Cooperative Society.

(ii) Identify two values that this society aims to promote.
Answer:

• Solidarity: By helping members access loans easily at low-interest rates.
• Financial Inclusion: By providing financial assistance to cooperative members facing resource limitations.

Scenario: 7 Rajesh and his friends have created a start-up developing a healthcare app. They need substantial capital to expand their operations globally and are willing to dilute their ownership. They also seek a business form that offers continuity and attracts professional management.
Questions
(i) Which form of business organisation should Rajesh and his team opt for?
Answer: Rajesh and his team should opt for a Public Company.

(ii) Describe two values promoted through this form.
Answer:

• Continuity: The business will continue to exist even if individual members leave.
• Professional Management: The Board of Directors will provide effective and skilled management for the company’s operations.

Scenario: 8 Meena, an investor, prefers to invest in companies where her personal liability is limited and where she can freely sell her shares. However, she is concerned about the transparency and governance of companies.
Questions
(i) Which form of company should Meena consider investing in?
Answer: Meena should consider investing in a Public Company.

(ii) How does this form align with her values regarding liability and transparency?
Answer:

• Limited Liability: Meena’s liability is limited to her investment, protecting her personal assets.
• Transparency: Public companies must publish financial reports, ensuring transparent governance.

Scenario: 9 Vikas, a young entrepreneur, wants to start an online bakery with a small team. His goal is to scale the business over time. He values flexibility, personal relationships with customers, and wants to ensure direct control over business operations.
Questions
(i) Which form of business organisation should Vikas initially choose?
Answer: Vikas should initially choose a Sole Proprietorship.

(ii) How does this form of organisation align with Vikas’ values and business goals?
Answer: Sole Proprietorship aligns with Vikas’ values and goals by providing him with flexibility, direct control, and the ability to establish personal relationships with customers.

Scenario: 10 Sushant, a software developer, is considering switching from sole proprietorship to a private company to secure larger investments. However, he is concerned about the additional regulations and paperwork involved.

Questions
(i) Outline two advantages and two limitations of switching to a private company.
Answer:

• Advantages:

• • Access to More Funds: Larger investments can be secured.
  • Limited Liability: Protects Sushant’s personal assets.

• Limitations:

• • Increased Regulations: More paperwork and legal requirements.

Complex Formation Process: Requires extensive documentation.

(ii) Identify one value that Sushant should prioritise in making this decision.
Answer: Sushant should prioritise the value of growth, as switching to a private company would provide him with the necessary capital and structure to expand his business.

Case Based Type Questions

Chapter 2: Forms of Business Organisation – Long Answer Type Questions

Case 1: Gopal’s Textile Factory Expansion Plan
Gopal, an entrepreneur, is planning to expand his business as a textile factory is set up in the nearby area. He contemplates the challenges of raising additional funds for the expansion and considers two options: taking a bank loan or forming a partnership. After weighing the risks, he decides to join hands with others to pool resources, share risks, and run the business more efficiently.

1. Which form of business organisation is Gopal likely to choose for his business expansion?

Answer: Gopal is likely to choose a partnership for his business expansion. By joining hands with others, he can pool resources and share risks to run the business more efficiently.

2. What benefits will Gopal enjoy by choosing this form of business organisation?

Answer: By choosing a partnership, Gopal will enjoy benefits such as pooling of resources, shared risks, improved decision-making through shared expertise, and the ability to run the business more efficiently.

3. Explain the features of the form of business organisation Gopal is planning to establish.

Answer: Gopal is planning to establish a partnership, which has features such as shared resources, shared risks, joint decision-making, and efficient management. Partnerships are also characterised by mutual trust among partners and the pooling of their expertise and skills for business growth.

Case 2: Neha’s Pottery Business Expansion Dilemma
Neha, a final-year student with a knack for painting, starts decorating clay pots and bowls. Encouraged by her initial success, she contemplates scaling up her business but faces challenges in raising funds. Her father suggests she form a partnership with her cousin, but also hints at the possibility of converting the business into a company if it expands further.

1. Suggest factors Neha should consider while choosing a suitable form of organisation.

Answer: Neha should consider factors such as the availability of capital, liability, management control, sharing of profits, and regulatory requirements while choosing a suitable form of organisation.

2. What benefits will Neha gain by forming a partnership with her cousin?

Answer: By forming a partnership with her cousin, Neha will gain benefits like shared expertise, pooled resources, reduced financial burden, and improved decision-making through collaboration.

