1st PUC Business Studies Question Bank Chapter 2 Forms of Business Organisation

Karnataka 1st PUC Business Studies Question Bank Chapter 2 Forms of Business Organisation

One Mark Questions

Question 1.
Name any one form of Business Organisation.
Answer:
Sole trading concern or Sole proprietorship.

Question 2.
Give the meaning of Sole Proprietorship.
Answer:
Sole proprietorship refers to a form of business organization that is owned, managed, and controlled by an individual who is the incipient of all profits and bearer of all risks.

Question 3.
State the form of business organization that is owned, managed, and controlled by a single person.
Answer:
Sole Proprietorship is the form of business organization that is owned, managed, and controlled by a single person.

Question 4.
Give an example for Sole Proprietorship.
Answer:
The grocery store is an example of Sole Proprietorship.

Question 5.
State the nature óf liability ola SoleProprietor
Answer:
The liability of the Sole Proprietor is unlimited.

Question 6.
Who bears all risks and receives all profits In Sole Proprietary Organisation?
Answer:
Sole Proprietor bean all risks and receives all profits in Sole Proprietary Organisation.

Question 7.
Name the form of business organization that is found only in India?
Answer:
Hindu undivided family business.

Question 8.
In which country only do you find Hindu Undivided Family Business?
Answer:
In India, we find Hindu Undivided Family Business.

Question 9.
Which Lawns Hindu Undivided Family in IndI?
Answer:
Hindu law.

Question 10.
Give the meaning of Hindu Undivided Family.
Answer:
It refers to a form of organization wherein the business is owned and carried on by the members of the Hindu Undivided Family.

Question 11.
Who is the head of Hindu Undivided Famly Bs1ness? (Mardi-N-2019)
Answer:
Karta is the head of the Hindu Undivided Family.

Question 12.
Who is Karta? (March 2018)
Answer:
Under Hindu Undivided Families, the business is headed by the eldest male member of the family is called Karta.

Question 13.
Who a co-parceners?
Answer:
All, the other members-only work as per the directions of the Karta are known as co-parceners.

Question 14.
What Is the extent of liability of Karta?
Answer:
The liability of Karta is unlimited.

Question 15.
State the nature of liability of co-parceners.
Answer:
The liability of co-parceners is limited.

Question 16.
State the minimum number of persons required to a set up a partnership.
Answer:
The minimum number of persons required to a set up a partnership is 2.

Question 17.
What is the maximum number of persons in a partnership firm carrying on banking business?
Answer:
The maximum number of persons in a partnership firm carrying a banking business is 10.

Question 18.
Which Act governs partnership business in India?
Answer:
Indian Partnership Act of 1932.

Question 19.
Who is a Minor Partner?
Answer:
A partnership arises from a contract and a minor is not competent to enter into a contract. Therefore, strictly speaking, a minor cannot be a full-fledged partner. But with the consent of all the partners, he can be admitted into the partnership for benefits only.

Question 20.
State any one privilege enjoyed by a registered partnership firm.
Answer:
The partnership does not get terminated with the death, lunacy, or insolvency of the limited partners.

Question 21.
State any one type of partnership.
Answer:
Limited partnership.

Question 22.
State any one consequence of non-registration of the partnership firm.
Answer:
It cannot file a suit against any partner for the recovery of debts.

Question 23.
Which Act governs Co-operative Societies in India?
Answer:
Indian Co-operative Societies Act 1912.

Question 24.
State the minimum number of persons required to form a co-operative society.
Answer:
There should be a minimum of 10 members to form a cooperative society.

Question 25.
State the nature of liability of the members of cooperative societies.
Answer:
The liability of the members of co-operative societies is limited.

Question 26.
State the main objective of cooperative societies.
Answer:
Service motive is the main objective of cooperative societies.

Question 27.
State voting principle in cooperative societies.
Answer:
‘One man one vote”.

Question 28.
Mention any one type of cooperative societies.
Answer:
Consumer’s cooperative societies.

Question 29.
State any one type of Joint Stock Companies.
Answer:
Public Company.

Question 30.
Which Act governs the Joint Stock Companies in India?
Answer:
The company form of organization is governed by The Companies Act. 1956 or 2013.

Question 31.
Mention the minimum number of members in a private company.
Answer:
The minimum number of members in a private company is One as per the Companies Act of 2013 and 2 as per the Companies Act of 1956.

Question 32.
Mention the maximum number of members in a private company.
Answer:
The maximum number of members in a private company is 200 as per the Companies Act of 2013 and 50 as per the Companies Act of 1956.

Question 33.
Mention the minimum number of members in a public company.
Answer:
The minimum number of members in public companies is 7 as per the Companies Act of 2013 and 1956.

Question 34.
Mention the maximum number of members in a public company.
Answer:
The maximum number of members in a private company is unlimited as per the Companies Act of 2013 and 1956.

Question 35.
Name the company in which Its shares are freely transferable.
Answer:
Public company.

Question 36.
Which type of company restricts the free transferability of its shares?
Answer:
Private company.

Question 37.
State any one feature of a public company.
Answer:
Shares can be transferred easily to any person.

Question 38.
State any one feature of a private company
Answer:
Transfer of shares is restricted by the Articles of Association.

Question 39.
State the minimum amount of capital required by a public company.
Answer:
The minimum paid-up capital required for a public company is Five Lakh Rupees.

Question 40.
State the minimum amount of capital required by a private company.
Answer:
The minimum paid-up capital Teqliied for a private company is One Lakh Rupees.

Two Mark Questions

Question 1.
State any two merits of Sob Proprietary Organisation.
Answer:
Easy formation and Quick decision-making are two merits of sole trading concern.

Question 2.
Specify any two demerits of Sole Proprietary Organization.
Answer:
Limited capital and Unlimited liability are two demerits of sole trading concern.

Question 3.
Give the meaning of the Hindu Undivided Family business.
Answer:
It refers to a: form of .organisation wherein the business is owned and carried on by the members of the Hindu Undivided Family.

Question 4.
State any two features of the Hindu Undivided Family business.
Answer:
Limited capital and centralized control are the two features of the Hindu Undivided Family.

Question 5.
Define Partnership. (March-.S.2018)
Answer:
According to Section 4(2) Indian Partnership Act, l92 defines partnership as “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.”

Question 6.
State the minimum and a maximum number of partners in a partnership firm.
Answer:
At least two members are required to start a partnership business. But the number of members should not exceed 10 in the case of banking business and 20 ìwcase of other business.

Question 7.
Who is an Active Partner’ (March-N-2019)
Answer:
The partners who actively participate in the day-to-day operations of the business are known as active or working partners.

Question 8.
Who is a Sleeping Partner?
Answer:
Partners who do not participate in the day-to-day activities of the partnership firm are known as dormant or sleeping partners.

