case study on forms of business organization

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Part B – The Contemporary Business World

Chapter 7 – Forms of Business Ownership

Learning objectives.

By the end of the chapter, you should be able to:

• identify the questions to ask in choosing the appropriate form of ownership for a business;
• describe the sole proprietorship and partnership forms of organization, and specify the advantages and disadvantages;
• identify the different types of partnerships, and explain the importance of a partnership agreement;
• explain how corporations are formed and how they operate;
• discuss the advantages and disadvantages of the corporate form of ownership;
• examine special types of business ownership, including limited liability companies, cooperatives, and not-for-profit corporations;
• define mergers and acquisitions, and explain why companies are motivated to merge or acquire other companies; and
• explain key terms in the chapter.

 Show What You Know

The ice cream men.

Who would have thought it? Two ex-hippies with strong interests in social activism would end up starting one of the best-known ice cream companies in the country — Ben & Jerry’s. Perhaps it was meant to be. Ben Cohen (the “Ben” of Ben & Jerry’s) always had a fascination with ice cream. As a child, he made his own mixtures by smashing his favorite cookies and candies into his ice cream.

But it wasn’t until his senior year in high school that he became an official “ice cream man,” happily driving his truck through neighborhoods filled with kids eager to buy his ice cream pops. After high school, Ben tried college but it wasn’t for him. He attended Colgate University for a year and a half before he dropped out to return to his real love: being an ice cream man. He tried college again — this time at Skidmore, where he studied pottery and jewelry making — but, in spite of his selection of courses, he still didn’t like it.

In the meantime, Jerry Greenfield (the “Jerry” of Ben & Jerry’s) was following a similar path. He majored in pre-med at Oberlin College in the hopes of one day becoming a doctor, but he had to give up on this goal when he was not accepted into medical school. On a positive note, though, his college education steered him into a more lucrative field: the world of ice cream making. He got his first peek at the ice cream industry when he worked as a scooper in the student cafeteria at Oberlin. So, fourteen years after they first met on the junior high school track team, Ben and Jerry reunited and decided to go into ice cream making big time. They moved to Burlington, Vermont — a college town in need of an ice cream parlor — and completed a $5 correspondence course from Penn State on making ice cream. After getting an A in the course — not surprising, given that the tests were open-book — they took the plunge: with their life savings of $8,000 and $4,000 of borrowed funds they set up an ice cream shop in a made-over gas station on a busy street corner in Burlington. 1  The next big decision was which form of business ownership was best for them. This chapter introduces you to their options.

The Canadian Landscape

Innovation, Science and Economic Development Canada (ISED) defines a business based upon the number of paid employees. For this reason, self-employed and “indeterminate” businesses are generally not included in the present publication as they do not have paid employees.

Accordingly, this publication defines a SME (small-to-medium enterprise) as a business establishment with 1–499 paid employees, more specifically:

• A small business has 1 to 99 paid employees.
• A medium-sized business has 100 to 499 paid employees.
• A large business has 500 or more paid employees.

ISED also categorizes businesses with 1-4 employees as micro-enterprises.

According to Statistics Canada, as of December 2019, there were 1.23 million employer businesses in Canada (Table 1). Of these, 1.2 million (97.9 percent) were small businesses, 22,905 (1.9 percent) were medium-sized businesses and 2,978 (0.2 percent) were large businesses.

More than half of Canada’s small employer businesses are concentrated in Ontario and Quebec (440,306 and 249,685, respectively). Western Canada has a large number of small businesses, led by British Columbia, which had 187,252 small businesses as of December 2019. In the Atlantic region, Nova Scotia has the most small businesses at 29,876.

Table 1: Total number of employer businesses by business size and number of SMEs per 1,000 provincial population, December 2019

Region	Small businesses (1-99 employees)	Medium businesses (100-499 employees)	Large businesses (500+ employees)	Total	Number of businesses per 1,000 individuals (18 +years)
Newfoundland and Labrador	16,633  (98.1%)	294  (1.7%)	25  (0.1%)	16,952	39.0
Prince Edward Island	6,348  (98.2%)	107  (1.7.%)	8  (0.1%)	6,463	50.8
Nova Scotia	29,876  (98.0%)	542  (1.8%)	68  (0.2%)	30,486	37.8
New Brunswick	25,063  (98.0%)	459  (1.8%)	51  (0.2%)	25,573	39.9
Quebec	249,685  (97.8%)	4,960  (1.9%)	702  (0.33%)	255,347	37.0
Ontario	440,306  (97.7%)	9,092  (2.0%)	1,238  (0.3%)	450,636	38.2
Manitoba	39,370  (97.6%)	836  (2.1%)	122  (0.3%)	40,328	38.0
Saskatchewan	41,008  (98.3%)	647  (1.6%)	77  (0.2%)	41,732	46.3
Alberta	160,920  (98.0%)	2,936  (1.8%)	332  (0.2%)	164,188	48.3
British Columbia	187,252  (98.3%)	2,947  (1.5%)	347  (0.2%)	190,546	45.3
Territories	4,110  (97.8%)	85  (2.0%)	8  (0.2%)	4,203	46.0
Canada	1,200,571  (97.9.%)

Factors to Consider

If you are starting a new business, you have to decide which legal form of ownership is best for you and your business. Do you want to own the business yourself and operate as a sole proprietorship? Or, do you want to share ownership, operating as a partnership or a corporation? Before we discuss the pros and cons of these three types of ownership, let us address some of the questions that you would probably ask yourself in choosing the appropriate legal form for your business.

• In setting up your business, do you want to minimize the costs of getting started? Do you hope to avoid complex government regulations and reporting requirements?
• How much control would you like? How much responsibility for running the business are you willing to share? What about sharing the profits?
• Do you want to avoid special taxes?
• Do you have all the skills needed to run the business?
• Are you likely to get along with your co-owners over an extended period of time?
• Is it important to you that the business survive you?
• What are your financing needs and how do you plan to finance your company?
• How much personal exposure to liability are you willing to accept? Do you feel uneasy about accepting personal liability for the actions of fellow owners?

No single form of ownership will give you everything you desire. You will have to make some trade-offs. Because each option has both advantages and disadvantages, your job is to decide which one offers the features that are most important to you. In the following sections we’ll compare three ownership options (sole proprietorship, partnership, corporation) on these eight dimensions.

Sole Proprietorship and Its Advantages

In a sole proprietorship , y ou make all important decisions and are generally responsible for all day-to-day activities. In exchange for assuming all this responsibility, you get all the income earned by the business. Profits earned are taxed as personal income, so you don’t have to pay any special federal and provincial income taxes.

Disadvantages of Sole Proprietorships

For many people, however, the sole proprietorship is not suitable. The flip side of enjoying complete control is having to supply all the different talents that may be necessary to make the business a success. And when you’re gone, the business dissolves. You also have to rely on your own resources for financing: in effect, you are the business and any money borrowed by the business is loaned to you personally. Even more important, the sole proprietor bears unlimited liability  for any losses incurred by the business. The principle of unlimited personal liability means that if the business incurs a debt or suffers a catastrophe (say, getting sued for causing an injury to someone), the owner is personally liable. As a sole proprietor, you put your personal assets (your bank account, your car, maybe even your home) at risk for the sake of your business. You can lessen your risk with insurance, yet your liability exposure can still be substantial. Given that Ben and Jerry decided to start their ice cream business together (and therefore the business was not owned by only one person), they could not set their company up as a sole proprietorship.

Partnership

A partnership (or general partnership) is a business owned jointly by two or more people. About 10 percent of U.S. businesses are partnerships 2  and though the vast majority are small, some are quite large. For example, the big four public accounting firms, Deloitte, PwC, Ernst & Young, and KPMG, are partnerships. Setting up a partnership is more complex than setting up a sole proprietorship, but it is still relatively easy and inexpensive. The cost varies according to size and complexity. It’s possible to form a simple partnership without the help of a lawyer or an accountant, though it’s usually a good idea to get professional advice.

Professionals can help you identify and resolve issues that may later create disputes among partners.

Provincial and federal governments also support small businesses and offer free resources as well as opportunities for funding. Canada Business Network  (@canadabusiness #SMEPME) is a collaborative arrangement among federal departments and agencies, provincial and territorial governments and not-for-profit entities.

It offers webinars and other learning events across the country. For example, Ontario’s Small Business Access , offers workshops, a help line, funding, and up-to-date information on legal requirements.

The Partnership Agreement

The impact of disputes can be lessened if the partners have executed a well-planned partnership agreement  that specifies everyone’s rights and responsibilities. The agreement might provide such details as the following:

• amount of cash and other contributions to be made by each partner;
• division of partnership income (or loss);
• partner responsibilities — who does what; 
• conditions under which a partner can sell an interest in the company;
• conditions for dissolving the partnership; and
• conditions for settling disputes.

Unlimited Liability and the Partnership

A major problem with partnerships, as with sole proprietorships, is unlimited liability : in this case, each partner is personally liable not only for his or her own actions but also for the actions of all the partners. If your partner in an architectural firm makes a mistake that causes a structure to collapse, the loss your business incurs impacts you just as much as it would him or her. And here is the really bad news: if the business does not have the cash or other assets to cover losses, you can be personally sued for the amount owed. In other words, the party who suffered a loss because of the error can sue you for your personal assets. Many people are understandably reluctant to enter into partnerships because of unlimited liability. Certain forms of businesses allow owners to limit their liability. These include limited partnerships and corporations .

Limited Partnerships

The law permits business owners to form a limited partnership  which has two types of partners: a single general partner who runs the business and is responsible for its liabilities, and any number of limited partners who have limited involvement in the business and whose losses are limited to the amount of their investment.

Advantages and Disadvantages of Partnerships

The partnership has several advantages over the sole proprietorship. First, it brings together a diverse group of talented individuals who share responsibility for running the business. Second, it makes financing easier: the business can draw on the financial resources of a number of individuals. The partners not only contribute funds to the business but can also use personal resources to secure bank loans. Finally, continuity needn’t be an issue because partners can agree legally to allow the partnership to survive if one or more partners die.

Still, there are some negatives. First, as discussed earlier, partners are subject to unlimited liability. Second, being a partner means that you have to share decision making, and many people aren’t comfortable with that situation. Not surprisingly, partners often have differences of opinion on how to run a business, and disagreements can escalate to the point of jeopardizing the continuance of the business. Third, in addition to sharing ideas, partners also share profits. This arrangement can work as long as all partners feel that they’re being rewarded according to their efforts and accomplishments, but that isn’t always the case. While the partnership form of ownership is viewed negatively by some, it was particularly appealing to Ben Cohen and Jerry Greenfield. Starting their ice cream business as a partnership was inexpensive and let them combine their limited financial resources and use their diverse skills and talents. As friends they trusted each other and welcomed shared decision making and profit sharing. They were also not reluctant to be held personally liable for each other’s actions.

Corporation

A corporation (sometimes called a regular or C-corporation) differs from a sole proprietorship and a partnership because it is a legal entity that is entirely separate from the parties who own it. It can enter into binding contracts, buy and sell property, sue and be sued, be held responsible for its actions, and be taxed. Once businesses reach any substantial size, it is advantageous to organize as a corporation so that its owners can limit their liability. Corporations, then, tend to be far larger, on average, than businesses using other forms of ownership. Most large well-known businesses are corporations, but so are many of the smaller firms with which likely you do business.

Ownership and Stock

Corporations are owned by shareholders  who invest money in the business by buying shares of stock . The portion of the corporation they own depends on the percentage of stock they hold. For example, if a corporation has issued 100 shares of stock, and you own 30 shares, you own 30 percent of the company. The shareholders elect a board of directors , a group of people (primarily from outside the corporation) who are legally responsible for governing the corporation. The board oversees the major policies and decisions made by the corporation, sets goals and holds management accountable for achieving them, and hires and evaluates the top executive, generally called the CEO ( chief executive officer ). The board also approves the distribution of income to shareholders in the form of cash payments called dividends.

Benefits of Incorporation

The corporate form of organization offers several advantages, including limited liability for shareholders, greater access to financial resources, specialized management, and continuity.

Limited Liability

The most important benefit of incorporation is the limited liability  to which shareholders are exposed: they are not responsible for the obligations of the corporation, and they can lose no more than the amount that they have personally invested in the company. Limited liability would have been a big plus for the unfortunate individual whose business partner burned down their dry cleaning establishment. Had they been incorporated, the corporation would have been liable for the debts incurred by the fire. If the corporation didn’t have enough money to pay the debt, the individual shareholders would not have been obligated to pay anything. They would have lost all the money that they’d invested in the business, but no more.

Financial Resources

Incorporation also makes it possible for businesses to raise funds by selling stock. This is a big advantage as a company grows and needs more funds to operate and compete. Depending on its size and financial strength, the corporation also has an advantage over other forms of business in getting bank loans. An established corporation can borrow its own funds, but when a small business needs a loan, the bank usually requires that it be guaranteed by its owners.

Specialized Management

Because of their size and ability to pay high sales commissions and benefits, corporations are generally able to attract more skilled and talented employees than are proprietorships and partnerships.

Continuity and Transferability

Another advantage of incorporation is continuity . Because the corporation has a legal life separate from the lives of its owners, it can (at least in theory) exist forever.

Transferring ownership of a corporation is easy: shareholders simply sell their stock to others. Some founders, however, want to restrict the transferability of their stock and so choose to operate as a privately-held corporation. The stock in these corporations is held by only a few individuals, who are not allowed to sell it to the general public.

Companies with no such restrictions on stock sales are called public corporations; stock is available for sale to the general public.

Drawbacks to Incorporation

Like sole proprietorships and partnerships, corporations have both positive and negative aspects. In sole proprietorships and partnerships, for instance, the individuals who own and manage a business are the same people. Corporate managers, however, don’t necessarily own stock, and shareholders don’t necessarily work for the company. This situation can be troublesome if the goals of the two groups differ significantly.

Managers, for example, are often more interested in career advancement than the overall profitability of the company. Stockholders might care more about profits without regard for the well-being of employees. This situation is known as the agency problem , a conflict of interest inherent in a relationship in which one party is supposed to act in the best interest of the other. It is often quite difficult to prevent self-interest from entering into these situations.

Another drawback to incorporation — one that often discourages small businesses from incorporating — is the fact that corporations are more costly to set up. When you combine filing and licensing fees with accounting and attorney fees, incorporating a business could set you back by $1,000 to $6,000 or more depending on the size and scope of your business. 3   Additionally, corporations are subject to levels of regulation and governmental oversight that can place a burden on small businesses. Finally, corporations are subject to what’s generally called “ double taxation .” Corporations are taxed by the federal and provincial governments on their earnings. When these earnings are distributed as dividends, the shareholders pay taxes on these dividends. Corporate profits are thus taxed twice—the corporation pays the taxes the first time and the shareholders pay the taxes the second time.

The Canadian Comparison

“Incorporation: Tax savings, but more paperwork”, a 2017 article in The Globe and Mail, puts incorporation in to the Canadian perspective:

In Ontario, an incorporated business pays a tax rate of 15 per cent on the first $500,000 of income each year, thanks to the small business tax deduction, and 26.5 per cent for anything beyond that. Rates vary by province. A lower tax rate is one of the key advantages to incorporating a business. However, accountants make the distinction that the taxes are not being saved, but instead deferred. That is because, when the money is taken out of the corporation for personal use, through salary or dividends, the individual winds up paying approximately the same tax rate as if they were a sole proprietor. It’s known as the “theory of integration” in the Canadian tax system.