3. Why should Neha consider transitioning her business into a company if it grows further?

Answer: Neha should consider transitioning her business into a company if it grows further because it will offer benefits like limited liability, easier access to funding, and the potential for expansion through additional shareholders.

Case 3: Coca-Cola’s Journey from Sole Proprietorship to Corporation
Dr. John Stith Pemberton created the famous Coca-Cola syrup and sold portions of his business to various partners before selling his remaining interest to Asa G. Candler. Candler acquired complete control, formed a company called “The Coca-Cola Corporation,” and transformed it into one of the world’s best-known brands.

1. Which feature of sole proprietorship is highlighted by Dr. Pemberton’s control over the Coca-Cola business before selling it?

Answer: Dr. Pemberton’s complete control over the Coca-Cola business before selling it highlights the feature of sole proprietorship known as full decision-making authority.

2. Explain the merit of sole proprietorship that allowed Dr. Pemberton to quickly sell portions of his business to partners.

Answer: The merit of sole proprietorship that allowed Dr. Pemberton to quickly sell portions of his business to partners is flexibility, enabling swift decision-making and transfer of ownership.

3. Why do you think Asa G. Candler transformed Coca-Cola from a sole proprietorship into a company?

Answer: Asa G. Candler transformed Coca-Cola into a company to gain better access to funding, limit liability, and expand the brand globally by sharing ownership through shareholders.

Case 4: Gender Equality in Joint Hindu Family Business
With the introduction of the Hindu Succession (Amendment) Bill, 2004, the government aimed to achieve gender equality in inheritance laws for ancestral property in Joint Hindu Family businesses. Earlier governed only by the Mitakshara system, which restricted coparcenary rights to male members, the amendment allowed daughters to have equal rights.

1. What is the Mitakshara system in the context of Joint Hindu Family business?

Answer: The Mitakshara system is a traditional law governing Joint Hindu Family businesses that restricts coparcenary property rights to male members only.

2. Is Mitakshara the only system governing coparcenary property? Explain briefly.

Answer: No, the Dayabhaga system is another system governing coparcenary property. Unlike Mitakshara, it allows sons to inherit only after their father’s death.

3. How has the Hindu Succession (Amendment) Bill, 2004, promoted gender equality in Joint Hindu Family businesses?

Answer: The Hindu Succession (Amendment) Bill, 2004, promoted gender equality by granting daughters the same coparcenary rights as sons, allowing them to inherit ancestral property equally.

Case 5: Price Waterhouse Coopers’ Evolution
Price Waterhouse Coopers, one of the world’s top accountancy firms, was initially a partnership between Price Waterhouse and Coopers and Lybrand. Over time, they changed to a company form of organisation.

1. What advantages did the partnership form of organisation provide Price Waterhouse Coopers initially?

Answer: The partnership form allowed Price Waterhouse Coopers to benefit from shared expertise and combined resources, enhancing decision-making and service quality due to direct involvement of partners.

2. State any two limitations of the partnership form of organisation that would have compelled Price Waterhouse Coopers to convert into a company.

Answer:Firstly, the partnership might have faced limitations in raising capital as partners’ personal resources are often the main source of funds. Secondly, the liability of partners is unlimited, posing personal financial risks.

3. Why is the partnership form of organisation particularly suited for professional services like accountancy?

Answer: The partnership form is ideal for professional services because it allows for a collaborative approach where partners can share expertise and responsibilities, leading to higher quality client services and enhanced professional development.

Case 6: Amul’s Cooperative Success Story
Amul, one of India’s largest cooperative societies, was formed to help farmers gain better access to markets. It collects milk from millions of farmers and delivers dairy products to retail outlets across the country.

1. Which type of cooperative is Amul?

Answer: Amul is a dairy cooperative society. It was formed to provide farmers with better access to markets, helping them sell their milk products effectively.

2. How does Amul exemplify the merit of “economy in operations” in a cooperative society?

Answer: Amul demonstrates economy in operations by pooling resources from millions of farmers. This large-scale operation helps reduce costs through shared logistics and marketing, benefiting all members.

3. Describe any two challenges that cooperatives like Amul might face.

Answer: Two challenges for cooperatives like Amul include managing the quality control of products from numerous sources and navigating government regulations. Additionally, coordinating with a vast number of members can also be complex.