Question 9.
Who is a Nommai Partner? (March-N-2018)
Answer:
Partners who only allow the firm to use their name as a partner. They do not have any real interest in the business of the firm such partners knówn as nominal partners.

Question 10.
Who is a Partner by Estoppel?
Answer:
If a person falsely represents himself as a partner of any firm or behaves in a way that somebody can have an impression that such person is a partner and on the basis of this impression transacts with that firm then that person is held hablé to the third party. The person who falsely represents himself as a partner is known as a partner by estoppel.

Question 11.
Give the meaning of partnership deed
Answer:
The written agreement which specifies the terms and conditions that govern the partnership is called the partnership deed,

Question 12.
State any two contents of partnership deed’ (MarchS-.2019)
Answer:
Name of the firm and names and addresses of the firm and each partner.

Question 13.
What Is Particular Partnership’
Answer:
A partnership formed for the accomplishment of a particular project says construction of a building or an activity to be carried on for a specified time period is called a particular partnership.

Question 14.
What is Partnership at Will?
Answer:
Partnership at will is a type of partnership that exists at the will of the partners. It can continue as long as the partners want and is terminated when any partner gives notice of withdrawal from the partnership to the firm.

Question 15.
What is General Partnership?
Answer:
In a general partnership, the liability of partners is unlimited and joint. The partners enjoy the right to participate in the management of the firm and their acts are binding on each other as well as on the firm. Registration of the firm is optional.

Question 16.
Give the meaning of unlimited liability.
Answer:
If the liability is not limited to the amount invested but the private property of the owner or proprietor is also liable to pay the business obligations then it is known as unlimited liability.

Question 17.
State any two consequences of Non-Registration of the partnership firm.
Answer:
(a) It cannot file a suit against any partner for recovery of debts.
(b) A third party can file a suit against an unregistered firm or a partner.

Question 18.
Give the meaning of Cooperative Societies.
Answer:
According to Section 4 Indian Cooperative Societies Act 1912- “cooperative organization is a society which has its objectives for the promotion of economic interests of its members in accordance with cooperative principles”

Question 19.
State the minimum and the maximum number of members in Co-operatives.
Answer:
Minimum is 10 and maximum is unlimited.

Question 20.
State any two types of Cooperative Societies.
Answer:
(a) Consumer’s cooperative societies
(b) Producer’s cooperative societies

Question 21.
Give the meaning of Consumers’ Cooperative Societies.
Answer:
Consumers’ cooperatives are formed by the consumers to obtain their daily requirements at reasonable prices. Such a society buys goods directly from manufacturers and wholesalers to eliminate, the profits of middlemen.

Question 22.
Give the meaning of Producers’ Cooperative Societies.
Answer:
Producers or industrial cooperatives are voluntary associations of small producers and artisans who join hands to face competition and increase production.

Question 23.
Give the meaning of Housing Cooperative Societies
Answer:
Housing Cooperative Societies are formed by a low and middle-income group people in urban areas to have a house of their own. Housing cooperatives are of different types. Some societies acquire land and give the plots to the members for constructing their own houses.

Question 24.
Give the meaning of Housing Cooperative Societies.
Answer:
Housing Cooperative Societies are formed by a low and middle-income group of people in urban areas to have a house of their own. Housing cooperatives are of different types. Some societies acquire land and give the plots to the members for constructing their own houses.

Question 25.
Give the meaning of Marketing Cooperative Societies.
Answer:
Marketing Cooperatives are voluntary associations of independent producers who want to sell their output at remunerative prices. The output of different members is pooled and sold through a centralized agency to eliminate middlemen. The sale proceeds are distributed among the members in the ratio of their outputs.

Question 26.
Give the meaning of Farmers’ Cooperative Societies.
Answer:
Farmers’ Cooperative Societies are voluntary associations of small farmers who join together to obtain the economies of large-scale farming.

Question 27.
Give the meaning of Credit Cooperative Societies.
Answer:
Credit Cooperative Societies are formed by poor people to provide financial help and to develop the habit of savings among members. They help to protect members from the exploitation of money lenders who charge high interest from borrowers.

Question 28.
State any two advantages of Cooperative Societies.
Answer:
(a) Equality in voting status.
(b) Limited liability.

Question 29.
State any two disadvantages of Cooperative Societies.
Answer:
(a) Lack of secrecy.
(b) Limited resources.

Question 30.
Give the meaning of a Joint Stock Company.
Answer:
When a few people form a company for the purpose of some business profit it is called a joint-stock company.

Question 31.
Define Joint Stock Company.
Answer:
According to the Companies Act of 1956 section 566, “A company is an artificial person create by law having a separate legal entity with a perpetual succession and common seal”.

Question 32.
State any two features of a Joint Stock Company.
Answer:
(a) Artificial person
(b) Limited liability.

Question 33.
State any two features of a private company.
Answer:
(a) The minimum paid-up capital required for a public company is Five Lakh Rupees or such higher as may be prescribed from time to time.
(b) The minimum number of members required to form a public company is 7 and the maximum limit is unlimited.

Question 33.
State any two features of a public company.
Answer:
(a) The minimum paid-up capital required for a private company is One Lakh Rupees or such higher as may be prescribed from time to time.
(b) The minimum number of members required to form a private company is 2 and the maximum limit is 50 (200 as per Companies Act of 2013) excluding those who are its present or past employees.

Question 34.
State the minimum and a maximum number of members in a public company.
Answer:
The minimum limit is 7 members and the maximum limit is unlimited.

Question 35.
State the minimum and the maximum number of members in a private company.
Answer:
The minimum limit is 2 (1 as per Companies Act of 2013) members and the maximum limit is 50 (200 as per Companies Act of 2013).

Question 36.
State any two differences between public and private companies.
Answer:
1st PUC Business Studies Question Bank Chapter 2 Forms of Business Organisation 2

Question 37.
State any two merits of Joint Stock Company.
Answer:
(a) Huge resources
(b) Limited liability.

Question 38.
State any two demerits of Joint Stock Company.
Answer:
(a) Difficulty information
(b) Lack of secrecy.

Question 39.
For which of the following types of business do you think a sole proprietorship form of organization would be more suitable, and why?
Answer:
(a) Grocery store
(b) Medical store
(c) Legal consultancy
(d) Craft center
(e) Internet cafe
(f) Chartered accountancy firm.
Answer:
A sole proprietorship will be most suitable in the case of a grocery store as in this case, initial business setting-up costs are not very high, the legal requirements are minimum and the scale of operations is small.

Question 40.
For which of the following types of business do you think a partnership form of organization would be more suitable, and why?
(a) Grocery store
(b) Medical clinic
(c) Legal consultancy
(d) Craft center
(e) Internet cafe
(f) Chartered accountancy firm
Answer:
A partnership firm of organization would be most suitable for an internet cafe as this business needs greater capital investment and varied skills. It can come into existence easily through a legal agreement by putting an agreement between the prospective partners into place whereby they agree to carry out the business of the firm and share risks.