Most accountants recommend business owners incorporate if they can afford to leave money in the company longer-term with the goal of watching the value of the assets grow.

Another tax advantage comes when it’s time to sell the business. The shares of most Canadian private corporations are eligible for a lifetime capital gains exemption. In 2016, that exemption amounts to the first $824,176 of capital gains from personal income tax, per shareholder. If the business were a sole proprietorship, any gain from the sale of a private corporation would be taxed.

Another advantage to incorporating is the opportunity to use income splitting among family members. If one spouse makes more money, you can income-split. Over all, both spouses will be in a lower income tax bracket.

Another advantage of incorporation, beyond taxes, is the ability to shift liability to the corporation and away from the individual. Incorporating can also add credibility; some larger companies require contractors to be incorporated before they can be hired.

The disadvantages to incorporation are increased paperwork and administration. That includes the one-time cost to set up the corporation, including accounting and legal fees, which can run to more than $1,000. Owners also have to file two tax returns, a personal one and a more complicated one for the business.

Five years after starting their ice cream business, Ben Cohen and Jerry Greenfield evaluated the pros and cons of the corporate form of ownership, and the “pros” won. The primary motivator was the need to raise funds to build a $2 million manufacturing facility. Not only did Ben and Jerry decide to switch from a partnership to a corporation, but they also decided to sell shares of stock to the public (and thus become a public corporation). Their sale of stock to the public was a bit unusual: Ben and Jerry wanted the community to own the company, so instead of offering the stock to anyone interested in buying a share, they offered stock to residents of Vermont only. Ben believed that “business has a responsibility to give back to the community from which it draws its support”. 4 He wanted the company to be owned by those who lined up in the gas station to buy cones. The stock was so popular that one in every hundred Vermont families bought stock in the company. 5  Eventually, as the company continued to expand, the stock was sold on a national level.

Other Types of Business Ownership

In addition to the three commonly adopted forms of business organization—sole proprietorships, partnerships, and regular corporations—some business owners select other forms of organization to meet their particular needs. We’ll look at several of these options:

• limited liability companies;
• cooperatives; and
• not-for-profit corporations.

Limited Liability Companies

How would you like a legal form of organization that provides the attractive features of the three common forms of organization (corporation, sole proprietorship and partnership) and avoids the unattractive features of these three organization forms? The limited liability company (LLC)  accomplishes exactly that. This form provides business owners with limited liability (a key advantage of corporations) and no “double taxation” (a key advantage of sole proprietorships and partnerships). Let’s look at the LLC in more detail.

In 1977, Wyoming became the first state to allow businesses to operate as limited liability companies. Twenty years later, in 1997, Hawaii became the last state to give its approval to the new organization form. Since then, the limited liability company has increased in popularity. Its rapid growth was fueled in part by changes in state statutes that permit a limited liability company to have just one member. The trend to LLCs can be witnessed by reading company names on the side of trucks or on storefronts in your city. It is common to see names such as Jim Evans Tree Care, LLC, and For-Cats-Only Veterinary Clinic, LLC. But LLCs are not limited to small businesses. Companies such as Crayola, Domino’s Pizza, Ritz-Carlton Hotel Company, and iSold It (which helps people sell their unwanted belongings on eBay) are operating under the limited liability form of organization. In a limited liability company, owners (called members rather than shareholders) are not personally liable for debts of the company, and its earnings are taxed only once, at the personal level (thereby eliminating double taxation).

We have touted the benefits of limited liability protection for an LLC. We now need to point out some circumstances under which an LLC member (or a shareholder in a corporation) might be held personally liable for the debts of his or her company. A business owner can be held personally liable if he or she:

• personally guarantees a business debt or bank loan which the company fails to pay;
• fails to pay employment taxes to the government;
• engages in fraudulent or illegal behavior that harms the company or someone else; or
• does not treat the company as a separate legal entity, for example, uses company assets for personal uses.

Cooperatives

A cooperative (also known as a co-op) is a business owned and controlled by those who use its services. Individuals and firms who belong to the cooperative join together to market products, purchase supplies, and provide services for its members. If run correctly, cooperatives increase profits for its producer-members and lower costs for its consumer-members. Cooperatives are fairly common in the agricultural community. For example, some 750 cranberry and grapefruit member growers market their cranberry sauce, fruit juices, and dried cranberries through the Ocean Spray Cooperative. 6 More than three hundred thousand farmers obtain products they need for production — feed, seed, fertilizer, farm supplies, fuel — through the Southern States Cooperative. 7 Co-ops also exist outside agriculture, for example: Modo (Car sharing Co-op), MEC (Mountain Equipment Co-op), and Vancity which is involved in value-based banking.

Not-for-Profit Corporations

A not-for-profit corporation  (sometimes called a nonprofit) is an organization formed to serve some public purpose rather than for financial gain. As long as the organization’s activity is for charitable, religious, educational, scientific, or literary purposes, it can be exempt  from paying income taxes. Additionally, individuals and other organizations that contribute to the not-for-profit corporation can take a tax deduction for those contributions. The types of groups that normally apply for nonprofit status vary widely and include churches, synagogues, mosques, and other places of worship; museums; universities; and conservation groups.

Since Statistics Canada ended its deep collection of nonprofit statistics in 2008, the most recent data available is:

• There are 170,000 charitable and non profit organizations in Canada.
• 85,000 of these are registered charities (recognized by the Canada Revenue Agency).
• The charitable and nonprofit sector contributes an average of 8.1% of total Canadian GDP, more than the retail trade industry and close to the value of the mining, oil and gas extraction industry.
• Two million Canadians are employed in the charitable and nonprofit sector.
• Over 13 million people volunteer for charities and nonprofits.

Do you think these numbers have increased or decreased over the last decade? Why?

Mergers and Acquisitions

If you do not see the embedded match game, access it: https://quizlet.com/274512349/match .

The headline read, “Wanted: More than 2,000 in Google hiring spree”. 8 The largest Web search engine in the world was disclosing its plans to grow internally and increase its workforce by more than 2,000 people, with half of the hires coming from the United States and the other half coming from other countries. The added employees would help the company expand into new markets and battle for global talent in the competitive Internet information providers industry. When properly executed, internal growth benefits the firm.

An alternative approach to growth is to merge with or acquire another company. The rationale behind growth through merger or acquisition is that 1 + 1 = 3: the combined company is more valuable than the sum of the two separate companies. This rationale is attractive to companies facing competitive pressures. To grab a bigger share of the market and improve profitability, companies will want to become more cost efficient by combining with other companies.

Though they are often used as if they are synonymous, the terms merger and acquisition mean slightly different things. A merger occurs when two companies combine to form a new company — the arrangement to consolidate the two firms is more collaboratively. An acquisition is the purchase of one company by another. When companies in the same industry merge, it is called a horizontal merger . When one of the companies in the merger is a supplier or customer to the other, it is called a vertical merger .

In June 2013, Shoppers Drug Mart, Canada’s biggest pharmacy chain merged with Loblaw, Canada’s largest grocery retailer, in a 12.4 billion dollar deal. Rather than cutting into each other’s market share, the deal allows the two companies to play on each other’s strengths. Shoppers has about $1 billion in food sales annually, versus Loblaw’s $30 billion. But Loblaw’s share of the pharmacy market is only five per cent, so adding Shoppers health products and services to Loblaw grocery stores allows the food retailer to expand its services in what it sees as a growing sector: health, wellness and nutrition ( www.cbc.ca ). Contrast this merger with an acquisition in that same year. Sobey’s acquired 200 Safeway stores in Western Canada under a 5.8 billion dollar deal. According to news reports, along with 213 Safeway grocery stores — more than 60 percent of which are in Calgary, Vancouver, Edmonton and Winnipeg — Sobeys will also acquire:

• 199 in-store pharmacies;
• 62 gas stations;
• 10 liquor stores;
• 4 primary distribution centres and a related wholesale business; and
• 12 manufacturing facilities.

Sobeys will also get $1.8 billion worth of real estate in the deal.

Another example of an acquisition is the purchase of Reebok by Adidas for $3.8 billion. 9  The deal was expected to give Adidas a stronger presence in North America and help the company compete with rival Nike. Once this acquisition was completed, Reebok as a company ceased to exist, though Adidas still sells shoes under the Reebok brand.

Motives Behind Mergers and Acquisitions

Companies are motivated to merge or acquire other companies for a number of reasons, including the following.

Gain Complementary Products

• Shoppers Drug Mart began to sell President’s Choice products in its merger with Loblaw’s.
• Loblaw’s is able to add Shoppers health care products to its shelves.
• Sobey’s gains Safeway’s gas stations and liquors stores in its acquisition.

Attain New Markets or Distribution Channels

• Sobey’s acquired access to 12 manufacturing facilities, 4 distribution centres, and a related wholesale business.
• Loblaw increases access to urban centres where Shoppers outlets are already located, bringing a wider variety of products to customers in densely populated areas.

Realize Synergies

• Integration of the companies’ loyalty programs will provide the two with a vast knowledge base of consumers’ buying habits and provide economies of scale — which, the companies estimate, will translate into savings of about $300 million annually.
• Loblaw’s share of the pharmacy market is only five percent, so adding Shoppers health products and services to its grocery stores will allow the food retailer to expand its services in what it sees as a growing sector: health, wellness and nutrition.

The Less-Friendly Option

Hostile takeovers: ben and je rry’s.

What happens, though, if one company wants to acquire another company, but that company does not want to be acquired? The outcome could be a hostile takeover — an act of assuming control that is resisted by the targeted company’s management and its board of directors. Ben Cohen and Jerry Greenfield, the Ice Cream Men above, found themselves in one of these situations: Unilever—a very large Dutch/British company that owns three ice cream brands — wanted to buy Ben & Jerry’s, against the founders’ wishes. Most of the Ben & Jerry’s stockholders sided with Unilever. They had little confidence in the ability of Ben Cohen and Jerry Greenfield to continue managing the company and were frustrated with the firm’s social-mission focus. The stockholders liked Unilever’s offer to buy their Ben & Jerry’s stock at almost twice its current market price and wanted to take their profits. In the end, Unilever won; Ben & Jerry’s was acquired by Unilever in a hostile takeover. 10  Despite fears that the company’s social mission would end, it did not happen. Though neither Ben Cohen nor Jerry Greenfield are involved in the current management of the company, they have returned to their social activism roots and are heavily involved in numerous social initiatives sponsored by the company.

Comprehensive Check

• What type of business would you open if you were considering starting your own business? Why?
• Which industries are easiest for a small business to enter? Which are hardest? Why?
• Would you prefer to buy an existing business or start from scratch? Why?

This is just a fun game! 

Key Takeaways

Important terms and concepts:

• Advantages include: complete control for the owner, easy and inexpensive to form, and owner gets to keep all of the profits.
• Disadvantages include: unlimited liability for the owner, complete responsibility for talent and financing, and business dissolves if the owner dies.
• Advantages include: more resources and talents come with an increase in partners, and the business can continue even after the death of a partner.
• Disadvantages include: partnership disputes, unlimited liability, and shared profits.
• A limited partnership has a single general partner who runs the business and is responsible for its liabilities, plus any number of limited partners who have limited involvement in the business and whose losses are limited to the amount of their investment.
• Advantages include: limited liability, easier access to financing, and unlimited life for the corporation.
• Disadvantages include: the agency problem, double taxation, and incorporation expenses and regulations.
• A limited liability company (LLC) is similar to a C-corporation, but it has fewer rules and restrictions than a C-corporation. For example, an LLC can have any number of members.
• A cooperative is a business owned and controlled by those who use its services. Individuals and firms who belong to the cooperative join together to market products, purchase supplies, and provide services for its members.
• A not-for-profit corporation is an organization formed to serve some public purpose rather than for financial gain. It enjoys favorable tax treatment.
• A merger occurs when two companies combine to form a new company.
• An acquisition is the purchase of one company by another with no new company being formed. A hostile takeover occurs when a company is purchased even though the company’s management and Board of Directors do not want to be acquired.

1. Lager, F. C. (1994). Ben & Jerry’s: The Inside Scoop . New York: Crown Publishers.

2. IRS. (2015). SOI Bulletin Historical Table 12: Number of Business Income Tax Returns, by Size of Business for Income Years 1990-2013.   https://www.irs.gov/uac/soi-tax-stats-historical-table-12

3. AllBusiness. (2016). What Are the Costs of Forming a Corporation? AllBusiness. https://www.allbusiness.com/costs-of-forming-a-corporation-502-1.html

4. Lager, F. C. (1994). Ben & Jerry’s: The Inside Scoop. New York: Crown Publishers.

5. Lager, F. C. (1994). Ben & Jerry’s: The Inside Scoop. New York: Crown Publishers.

6. Ocean Spray Cooperative. (2016). Our History . http://www.oceanspray.com/Who-We-Are/Heritage/Our-History.aspx

7. Southern States Cooperative. (2016). Southern States Heritage. https://www.southernstates.com/sscinfo/our-heritage/index.aspx

8. Oreskovic, A. (2010). Wanted: More than 2,000 in Google Hiring Spree. Reuters. http://www.reuters.com/article/us-google-idUSTRE6AI05820101119

9. Howard, T. (2005). Adidas, Reebok Lace up for a Run Against Nike . USAToday. http://usatoday30.usatoday.com/money/industries/manufacturing/2005-08-02-adidas-usat_x.htm

10. CNN Money. (2000). Ben and Jerry’s Scooped Up. http://money.cnn.com/2000/04/12/deals/benandjerrys/

• Sources: Statistics Canada, Table 33-10-0222-01 Canadian Business Counts, with employees, December 2019, Table 17-10-0005-01 — Population estimates on July 1st, by age and sex; and ISED calculations. ↵

Key terms appear throughout the chapter. When you click on them, a definition will pop up. If you are using a downloaded or printed format, check the glossary in the back of the book. Please make sure you can define them!

Sole proprietorship is an individual who may or may not employ other people but owns and operates the business.

A partnership is a business owned jointly by two or more people. Partnership have unlimited liability where each partner is liable for the debts of the other partners, including their tax liability.

A limited partnership (LP) exists when two or more partners go into business together, but the limited partners are only liable up to the amount of their investment. A limited partnership have limited partners and a general partner with unlimited liability.

A corporation is a legal entity that is entirely separate from the parties who own it. Once businesses reach a substantial size, it is advantageous to organize as a corporation so that its owners can limit their liability.

Limited liability company is where the owners or shareholders are financially only responsible for the amount they have invested in the company rather than their personal wealth. The importance of limiting the amount of a shareholder's liability is that it encourages people to invest with relatively little risk.

A cooperative is a business owned and controlled by those who use its services - producers, customers or consumers..

A merger is a term used to describe an agreement between the management and shareholders of two companies of approximately equal size to bring both companies together under a common board of directors.

Acquisition is a term used when one company purchases another company.

Horizontal merger is when companies in the same industry merge.

Vertical merger is when one of the companies in the merger is a supplier or customer to the other.

Hostile takeover is an act of assuming control that is resisted by the targeted company’s management and its board of directors.

Fundamentals of Business Copyright © 2022 by Florence Daddey and Rachael Newton is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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• Class 11 Business Studies...

Class 11 Business Studies Case Study Questions

Table of Contents

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CBSE Class 11 Business Studies Case Study Questions are available on myCBSEguide App . You can also download them from our student dashboard .