Case 7: Indian Companies in the Fortune Global 500
India has five companies listed in the Fortune Global 500 rankings, indicating a relatively small presence compared to other global companies.

1. What are Fortune Global 500 organisations, and how is their ranking determined?

Answer: Fortune Global 500 organisations are large companies ranked based on their revenue. The ranking is determined by their annual revenue figures, comparing them globally to list the top 500 companies in the world.

2. What challenges in the Indian business environment limit the presence of Indian companies in the Fortune Global 500 rankings?

Answer: In India, challenges like regulatory hurdles, infrastructural deficiencies, and limited access to international markets restrict the presence of Indian companies in the Fortune Global 500 rankings.

3. Suggest measures the government could take to encourage more Indian companies to join the ranks of the Fortune Global 500.

Answer: To encourage more Indian companies to join the Fortune Global 500, the government could streamline regulatory processes, enhance infrastructure, and promote international trade agreements to open up new markets for Indian businesses.

Case 8: Dileep and Rakesh’s Business Partnership
Dileep has successfully operated his business for two years but needs additional funds for expansion. Following his wife’s advice, he invites his friend Rakesh to join as a partner, and they agree to share profits and losses equally.

1. What form of business was Dileep operating initially?

Answer: Dileep was operating a sole proprietorship initially. This is a type of business owned and managed by one person.

2. How did Dileep’s business structure change after Rakesh joined him, and what benefits did this new form offer?

Answer: After Rakesh joined, Dileep’s business structure changed to a partnership. This new form allowed them to share profits and losses equally and brought in additional funds for expansion.

3. What limitations might Dileep face in this new form of business organisation?

Answer: In this new partnership form, Dileep might face limitations like shared decision-making, which can lead to conflicts. Also, both partners are liable for business debts, which might increase financial risk for Dileep.

Case 9: Akanksha’s Culinary Venture
Akanksha, facing financial difficulties at home, starts working as a cook in three households and masters the local cuisines. She opens a small eating joint, “Hamara Khana,” with two friends, where they share profits equally and are mutually responsible for each other’s actions.

1. Identify the form of business organisation established by Akanksha and her friends.

Answer: Akanksha and her friends established a partnership. In a partnership, two or more people come together to run a business and share profits.

2. Quote the lines from the paragraph that describe features of this form of business organisation.

Answer: The lines “She opens a small eating joint, ‘Hamara Khana,’ with two friends, where they share profits equally” describe the feature of sharing profits in a partnership.

3. How does the principle of “mutual agency” apply to Akanksha’s eating joint?

Answer: In Akanksha’s eating joint, the principle of mutual agency is seen where it says they are “mutually responsible for each other’s actions.” This means each partner can make decisions and act on behalf of the business, affecting all partners.

Case 10: Venkat’s Joint Hindu Family Business
Venkat and his sons run a Joint Hindu Family business, where Venkat, as the eldest, takes all business decisions. However, due to poor decisions, the business incurs losses and Venkat sells his house to repay debts.

1. What form of business is Venkat operating?

Answer: Venkat operates a Joint Hindu Family business. This type of business is typically managed by the eldest member of the family, who makes all major decisions.

2. Quote the lines that illustrate two features of this form of business organisation.

Answer: The text states that “Venkat and his sons run a Joint Hindu Family business, where Venkat, as the eldest, takes all business decisions.” This illustrates the features of control by the eldest family member and involvement of family members in the business.

3. What advantages and disadvantages does Venkat’s business structure offer?

Answer: One advantage of Venkat’s business structure is that decision-making can be quick since only the eldest member, Venkat, makes the decisions. A disadvantage is that poor management decisions by Venkat led to financial losses, showing a lack of diverse viewpoints which might have prevented such outcomes.

Case 11: Tata Group’s Business Journey
The Tata Group comprises 91 companies operating in diverse sectors. Founded by Jamshedji Tata, it is now one of India’s largest business conglomerates. The Tata Group is currently led by Ratan Tata and continues to uphold five core values.

1. Which form of business organisation does the Tata Group represent?

Answer: The Tata Group represents a conglomerate or a group of companies.

2. What characteristic of this form of organisation is highlighted by the Tata Group’s continued existence even after Jamshedji Tata’s death?

Answer: Its continued existence after Jamshedji Tata’s death highlights the characteristic of perpetual succession.