Four Mark Questions

Question 1.
Explain the features of the Hindu Undivided Family.
Answer:
(a) Delegation of work: The Karta does only the management of the business. He delegates the work to the co-parceners who take part in the business upon attaining the majority in age.

(b) Instability of business: The business of a Hindu undivided family becomes Unstable if the unity in the family is disintegrated. This may result in the closure of a good business also.

(c) Limited capital: The capital employed in a Hindu undivided family may be limited this is because the investments are made only by family members.

(d) Small scale operation: As capital employed is less in a Hindu undivided family, the business operations cannot be on a large-scale basis. Chances of expansion may be limited.

(e) Easy formation: The formation of a Joint Hindu family is very easy because it does not require, any legal formalities to form. It comes into existence under the Hindu Succession Act 1956.

(f) Quick decisions and prompt action: The Karta is the sole manager of the business and head of the family. He need not consult anyone before making any decisions. Therefore he .can take quick decisions and prompt actions.

(g) Flexibility in operation: The management is in the hands of the Karta. He takes decisions according to the changing circumstances. He can expand or contracts his business at his convenience. He enjoys maximum flexibility in operation.

(h) Business secrecy: A joint Hindu family business can maintain business secrecy. Because they need not have to publish there’s any account to any outsider of the family.

Question 2.
Explain the merits of the Hindu Undivided Family.
Answer:
Merits of Hindu Undivided Family:
(a) Easy formation: The formation of a Joint Hindu family is very easy because it does not require any legal formalities to form. It comes into existence under the Hindu Succession Act 1956.

(b) Quick decisions and prompt action: The Karta is the sole manager of the business and head of the family. He need not consult anyone before making any decisions. Therefore he can make quick decisions and prompt actions.

(c) Flexibility in operation: The management is in the hands of the Karta. He takes decisions according to the changing circumstances. He can expand or contracts his business at his convenience. He enjoys maximum flexibility in operation.

(d) Business secrecy: A joint Hindu family business can maintain business secrecy. Because they need not have to publish there’s any account to any outsider of the family.

Question 3.
Explain briefly the limitations of the Hindu Undivided family business.
Answer:
Demerits of Hindu Undivided Family:
(a) Limited capital: This type of business does suffer from the limitation of capital. This is because the business has to depend upon the savings of the family. Again, a limited amount of borrowings is possible from friends, banks, and others.

(b) Unlimited liability of Karta: The liability of the Karta is unlimited but the liability of co-parceners is limited. Karta is liable to pay the dues even from his personnel property. Unlimited liability makes him more cautious and he may not take any risk.

(c) Lack of stability: The continuity and stability of the firm depend upon good relations among the family member’s but in practice, it is not possible. Therefore, there may be results in the discontinuation of the firm. However, in any case, there is continuity of business.

(d) No entry for non-family members: Only family members can get entry into the business. Outsiders are not allowed to interfere in the family business. So there is less scope for increasing the capital of family members;

Question 4.
Explain the features of a partnership.
Answer:
(a) Sharing profit or loss: The basic motive of the formation of partnership is to earn profit.
This profit is distributed among the partners according to the agreed proportion. If there is loss it will be sustained by all partners except the minor.

(b) Agreement: There must be an agreement between the parties concerned. These are the most important characteristics of a partnership. Without an agreement, a partnership cannot be formed. But only competent persons are entitled to make a contract.

(c) Liability: This is the prominent feature of partnership that the liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations.

(d) Association of two or more members: At least two members are required to start a partnership business. But the number of members should not exceed 10 in the case of banking business and 20 in the case of other businesses.

(e) Easy to form: Like sole proprietorship, the partnership business can be formed easily without any legal formalities. It is not necessary to get the firm registered. A simple agreement, either oral or in writing, is sufficient to create a partnership firm.

(f) More funds: In a partnership, the capital is contributed by a number of partners. This makes it possible to raise a larger amount of funds as compared to a sole proprietor and undertake additional operations when needed.

(g) Sharing risks: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden, and stress on individual partners.

(h) Secrecy: A partnership firm is not legally required to publish its accounts and submit its reports. Hence it is able to maintain the confidentiality of information relating to its operations.

Question 5.
Explain any four merits of partnership. (March – S – 2019)
Answer:
Merits of partnership are:
(a) Easy to form: Like sole proprietorship, the partnership business can be formed easily without any legal formalities.

(b) More funds: In a partnership, the capital is contributed by a number of partners. This makes it possible to raise a larger amount of funds as compared to a sole proprietor and undertake additional operations when needed.

(c) Sharing risks: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden, and stress on individual partners.

(d) Secrecy: A partnership firm is not legally required to publish its accounts and submit its reports. Hence it is able to maintain the confidentiality of information relating to its operations.

Question 6.
Explain briefly any four limitations of partnership. (March-S-2019)
Answer:
Demerits of partnership are:
(a) Limited capital: Since the total number of partners cannot exceed 20, the capital to be raised is always limited. It may not be possible to start a very large business in partnership form.

(b) Lack of continuity of business: A partnership firm comes to an end in the event of death, lunacy, or retirement of any partner. Even otherwise, it can discontinue its business at the will of the partners. At any time, they may take a decision to end their relationship.

(c) Lack of public confidence: There is no governmental supervision over the affairs of the business of a partnership and publishing accounts is also not necessary. Hence, the public may not have full confidence in them.

(d) Unlimited liability: The liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations.

Question 7.
Explain briefly the types of Partnership.
Answer:
(a) General partnership: In a general partnership, the liability of partners is unlimited and joint. The partners enjoy the right to participate in the management of the firm and their acts are binding on each other as well as on the firm. Registration of the firm is optional. The existence of the firm is affected by the death, lunacy, insolvency, or retirement of the partners.

(b) Limited partnership: In a limited partnership, the liability of at least one partner is unlimited whereas the rest may have limited liability. Such a partnership does not get terminated with the death, lunacy, or insolvency of the limited partners. The limited partners do not enjoy the right of management and their acts do not bind the firm or the other partners. Registration of such partnerships is compulsory.

(c) Partnership at will: This type of partnership exists at the will of the partners. It can continue as long as the partners want and is terminated when any partner gives notice of withdrawal from the partnership to the firm.

(d) Particular partnership: Partnership formed for the accomplishment of a particular project say construction of a building or an activity to be carried on for a specified time period is called particular partnership. It dissolves automatically when the purpose for which it was formed is fulfilled or when the time duration expires.

Question 8.
Explain the types of partners.
Answer:
(a) Active partner: An active partner is one who contributes capital, participates in the management of the firm, shares its profits and losses, and is liable to an unlimited extent to the creditors of the firm it is called an active partner.

(b) Sleeping or dormant partner: Partners who do not take part in the day-to-day activities of the business are called sleeping partners. A sleeping partner, however, contributes capital to the firm, shares its profits arid losses, and has unlimited liability.