For students appearing for grade 11 CBSE exams from the Commerce stream, Business Studies is a fundamental subject. Business Studies is considered to be quite interesting as well as an occupying subject as compared to all other core subjects of the CBSE class 11 commerce stream. To ace this CBSE exam, students are not only required to work hard but they ought to learn to do smart work too.

Among all the other core subjects of the Commerce stream i.e accountancy, economics and business studies, Business Studies is the one that is purely theoretical. It is termed to be comparatively easier and more scoring than the other mandatory subjects of the commerce stream. Many students who opt for the commerce stream after their 10-grade exams desire to learn in-depth about the business organizations and their work, for them the subject is of utmost importance. Business Studies is an essential component of the class 11 commerce stream curriculum.

In order to ace the subject the student needs to have conceptual clarity. CBSE has designed the syllabus for class 11 Business Studies so as to provide students with a basic understanding of the various principles prevalent in the Business organizations as well as their interaction with their corresponding environment.   

Case Study Questions in class 11 (Business Studies)

Case-based questions have always been an integral part of the Business Studies question paper for many years in the past. The case studies have always been considered to be challenging for the students, for such questions demand the application of their knowledge of the fundamental business concepts and principles. Last year i.e-  2021 CBSE introduced a few changes in the Business Studies question paper pattern to enhance and develop analytical and reasoning skills among students.

It was decided that the questions would be based on real-life scenarios encountered by the students.CBSE not only changed the way case-based questions were formulated but also incremented their weightage in the Business Studies question paper. The sole purpose of increasing the weightage of case-based questions in the class 11 curriculum by CBSE was to drift from rote learning to competency and situation-based learning.

What is a case study question? (Business Studies)

In Business Studies, a case study is more like a real-world test of how the implementation works. It is majorly a report of an organization’s implementation of anything, such as a practice,a product, a system, or a service. The questions would be based on the NCERT textbook for class 11 Business Studies. Case-based questions will definitely carry a substantial weightage in the class 11 Business Studies question paper. questions.

A hypothetical text will be provided on the basis of which the student is expected to solve the given case-based question asked in the Business Studies class 11 exam. Initially, the newly introduced case-based questions appeared to be confusing for both the students and the teachers. Perhaps, they were reluctant to experiment with something new but now a lot more clarity is there that has made the question paper quite student-friendly.

Case study questions could be based on any chapter or concept present in the NCERT textbook. Thus, it is expected from the students to thoroughly revise and memorize the key business fundamentals. 

Business Studies syllabus of class 11 CBSE   

The entire Business Studies course is divided into 2 parts:

• Part A, Foundation of Business
• Part B, Finance and Trade

The class 11 Business Studies exam is for a total of 100 marks, 80 marks are for the theory and the remaining 20 for the project. Most of the questions are based on the exercises from the NCERT textbook. It is recommended to rigorously go through the contents of the book. A single textbook has been published by NCERT for Class 11 Business studies. There are a total of 10 chapters in this book divided into 2 parts. 

CBSE Class – 11

Business Studies (Code No. 054)

Theory: 80 Marks Time: 3 Hours Project: 20 Marks

1	Nature and Purpose of Business	18	16
2	Forms of Business Organizations	24
3	Public, Private and Global Enterprises	18	14
4	Business Services	18
5	Emerging Modes of Business	10	10
6	Social Responsibility of Business and Business Ethics	12
7	Sources of Business Finance	30	20
8	Small Business	16
9	Internal Trade	30	20
10	International Business	14

Case Study Passage (Business Studies class)

As part of these questions, the students would be provided with a hypothetical situation or text, based on which analytical questions will have to be answered by them. It is a must for the students to read the passage in depth before attempting the questions. In the coming examination cycle (2022-23), case-based questions have a weightage of around 30%. These questions can be based on each chapter in the NCERT book for Business Studies, grade 11.

Students must prepare well for the case-based questions before appearing for their Business Studies exam as these questions demand complete knowledge of the various concepts in their syllabus. CBSE plans to increase the weightage of such questions in the upcoming years.

Sample case-based Questions in Business Studies

Business Studies as a subject provides a way of perceiving and interacting with the business ecosystem. It is a core subject of the commerce stream that is purely theoretical and relevantly easier than the other compulsory subjects of the stream. Class 11 Business Studies syllabus is closely related to trade and commerce. The subject cannot be ignored as it is the foundation of many concepts and theories which are studied at an advanced level in class 12.

The case-based questions asked in the CBSE Business Studies question paper for class 11 are of two types:

As per the latest circular issued by CBSE on Assessment and Evaluation practices of the board for the session 2022-23, CBSE has clearly mentioned that competency-based questions including case studies will be different from subjective questions.  

The questions can also be categorized on their difficulty level:

• Direct: such questions can be easily solved. Their answer is visible in the given passage itself.
• Indirect/ Analytical: such questions are confusing and tricky. These can be solved by the application of the theory or principle that is highlighted in the provided text. 

How To Prepare For Case-based Questions? (Business Studies grade 11)

Students need to prepare well for the case-based questions before appearing for their class 11 Business Studies exam. Here are some tips which will help the student to solve the case-based questions at ease:

• Read the provided text carefully
• Try to comprehend the situation and focus on the question asked
• Analyze and carefully answer the question asked
• In general, the passage given would be lengthy in Business Studies case-based questions but their solutions are comparatively short and simple
• One can significantly save time if they follow a reversal pattern, that is going through the questions before reading the comprehensive case study passage.
• Answer in a concise manner
• One should concentrate on solidifying key fundamental principles/theories
• Go through the NCERT textbook in depth. The language used is crisp and simple.
• While providing solutions to the case-based question, pick the keyword/keyline based on which you are driving insights.

 In order to excel in the Business Studies class 11 exam, one needs to ignore the shortcut techniques and get to read the NCERT textbook rigorously. Case studies can be easily solved if your key fundamentals are strong and clear. The best part of having these questions is that the asked question itself projects a hint of its answer. These simple points if kept in mind will definitely help the students to fetch good marks in case study questions, class 11 Business Studies. 

Case study question examples in Business Studies

Here a re some given case study questions for CBSE class 11 Business Studies. If you wish to get more case study questions and other study material, download the myCBSEguide app now. You can also access it through our student dashboard.

Business Studies Case Study 1

Read the hypothetical text given and answer the following questions:

Manish, Rahul and Madhav live in the same locality. They used to meet and discuss their ideas. After discussing the recent fire breakout in their area, they decided to take fire insurance for their house or work area. Manish gets his house insured against fire for ₹1 lakh and during the policy period, his house gets damaged due to fire and the actual loss amounts to ₹2.5 lakh. The insurance company acquired the burning material and approved his claim. Rahul gets his godown insured against fire for ₹1 lakh but does not take enough precautions to minimize the chances of fire like installing fire extinguishers in the factory. During the policy, a fire takes place in his godown and he does not take any preventive steps like throwing water and calling the employees from the fire fighting department to control the fire. He suffered a loss of ₹1,20,000. Madhav took a fire insurance policy of ₹20 lakh for his factory at an annual payment of ₹24,000. In order to reduce the annual premium, he did not disclose that highly explosive chemicals are being manufactured in his factory. Due to a fire, his factory gets severely damaged. The insurance company refused to make payment for the claim as it became aware of the highly explosive chemicals.

How much can Manish claim from the insurance company?

• None of the above

How much compensation can Rahul get from the insurance company?

Which principle is violated in the case of Rahul?

• Insurable Interest
• Utmost Good Faith

How much amount is the insurance company liable to pay to Madhav if he files a case against it?

• Insufficient information

Which principle of Insurance is violated by Madhav?

• Insurable interest
• Subrogation
• Proximate Cause

The insurance company acquired the burnt material and approved his claim. Which principle of Insurance is highlighted in the given statement.

• (a) Mitigation
• (a) Utmost Good Faith
• (d) Subrogation

Business Studies Case Study 2

 Sarthak Electronics Ltd. has a loss of Rs 15,00,000 to pay. They are short of funds so they are trying to find means to arrange funds. Their manager suggested a claim from the insurance company against stock lost due to fire in the warehouse. He actually meant that they can put their warehouse on fire and claim from insurance companies against stock insured. They will use the claim money to pay the loan.

• Will the company receive a claim if the surveyor from the insurance company comes to know the real cause of fire?
• Write any two Values which the company ignores while planning to arrange money from false claims.
• State any three elements of fire insurance

Business Studies Case Study 3

OLX and qickr are examples of well-known websites used to conduct business. Tarasha’s sofa set got spoiled in the rain. Her friend suggested that she should change the fabric so that it looks new and put it for sale on Olx. Tarasha followed her friend’s advice and got her sofa repaired so that it looked better and uploaded nicely clicked pictures on the website without disclosing the fact that it was damaged from the inside. She found a buyer and sold it for Rs 10,000. After five days the buyer found the real state of the sofa set and called Tarasha but she did not answer any of the calls.

• identify the type of business highlighted in the above case.
• Identify any two values which are overlooked by Tarasha.
• Explain any two benefits and limitations of e-business.

Advantages of case study questions in Business Studies

Class 11 Business Studies syllabus is not very vast but has to be focussed upon as it forms the base for your 12th grade Business Studies syllabus. Students are supposed to prepare themselves thoroughly from the NCERT textbook. The Case-based questions prominently focus on the real and current scenarios of the Business world. Approximately 30% of the question paper will comprise case study questions that demand high-order thinking and reasoning skills from the students. The students ought to practice class 11 Business Studies case-based questions from the various options available to them, so as to excel in the subject.

• Enhance the qualitative and quantitative analysis skills of students
• Provides an in-depth understanding of the key Business theories/concepts
• Inculcate intellectual capabilities in students
• Help students retain knowledge for a longer period of time
• The questions would help to discard the concept of rote learning
• Case studies promote and strengthen practical learning.

“Failure is success if you learn from it”

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Forms of Business Organisation Class 11 Notes CBSE Business Studies Chapter 2 (Free PDF Download)

Revision notes.

• Business Studies
• Chapter 2 Forms Of Business Organisation

Revision Notes for CBSE Class 11 Business Studies Chapter 2 - Free PDF Download

CBSE Class 11 Business Studies Chapter 11 Notes by Vedantu are meant to provide the students with a clear and concise understanding of the chapter. In these notes, students will find a comprehensive outline of notes of the chapter with solved exercises to assist them with understanding the chapter better. These revision notes and activities will help students with a radical understanding of the topic. The Chapter 2 Business Studies Notes PDF are created to help students with their preparation for their exams and to help them ace it. Students will be able to download the Class 11 Business Studies Chapter 2 Notes in the PDF format absolutely free of cost.

Revision Notes for CBSE Class 11 Business Studies Chapter 2 - Topics Covered 

Following are the topics that are covered in Chapter 2 - Forms of Business Organizations:

Introduction

Sole proprietorship

Joint Hindu family business

Partnership

Types of partner

Types of partnership

Partnership deed

Registration of partnership firm

Joint stock company

Types of companies

Download CBSE Class 11 Business Studies Revision Notes 2024-25 PDF

Also, check CBSE Class 11 Business Studies revision notes for All chapters:

CBSE Class 11 Business Studies Chapter-wise Notes
	Chapter 2 - Forms of Business Organisation Notes

Access Class 11 Business Studies Chapter 2 - Forms Of Business Organization Notes

Forms of business organisation.

There are different forms of business organizations from which a choice has to be made:

Joint stock Company

Cooperative Societies

Sole Proprietorship

It is a form of organisation which is owned, managed and controlled by an individual who bears all the risk and receives all the profit.

Formation and closure: It can be established and closed without any legal formalities.

Liability: The liability of the sole proprietor is unlimited in this form of business organisation.

Sole risk bearer and profit recipient: Being a sole owner, he bears all the risk and receives all the profits.

Control: All the decisions are taken and implemented in the organization by the owner.

No separate entity: Both owner and business are considered as one in the eyes of law.

Lack of business continuity: Business can be continued till the owner wishes to. 

Quick decision making: Prompt decision making as all the decisions are to be taken by the owner.

Confidentiality of information: Being a sole owner, it is easy to maintain business secrecy.

Direct incentive: All the profits are enjoyed by the owner as there is no one to share profits.

Sense of accomplishment: Successful business provides satisfaction to the owner and sense of achievement.

Ease of formation and closure: No legal formalities for formation and closure of business which makes it easy to start and end the business.  

Limitations

Limited resources: Business can be funded from savings of the owner or money borrowed from friends, relatives.

Limited life of a business concern: Continuity of the business depends on the health and state of mind of the owner.

Unlimited liability: In case business fails repayment of debts, his personal assets are at risk. 

Limited managerial ability: One person may not possess the ability to manage all the functions.

Joint Hindu Family Business

It is a form of business which is owned and managed by members of Hindu undivided family, with the possibility of three successive generations as members in the business.

Formation: Hindu Undivided Family is formed with at least two members of a family having ancestral property. It is governed by Hindu Succession Act, 1956.

Liability: All the members of the family except Karta have limited liability up to their share in the business property.

Control:   All the activities in the business organization are controlled by Karta.

Continuity: It can be discontinued if all the members of the family agree to do so.

Minor members: Membership in the organization is by birth.

Effective control: Complete control of business with ‘Karta’ thus effective decision making.

Continued business existence: Business continues till all the members wish to continue and control is transferred to the next elder member in case of death of ‘Karta’.

Limited liability of members: Members of the family enjoy liability limited to their share in the business party.

Increased loyalty and cooperation : Family members have a sense of belongingness and loyalty, hence, all work with a common objective of growth. 

Limited resources: Business can be funded mainly from ancestral property, hence limiting the financial resources.

Unlimited liability of Karta: The personal property of ‘Karta’ is at risk as he has unlimited liability.

Dominance of Karta: Difference of opinion among members and ‘Karta’ may cause conflict amongst them.

Limited managerial skills: Karta may not have knowledge and expertise of all the functions performed in the business.

According to partnership Act 1932, partnership is the relation between persons who have agreed to share the profits of the business carried on by all or any one of them acting for all.

Formation: Business is established as per the provisions of partnership Act 1932.

Liability: All the partners in the business have unlimited liability.

Risk bearing: All the risk in the business is shared by all the partners.

Decision making and control: All the decisions are taken in after the consent of all the partners and each partner shares responsibility of running business.

Continuity: Continuity depends upon the partnership deed among the partners at the time of its formation.

Number of partners: Minimum 2 and maximum 50 members [as per the Companies (miscellaneous) Rules 2014}, or maximum could be 100 ( according to Companies Act, 2013).

Mutual agency: Each partner is the owner as well as the agent of the firm and agent to other partners.

Ease of formation and closure: Business can be established and closed with the consent of all the partners as the registration is optional.

Balanced decision making: All the decisions are taken by consent partners as  partners undertake responsibilities as per their expertise.

More funds: Funds are provided by all the partners, which increases the scope for large-scale business operation.

Sharing of risks: Business risk and responsibilities are shared among all the partners.

Secrecy: It is easy to maintain business secrecy as there is no need to submit financial results.

Unlimited liability: Each partner’s liability is extended to their personal property.

Limited resources: Availability of Finance is limited due to the restriction of number of partners.

Possibility of conflicts: All the partners may have different opinions which create conflict among them.

Lack of continuity: Any conflict between partners or death of a partner may bring business to an end.