3. How has the Tata Group incorporated the principle of “unity” in its business practices?

Answer: The Tata Group practises unity by adhering to shared values and collaborative decision-making among its companies.

Case 12: Luxor Writing Instruments’ Success Story
Luxor Writing Instruments Pvt. Ltd., founded by a 19-year-old entrepreneur, quickly became a leading manufacturer and exporter of writing instruments in India. It has exclusive rights to manufacture and distribute several international brands in India.

1. Which form of business organisation is Luxor Writing Instruments Pvt. Ltd.?

Answer: Luxor Writing Instruments Pvt. Ltd. is a private limited company. This form of business organisation offers benefits like limited liability, which means the owners are not personally liable for the company’s debts, making it a preferred choice for many entrepreneurs.

2. Why might entrepreneurs prefer forming a private company instead of a public company?

Answer: Entrepreneurs might prefer forming a private company instead of a public company because it requires fewer legal disclosures and allows for greater control over the business. Private companies can also restrict the transfer of shares, which helps in maintaining stability in ownership and decision-making.

3. State any two privileges enjoyed by a private company that a public company does not.

Answer: Two privileges enjoyed by a private company that a public company does not include:

• Exemption from issuing a prospectus to the public, which simplifies the process of raising capital.
• Lesser restrictions on the transfer of shares, which helps in keeping control within a selected group of people.

Case 13: Saurabh Publications’ Transition to Public Limited Company
Saurabh Publications, initially a private limited company, decides to offer shares to the public due to growing demand and investment needs.

1. Identify the form of organisation that the board members are considering.

Answer: The board members of Saurabh Publications are considering transitioning to a public limited company as they decide to offer shares to the public to meet growing demand and investment needs.

2. What two benefits will Saurabh Publications lose if it adopts this new form of organisation?

Answer: By adopting this new form of organisation, Saurabh Publications will lose the benefits of restricted share transfers, which helps maintain control over the company. They will also face higher scrutiny and regulatory compliance requirements, which can increase administrative burdens.

3. What two benefits will Saurabh Publications gain by transitioning to this new form?

Answer: Saurabh Publications will gain significant capital infusion from the public, which can fuel their expansion plans and satisfy investment needs. Additionally, transitioning to a public limited company enhances the company’s credibility and public image, potentially attracting further investment and business opportunities.

Case 14: Bharat Heavy Electricals Limited (BHEL) – A Public Company’s Journey
Bharat Heavy Electricals Limited (BHEL) is the largest engineering and manufacturing enterprise in India’s energy-related sector. It has consistently earned profits since 1971-72, paying dividends and obtaining certifications for quality management.

1. Which form of organisation is BHEL?

Answer: Bharat Heavy Electricals Limited (BHEL) is a public sector undertaking, operating under the government of India. It is classified as a public company given its scale and government ownership.

2. What components of the Indian economy does BHEL cater to?

Answer: BHEL caters to multiple components of the Indian economy, primarily focusing on the energy-related sectors. This includes the manufacturing of power generation equipment, heavy electrical equipment, and also plays a significant role in India’s infrastructure development.

3. How has BHEL maintained a stable and skilled workforce over the years?

Answer: BHEL has maintained a stable and skilled workforce over the years through continuous training and development programs. It also emphasises strong human resource policies that focus on employee welfare, which helps in retaining skilled professionals.

Sample Questions Paper

Chapter 2: Forms of Business Organisation – Sample Questions Paper

Sample Question: 1

Time allowed: 2 hours Maximum Marks: 40

General Instructions:

1. The question paper contains 14 questions.
2. All questions are compulsory.
3. Section A Questions 1-2 are 1 mark source-based questions. Answers should not exceed 10-15 words.
4. Section B Questions 3-9 are 2 mark questions. Answers should not exceed 30 words.
5. Section C Questions 10-12 are 4 mark questions. Answers should not exceed 80 words.
6. Section D Questions 13-14 are 6 mark questions. Answers should not exceed 200 words.

Section A

1. Identify the form of business organisation where the owner has unlimited liability and the business is owned, managed and controlled by an individual. (1)
   Or
   The formation and closure of which form of business organisation is the easiest with minimal legal formalities?
2. State the principle governing voting rights in a cooperative society. (1)
   Or
   In a cooperative society, whose liability is limited to their share of capital contribution?