(c) Secret partner: If a person is a partner of the firm, but not disclosed as a partner to outsiders, called a secret partner. He contributes to the capital of the firm, takes part In the management, shares its profits and losses, and has unlimited liability towards the creditors.

(d) Nominal partner: A nominal partner is one who allows the use of his/her name by a firm, but does not contribute to its capital. He/She does not take an active part in managing the firm, does not share its profit or losses but is liable, like other partners, to the third parties, for the repayments of the firm’s debts.

(e) Partner by estoppel: Where a person, by words of mouth or by his gives an impression to the outside as a partner partnership firm, though he is not really a partner, he is estopped or precluded from denying the role which he has assumed and he is held liable as a partner of the firm to any outsider who has granted credit or loan to that firm on the faith of his representation. Such a partner is called partner by estoppel.

(f) Partner by holding out: A partner by ‘holding out’ is a person who is not a partner in a firm but knowingly allows himself/herself to be represented as a partner in a firm. Such a person becomes liable to outside creditors for repayment of any debts which have been extended to the firm on the basis of such representation such partners called partners by holding out.

(g) Minor as a partner: The partner whose age is less than 18 called a minor. He is having the right to share in profit only and his liability is limited.

Question 9.
Explain the procedure for registration of a partnership firm.
Answer:
The Indian Partnership Act, 1932 provides for registration, but this is not compulsory. A partnership firm can be registered at any time at the option of the partners.

Procedure for registration of partnership firm: A Statement in the prescribed form which is duly signed by all partners must be submitted to the Registrar of firms along with the prescribed fee.

The statement should contain the following particulars
(a) Name of the firm.
(b) Principal place of the business of the firm.
(c) Names of other places, where the firm carries on business.
(d) Dates on which the different partners joined the firm.
(e) The full name and address of all the partners.
(f) Duration of the firm.

If the Registrar is satisfied that the statement duly complies with the Partnership Act, he will enter the particular statement in a register called the Register of Firms.

Question 10.
State any eight content of partnership deed;
Answer:
(a) Name of the firm.
(b) Names and addresses of the firm and each partner.
(c) Nature of business,
(d) Duration of partnership.
(e) Capital contribution by each partner.
(f) Profit sharing ratio among the partners.
(g) Loans and advances by partners to the firm.
(h) The method of admission and retirement of partners.

Question 11.
Explain the features of cooperative societies.
Answer:
(a) Voluntary association: Everybody having a common interest is free to join a cooperative society. There is no restriction on the basis of caste, religion, color, etc. Anybody can also leave it at any time after giving due notice to society.

(b) Service motive: The main objective being the formation of any cooperative society is for mutual benefit through self-help and collective effort. Profit is not at all on the agenda of the cooperative society.

(c) Cash trading: One exception in the cooperative society is that like other businesses if never go for credit sales. It sells the goods on the basis of cash only to protect the interest of the member against loss due to bad debts.

(d) Democratic management: Equalities are the essence of cooperative enterprises, governed by democratic principles. Every member has got equal rights over the function management of that society. As such, each member has only single voting right irrespective of the number of shares held or capital contributed by them.

(e) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights.

(f) Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution. The personal assets of the members are, therefore, safe from being used to repay business debts.

(g) Stable existence: Death or insanity of the members do not affect the continuity of a cooperative society. A society, therefore, operates unaffected by any change in membership.

(h) Easy formation: The cooperative society can be started with a minimum of ten members. The registration procedure is simple involving a few legal formalities. Its formation is governed by the provisions of the Cooperative Societies Act 1912.

Question 12.
Explain the features of a Joint Stock Company. (March-S-2019)
Answer:
(a) Artificial person: Just like an individual, who takes birth, grows, enters into relationships, and dies, a joint-stock company takes birth, grows, enters into relationships, and dies. However, it is called an artificial person as its birth, existence, and death are regulated by law and it does not possess physical attributes like that of a normal person.

(b) Legal formation: No single individual or a group of individuals can start a business and call it a joint-stock company. A joint-stock .company comes into existence only when it has been registered after completion of all formalities required by the Indian Companies Act; 2013.

(C) Separate legal entity: Being an artificial person a company has its own legal entity separate from its members. It can own assets or property, enters into contracts, sue, or can be sued by anyone in the court of law. Its shareholders cannot be held liable for any conduct of the company.

(d) Perpetual existence: A joint-stock company continues to exist as long as it fulfills the requirements of law. It is not affected by the death, lunacy, insolvency, or retirement of any of its members.

(e) Common seal: A joint-stock company has a seal, which is used while dealing with others or entering into contracts with outsiders. It is called a common seal as it can be used by any officer at any level of the organization working on behalf of the company. Any document, on which the company’s seal is put and is duly signed by any official of the company, becomes binding on the company.

(f) Association of persons: A company is a voluntary association of persons established for-profit motive. A private company must have at least 2 persons and the public limited company must have at least 7 persons to get it registered. The maximum number of persons required for the registration in the case of a private company is 5.0 and in the case of a public company, there is no maximum limit.

(g) Limited liability: The liability of the shareholders is limited to the extent of the face value of the shares held by them. The shareholders are not liable personally for, the payment of the debt of the company.

(h) Transferability of shares: The shares of a public limited company are freely transferable and can be purchased and sold through the stock exchanges. A shareholder of a public limited company can transfer his shares without the consent of others except in the case of private companies.

(i) Large capital: A joint-stock company can raise a large amount of capital because the number of persons contributing towards capital is more in number when compared to sole proprietorship or partnership.

(j) Democratic management: Joint stock companies have democratic management and control. That is, even though the shareholders are owners of the company, all of them cannot participate in the management of the company. Normally, the shareholders elect representatives from among themselves known as ‘Directors’ to manage the affairs of the company.

Question 13.
Explain in brief any four merits of Joint Stock Company.
Answer:
Merits of Joint Stock Company are:
(a) Public confidence: A Joint Stock Company has a greater scope of public confidence because it is compulsory for every Joint Stock Company to publish its annual accounts for the information of its members and others. This creates a sense of confidence.

(b) Scope for expansion: A company can generate huge financial resources by issuing shares and debentures to finance new projects. Companies also transfer a portion of their profit to a reserve which can be utilized for future expansion. This helps in planning future expansion and growth.

(c) Huge resources: A company can raise a large number of resources from the general public by issuing shares as the number of members is not restricted, except in the case of private companies.

(d) Limited liability: The liability of the shareholders is limited to the extent of the face value of the shares held by them. The shareholders are not liable personally for the payment of the debt of the company. Thus, limited liability encourages the investors to put their money in the shares of the company.

Question 14.
Explain in brief any four limitations of Joint Stock Companies.
Answer:
Demerits of Joint Stock Company are:
(a) Difficulty information: Preparation of the basic documents like memorandum of Association and Articles of Association, fulfilling legal formalities as per the Act, and getting the business registered needs a lot of time, money, and expertise. Therefore the formation of a joint-stock company is very difficult as compared to any other form of organization.