Lack of public confidence: It is difficult for an outsider to ascertain true financial position as there is a lack of availability of financial reports.

Types of Partners

Active partner: A partner who contributes capital, shares profits and losses, participates in management and has unlimited liability.

Sleeping or dormant partner: Partner who contributes capital, shares profits and losses and has unlimited liability but does not participate in management.

Secret partner: This partner participates in management operations secretly, but does contribute in profits and losses.

Nominal partner: Partner who does not contribute capital and does not share profit and losses but allows partnership business to project him or her as partner.

Partner by estoppel: An individual who is not a partner but projects himself/herself as a partner to an outsider and has unlimited liability.

Partner by holding out: An individual who is not a partner but is projected as a partner by other partners of the partnership firm and his liability is unlimited.

Partner	Contribution Of Capital	Management	Profit/Loss Sharing	Liability
Active	Yes	Yes	Yes	Unlimited
Sleeping	Yes	No	Yes	Unlimited
Secret	Yes	Yes, but secretly	Yes	Unlimited
Nominal	No	No	Generally Yes	Unlimited
Partner by Estoppel	No	No	No	Unlimited
Partner by Holding out	No	No	No	Unlimited

Minor as partner:  

An individual of age below 18 years can be admitted with mutual consent of all other partners but legally he is not a partner.

Partnership can be categorised on the basis of duration and liability:

Classification on the basis of duration

Partnership at will: Partnership continues till the partners agree to do so.

Particular partnership: The partnership formed for a specific task for project or for a specific period of time. It comes to an end after completion of task or expiry of time.

Classification on the basis of liability

General partnership: Partnership where all partners have joint and unlimited liability

Limited partnership: Partnership where all partners have limited liability and at least one partner must have unlimited liability.

A written document where all the terms and conditions of partnership are mentioned. It generally has following clauses:

Name of firm

Nature of firm

Duration of partnership

Duties and obligations of partners

Valuation of assets

Interest on capital and interest on drawings

Profit-loss sharing ratio

Salaries and withdrawals of the partners.

Preparation of accounts and their auditing.

Procedure for dissolution of firm

Method of solving disputes.

Registration

It is optional for a partnership firm to get registered with the registrar of firms of the state in which form is situated.

Consequences of non registration

In case of non registration, a partner cannot file a case or file suit against other partners or the partnership firm.

Firm cannot sue third parties.

The form cannot file a case against one or more partners of the firm.

Procedure for getting firm registered

Submission of application in prescribed form with the Registrar of Firms.

Fee deposition with the Registrar.

Receiving certificate of registration after the Registrar is satisfied.

Cooperative Society

An organisation of voluntary people working for a common purpose with an aim to protect economic and social interests of the members. It must be registered under the Cooperative Societies Act, 1912.

Voluntary membership: Any individual irrespective of caste, gender, religion with common interest is free to join or leave a cooperative society as and when he/she desires.

Legal status: Cooperative society has separate identity status distinct from its members, and the registration of such society is also mandatory.

Limited liability: Members have liability limited to their capital contribution.

Control: All the decision making power is in the hands of an elected managing committee which are chosen by members with one man one vote concept.

Service motive: Society is formed with the motive of providing mutual help to team members.

Equality in voting status: Each member has equal right to vote and elect members of the managing committee.

Limited liability: The liability of members is limited to their capital contribution.

Stable existence: Cooperative societies keep on going irrespective of situations of death, bankruptcy or insanity of its members.

Economy in operations: The members of the society work voluntarily which helps in reducing costs.

Support from government: Government provides support to societies in the form of lower taxes, interest rates and subsidies.

Ease of formation: No legal formalities are involved in formation of societies.

Limited resources: Capital contribution by the member is the only source of finance, and low dividend also discourages members for the provision of finance to the society.

Inefficiency in management: Members working on voluntary basis may lack necessary expertise and skills, leading to inefficiency in operations and management.

Lack of secrecy: Difficult to maintain secrecy as members disclose all information related to work of the society in the meeting.

Government control: Societies need to follow rules and regulations as stated by the government and submit audited financial reports of the society. However, such government intervention affects the freedom of work for such societies.

Differences of opinion: Difference of opinion as a result of individual interest over the welfare may lead to conflicts amongst members.

Types of cooperative societies

Consumer’s cooperative societies: Societies formed for providing good quality services and products at a reasonable rate, to protect the interest of consumers.

Producer’s cooperative societies : Societies formed for providing good quality and low priced raw materials and other inputs, to protect the interest of producers.

Marketing cooperative societies: Societies for providing services related to marketing of products by small producers.

Farmer’s cooperative societies: Societies formed for providing farmers with better inputs at reasonable rates to improve productivity.

Credit cooperative societies: Societies established to provide financial assistance to its members at very reasonable terms.

Cooperative housing societies: Societies formed for constructing houses for its members at reasonable cost.

Joint Stock Company

The Companies Act, 2013 defines, "A company as an artificial person having a separate legal entity, perpetual succession and a common seal."

Features of a Joint Stock Company

Artificial person: A company is created by law and has legal status but it does not function like human beings. All business activities are done by the board of directors in the name of the company. 

Separate legal entity: A company has its own identity distinct from its owner with the incorporation of a company.

Formation: Company is formed by fulfilling all the legal formalities as stated under Companies Act, 2013.

Perpetual succession: A company is created by law and can be wound up by law only. Existence of the company is not affected by the status of members.

Control: Business affairs of a company are managed and controlled by the Board of Directors.

Liability: A company has limited liability i.e., liability only to the extent of the capital contribution.

Common seal: As a company is an artificial legal person, it cannot have a sign on its own/ Hence common seal acts as the official signature for a company. All the official documents must have a common seal for legal binding.

Risk bearing: The risk of loss is shared by all the shareholders in proportion to their investment in the company.

Limited liability: Shareholders liability is limited to the investment in the company, thus, there is no risk of losing personal assets.

Transfer of interest: Shares can easily be sold in the market or can be converted into cash.

Perpetual existence: Company's existence is not affected by the status of shareholders, company continues to exist.

Scope for expansion: Companies can raise large amounts of funds from the public as well as borrowings from financial institutions or banks.

Professional management: large-scale operation requires management by professionals and specialised individuals.

Complexity in formation: Formation of a company requires fulfilling of documentation and legal formalities which makes the procedure lengthy and complex.

Lack of secrecy: All financial information is disclosed to the general public that there is no confidentiality or secrecy.

Impersonal work environment: Business affairs are managed by professionals not owners, thus, it lacks personal contact with employees and customers.

Numerous regulations: A company involves various rules and regulations which reduces freedom to work and involves a lot of money, time and effort.

Delay in decision making: Decision making needs to follow a set of hierarchy which may cause delay in taking decisions and actions.

Oligarchic management: Shareholders have very little control over the running of business, thus, the directors take all the decisions which may at times get influenced by their personal interest.

Conflict in interests: It is difficult for management to satisfy everyone as there are too many stakeholders with diverse interests.

Types of Companies 

Private Company

A company must have minimum 2 or maximum 200 members.

Right to transfer shares is restricted.

Funds cannot be generated from the general public.

Uses 'Private Limited' after the company name.

Public Company

Minimum 7 members with no limit on maximum members.

Free to transfer shares. 

Issue shares to the general public.

Uses 'Public Limited' after the company name.

Difference between Public and Private Company

Basis	Public Company	Private Company
Members	Minimum: 7 members Maximum: Unlimited	Minimum: 2 members Maximum: 200
Minimum number of directors	3 directors	2 directors
Invitation to Public	Can invite public for subscription	Cannot invite public for subscription
Transfer of shares	Can transfer	Cannot transfer
Index of Members	Compulsory	Not compulsory

Choice of Form of Business Organisation

Cost and ease in setting up the organisation: It is easy to start sole proprietorship with minimum cost and legal requirements whereas formation of a company is a complex task with lengthy legal procedure. But partnership has the advantage of less legal requirements with low cost.

Liability: In sole proprietorship and partnership, the liability of owner or partners is unlimited but in cooperative societies and companies, members have limited liability.

Continuity: In sole proprietorship and partnership, continuity is affected by death and insolvency of the owners but cooperative societies, companies and Hindu undivided family enjoy perpetual existence.

Management ability: In sole proprietorship, it is difficult that the owner may have expertise in all functions but in other forms of business, division of work is possible which leads to better decision making.

Capital consideration: In case of large scale of operation, company form is more suitable but in case of small scale of operation, partnership or sole proprietorship can be chosen.

Degree of control: If the owner wants all the control in his hand the sole proprietorship may be preferred but if the owner is ready to share control, then he can adopt partnership or company form.

Nature of business: For trading and services, sole proprietorship and partnership form can be chosen. For manufacturing, a company form of organisation can be adopted.

Revision Notes for CBSE Class 11 Business Studies Chapter 2 - Benefits of Revision Notes

Revision Notes of Chapter 2 will help the students of Class 11 to study Chapter 2 of Business Studies in a capsulated manner. 

The revision notes of Chapter 2 are prepared by subject experts here at Vedantu, and thus these notes can be revised reliably by the students. 

Revision helps the students to keep the concepts fresh in their minds without much hard work, thus opt for smart work and download our revision notes so are prepared well for the exams. 

Revision Notes will also help the students to revise the whole Chapter 2 in less time thus saving time for other subjects' preparation. 

Revising is a mandatory habit of the students, but making revision notes might be time-consuming thus study our ready-to-revise revision notes and revise accordingly. 

Revision Notes for CBSE Class 11 Business Studies Chapter 2 - Key Takeaways 

In this chapter students will look into sole proprietorship, Joint Hindu Family, Partnership, cooperative society and joint-stock company. In this revision notes of Class 11 CH 2 Business Studies by Vedantu, students will understand the merits, demerits and various characteristics of each type of Organisation. Each of these organizations is compared against each other for students to understand the advantage each type of organization has over another. The various types of organization have different kinds of features, and they are distinct from one another, and Notes of Chapter 2 of Business Studies includes all the important details.

Types of Organizations

Sole Proprietorship - In this type of organization , there is the only person who is the sole owner and recipient of all profits and losses earned by the organization and also the bearer of all risks. Here, there are no separate laws to govern sole proprietorship, and the owner is liable for all of their actions. The owner is also solely responsible for the ownership and also for running the business. In this type of organisation, the owner doesn't have to consult anyone before making their decision. They are able to keep their business ideas a secret and maintain overall secrecy.

Joint Hindu Family - This type of organization is where membership of members is granted only if they are born in the family. This is a business model that is based on family, and the heirs are directly successive from their father. This type of organization holds a lot of values and specific discipline that cannot be broken. The head of the family is called Karta. This type of organization requires only two members and ancestral property. The liability of the partners is limited only by the share that they hold.

Partnership - This implies the relationship between partners that have agreed to share the profits of the business and its losses. This was governed by the Indian Partnership Act of 1932. Here the partners of the firm have unlimited liability and are liable for all the decisions taken. The Partners share the profits in a ratio agreed upon beforehand. Lack of continuity or death can bring this Partnership to an end. Partners can oversee the various functions according to their expertise. The capital is contributed by all the partners.

Cooperative Society - This is a voluntary association of people to overlook the welfare of the members. This type of organization oversees the economic interests of the members and to avoid the exploitation by the middleman. This society can enter into contracts; they can sue and be sued. The liability of the members of the society is limited to how much they contribute to the capital. The principle of one man one vote exits as each member has equal voting rights.

Joint Stock Company - This type of organization is a creation of the law and is independent of its members. The company acquires a separate legal entity, and the law doesn't have the business and the owners as one. The formation of the company is time-consuming, expensive and very complicated. the shareholders are liable to the extent of unpaid shares paid by them.

Revision Notes for CBSE Class 11 Business Studies Chapter 2 - Extra Questions and Answers for Practice

1. What do you mean by ‘Partner by Estoppel’?

Ans. Partner by estoppel means such a person who by his action or words plays under the impression that he or she is the partner in the particular firm.

2. What is an artificial person?

Ans. A company or business entity is referred to as an artificial person as unlike human beings it cannot walk, sleep, breathe and eat. However, it is bound by the law as it is created as a legal entity. It can sue or get sued by other firms. 

3. Explain the types of Cooperative Studies. 

Ans.  

1. Consumer Cooperative: These are formed in order to make consumer goods available at reasonable rates to their members.

2. Producer Cooperative: The objective is to procure materials and machinery and supply them to the members at low prices.

3. Farmers’ Cooperative: An association of small farmers who join together for maximizing their productivity and earning potential

4. Housing Cooperative: These aim towards providing affordable housing solutions to its members.

5. Marketing Cooperative: These cooperatives are formed by farmers, small producers, and artisans to promote their services in the market.

6. Credit Cooperative: These cooperatives provide credit to their members at low rates of interest.

Tips to Study Business Studies

Students are required to follow these suggested tips which will help the students to study business studies:

The concepts discussed in business studies must be understood by the students well, this will help them to solve the questions and answers properly. Thus first have conceptual clarity and then proceed on with the questions and answers 

Study Hight Order Thinking Skills questions this will help the student logically grasp the chapters of Business Studies. 

Take the help of the NCERT Notes and Revision Material. 

Solve sample question papers before the exam.  

Hope the students have gained enough help and insights from this revision material. We have provided the pdf to the revision notes which can be downloaded free of cost and referred before the Business Studies exam. 

Students can also solve the extra questions and answers provided in this article. You can also take note of the suggested tips on how you can study Business Studies in CBSE Class 11 . 

FAQs on Forms of Business Organisation Class 11 Notes CBSE Business Studies Chapter 2 (Free PDF Download)

1. What are the Types of Partners?

The types of partners are as follows. 

Active Partner - This person takes action in the business on behalf of the partners of the company.

Sleeping Partner - This is a partner that doesn't take part in the day to day activities.

Secret Partner - Here the partner's identity is kept a secret.

Nominal Partner - This partner allows the use of their name in the firm.

Holding Out Partner - This person knowingly allows the use of his name in the firm.

2. What are the Types of Partnerships?

The types of partnerships are based on duration and liability. On the basis of duration, there are two types:

Partnership at Will - This will go on as long as the partners want it too or unless someone withdraws.

Particular Partnership - This partnership is formed because of the accomplishment of some project.

 Based on liability, the different types of partnership are:  

General Partnership - The liability of partners is unlimited and joint.

Limited Partnership - Here, one partner has unlimited liability, whereas the rest have limited liability.

3. What are the forms of business Organisation Class 11?

The different forms of business organisations that one may choose from are:

Sole Proprietorship: owned, controlled and managed by a single individual.

Joint Hindu Family Business: organized by two or more male members from one Hindu joint family.

Partnership: an association of people agreeing to distribute the profits of a business managed by all.

Co-operative Societies: a cooperative form of business with the main aim of mutual help.

Joint Stock Company: association of persons for gaining profit and capital divided as transferable shares. Visit the page Class 11 Business Studies Chapter 2 on Vedantu for complete solutions at free of cost from the Vedantu website and the Vedantu app.

4. What do you mean by business enterprise?

Business enterprise refers to any endeavour wherein the main aim is profit instead of the mere employment of oneself or others. It involves the task of offering goods and services including industrial, financial as well as commercial facets.

5. What are the types of partners?

Active Partner: participating in management.

Dormant Partner: not participating in management.

Secret Partner: association with the business is unknown to outsiders.

Nominal Partner: lends their name for the advantage of the business.