Section B

3. Define the term ‘Sole Proprietorship’. (2)
4. State any two limitations of a partnership firm. (2)
5. Why is the liability of karta unlimited in a Joint Hindu Family Business? (2)
6. Differentiate between a public company and a private company on the basis of the minimum number of members required. (2)
7. State any two advantages of a cooperative society. (2)
8. Distinguish between a partnership at will and a particular partnership. (2)
9. What is the significance of a partnership deed? (2)

Section C

10. Explain any four characteristics of a joint stock company. (4)
    Or
    Why is it advisable for a partnership firm to get itself registered? Explain any three reasons.
11. “Management is specialised and professionalised in a joint stock company.” In light of this statement, explain any three merits of a joint stock company. (4)
    Or
    Although a company form of organisation offers many advantages, it has certain limitations too. Analyse any three such limitations.

12.Distinguish between a consumer’s cooperative society and a producer’s cooperative society on the basis of their objectives and members. (4)

Section D

13. Discuss any four factors that determine the choice of form of business organisation to be adopted by an entrepreneur. (6)
    Or
    “Formation of a company involves greater time, effort and compliance with numerous legal formalities and procedures.” Explain any six such legal formalities/procedures involved in the formation of a company.
14. Shikha wants to start a cafe business after completing her MBA. She is well-versed with the advantages and limitations of different forms of business organisation.

(a) Keeping in mind the factors determining the choice, suggest a suitable form for her cafe business. Give three reasons in support of your suggestion.

(b) If she is able to run her cafe successfully and wants to undertake expansion by opening branches across the city after a few years, which other form would be more suitable? State three points of difference between the two forms. (6)

Sample Question: 2

Time allowed: 2 hours Maximum Marks: 40

General Instructions:

1. The question paper contains 14 questions.
2. All questions are compulsory.
3. Section A Questions 1 and 2 are 1 mark source-based questions. Answers should not exceed 10-15 words.
4. Section B Questions 3 to 9 are 2 mark questions. Answers should not exceed 30 words.
5. Section C Questions 10 to 12 are 4 mark questions. Answers should not exceed 80 words.
6. Section D Questions 13 and 14 are 6 mark questions. Answers should not exceed 200 words.

Section A

1. Identify the form of business organisation described in the following line: “It refers to a form of business organisation which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks.”
   Or
   State the meaning of the term ‘sole proprietorship’.
2. Why is a sole proprietorship business also called an “inseparable twin” of the owner?

Section B

3. Differentiate between unlimited liability and limited liability.
4. What is the minimum number of members required to form a partnership firm?
5. Give two examples of producer’s cooperative societies.
6. “Joint Hindu Family business is one of the oldest forms of business organisation in India.” Explain the statement.
7. Why is it advisable to have a written partnership deed?
8. Define a joint stock company.
9. State any two privileges of a private company over a public company.

Section C

10. Discuss any four characteristics of a cooperative society.
    Or
    “Cooperative societies are a unique form of business organisation founded on the principles of self-help and mutual help.” In light of this statement, explain any four merits of a cooperative society.
11. Explain any four limitations of the sole proprietorship form of business organisation.
    Or
    “Despite some inherent limitations, many entrepreneurs opt for the sole proprietorship form of organisation particularly in the initial stages.” Justify the statement by giving any four reasons.
12. Why is the company form of organisation referred to as an “artificial person”? Explain any three reasons.
    Or
    Discuss any three points that highlight the “impersonal” nature of the company form of organisation.

Section D

13. Differentiate between a private company and a public company.
    Or
    Discuss any six factors that influence the choice of an appropriate form of business organisation.
14. Read the following case and answer the questions that follow:

Arjun and Vikram are friends who live in Delhi. They wanted to start a small business selling customised gift items. Both of them had some savings which they wanted to invest in their business venture. They were also in a dilemma about choosing the form of business organisation. Keeping in mind factors like risk bearing, capital requirement, managerial ability and continuity of business, they decided to choose the partnership form of organisation.

(i) Explain two advantages of partnership firms they are likely to enjoy. (ii) State two values being reflected by their decision to join hands and start a business.
(iii) If Arjun and Vikram want to increase their area of operations and business size in the future, which form of business organisation would they choose? Give two reasons for your choice.
Or
Explain the following terms related to partnership with an example for each: (i) Active partner (ii) Sleeping partner (iii) Secret partner (iv) Nominal partner (v) Partner by estoppel (vi) Partner by holding out