(b) Delay in decision making: A company has to fulfill certain procedural formalities before making certain decisions, as they require the approval of the Board of Directors and /or the General Body of shareholders. Such formalities are time-consuming and therefore, some important decisions may be delayed.

(c) Lack of secrecy: Each and every business strategy is discussed in the meeting of the Board of Directors. The annual accounts are published and compliance to government, Tax authorities, etc. are made at regular intervals. Therefore, it is very difficult to maintain business secrecy in a company form of organization in comparison to sole proprietorship and partnership.

(d) Lack of flexibility: A Joint Stock Company lacks flexibility because of large-scale operation. It cannot change its business like sole trading concern, partnership firm, etc. For any change, necessary permission is to be taken from the concerned authorities and necessary resolutions are required to be passed for the same.

Question 15.
State any four privileges of a private company as against a public company.
Answer:
(a) A private company is simpler to form than a public company. It needs two directors while a public company needs three.
(b) It can start business immediately after incorporation, no certificate to commence is required but in a public company, it is necessary to have a certificate to commence business.
(c) Since a private company collects the requisite capital by private arrangement and does not invite the general public to buy its shares by the issue of a prospectus, it may allot shares without following the formalities of a public company.
(d) As no outsiders are its shareholders it is not required, unlike a public company, to hold a statutory meeting.

Question 16.
State any four differences between a private company and public company.
Answer:
1st PUC Business Studies Question Bank Chapter 2 Forms of Business Organisation 3

Eight Mark Questions

Question 1.
Explain any four merits and demerits of Sole Proprietorship.
Answer:
Advantages of Sole Proprietorship:
(a) Quick decision making: A sole proprietor enjoys a considerable degree of freedom in making business decisions. Further, the decision-making is prompt because there is no need to consult others.

(b) Confidentiality of information: Sole decision-making authority enables the proprietor to keep all the information related to business operations confidential and maintain secrecy.

(c) Direct incentive: The need to share profits does not arise as he/she is the single owner. This provides a maximum incentive to the sole trader to work hard.

(d) Sense of accomplishment: There is a personal satisfaction involved in working for oneself. The knowledge that one is responsible for the success of the business not only contributes to self-satisfaction but also instills in the individual a sense of accomplishment and confidence in one’s abilities.

Limitations of a sole proprietorship:
(a) Limited resources: Resources of a sole proprietor are limited to his/her personal savings and borrowings from others. Banks and other lending institutions may hesitate to extend a long-term loan to a sole proprietor.

(b) Limited life of a business concern: In the eyes of the law, the proprietorship and the owner are considered one and the same. Death, insolvency, or illness of a proprietor affects the business and can lead to its closure.

(c) Unlimited liability: If the business fails, the creditors can recover their dues not merely from the business assets, but also from the personal assets of the proprietor. A poor decision or an unfavorable circumstance can create a serious financial burden on the owners.

(d) Limited managerial ability: The owner has to assume the responsibility of varied managerial tasks such as purchasing, selling, financing, etc. It is rare to find an individual who excels in all these areas. Thus, decision-making may not be balanced in all cases.

(e) Competition of big Industries: Nowadays in a modem world demands are more. To full fill, those numerous demands big industries were formed. By producing goods on a large scale, supply them at low rates and also provide other numbers of facilities. As such sole trading concern unable to complete with them.

Question 2.
Explain any four merits and four limitations of partnership form of business. (Mari:h-N’-2U18)
Answer:
Merits of partnership are:
(a) Easy to form: Like sole proprietorship, the partnership business can be formed easily without any legal formalities.

(c) Sharing risks: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden, and stress on individual partners.

(d) Secrecy: A partnership firm is not legally required to publish its accounts and submit its reports. Hence it is able to maintain the confidentiality of information relating to its operations.

Demerits of partnership are:
(a) Limited capital: Since the total number of partners cannot exceed 20, the capital to be raised is always limited. It may not be possible to start a very large business in partnership form.

(d) Unlimited liability: The liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations.

Question 3.
Explain the types of cooperative societies.
Answer:
Merits of cooperative societies are:
(a) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights.

(b) Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution. The personal assets of the members are, therefore, safe from being used to repay business debts.

(c) Stable existence: Death or insanity of the members do not affect the continuity of a cooperative society. A society, therefore, operates unaffected by any change in membership.

(d) Easy formation: The cooperative society can be started with a minimum of ten members. The registration procedure is simple involving a few legal formalities. Its formation is governed by the provisions of the Cooperative Societies Act 1912.

Demerits of cooperative societies are:
(a) Differences of opinion: Internal quarrels arising as a result of contrary viewpoints may lead to difficulties in decision making. Personal interests may start to dominate the welfare motive and the benefit of other members may take a backseat if the personal gain is given preference by certain members.

(b) Limited resources: Resources of a cooperative society consists of capital contributions of the members with limited means. The low rate of dividend offered on investment also acts as a deterrent in attracting membership or more capital from the members.

(c) Inefficiency in management: Cooperative societies are unable to attract and employ expert managers because of their inability to pay them high salaries. The members who offer honorary services on a voluntary basis are generally not professionally equipped to handle the management functions effectively.

(d) Lack of secrecy: As a result of open discussions in the meetings of members as well as disclosure obligations as per the Societies Act (7), it is difficult to maintain secrecy about the operations of a cooperative society.

Types of Co-operative society:
1. Consumer’s cooperative societies:
(a) The consumer cooperative societies are formed to protect the interests of consumers.
(b) The members comprise consumers desirous of obtaining good quality products at reasonable prices.
(c) The society aims at eliminating middlemen to achieve economy in operations.
(d) It purchases goods in bulk directly from the wholesalers and sells goods to the members directly.
(e) Profits, if any, are distributed on the basis of either their, capital contributions to the society or purchases made by individual members.

2. Producer’s cooperative societies:
(a) These societies are set up to protect the interest of small producers.
(b) The members comprise producers desirous of procuring inputs for the production of goods to meet the demand of consumers.
(c) The society aims to fight against the big capitalists and enhance the bargaining power of the small producers.
(d) It supplies raw materials, equipment, and other inputs to the members and also buys their output for sale.
(e) Profits among the members are generally distributed on the basis of their contributions to, the total pool of goods produced or sold by the society.

3. Marketing cooperative societies:
(a) Such societies are established to help small producers in selling their products.
(b) The members consist of producers who wish to obtain reasonable prices for their output.
(c) The society aims to eliminate middlemen and improve the competitive position of its members by securing a favorable market for the products.
(d) It pools the output of individual members and performs marketing functions like transportation, warehousing, packaging, etc.
(e) Profits are distributed according to each member’s contribution to the pool of output.