Partner by Estoppel: give the impression that they are one of the partners.

Partner by Holding Out: is not a partner, but knowingly lets himself be represented as one.

6. Who are Coparceners Class 11 business studies?

Coparceners are members of a Hindu Undivided Family business other than the Karta. It must consist of propositus along with three lineal descendants. They must have the same rights of ownership over their ancestral property. Visit the page Class 11 Business Studies Chapter 2 on Vedantu for complete solutions at free of cost from the Vedantu website and the Vedantu app.

7. What are the types of partnership in class 11 business studies?

Based on time period the following are the three types of partnership firm

Partnership at will

Particular partnership

Fixed period partnership

Based on the liability of members, the following are the two types of partnership:

General partnership

Limited partnership

CBSE Study Materials

• CBSE Class 11 Business Studies Chapter 2 – Forms of Business Organisation Class 11 Notes

Forms of Business Organisation Class 11 Revision Notes            

The  forms of business organisation class 11 notes help you to identify and distinguish between different forms of business organizations. Forms of Business organization refer to the type of organizations that differ in terms of ownership and management. To start a business or to expand an existing business, one of the important decision is to choose the form of organization. Thus, we need to determine the advantages and disadvantages of each form of business organization. Various forms of business organization include sole proprietorship, joint Hindu family business, cooperative society, partnership firm, and joint-stock company.

It discusses the factors determining the choice of an appropriate form of business organization. Various factors to consider while deciding the form of organization for one’s business are initial cost, liability, continuity, capital contribution, managerial ability, degree of control and nature of business.

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Sub-topics covered under Forms of Business Organisation:

• Introduction and Evaluation to Forms of Business Organisations : This subtopic explains evaluating each form of organization that we require to choose as the most appropriate one.
• Sole Proprietorship : It explains the organization owned, controlled and managed by a single individual.
• Joint Hindu Family Business : It explains the organization owned and carried on by the members of the Hindu Undivided Family and controlled by Karta.
• Cooperative Society : The subtopic explains the voluntary association of persons who comes together to protect their economic interest with the desire to earn greater benefits.
• Partnership : This topic explains the meaning of partnership which is an association of two or more persons who agree to carry on a business together.
• Partnership Deed and Registration : It deals with the partnership deed and registration of a partnership firm.
• Joint Stock Company : It deals with the meaning of a Joint Stock Company.
• Types of Companies : It explains the meaning of Private companies and public companies.
• Forms of Organising Public Sector : It explains Departmental undertaking, Statutory corporations, and Government company.

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Stephen J. Skripak; Anastasia Cortes; and Anita Walz

Learning Objectives

• Identify the questions to ask in choosing the appropriate form of ownership for a business.
• Describe the sole proprietorship and partnership forms of organization, and specify the advantages and disadvantages.
• Identify the different types of partnerships, and explain the importance of a partnership agreement.
• Explain how corporations are formed and how they operate.
• Discuss the advantages and disadvantages of the corporate form of ownership.
• Examine special types of business ownership, including limited-liability companies, and not-for-profit corporations.
• Define mergers and acquisitions, and explain why companies are motivated to merge or acquire other companies.

The Ice Cream Men

Who would have thought it? Two ex-hippies with strong interests in social activism would end up starting one of the best-known ice cream companies in the country—Ben & Jerry’s. Perhaps it was meant to be. Ben Cohen (the “Ben” of Ben & Jerry’s) always had a fascination with ice cream. As a child, he made his own mixtures by smashing his favorite cookies and candies into his ice cream. But it wasn’t until his senior year in high school that he became an official “ice cream man,” happily driving his truck through neighborhoods filled with kids eager to buy his ice cream pops. After high school, Ben tried college but it wasn’t for him. He attended Colgate University for a year and a half before he dropped out to return to his real love: being an ice cream man. He tried college again—this time at Skidmore, where he studied pottery and jewelry making—but, in spite of his selection of courses, still didn’t like it.

In the meantime, Jerry Greenfield (the “Jerry” of Ben & Jerry’s) was following a similar path. He majored in pre-med at Oberlin College in the hopes of one day becoming a doctor. But he had to give up on this goal when he was not accepted into medical school. On a positive note, though, his college education steered him into a more lucrative field: the world of ice cream making. He got his first peek at the ice cream industry when he worked as a scooper in the student cafeteria at Oberlin. So, fourteen years after they first met on the junior high school track team, Ben and Jerry reunited and decided to go into ice cream making big time. They moved to Burlington, Vermont—a college town in need of an ice cream parlor—and completed a $5 correspondence course from Penn State on making ice cream. After getting an A in the course—not surprising, given that the tests were open book—they took the plunge: with their life savings of $8,000 and $4,000 of borrowed funds they set up an ice cream shop in a made-over gas station on a busy street corner in Burlington. 1 The next big decision was which form of business ownership was best for them. This chapter introduces you to their options.

Factors to Consider

If you’re starting a new business, you have to decide which legal form of ownership is best for you and your business. Do you want to own the business yourself and operate as a sole proprietorship? Or, do you want to share ownership, operating as a partnership or a corporation? Before we discuss the pros and cons of these three types of ownership, let’s address some of the questions that you’d probably ask yourself in choosing the appropriate legal form for your business.

• In setting up your business, do you want to minimize the costs of getting started? Do you hope to avoid complex government regulations and reporting requirements?
• How much control would you like? How much responsibility for running the business are you willing to share? What about sharing the profits?
• Do you want to avoid special taxes?
• Do you have all the skills needed to run the business?
• Are you likely to get along with your co-owners over an extended period of time?
• Is it important to you that the business survive you?
• What are your financing needs and how do you plan to finance your company?
• How much personal exposure to liability are you willing to accept? Do you feel uneasy about accepting personal liability for the actions of fellow owners?

No single form of ownership will give you everything you desire. You’ll have to make some trade-offs. Because each option has both advantages and disadvantages, your job is to decide which one offers the features that are most important to you. In the following sections we’ll compare three ownership options (sole proprietorship, partnership, corporation) on these eight dimensions.

Sole Proprietorship and its Advantages

In a sole proprietorship , as the owner, you have complete control over your business. You make all important decisions and are generally responsible for all day-to-day activities. In exchange for assuming all this responsibility, you get all the income earned by the business. Profits earned are taxed as personal income, so you don’t have to pay any special federal and state income taxes.

Disadvantages of Sole Proprietorships

For many people, however, the sole proprietorship is not suitable. The flip side of enjoying complete control is having to supply all the different talents that may be necessary to make the business a success. And when you’re gone, the business dissolves. You also have to rely on your own resources for financing: in effect, you are the business and any money borrowed by the business is loaned to you personally. Even more important, the sole proprietor bears unlimited liability for any losses incurred by the business. The principle of unlimited personal liability means that if the business incurs a debt or suffers a catastrophe (say, getting sued for causing an injury to someone), the owner is personally liable. As a sole proprietor, you put your personal assets (your bank account, your car, maybe even your home) at risk for the sake of your business. You can lessen your risk with insurance, yet your liability exposure can still be substantial. Given that Ben and Jerry decided to start their ice cream business together (and therefore the business was not owned by only one person), they could not set their company up as a sole proprietorship.

Partnership

A partnership (or general partnership) is a business owned jointly by two or more people. About 10 percent of U.S. businesses are partnerships 2 and though the vast majority are small, some are quite large. For example, the big four public accounting firms are partnerships. Setting up a partnership is more complex than setting up a sole proprietorship, but it’s still relatively easy and inexpensive. The cost varies according to size and complexity. It’s possible to form a simple partnership without the help of a lawyer or an accountant, though it’s usually a good idea to get professional advice.

Professionals can help you identify and resolve issues that may later create disputes among partners.

The Partnership Agreement

The impact of disputes can be lessened if the partners have executed a well-planned partnership agreement that specifies everyone’s rights and responsibilities. The agreement might provide such details as the following:

• Amount of cash and other contributions to be made by each partner
• Division of partnership income (or loss)
• Partner responsibilities—who does what
• Conditions under which a partner can sell an interest in the company
• Conditions for dissolving the partnership
• Conditions for settling disputes

Unlimited Liability and the Partnership

A major problem with partnerships, as with sole proprietorships, is unlimited liability : in this case, each partner is personally liable not only for his or her own actions but also for the actions of all the partners. If your partner in an architectural firm makes a mistake that causes a structure to collapse, the loss your business incurs impacts you just as much as it would him or her. And here’s the really bad news: if the business doesn’t have the cash or other assets to cover losses, you can be personally sued for the amount owed. In other words, the party who suffered a loss because of the error can sue you for your personal assets. Many people are understandably reluctant to enter into partnerships because of unlimited liability. Certain forms of businesses allow owners to limit their liability. These include limited partnerships and corporations .

Limited Partnerships

The law permits business owners to form a limited partnership which has two types of partners: a single general partner who runs the business and is responsible for its liabilities, and any number of limited partners who have limited involvement in the business and whose losses are limited to the amount of their investment.

Advantages and Disadvantages of Partnerships

The partnership has several advantages over the sole proprietorship. First, it brings together a diverse group of talented individuals who share responsibility for running the business. Second, it makes financing easier: the business can draw on the financial resources of a number of individuals. The partners not only contribute funds to the business but can also use personal resources to secure bank loans. Finally, continuity needn’t be an issue because partners can agree legally to allow the partnership to survive if one or more partners die.

Still, there are some negatives. First, as discussed earlier, partners are subject to unlimited liability. Second, being a partner means that you have to share decision making, and many people aren’t comfortable with that situation. Not surprisingly, partners often have differences of opinion on how to run a business, and disagreements can escalate to the point of jeopardizing the continuance of the business. Third, in addition to sharing ideas, partners also share profits. This arrangement can work as long as all partners feel that they’re being rewarded according to their efforts and accomplishments, but that isn’t always the case. While the partnership form of ownership is viewed negatively by some, it was particularly appealing to Ben Cohen and Jerry Greenfield. Starting their ice cream business as a partnership was inexpensive and let them combine their limited financial resources and use their diverse skills and talents. As friends they trusted each other and welcomed shared decision making and profit sharing. They were also not reluctant to be held personally liable for each other’s actions.

Corporation

A corporation (sometimes called a regular or C-corporation) differs from a sole proprietorship and a partnership because it’s a legal entity that is entirely separate from the parties who own it. It can enter into binding contracts, buy and sell property, sue and be sued, be held responsible for its actions, and be taxed. Once businesses reach any substantial size, it is advantageous to organize as a corporation so that its owners can limit their liability. Corporations, then, tend to be far larger, on average, than businesses using other forms of ownership. As Figure 6.2 shows, corporations account for 18 percent of all U.S. businesses but generate almost 82 percent of the revenues. 3 Most large well-known businesses are corporations, but so are many of the smaller firms with which likely you do business.

Ownership and Stock

Corporations are owned by shareholders who invest money in the business by buying shares of stock . The portion of the corporation they own depends on the percentage of stock they hold. For example, if a corporation has issued 100 shares of stock, and you own 30 shares, you own 30 percent of the company. The shareholders elect a board of directors , a group of people (primarily from outside the corporation) who are legally responsible for governing the corporation. The board oversees the major policies and decisions made by the corporation, sets goals and holds management accountable for achieving them, and hires and evaluates the top executive, generally called the CEO ( chief executive officer ). The board also approves the distribution of income to shareholders in the form of cash payments called dividends.

Benefits of Incorporation

The corporate form of organization offers several advantages, including limited liability for shareholders, greater access to financial resources, specialized management, and continuity.

Limited Liability

The most important benefit of incorporation is the limited liability to which shareholders are exposed: they are not responsible for the obligations of the corporation, and they can lose no more than the amount that they have personally invested in the company. Limited liability would have been a big plus for the unfortunate individual whose business partner burned down their dry cleaning establishment. Had they been incorporated, the corporation would have been liable for the debts incurred by the fire. If the corporation didn’t have enough money to pay the debt, the individual shareholders would not have been obligated to pay anything. They would have lost all the money that they’d invested in the business, but no more.

Financial Resources

Incorporation also makes it possible for businesses to raise funds by selling stock. This is a big advantage as a company grows and needs more funds to operate and compete. Depending on its size and financial strength, the corporation also has an advantage over other forms of business in getting bank loans. An established corporation can borrow its own funds, but when a small business needs a loan, the bank usually requires that it be guaranteed by its owners.

Specialized Management

Because of their size and ability to pay high sales commissions and benefits, corporations are generally able to attract more skilled and talented employees than are proprietorships and partnerships.

Continuity and Transferability

Another advantage of incorporation is continuity . Because the corporation has a legal life separate from the lives of its owners, it can (at least in theory) exist forever.

Transferring ownership of a corporation is easy: shareholders simply sell their stock to others. Some founders, however, want to restrict the transferability of their stock and so choose to operate as a privately-held corporation. The stock in these corporations is held by only a few individuals, who are not allowed to sell it to the general public.

Companies with no such restrictions on stock sales are called public corporations; stock is available for sale to the general public.

Drawbacks to Incorporation

Like sole proprietorships and partnerships, corporations have both positive and negative aspects. In sole proprietorships and partnerships, for instance, the individuals who own and manage a business are the same people. Corporate managers, however, don’t necessarily own stock, and shareholders don’t necessarily work for the company. This situation can be troublesome if the goals of the two groups differ significantly.

Managers, for example, are often more interested in career advancement than the overall profitability of the company. Stockholders might care more about profits without regard for the well-being of employees. This situation is known as the agency problem , a conflict of interest inherent in a relationship in which one party is supposed to act in the best interest of the other. It is often quite difficult to prevent self-interest from entering into these situations.

Another drawback to incorporation—one that often discourages small businesses from incorporating—is the fact that corporations are more costly to set up. When you combine filing and licensing fees with accounting and attorney fees, incorporating a business could set you back by $1,000 to $6,000 or more depending on the size and scope of your business. 4 Additionally, corporations are subject to levels of regulation and governmental oversight that can place a burden on small businesses. Finally, corporations are subject to what’s generally called “ double taxation .” Corporations are taxed by the federal and state governments on their earnings. When these earnings are distributed as dividends, the shareholders pay taxes on these dividends. Corporate profits are thus taxed twice—the corporation pays the taxes the first time and the shareholders pay the taxes the second time.

Five years after starting their ice cream business, Ben Cohen and Jerry Greenfield evaluated the pros and cons of the corporate form of ownership, and the “pros” won. The primary motivator was the need to raise funds to build a $2 million manufacturing facility. Not only did Ben and Jerry decide to switch from a partnership to a corporation, but they also decided to sell shares of stock to the public (and thus become a public corporation). Their sale of stock to the public was a bit unusual: Ben and Jerry wanted the community to own the company, so instead of offering the stock to anyone interested in buying a share, they offered stock to residents of Vermont only. Ben believed that “business has a responsibility to give back to the community from which it draws its support.” 5 He wanted the company to be owned by those who lined up in the gas station to buy cones. The stock was so popular that one in every hundred Vermont families bought stock in the company. 6 Eventually, as the company continued to expand, the stock was sold on a national level.