4. Farmer’s cooperative societies:
(a) These societies are established to protect the interests of farmers by providing better inputs at a reasonable cost.
(b) The members comprise farmers who wish to jointly take, up farming activities.
(c) The aim is to gain the benefits of large-scale farming and increase productivity.
(d) Such societies provide better quality seeds, fertilizers, machinery, and other modem techniques.

5. Credit cooperative societies:
(a) Credit cooperative societies are established for providing easy credit on reasonable terms to the members.
(b) The members comprise persons who seek financial help in the form of loans.
(c) The aim of such societies is to protect the members from the exploitation of lenders who charge high rates of interest on loans.
(d) Such Societies provide loans to members out of the amounts collected as Capital and deposits from the members and charge low rates of interest.

6. Cooperative housing societies:
(a) To help people with limited income to construct houses at reasonable costs.
(b) ‘ The members of these societies consist of procuring residential accommodation at lower costs.
(c) The aim is to solve the housing problems of the members by constructing houses and giving them the option of paying in installments.
(d) These societies construct flats or provide plots to members on which the members themselves can construct the houses as per their choice.

Question 4.
Explain any lour merits and four limitations of co-operative societies.
Answer:
Merits of cooperative societies are:
(a) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights.

(c) Stable existence: Death or insanity of the members do not affect the continuity of a cooperative society. A society, therefore, operates unaffected by any change in membership.

6. Cooperative housing societies:
(a) To help people with limited income to construct houses at reasonable costs.
(b) The members of these societies consist of procuring residential accommodation at lower costs.
(c) The aim is to solve the housing problems of the members by constructing houses and giving them the option of paying in installments.
(d) These societies construct flats or provide plots to members on which the members themselves can construct the houses as per their choice.

Question 5.
Explain the features of a Joint-stock. (March-N-2018)
Answer:
(a) Artificial person: Just like an individual, who takes birth, grows, enters into relationships, and dies, a joint-stock company takes birth, grows, enters into relationships, and dies. However, it is called an artificial person as its birth, existence, and death are regulated by law and it does not possess physical attributes like that of a normal person.

(j) Democratic management: Joint stock companies have democratic management and control. That is, even though the shareholders are owners of the company, all of them cannot participate in the management of the company. Normally, the shareholders elect representatives from among themselves is known as ‘Directors’ to manage the affairs of the company.

Question 6.
Explain any four merits and four limitations of a Joint-stock company.
Answer:
Merits of Joint Stock Company are:
(a) Public confidence: A Joint Stock Company has a greater scope of public confidence because it is compulsory for every Joint Stock Company to publish its annual accounts for the • information of its members and others. This creates a sense of confidence.

(c) Huge resources: A company can raise a large number of resources from the general public by issuing shares as the number of members is not restricted, except in the case of private companies.

Demerits of Joint Stock Company are:
(a) Difficulty information: Preparation of the basic documents like memorandum of Association and Articles of Association, fulfilling legal formalities as per the Act, and getting the business registered needs a lot of time, money, and expertise. Therefore the formation of a joint-stock company is very difficult as compared to any other form of organization.

(d) Lack of flexibility: A Joint Stock Company lacks flexibility because of large-scale operations. It cannot change its business like sole trading concern, partnership firm, etc. For any change, necessary permission is to be taken from the concerned authorities and necessary resolutions are required to be passed for the same.

1st PUC Business Studies Forms of Business Organisation Textbook Questions and Answers

Multiple choices one mark questions

Question 1.
The structure in which there is the separation of ownership and management is called
(a) Sole proprietorship
(b) Partnership
(c) Company
(d) All business organizations
Answer:
(c) Campany

Question 2.
The Karta in Joint Hindu family business has (March-N-2018), (March-S-2019)
(a) Limited liability
(b) Unlimited liability
(c) No liability for debts
(d) Joint liability
Answer:
(b) Unlimited liability

Question 3.
In a cooperative society, the principle followed is
(a) One share one vote
(b) One man one vote
(c) No vote
(d) Multiple votes
Answer:
(b) One man one vote

Question 4.
The Board of directors of a joint-stock company is elected by
(a) General public
(b) Government bodies
(c) Shareholders
(d) Employees
Answer:
(c) Shareholders

Question 5.
Profits do not have to be shared. This statement refers to
(a) Partnership
(b) Joint Hindu family business
(c) Sole Proprietorship
(d) Company
Answer:
(c) Sole Proprietorship

Question 6.
The capital of a company is divided into a number of parts each one of which is called
(a) Dividend
(b) Profit
(c) Interest
(d) Share
Answer:
(d) Share

Question 7.
The Head of the Joint Hindu family business is called
(a) Proprietor
(b) Director
(c) Karta
(d) Manager
Answer:
(c) Karta

Question 8.
Provision of residential accommodation to the members at reasonable rates is the objectives of
(a) Producers’ cooperative
(b) Consumers’ cooperative
(c) Housing cooperative
(d) Credit cooperative
Answer:
(c) Housing cooperative.

Question 9.
A Partner whose association with the firm is unknown to the general public is called
(a) Active partner
(b) Sleeping partner
(c) Nominal partner
(d) Secret partner
Answer:
(d) Secret partner

Short Answer Questions

Question 1.
Compare the status of a minor in a joint Hindu family business with that in a partnership
Answer:
When the inclusion of an individual into the business occurs due to the birth in the Hindu Undivided Family (HUF).is known as Minor. On the other hand, the partnership is based on a legal contract between two persons who agree to share the profits or losses of a business carried on by them and a minor is incompetent to enter into such a valid contract with others.

Question 2.
If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain
Answer:
Registration of partnership firm means recording of the firm’s name and its relevant prescribed particulars, in the Register of firms kept with the Registrar of firms. It provides conclusive proof of the existence of a partnership firm. It is optional for a partnership firm to get registered still most of the partnership firms voluntarily get themselves registered.

In case of non-registration, the firm has to face the following consequences:
(a) A partner of an unregistered firm cannot file a suit against the firm or other partners.
(b) The firm cannot file a suit against third parties.
(c) The firm cannot file a case against the partners. Hence, to avoid these disadvantages, partnership firms register themselves.

Question 3.
How does a cooperative society exemplify democracy and secularism? Explain.
Answer:
The following features lend the cooperative society a democratic character and they are:
(a) The word cooperative means working together with others for a common purpose.
(b) The cooperative society is a voluntary association of persons, who join together with the motive of the welfare of the members. The membership of a cooperative society is voluntary.
(c) A person is free to join a cooperative society and can also leave anytime without any compulsion.
(d) The, decision-making power in a cooperative society lies in the hands of an elected managing committee.
(e) Every member has one vote and this right to vote gives the members a chance to elect the members of the managing committee.

The following features prove the secular nature of cooperative societies and they are:
(a) Further, the membership of a cooperative society is open to all, irrespective of their religion, caste, and gender.
(b) The cooperative society through its purpose lays emphasis on the values of mutual help and welfare.

Question 4.
Briefly explain the following terms in brief. ,
(a) Perpetual succession
(b) Common scale
(c) Karta
(d) Artificial person
Answer:
Perpetual succession: Companies exist when a specific procedure for its closure, called winding up, is completed. Members may come and go, but the company continues to exist through a consecutive succession of old members by new members on a continuous basis. We can say that ‘perpetual succession’ implies permanent existence which is not affected by death, retirement insolvency of members.

Common seal: Company has a seal, which is used while dealing with others or entering into contracts with outsiders. It is called a common seal as it can be used by any officer at any level of the organization working on behalf of the company.

Karta: Under Hindu Undivided, Families, the business is headed by the eldest male member and controls the joint Hindu family business who is called Karta.

Artificial person: Just like an individual, who takes birth, grows, enters into relationships, and dies, a joint-stock company takes birth, grows, enters into relationships, and dies. However, it v is called an artificial person as its birth, existence, and death are regulated by law and it does not possess physical attributes like that of a normal person.

Long Answer Questions

Question 1.
What do you understand by a sole proprietorship firm? Explain its merits and limitations.
Answer:
The word “sole” implies “only” and “proprietor” refers to “owner”. Sole proprietorship refers to a form of business organization that is owned, managed, and controlled by an individual who is the incipient of all profits and bearer of all risks.

Merits of Sole Trading Concern:
(a) Easy formation: The process of forming a sole trading concern does not require any legal formalities such as registration. Hence it can be easily formed, saves time, money, and effort information.

(b) Quick decision making: As the sole proprietor is hotly answerable to anyone, he can take quick and prompt business decisions while managing the affairs of the organization.

(c) Flexibility: The owner enjoys the complete power to effect changes in the business or in the policies. This lends flexibility.

(d) Personal contact with customers: A sole trader can establish personal contact with his customers which helps him to maintain good relations with them and also look into their individual choices, like, and dislike.

(e) Business secrecy: A sole trader can maintain business secrecy because there is no compulsory disclosure of financial statements in case of sole trading concern.

(f) No legal formalities: Sole trading concern does not require any legal formalities either for the formation or closure of the company.

(g) Personality development: There is will scope for the development of the personality of the sole proprietor, the tie can develop personal qualities like self-reliance, initiative, etc.

(h) Direct motivation: The sole trader enjoys all the profits of the business. Hence, he is encouraged to work hard and put forth his best ability in the management of the business as there is a direct relationship between effort and reward.

(i) Better coordination: The size of the business is limited and therefore, the proprietor can achieve coordination in the activities of the business^

Demerits of Sole Trading Concern
(a) Limited capital: The capital of sole trader is limited. He can depend only on his own savings and borrowings on personal properties.

(b) Unlimited liability: As the private assets of the sole trader are also attached to the business it induces a fear of loss of property in him and discourages the expansion of business.

(c) Lack of continuity of business: The life of this type of business is limited and unstable. It solely depends on the life of the proprietor.

(d) Lack of public confidence: There is no governmental supervision over the affairs of the business of a sole trading concern and publishing accounts is also not necessary. Hence, the public may not have full confidence in them.

(e) No separate legal entity: Sole proprietorship has no separate legal existence from that of its owners. Therefore burden, i.e. risk incurred in business is faced by the proprietor.

(f) Small scale operation: Due to limited capital, the proprietor cannot undertake large-scale operations.

(g) Lack of specialization: Due to the small size of the business, the introduction of division of labor becomes impossible. Hence, an advantage of specialization is not found.

(h) Uneconomic size: Because of the limitations of finance and proprietorship works on a small scale. Therefore, a sole trader cannot get the economies of large-scale operations.

(i) Lack of consultations: The sole trader has no one else to consult before making decisions. If his decisions go wrong, he has to suffer heavy losses.

(j) Risk of loss: As the sole trader is the sole owner of his business, he has to bear all the losses of the business.

(k) Limited managerial skill: As the sole trader has to look into each and every aspect of his business, the managerial skill will be limited. This is because such an individual may not be an expert in all matters.

Question 2.
Why is partnership considered by some to be a relatively unpopular form of business?
Answer:
Some people consider partnership to be relatively unpopular because of the inherent features of partnership such as joint risk-bearing and profit-sharing, collective decision making, the unlimited liability of partners, etc. Sometimes lead to conflicts among partners and an undue burden on some of the partners. Besides, public confidence in a partnership firm is low.

Question 3.
Why is it important to choose an appropriate form of organization? Discuss the factors that determine the choice of form of organization.
Answer:
After studying various forms of business organizations, it is evident that each form has, certain advantages as well as disadvantages. The important factors determining the choice of the organization are discussed below:
(a) Cost and ease of starting a business:

A sole proprietorship is started easily as far as initial business setting-up costs and legal requirements are concerned, in the case of partnership also, the advantage of less legal formalities and lower cost is there because of the limited scale of operations.
Registration is compulsory in the case of cooperative societies and companies. The formation of a company involves a lengthy and expensive legal procedure.

(b) Liability:

In the case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. This may result in payment’ of debt from personal assets of the owners.
In a joint Hindu family business, only the Karta has unlimited liability.
In cooperative societies and companies, however, liability is limited and creditors can force payment of their claims only to the extent of the company’s assets.

The continuity of sole proprietorship and partnership firms is affected by events such as death, insolvency, or insanity of the owners.
However, such factors do not affect the continuity of business in the case of organizations like joint Hindu family businesses, cooperative societies, and companies.

(d) Managerial ability:

It is difficult for a sole proprietor to have expertise in all functional areas of business.
In other forms of organizations like partnership and company, there is a division of work among the members which allows the managers to specialize in specific areas, leading to better decision making. But this may sometimes lead to conflicts due to differences of opinion. The company form of organization is a better alternative if the operations are complex in nature and require professional management.

(e) Capital requirements:

For large-scale operations, company forms are the most suitable as a large number of funds can be arranged by issuing shares in this form. Capital requirements for expansion can also be met more easily in company form.
For medium and small-sized businesses, one can opt for partnership or sole proprietorship.

(f) Degree of control:

Sole proprietorship provides direct control over operations and absolute decision ‘making power.
But if the owners want to share control for more effective decision making, partnership or company form of organization can be adopted. In the company form of organization, professionals are appointed to manage the affairs of a company as there is a complete separation of ownership and management.

(g) Nature of business:

A sole proprietorship is more suitable for businesses in which direct personal contact is needed with the customers such as in the case, of a beauty parlor or grocery store
The company form of organization is suited for large manufacturing units.
Partnership form is much more suitable in the case of professional services.

Conclusion: The factors stated above are interrelated and therefore, all the relevant factors must be taken into consideration while making a decision with respect to the form of organization.

Question 4.
Discuss the characteristics, merits, and limitations of a cooperative form of organization. Also, describe briefly different4vpes of cooperative societies. (March-N-2019)
Answer:
Merits of cooperative societies are:
(a) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights.