Other Types of Business Ownership

In addition to the three commonly adopted forms of business organization—sole proprietorship, partnership, and regular corporations—some business owners select other forms of organization to meet their particular needs. We’ll look at two of these options:

• Limited-liability companies
• Not-for-profit corporations

Limited-Liability Companies

How would you like a legal form of organization that provides the attractive features of the three common forms of organization (corporation, sole proprietorship and partnership) and avoids the unattractive features of these three organization forms? The limited-liability company (LLC) accomplishes exactly that. This form provides business owners with limited liability (a key advantage of corporations) and no “double taxation” (a key advantage of sole proprietorships and partnerships). Let’s look at the LLC in more detail.

In 1977, Wyoming became the first state to allow businesses to operate as limited-liability companies. Twenty years later, in 1997, Hawaii became the last state to give its approval to the new organization form. Since then, the limited-liability company has increased in popularity. Its rapid growth was fueled in part by changes in state statutes that permit a limited-liability company to have just one member. The trend to LLCs can be witnessed by reading company names on the side of trucks or on storefronts in your city. It is common to see names such as Jim Evans Tree Care, LLC, and For-Cats-Only Veterinary Clinic, LLC. But LLCs are not limited to small businesses. Companies such as Crayola, Domino’s Pizza, Ritz-Carlton Hotel Company, and iSold It (which helps people sell their unwanted belongings on eBay) are operating under the limited-liability form of organization.

In a limited-liability company, owners (called members rather than shareholders) are not personally liable for debts of the company, and its earnings are taxed only once, at the personal level (thereby eliminating double taxation).

We have touted the benefits of limited liability protection for an LLC. We now need to point out some circumstances under which an LLC member (or a shareholder in a corporation) might be held personally liable for the debts of his or her company. A business owner can be held personally liable if he or she:

• Personally guarantees a business debt or bank loan which the company fails to pay.
• Fails to pay employment taxes to the government.
• Engages in fraudulent or illegal behavior that harms the company or someone else.
• Does not treat the company as a separate legal entity, for example, uses company assets for personal uses.

Not-for-Profit Corporations

A not-for-profit corporation (sometimes called a nonprofit) is an organization formed to serve some public purpose rather than for financial gain. As long as the organization’s activity is for charitable, religious, educational, scientific, or literary purposes, it can be exempt from paying income taxes. Additionally, individuals and other organizations that contribute to the not-for-profit corporation can take a tax deduction for those contributions. The types of groups that normally apply for nonprofit status vary widely and include churches, synagogues, mosques, and other places of worship; museums; universities; and conservation groups.

There are more than 1.5 million not-for-profit organizations in the United States. 7 Some are extremely well funded, such as the Bill and Melinda Gates Foundation, which has an endowment of approximately $40 billion and has given away $36.7 billion since its inception. 8 Others are nationally recognized, such as United Way, Goodwill Industries, Habitat for Humanity, and the Red Cross. Yet the vast majority is neither rich nor famous, but nevertheless makes significant contributions to society.

Mergers and Acquisitions

The headline read, “Wanted: More than 2,000 in Google Hiring Spree.” 9 The largest Web search engine in the world was disclosing its plans to grow internally and increase its workforce by more than 2,000 people, with half of the hires coming from the United States and the other half coming from other countries. The added employees will help the company expand into new markets and battle for global talent in the competitive Internet information providers industry. When properly executed, internal growth benefits the firm.

An alternative approach to growth is to merge with or acquire another company. The rationale behind growth through merger or acquisition is that 1 + 1 = 3: the combined company is more valuable than the sum of the two separate companies. This rationale is attractive to companies facing competitive pressures. To grab a bigger share of the market and improve profitability, companies will want to become more cost efficient by combining with other companies.

Though they are often used as if they’re synonymous, the terms merger and acquisition mean slightly different things. A merger occurs when two companies combine to form a new company. An acquisition is the purchase of one company by another. An example of a merger is the merging in 2013 of US Airways and American Airlines. The combined company, the largest carrier in the world, flies under the name American Airlines.

Another example of an acquisition is the purchase of Reebok by Adidas for $3.8 billion. 10 The deal was expected to give Adidas a stronger presence in North America and help the company compete with rival Nike. Once this acquisition was completed, Reebok as a company ceased to exist, though Adidas still sells shoes under the Reebok brand.

Motives behind Mergers and Acquisitions

Companies are motivated to merge or acquire other companies for a number of reasons, including the following.

Gain Complementary Products

Acquiring complementary products was the motivation behind Adidas’s acquisition of Reebok. As Adidas CEO Herbert Hainer stated in a conference call, “This is a once-in- a-lifetime opportunity. This is a perfect fit for both companies, because the companies are so complementary…. Adidas is grounded in sports performance with such products as a motorized running shoe and endorsement deals with such superstars as British soccer player David Beckham. Meanwhile, Reebok plays heavily to the melding of sports and entertainment with endorsement deals and products by Nelly, Jay-Z, and 50 Cent. The combination could be deadly to Nike.” Of course, Nike has continued to thrive, but one can’t blame Hainer for his optimism. 11

Attain New Markets or Distribution Channels

Gaining new markets was a significant factor in the 2005 merger of US Airways and America West. US Airways was a major player on the East Coast, the Caribbean, and Europe, while America West was strong in the West. The expectations were that combining the two carriers would create an airline that could reach more markets than either carrier could do on its own. 12

Realize Synergies

The purchase of Pharmacia Corporation (a Swedish pharmaceutical company) by Pfizer (a research-based pharmaceutical company based in the United States) in 2003 created one of the world’s largest drug makers and pharmaceutical companies, by revenue, in every major market around the globe. 13 The acquisition created an industry giant with more than $48 billion in revenue and a research-and-development budget of more than $7 billion. Each day, almost forty million people around the globe are treated with Pfizer medicines. 14 Its subsequent $68 billion purchase of rival drug maker Wyeth further increased its presence in the pharmaceutical market. 15

In pursuing these acquisitions, Pfizer likely identified many synergies : quite simply, a whole that is greater than the sum of its parts. There are many examples of synergies. A merger typically results in a number of redundant positions; the combined company does not likely need two vice-presidents of marketing, two chief financial officers, and so on. Eliminating the redundant positions leads to significant cost savings that would not be realized if the two companies did not merge. Let’s say each of the companies was operating factories at 50% of capacity, and by merging, one factory could be closed and sold. That would also be an example of a synergy. Companies bring different strengths and weaknesses into the merged entity. If the newly-combined company can take advantage of the marketing capabilities of the stronger entity and the distribution capabilities of the other (assuming they are stronger), the new company can realize synergies in both of these functions.

Hostile Takeover

What happens, though, if one company wants to acquire another company, but that company doesn’t want to be acquired? The outcome could be a hostile takeover —an act of assuming control that’s resisted by the targeted company’s management and its board of directors. Ben Cohen and Jerry Greenfield found themselves in one of these situations: Unilever—a very large Dutch/British company that owns three ice cream brands—wanted to buy Ben & Jerry’s, against the founders’ wishes. Most of the Ben & Jerry’s stockholders sided with Unilever. They had little confidence in the ability of Ben Cohen and Jerry Greenfield to continue managing the company and were frustrated with the firm’s social-mission focus. The stockholders liked Unilever’s offer to buy their Ben & Jerry’s stock at almost twice its current market price and wanted to take their profits. In the end, Unilever won; Ben & Jerry’s was acquired by Unilever in a hostile takeover. 16 Despite fears that the company’s social mission would end, it didn’t happen. Though neither Ben Cohen nor Jerry Greenfield are involved in the current management of the company, they have returned to their social activism roots and are heavily involved in numerous social initiatives sponsored by the company.

Chapter Video: Business Structures 

Here is a short video providing a simple and straightforward recap of the key points of each form of business ownership.

(Copyrighted material)

Key Takeaways

• A sole proprietorship, a business owned by only one person, accounts for 72% of all U.S. businesses.
• Advantages include: complete control for the owner, easy and inexpensive to form, and owner gets to keep all of the profits.
• Disadvantages include: unlimited liability for the owner, complete responsibility for talent and financing, and business dissolves if the owner dies.
• A general partnership is a business owned jointly by two or more people, and accounts for about 10% of all U.S. businesses.
• Advantages include: more resources and talents come with an increase in partners, and the business can continue even after the death of a partner.
• Disadvantages include: partnership disputes, unlimited liability, and shared profits.
• A limited partnership has a single general partner who runs the business and is responsible for its liabilities, plus any number of limited partners who have limited involvement in the business and whose losses are limited to the amount of their investment.
• A corporation is a legal entity that’s separate from the parties who own it, the shareholders who invest by buying shares of stock. Corporations are governed by a Board of Directors, elected by the shareholders.
• Advantages include: limited liability, easier access to financing, and unlimited life for the corporation.
• Disadvantages include: the agency problem, double taxation, and incorporation expenses and regulations.
• A limited-liability company (LLC) is a business structure that combines the tax treatment of a partnership with the liability protection of a corporation.
• A not-for-profit corporation is an organization formed to serve some public purpose rather than for financial gain. It enjoys favorable tax treatment.
• A merger occurs when two companies combine to form a new company.
• An acquisition is the purchase of one company by another with no new company being formed. A hostile takeover occurs when a company is purchased even though the company’s management and Board of Directors do not want to be acquired.

Chapter 6 Text References and Image Credits

Image credits: chapter 6.

Figure 6.1: Dismas (2010). “ Ben Cohen and Jerry Greenfield in 2010 .” CC by SA 3.0 Retrieved from: https://en.wikipedia.org/wiki/Ben_%26_Jerry%27s – /media/File:Ben_and_Jerry.jpg .

Figure 6.2: “Types of U.S. Businesses.” Data source: “Number of Tax Returns, Receipts, and Net Income by Type of Business.” Census.gov . Retrieved from: https://www.census.gov/prod/2011pubs/12statab/business.pdf

Video Credits: Chapter 6

“Business Structures.” (Bean Counter). March 9, 2014. Retrieved from:  https://www.youtube.com/watch?v=z-GLrHhuDEM

References: Chapter 6

Fundamentals of Business Copyright © 2018 by Stephen J. Skripak; Anastasia Cortes; and Anita Walz is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Class 11 Business Studies Notes for Forms of Business Organization (PDF) – Study Material

Class 11 Business Studies Forms of Business Organization – Get here the Notes, Question & Practice Paper of Class 11 Business Studies for topic Forms of Business Organization Notes. Forms of Business Organization Notes for Class 11 Business Studies are here. You can download the Forms of Business Organization Notes PDF to study all the topics in this chapter. Moreover the class 11 Business Studies notes include chapter summary, definitions, examples, and key pointers for Forms of Business Organization . Thus if you are studying class Business Studies (व्यवसाय अध्ययन), then the  Forms of Business Organization notes  will help you easily understand the topic and ace it.

Class 11 Business Studies Notes for Forms of Business Organization

Forms of Business Organization is a critical part in the study of Business Studies . In India, it is taught in class. Therefore the class 11 Notes for Business Studies topic Forms of Business Organization have been compiled by teachers and field experts. They explain the complete chapter of Forms of Business Organization in one-shot . Whether you are studying the topic Forms of Business Organization to complete your class syllabus, or for any competitive exam like JEE , NEET , UPSC, you can simply refer these notes to complete the chapter in one-shot!

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Forms of Business Organization Notes for Class 11 Business Studies PDF

The PDF of Forms of Business Organization class 11 notes is as follows. You can view the document here and also download it to use it anytime for future reference whenever you want to brush up your concepts of Business Studies.

Candidates who are ambitious to qualify the Class 11 with good score can check this article for Notes, Study Material, Practice Paper. Above we provided the link to access the Notes , Important Question and Practice Paper of Class 11 Business Studies for topic Forms of Business Organization.

All Topics Class 11 Business Studies Notes

Chapter wise notes for Business Studies (व्यवसाय अध्ययन) are given below.

• Business Services
• Emerging Modes of Business
• Evolution and Fundamentals of Business
• Forms of Business Organization
• Internal Trade
• International Business
• Private Public and Global Enterprises
• Small Business and Enterprises
• Social Responsibilities of Business and Business Ethics
• Sources of Business Finance

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NCERT Solutions for Class 11 Business Studies Forms of Business Organization

The Forms of Business Organization notes here help you solve the questions and answers . Also, you can complete the class 11 Forms of Business Organization worksheet using the same. In addition you will also tackle CBSE Class 11 Business Studies Important Questions with these class 11 notes .

However if you still need help, then you can use the NCERT Solutions for Class 11 Business Studies Forms of Business Organization to get all the answers. Forms of Business Organization solutions contain questions, answers, and steps to solve all questions.

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Forms of Business Organization Notes for Class 11 Business Studies – An Overview

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You can use the class 11 Business Studies notes of Forms of Business Organization for all boards.

The education boards in India for which Forms of Business Organization notes are relevant are – CBSE, CISCE, AHSEC, CHSE Odisha, CGBSE, HBSE, HPBOSE, PUE Karnataka, MSBSHSE, PSEB, RBSE, TBSE, UPMSP, UBSE, BIEAP, BSEB, GBSHSE, GSEB, JAC, JKBOSE, KBPE, MBOSE, MBSE, MPBSE, NBSE, DGE TN, TSBIE, COHSEM, WBCHSE .

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CBSE Class 11 Business Studies Revision Notes Chapter 2

Home » CBSE » CBSE Class 11 Business Studies Revision Notes Chapter 2

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CBSE Class 11 Business Studies Revision Notes Chapter 2 – Forms of Business Organisation

Class 11 Business Studies Chapter 2 introduces students to the different forms of business organisations including Sole proprietorships, Joint Hindu family businesses, Partnerships, and Cooperative societies and Joint stock companies. Students further get to know about the motivation behind each of these business organisations, their characteristics, pros and cons and more.

Quick Links

Extramarks offers summarised Revision Notes for this chapter that cover all the important concepts included in this chapter in a clear and concise manner. Students will find these notes useful in their preparations and last-minute revisions. These notes can be accessed for free from the Extramarks website.

Access Class 11 Business Studies Chapter 2 – Forms Of Business Organisation Notes

The major topics covered in the chapter have been listed below for students’ reference.

Forms of Business Organisation

There are different forms of business organisation which are discussed in this chapter. These include the following: 

• Sole proprietorship
• Joint Hindu family business

Partnership

• Joint-stock Company
• Cooperative Societies

Sole Proprietorship

It is a form of organisation owned, managed and controlled by an individual (also known as a sole proprietor) who is responsible for bearing all the risk and receiving all the profit.

• The sole proprietor can establish and close the business without any legal formalities.
• The liability of the sole proprietor is unlimited.
• Being the sole owner, the sole proprietor bears all the risk and receives all the profits.
• All the decisions are taken and implemented in the organisation by the owner.
• Owners and businesses have no separate entity and are considered one in the eyes of the law.
• Even in case of a lack of business continuity, the business can continue until the owner wants.
• Prompt decision-making as all the decisions are to be taken by the owner.
• Being a sole owner, it is easy to maintain business secrecy.
• The owner enjoys all the profits as there is no one to share profits.
• A successful business provides satisfaction to the owner and a sense of achievement.
• No legal formalities are required for a business’s formation and closure, making it easy to start and end the business.  

Disadvantages

• Due to limited resources, a business can be funded from the owner’s savings or money borrowed from friends or relatives.
• The business’s continuity depends on the owner’s health and state of mind.
• If the business fails to repay debts, the sole proprietor’s personal assets are at risk. 
• One person may not possess the ability to manage all the functions. 

Joint Hindu Family Business

In this form of business organisation, the business is owned and managed by the members of an undivided Hindu family, with the possibility of three successive generations as members of the business.