(c) Stable existence: Death or insanity of the members do not affect the continuity of a cooperative society. A society, therefore, operates unaffected by any change in membership.

Question 5.
Distinguish between a Joint Hindu family business and a partnership.
Answer:
1st PUC Business Studies Question Bank Chapter 2 Forms of Business Organisation 1

Question 6.
Despite limitations of size and resources, many people continue tfi1 prefer sole proprietorship over other forms of organization. Why?
Answer:
Sole proprietorship refers to a form of business organization that is owned, managed, and controlled by an individual who bears all risks and receives all profits. This form of business is suited mainly in areas of personalized services and small-scale activities due to the shortage of capital and limited abilities of an individual who is the proprietor.

Still, many people continue to prefer sole proprietorship over other forms of organization as sole proprietorship offers many advantages such as:
(a) Easy formation: The process of forming a sole trading concern does not require any legal formalities such as registration. Hence it can be easily formed; saves time, money, and effort information.

(b) Quick decision-making: As the Sole proprietor is not answerable to anyone, he can take quick and prompt business decisions while managing the affairs of the organization.

(c) Flexibility: The owner enjoys the complete power to effect changes in the business or in the policies. This lends flexibility.

(d) Personal contact with customers: A sole trader can establish personal contact.with his customers which helps him to maintain good relations with them and also to look into their individual choices, like, and dislike.

(e) Business secrecy: A sole trader can maintain business secrecy because there is no compulsory disclosure of financial statement in case of sole trading concern;

(f) No legal formalities: Sole trading concern does not require any legal formalities either for the formation or closure of the company.

(g) Personality development: There is will scope for the development of the personality of the sole proprietor. He can develop personal qualities like self-reliance, initiative, etc.

(i) Better coordination: The size of the business is limited and therefore, the proprietor can achieve coordination in the activities of the business.

Application Questions

Question 1.
In which form of organization is a trade agreement made by one owner binding on the others? f ii\ e reasons to support your answer.
Answer:
In a partnership form of organization, a trade agreement made bygone owner is binding on the others. The Indian Partnership Act, 1932 defines partnership as “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.

The definition of partnership highlights the fact that it is a business carried on by all or any one of the partners acting for all. One partner is an agent of other partners as he/she represents them and thereby binds them through his/her acts. He/She is a principal as he/she too can be bound by the acts of other partners. Hence, every partner is both an agent and a principal. This is the reason why a trade agreement made by one owner is binding on the others.

The business, assets of an organization amount to Rs. 50,000 but the debts that remain unpaid are Rs. 8Q,000. What course of action can the creditors take if
(a) The organization is a sole proprietorship firm
(b) The organization is a partnership firm with Anthony and Akbar as partners.

Question 2.
Which of the two partners can the creditor approach for repayment of the debt? Explain giving reasons.
Answer:
(a) The organization is a sole proprietorship firm. Sole proprietors have unlimited liability.
This implies that the owner is personally responsible for the payment of debts in case the assets of the business are not sufficient to meet all the debts. As such the owner’s personal possessions such as his/her personal car and other assets could be sold for repaying the debt.

In the given case, the total debts that remain unpaid are Rs. 80,000 but the organizational assets amount to Rs.50,000 only. In such a situation, the creditors can demand from the proprietor to pay Rs.30,000 from his/her personal sources even if he/she has to sell his/ her personal property to repay the firm’s debts.

(b) The organization is a partnership firm with Anthony and Akbar as partners. The partners of a firm have unlimited liability. Personal assets may be used for repaying debts in case the business assets are insufficient. As the total debts that remain unpaid are Rs. 80,000 but the Organisational assets amount to Rs. 50,000 only, the creditors can demand from both or any of the partners Anthony and Akbar pay Rs. 30,000 from their personal sources even if they have to sell their personal property to repay the firm’s debts.

In the given situation, creditors can demand the payment of the debt from both Anthony and Akbar as the partners are jointly liable for payment of debts and they contribute in proportion to their share in the business as they are liable to that extent.

However, if one of them is not available or is unable to pay, the other partner will have to pay the creditors as each partner can be held responsible for repaying the debts of the business. Such a partner -can later recover from the other partner an amount of money equivalent to the share in liability defined as per the partnership agreement.

Question 3.
Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighborhood corner shop selling accessories such as artificial jewelry, bags, hair clips, and nail art to a retail chain with three branches hi the city. Although she looks after the varied functions in all the branches, she is wondering whether she should form a company to better manage the business. She also has plans to open branches countrywide.
(a) Explain two benefits of remaining a sole proprietor.
(b) Explain two benefits of converting to a joint-stock company.
(c) What role will her decision, to go nationwide play in her choice of form of the organization?
(d) What legal formalities will she have to undergo to operate business as a company?
Answer:
(a) Kiran may have the following two benefits of remaining a sole proprietor:

Being the sole proprietor Kiran can enjoy all the profit earned from the business without having the need to share it with anyone.
She does not have to publish accounts or be regulated under any law governing sole proprietorship which maintains secrecy of the business activities.

(b) Kiran may have the following two benefits of converting to a joint-stock company:

She will be able to acquire the funds required for the expansion of her retail chain branches countrywide through share capital in a Joint Stock Company.
The public has more faith in a joint-stock company than in a sole proprietorship firm which will help in increasing the customer base for Kiran’s business,

(c) Her decision to go nationwide involves an increase in her scale of operation, requirement of capital, and management abilities. As a sole proprietor, she may face limitations of resources arid her limited managerial ability. She may not be good in all managerial tasks such as purchasing, selling, financing, etc. Thus, her decision-making may not be effective in all situations especially when there are complexities of large-scale operation. Besides, she will have to bear more risk individually if she remains a sole proprietor and her liability will increase to a large extent. All these factors will definitely play a role in her choice of form of organization and she will have much stronger reasons to form a joint-stock company in this case.

(d) The formation of a company requires greater time, effort, and extensive knowledge of legal requirements and the procedures involved. To operate her business as a company, first of all, Kiran will have to prepare several, documents and will have to ensure compliance with several legal requirements before it can start functioning:

She will have to register her company, registration of the company is compulsory as provided under the Indian Companies Act, 1956/2013. The Companies Act requires each public company to provide a lot of information to the office of the registrar of companies from time-to-time which Kiran will have to provide. The functioning of a company is subject to many legal provisions and compulsions.

A company has to comply with various restrictions including audit, voting, filing of reports, and preparation of documents and is required to obtain various certificates from different agencies such as registrar, SEBI, etc.

1st PUC Business Studies Question Bank Chapter 2 Forms of Business Organisation

Karnataka 1st PUC Business Studies Question Bank Chapter 2 Forms of Business Organisation

1st PUC Business Studies Forms of Business Organisation Textbook Questions and Answers

1st PUC Business Studies Question Bank with Answers