• The business is formed with at least two members of a Hindu Undivided Family having ancestral property. The Hindu Succession Act, 1956, governs it.
• Except for Karta, all the family members have limited liability up to their share in the business property.
• Karta has the right to control all the activities in the business organisation.
• The business can be discontinued based on the consent of all the members of the family.
• Membership in the organisation is by birth.

Advantages 

• Karta has complete control of the business, thus effective decision-making is ensured.
• The business continues till all the members wish to continue, and control is transferred to the next elder member in case of the death of ‘Karta’.
• Members of the family enjoy liability limited to their share in the business party.
• All the work is done with the common objective of growth as the family members have a sense of belongingness and loyalty.

Limitations

• Due to limited financial resources, businesses can be funded mainly from ancestral property.
• The personal property of ‘Karta’ is at risk as he has unlimited liability.
• Due to the dominance of Karta, conflict may arise due to differences in opinion among members and ‘Karta’.
• Karta may not have knowledge and expertise of all the functions performed in the business.

As per the partnership Act 1932, the partnership is a relation with people who agreed to share the profits of business that is carried on by all or one of them acting for all.

• The formation of a business is based on the provisions of the partnership Act 1932. 
• The liability of the partners in this form of organisation is unlimited. 
• All the partners share the risk that occurred in the business.
• All decisions are made with the consent of all partners, and each partner is responsible for operating the firm.
• The continuity of the business is determined by the partnership deed signed by the partners at the time the partnership is formed.
• Minimum 2 and maximum 50 members [as per the Companies (Miscellaneous) Rules 2014}, or maximum could be 100 ( according to Companies Act, 2013).
• Each partner is the owner and agent of the firm and agent to other partners.
• As the registration is voluntary, businesses can be formed and dissolved with the approval of all partners.
• All decisions are made by consent partners, who take on responsibilities based on their competence.
• All the partners contribute funds that enhance the scope for large-scale company operations.
• All the partners bear the risks and responsibilities of the business
• It is easy to maintain confidential business information as there is no need to submit financial results.
• Each partner has an unlimited liability that is extended to their personal property.
• Due to the restriction of the number of partners, there is limited availability of finance. 
• Due to differences in opinion, there are high chances of conflicts among partners. 
• Any conflict between partners or the death of a partner may bring the business to an end.
• Due to a lack of public confidence and availability of financial reports, it is difficult for an outsider to ascertain the true financial position of the business. 

Types of Partners

• Secret Partner: This partner contributes to the profit and losses of the firm and participates in managerial activities secretly. 
• Active Partner : This partner has unlimited liability. They also contribute to the capital, share profit and loss, and participate in management. 
• Sleeping or dormant partner: This partner does not participate in the management. They contribute capital and share profit and loss. They also have unlimited liability. 
• Nominal Partner: Partner who does not contribute capital or share profit and loss but permits the partnership firm to portray them as partners.
• Partner by holding out: An individual who is not a partner but is portrayed as a partner by other partners of the partnership company and has unlimited liability.
• Partner by estoppel: An individual who is not a partner but projects themselves as partners to an outsider and has unlimited liability.

	Yes	Yes	Yes	Unlimited
	Yes	No	Yes	Unlimited
	Yes	Yes, but secretly	Yes	Unlimited
	No	No	Generally Yes	Unlimited
	No	No	No	Unlimited
	No	No	No	Unlimited

Minor as a Partner: The partner who is below 18 years of age can be admitted as a partner with the mutual consent of all the partners but, in the eyes of the law, is not a partner.  

Types of Partnerships

Partnerships are categorised on the basis of liability and duration.

Classification of partnership on the basis of duration

• Particular Partnership: This type of partnership is formed to perform a particular task over a particular period of time. This partnership is ended once the task gets completed. 
• Partnership at will: This type of partnership depends on the partners until they are eager to continue. 

Classification of partnership on the basis of liability

• Limited Partnership: In this partnership, only one member has unlimited liability while the rest of the members have limited liability.
• General Partnership: In this type of partnership, all the partners have joint and unlimited liability. 

Partnership Deed

It is defined as a written document where all the terms and conditions related to the partnership are mentioned. It has the following clauses: 

• Name of firm
• Nature of firm
• Duration of partnership
• Duties and obligations of partners
• Valuation of assets
• Interest on capital and interest on drawings
• Profit-loss sharing ratio
• Salaries and withdrawals of the partners.
• Preparation of accounts and their auditing.
• Procedure for dissolution of the firm
• Method of solving disputes.

Registration

In the partnership firm, getting the company registered is optional with the registrar regarding in this form the company was established. 

Process of getting registered

• Submitting of application in the prescribed form to the Registrar of Firms.
• Fee deposition with the Registrar.
• Receiving certificate of registration after the Registrar is satisfied.

Consequences of not getting registered

• If the company is not registered, the partner has no right to file a complaint or sue any of the partners or the partnership firm. 
• The firm cannot sue third parties.
• The firm cannot file a case against one or more partners of the firm

Cooperative Society

An organisation of volunteers working for a mutual goal with the purpose of protecting members’ economic and social interests. It must be registered under the Cooperative Societies Act, 1912.

• Any individual, regardless of caste, gender, or religion, who has a similar interest is free to join or quit a cooperative society at any moment.
• As per the capital contribution, cooperative society members have limited liability. 
• All decision-making authority rests with an elected managing committee chosen by members under the one-man-one-vote principle.
• A cooperative society has separate identity status distinct from its members, and the registration of such a society is also mandatory.
• The service motive of a cooperative society is to provide mutual help to the team members.
• Each member has equal voting rights and can elect managing committee members.
• The liability of members is limited to their capital contribution.
• Cooperative societies continue to exist despite their members’ death, bankruptcy or insanity.
• A cooperative society does not require legal formalities for its formation. 
• The government provides support to societies in the form of lower taxes, interest rates and subsidies.
• The members of the social work voluntarily, which helps in reducing costs.
• Societies must adhere to the government’s laws and regulations and submit society audited financial reports. However, such government interference impacts such a society’s freedom of work. 
• Members’ capital contributions are the only funding source, and low dividends hinder members from contributing to society.
• Volunteer members may lack the required competence and skills, resulting in inefficient operations and management.
• Maintaining secrecy is difficult as members provide all information about the society’s operations at the meeting.
• Differences of opinion as a result of individual interest over welfare may lead to conflicts amongst members.

Types of Cooperative Societies

• Producers cooperative societies: In this type of cooperative society, producers’ interests are protected by societies that provide high-quality, low-cost raw materials and other inputs.
• Farmer’s cooperative societies: These societies are established to provide farmers with better inputs at affordable rates to improve productivity.
• Consumer cooperative societies: To protect the interests of the consumers, the society provides high-quality products and services at economical rates. 
• Marketing cooperative societies: In these societies, services are provided related to the marketing of the products by small producers. 
• Cooperative housing societies: These societies are formed to construct houses for their members at an economical rate. 
• Credit cooperative societies: Such societies are established to offer financial assistance to their members at reasonable terms. 

Joint Stock Company

The Companies Act, 2013 defines “A company as an artificial person having a separate legal entity, perpetual succession and a common seal.”

Features of a Joint Stock Company

• A company is established with the law and legal status, yet it does not function like humans and acts as an artificial person. In the name of the corporation, the board of directors conducts all the business activities. 
• A company has its separate legal identity distinct from its owner with the incorporation of a company.
• The company is established by fulfilling all the legal formalities according to the Companies Act, 2013.
• A company is created by law and can only be wound up by law. The existence of the company is not affected by the status of members.
• The Board of Directors controls and manages the company’s business affairs. 
• A company has limited liability only to the extent of the capital contribution. 
• A company cannot have its own signature because it is an artificial legal person. As a result, the common seal serves as the firm’s official signature. To be legally binding, all official papers must bear the same seal.
• All the shareholders of the company bear the risk of loss in proportion to their investment in the company.
• All the shareholders have limited liability for their investment in the firm. Hence, there is no risk of losing personal assets.
• Shares can be converted into cash or can be easily sold in the market. 
• The company’s existence continues and is not affected by the status of the shareholders. 
• Companies can raise public funds and borrow from financial institutions or banks. 
• Professional management as well as specialised individuals are required in large-scale operations. 
• The formation of the company is time-consuming and lengthy as the company needs to fulfil the documentation and legal formalities. 
• There is no confidentiality maintained as all the information is disclosed to the public . 
• As professionals and not owners who manage business affairs, there is a lack of personal contact with the customers and employees. 
• Due to numerous rules and regulations, there is no freedom to work, which consumes time, effort and money. 
• There is a delay in decision-making, as the decision needs to follow a set of hierarchies. 
• The decisions may get influenced due to the personal interest of the directors, as the stakeholders have minimum control over running a business. 
• Management finds it challenging to satisfy everyone because many stakeholders have conflicting interests.

Types of Companies 

Private company.

• A company must have a minimum of 2 or a maximum of 200 members.
• Restricted right to transfer shares.
• Funds cannot be generated from the general public.
• Uses ‘Private Limited’ after the company name.

Public Company

• Minimum 7 members with no limit on maximum members.
• Free to transfer shares. 
• Issue shares to the general public.
• Uses ‘Public Limited’ after the company name.

Difference between Public and Private Company

	Minimum: 7 members Maximum: Unlimited	Minimum: 2 members Maximum: 200
	3 directors	2 directors
	Can invite public for subscription	Cannot invite public for subscription
	Can transfer	Cannot transfer
	Compulsory	Not compulsory

Choice of Form of Business Organisation

• The owner’s death and insolvency influence sole proprietorship and partnership continuity, whereas companies, cooperative societies and Hindu undivided families enjoy eternal existence.
• Partnership and sole proprietor have unlimited liability. On the other hand, companies and cooperative societies have limited liability. 
• Starting a sole proprietorship with minimal expense and legal procedures is simple. On the other hand, establishing a company is a complex task with prolonged legal requirements. However, a partnership has the advantage of fewer legal procedures with lower costs.
• In the case of a small-scale operation, a partnership or sole proprietorship can be chosen. On the other hand, in the case of large-scale operations, the company form is more suitable. 
• It is difficult for the owner of a sole proprietorship to be knowledgeable in all operations, but in other forms of businesses, work division is allowed, which leads to effective decision-making.
• Sole proprietorship and partnership forms of business can be chosen for trading and services. On the other hand, a company form of organisation can be suitable for manufacturing. 
• If the owner desires complete control, a sole proprietorship may be preferable, but if the owner is willing to share power, he might choose a partnership or a company form of organisation.

Introduction to Class 11 Forms of Business Organization

In Chapter 2 Business Studies Class 11 notes , students will study sole proprietorship, joint Hindu family, partnership, cooperative society and joint-stock business. Students will learn about the features, advantages as well as disadvantages of each form of organisation in these revision notes provided by the expert professionals of Extramarks. Each of these organisations is contrasted with the others so that students may see how each form of organisation differs from the others. The forms of organisations have diverse characteristics and are unique from one another, and the Business Studies Class 11 Chapter 2 notes have all of the pertinent information.

Types of Organisations

• Joint Hindu Family: In this form of organisation, members are only allowed to get membership if they were born in the family. This is a family-owned firm, with the heirs following in their father’s footsteps. The joint Hindu Family follows strict values and discipline that cannot be broken. Karta is the name of the family’s head. Only two people and ancestral property are required for this form of organisation. The partners’ responsibility is limited solely by their share amount.
• Sole Proprietorship : In this kind of organisation, the only owner and beneficiary of all the profits and losses made by the company, as well as the bearer of all risks, is the sole proprietor or the sole owner of the company. No distinct rules regulate sole proprietorship, and the owner is personally accountable for all of their actions. The owner is entirely accountable for both ownership and the running of the firm. In this form of organisation, the owner is not required to communicate with anybody before making a decision. They are able to maintain business secrecy. 
• Partnership: It refers to the relationship between partners who have agreed to share the company’s profits and losses. The partnership has to be governed according to The Indian Partnership Act of 1932. The partners of the company have unlimited liability and are responsible for all decisions made. Profits are divided among the partners in an agreed-upon ratio. This Partnership may come to an end due to a lack of continuity or death. Partners can manage various business functions based on their areas of expertise. All of the partners contribute to the capital.
• Cooperative Society: This is a voluntary association that looks after the well-being of its members. This form of organisation monitors the economic interests of its members in order to avoid exploitation by middlemen. This society may enter into contracts and can sue and be sued. The liability of society members is limited to the amount they contribute to the capital. The principle of one man and one vote is no longer applicable because each member has equal voting rights.
• Joint Stock Company: This form of organisation is established by the law and is independent of its members. The company becomes a separate legal entity, and the law no longer considers the business and its owners to be one. The company’s establishment is time-consuming, costly and intricate. The shareholders are accountable for the extent of their unpaid shares.
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FAQs (Frequently Asked Questions)

1. what is a business enterprise.

A business enterprise is defined as a venture to any endeavour in which the primary goal is profit rather than just employing oneself or others. It entails the responsibility of providing goods and services that include industrial, financial and commercial aspects.

2. Who are Coparceners?

Other than the Karta, Coparceners are members of a Hindu Undivided Family company. It must include propositus and three lineal descendants. They must have the same ownership rights over their ancestral property.

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NCERT Solutions for Class 6, 7, 8, 9, 10, 11 and 12

NCERT Solutions For Class 11 Business Studies Forms of Business Organisation

August 17, 2017 by phani

Free PDF download of NCERT Solutions for Class 11 Business Studies Chapter 2 Forms of Business Organisation solved by Expert Teachers as per NCERT (CBSE) Book guidelines. All Chapter wise Questions with Solutions to help you to revise complete Syllabus and Score More marks in your examinations.

NCERT Solutions Class 11 Business Studies Business Studies Sample Papers

TEXTBOOK QUESTIONS SOLVED

I. Multiple Choice Questions Tick the appropriate answer. Question 1. The structure in which there is separation of ownership and management is called (i) Sole proprietorship (ii) Partnership (iii) Company (iv) All business organizations Question 2. The Karta in Joint Hindu family business has: (i) Limited liability (ii) Unlimited liability (iii) No liability for debts (iv) Joint liability Question 3. In a cooperative society the principle followed is: (i) One share one vote (ii) One man one vote (iii) No vote (iv) Multiple votes Question 4. The board of directors of a joint stock company is elected by: (i) General public (ii) Government bodies (iii) Shareholders (iv) Employees Question 5. The maximum number of partners allowed in the banking business are: (i) Twenty (ii) Ten (iii) No limit (i v) Two Question 6. Profits do not have to be shared. This statement refers to: (i) Partnership (ii) Joint Hindu family business (iii) Sole proprietorship (iv) Company Question 7. The capital of a company is divided into number of parts each one of which are called: (i) Dividend (ii) Profit (iii) Interest (ii) Share Question 8. The Head of the Joint Hindu family Business is called (i) Proprietor (ii) Director (iii) Karta (iv) Manager Question 9. Provision of residential accommodation to the members at reasonable rates is the objective of (i) Producer’s cooperative (ii) Consumer’s objective (iii) Housing cooperative (iv) Credit cooperative Question 10. A partner whose association with the firm is unknown to the general public is called (i) Active partner (ii) Sleeping partner (iii) Nominal partner (iv) Secret partner Answer: 1. (iii) 2. (ii) 3. (ii) 4. (iii) 5. (ii) 6. (iii) 7. (iv) 8. (iii) 9. (iii) 10. (iv)

II. Short Answer Type Questions Question 1. For which of the following types of business do you think a sole proprietorship firm of organization would be more suitable, and why? (i) Grocery store (ii) Medical store (iii) Legal consultancy (iv) Craft centre (v) Internet cafe (vi) Chartered accountancy firm Answer:  Sole proprietorship will be more suitable for grocery store, medical store, and internet cafe because:

• It has easy formation and closure.
•  It needs limited resources.
• He will be sole risk bearer which is not so high and profit recipient.
• He will have 100% control.

Question 2. For which of the following types of business do you think a partnership firm of organization would be more suitable, and why? (i) Grocery store (ii) Medical store (iii) Legal consultancy (iv) Craft centre (v) Internet cafe (vi) Chartered accountancy firm Answer:  For legal consultancy and chartered accountancy firm, partnership firm will be more suitable because it has:

• Ease of formation and closure
•  Balanced decision making
• Sharing of risks
• Maintain secrecy

Question 3. Explain the following terms in brief: (i) Perpetual succession (ii) Common seal (iii) Karta (iv) Artificial person Answer:   (i) Perpetual Succession: Perpetual succession refers to continuous succession of a corporation. Perpetual succession is one of the remarkable features of a corporation. The very objective of a corporation is to have a perpetual succession, for there can not be a succession forever without incorporation. The company has perpetual succession. The death or insolvency of a shareholder does not affect its existence. A company comes into end only when it is liquidated according to provision of the Companies Act. (ii) Common Seal: The expression ‘Common Seal’ is not defined in the Companies Act, 1956. General practice is to adopt the Common Seal, at the first Board Meeting of the company. It must be kept under the safe custody of authorized director/officer. The Articles of Association, may set out how and when the common seal has to be affixed. (iii) Karta: Karta is the head of Joint Hindu family business. He has unlimited liability and final decision making power. (iv) Artificial Person: A person in the eyes of law is called an artificial person. An entity which has a separate legal entity in the eyes of law is called artificial person. A joint stock company and a cooperative society are artificial persons.

Question 4. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership firm. Answer:  A minor becomes a member of Joint Hindu Family Business by virtue of his birth. On the other hand, in partnership, minor can be a partner only in profits.

Question 5. If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain. Answer:  However registration is optional, partnership firms willingly go through this legal formality and get themselves registered because it has some merits:

• Settlement of Claims: Registered firms can file suit against the third parties. So the rights of registered firms are safeguarded by law. But an un-registered firm or its partner cannot enforce its claim against the third parties or its co-partner.
• Protection of Rights: The rights and privileges of new partner are also protected in registered firm. But if incoming partner fails to register himself, he will incur great risk, because he will not be in a position to file suit for his dues against his firm or his co-partners.
• Protection of Property: The property of the retired or deceased partner continues to be liable for the acts firm does after his death or retirement until public notice is served for the change to registrar, So there is strong inducement for partners of registered firms to have the changes noted in the register. But if there is unregistered firm, the private property of the out-going partner will be considered liable to charge the debts in spite of retirement.
• Protection to Creditors: Registered firm has to maintain correct, complete and up-to-date record of its partners who will be liable for the obligations of the firm. The statement recorded in the register regarding constitution of firm would afford a strong safeguard against untrue refusal of partnership and the evasion of liability to persons who want to deal with the firm.

Question 6. State the important privileges available to a private company. Answer:  A company can be registered as a private company or a public company. When a company is incorporated as a private company, it enjoys certain privileges and exemptions when compared to a public company. Some of the privileges enjoyed by a Private Company are:

• The minimum number of members required to form a Private Company is only 2, whereas it is 7 in case of a Public Company.
• A Private company can start its business immediately after its incorporation. It need not obtain the Certificate of Commencement of Business. ‘Certificate of Commencement of Business, is issued by the Registrar of Companies to Public Companies. Once a Company has been registered or formed, it shall apply for the Certificate of Commencement of Business in the prescribed form to the ROC (Registrar of Companies). Only after this certificate has been obtained it can commence its business. This certificate has to be obtained within 6 months from the date of incorporation of a Company.’
• No qualification shares and consent of the Director to act as a Director is required to be filed with the ROC at any time during the tenure of the company, as in case of a Public company.
• A Private Company is not required to issue or file a prospectus or statement in lieu of prospectus with the Registrar of Companies. ‘Prospectus, is an important document for a public company. It is nothing but an invitation to the public to subscribe for the shares of the Company. In case a public company does not intend to invite the public to subscribe to the shares, it has to file a statement in lieu of prospectus.
• It is not required to have an index of members, as in case of a public company. The reason being the Companies Act limits the maximum number of members required for a Private Company to 50.
• It is not required to hold a statutory meeting or file a statutory report. ‘Statutory meeting is a general meeting of the shareholders of the Company which has to be held within a period of not less than one month and not more than 6 months from the date, on which it is entitled to commence its business.”
•  It is not required to offer new shares to existing shareholders in proportion to their shareholdings. In case of a Public Company further issue of capital shall be made to the persons who at the date of the issue are holders of the equity shares of the Company in proportion to their holding.
• A Private Company need to have a minimum of two directors only whereas a Public Company needs to have a minimum of three directors.
• All the Directors may be appointed by a single resolution in case of a Private Company.
• The Directors of a Private Company need not to retire by rotation i.e., they can be Permanent Directors.

Question 7. How does a cooperative society exemplify democracy and secularism? Explain. Answer:  Cooperative is a form of organization wherein persons voluntarily associate together as human beings on the basis of equality for the promotion of an economic interest for themselves. In a cooperative society, the power to take decisions lies in the hands of an elected managing committee. The right to vote gives the members a chance to choose the members who will constitute the managing committee and this lends the cooperative society a democratic character. Also, 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. The membership of a cooperative society is voluntary. A person is free to join a cooperative society, and can also leave anytime as per his desire. Membership is open to all, irrespective of their religion, caste and gender. Thus, by keeping all these points in mind, a cooperative society exemplifies democracy and secularism.

Question 8. What is meant by ‘partner by estoppel’? Explain. Answer:  When a person, by words spoken or written or by conduct, represents himself or herself, or consents to another representing him or her to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he or she is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership and, if he or she has made such representation or consented to its being made in a public manner, he or she is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made, as follows:

• If a partnership liability results, he or she is liable as though he or she were an actual member of the partnership.
• If no partnership liability results, he or she is liable jointly with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.
• When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, that person is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though that person were a partner in fact, with respect to persons who rely upon the representation where all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation.

III. Long Answer Type Questions Question 1. What do you understand by a.sole proprietorship firm? Explain its merits and limitations. Answer:  If entrepreneur starts sole proprietor form of business, then he has the following advantages. Advantages of Sole Proprietor Form of Business: 1. Easy formation: The formation of sole proprietorship business is very easy and simple. No legal formalities are involved for setting up the business except a license or permission in certain cases. The entrepreneur with initiative and certain amount of capital can set up such form of business. 2. Direct motivation: The entrepreneur owns all and risks all. The entire profit goes to his pocket. This motivates the proprietor to put his heart and soul in the business to earn more profit. Thus, the direct relationship between effort and reward motivates the entrepreneur to manage the business more efficiently and effectively. 3. Better control: The entrepreneur takes all decisions affecting the business. He chalks out the plan and executes the same. His eyes are on everything and everyone. There is no scope for laxity. This results in better control of the business and ultimately leads to efficiency. 4. Promptness in decision-making: When the decision is to be taken by one person, it is sure to be quick. Thus, the entrepreneur as sole proprietor can arrive at quick decisions concerning the business by which he can take the advantage of any better opportunities. 5. Secrecy: Each and every aspect of the business is looked after by the proprietor and the business secrets are known to him only. He has no legal obligation to publish his accounts. Thus, the maintenance of adequate secrecy leaves no scope to his competitors to be aware of the business secrets. 6. Flexibility in operations: The sole proprietorship business is undertaken on a small scale. If any change is required in business operations, it is easy and quick to bring the changes. 7. Scope for personal touch: There is scope for personal relationship with the entrepreneur and customers in sole proprietorship business. Since the scale of operations is small and the employees work under his direct supervision, the proprietor maintains a harmonious relationship with the employees. Similarly, the proprietor can know the tastes, likes and dislikes of the customers because of his personal rapport with the customers. 8. Free from Government control: Sole proprietorship is the least regulated form of business. Regulated laws are almost negligible in its formation, day-to-day operation and dissolution. Disadvantages of Sole Proprietor Form of Business: The sole proprietorship business is not free from criticism. It suffers from certain limitations and drawbacks, because of its very nature and scope of operations. These points may be duly taken care of while entrepreneur adopting this mode of business. 1. Limited resources: The financial resources of any small business as an individual is limited. He mainly finances from his own savings or borrows from financial institutions, friends and relatives as per his capacity. Thus, limited resource is the major drawback of this form of business. 2. Limited managerial capability: Modern business requires updated managerial skills in each and every sphere of activity. We cannot hope a single individual to possess all the managerial, talents necessary to carry on a business efficiently. The limited financial resources of the sole proprietorship is a hindrance to hire the services of managers with expertise in different areas, thereby the growth of the business. 3. Unlimited liability: Since the liability of the sole proprietor is unlimited, the private properties of the proprietor is also at risk. When the business fails, the private properties of the owner are utilized to pay off the business debts. Thus, the proprietor must have to look this aspect carefully. 4. Uncertainty of continuity: The continuity of the business is uncertain because the business may come to an end due to the incapacity or death of the proprietor. Even if at all the business passes on to the successor of the proprietor, it is unlikely that they may pose the business acumen like that of the proprietor. The discontinuance of the business is a social loss. 5. Not suitable for large-scale business: The limited financial resources, limited managerial capability of the proprietor, risk to the private property etc. makes the proprietorship business unsuitable for large-scale business. This system of business cannot afford for large-scale operation. 6. Difficult to maintain personal contact : Even though there is scope for personal touch in sole proprietorship business, it is unlikely to happen when the business is undertaken in different areas. It is not so easy on the part of the proprietor to have personal contact with customers and suppliers at the same time.

Question 2. Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership. Answer:  Partnership is considered by some to be relatively unpopular form of business ownership because:

• Uncertainty of duration: A partnership suffers from a possible limited span of life. Legally, a partnership firm must be dissolved on the retirement, death, bankruptcy, or lunacy of any partner or demanded by any partner. The probability of any one of these events occurring when the number of partners is much greater than in the case of a sole proprietor.
• Risks of additional liability: It is true that like the sole proprietor, each partner has unlimited liability. But his liability may arise not only from his own acts but also from the acts and mistakes of co-partners over whom he has no control.
• Lack of harmony: The old saying that “too many cooks spoil the broth” can be apt for a business partnership. Harmony may be difficult to achieve, especially when there are many partners. Lack of centralized authority and conflicts in policy can disrupt the organization.
• Difficulty in withdrawing investment: Investment in a partnership can be simple, but its withdrawal may be difficult or costly when this aspect is considered from the point of view of individual partners. This is so because no partner can withdraw his interest from the firm without the consent of all partners.
•  Lack of public confidence: A partnership may suffer from lack of public confidence
• Lack of public confidence: A partnership may suffer from lack of public confidence because, like that of a company there is no legal mechanism to enforce the registration of a partnership firm and the disclosure of its affairs.
• Limited resources: A partnership is good as it can be started with limited capital. However, it becomes a handicap in the growth and expansion phases of the business. There is a limit beyond which it is almost impossible for partners to collect capital. This limit is generally up to the personal properties of the partners.
• Unlimited liability: Unlimited liability discourages partners to undertake risky ventures, and therefore, their risk-taking initiative is very risky.

Merits of Partnership

• It is easy to set up.
• It has more capital, which can be brought into the business.
• Partners brings new skills and ideas to a business.
• Decision-making can be much easier with more brains to think about a problem.
•  Partners share responsibilities and duties of the business.
•  Division of labour is possible as partners may have different skills.

Limitations of Partnership

• There is an unlimited liability: All the partners are responsible for the debts of the firm and if the business goes bankrupt, all the partners will have to clear the debts even if they have to sell off their personal belongings.
• Disagreement among the partners can lead to problems for the business.
• There is a limit to the capital invested. Because of the fact that maximum 20 members are allowed, the business may find it difficult to expand after a certain limit.
• There is no continuity of existence. Partnership is dissolved if one of the partners die or resigns or becomes bankrupt.

Question 3. Discuss the characteristics, merits and limitations of the cooperative form of organization. Also describe briefly different types of cooperative societies. Answer:  It is important to choose an appropriate form of organization as it will determine: 1. Extent of control; 2. Extent of liability; 3. Availability of resources; 4. Legal formalities. All these in turn will determine profits of the business. Different types of cooperative societies are explained below:

• Producer’s cooperative societies: The producer’s cooperatives are established by the small producers. The members of the society produce goods in their houses or at common place. The raw materials, tools, money, etc. are provided to them by the society. The output is collected by the society and sold in the market at the wholesale rate. The profit is distributed among the members in proportion to the goods supplied by each member.
• Consumer’s cooperative societies: Consumer’s cooperative societies are established to remove middlemen from the field of trade. These societies purchase foods at the wholesale prices and sell these goods to the members at cheaper rates than the market prices. However, the goods are sold to the non-members at the market rates. The profit, if any, is distributed among the members in the shape of bonus according to their purchase ratio.
• Marketing cooperative societies: The marketing cooperative societies are formed by the small producers for the promotion of trade. The two main objectives of these societies are, to sell the good at reasonable prices by eliminating middlemen and to make there ready for the product of the member. These types of societies are formed by the small agriculturalist and artisans. These societies collect the products of its members and make its grading and keep them in warehouses and sell them in the market at whole sale rate when the market is ready for these products. The profit is distributed among the members according to the ratio of goods supplied by them.
• Credit cooperative societies: These cooperative societies are formed for the financial help of the members. These societies provide loans to the members at low rate of interest. In rural areas these provide loans to the farmers for the purchase of seeds, fertilizers and cattle. In urban areas these societies provide loan to its members for the purchase of raw materials and tools.
•  Farming cooperative societies: These societies are formed by the small agriculturalist to get the benefits of large scale farming. These societies provide help to the farmer for the improve method of cultivations by providing large scale farming tools such as tractors, threshers and harvesters, etc.
• Housing cooperative societies: These societies are formed for the procurement of land for the construction of houses on a homogeneous basis. These societies are formed by those members who are intended to construct their own home. These societies provide loan to the members for the construction of houses. These also purchase construction materials in bulk and provide this material to its member at cheaper rates.

Question.4. Distinguish between a Joint Hindu family business and partnership. Answer:  Differences between Joint Hindu family systems and sole proprietorship are given below:

• Regulating law: A partnership is governed by the provisions of the Indian Partnership Act, 1932. A Joint Hindu family business is governed by the principles of Hindu law.
• Mode of creation: A partnership arises out of a contract, whereas a Joint Hindu family business arises by the operation of law and is not the result of a contract.
• Admission of new members : In a partnership no new partner is admitted without the consent of all the partners, while in the case of a Joint Hindu family firm, a new member is admitted just by birth.
• The position of families: In a partnership women can be full-fledged partners, while in a Joint Hindu family business membership is restricted to male members only. After the passage of the Hindu Succession Act, 1956, families get only co-sharer’s interest at the death of a coparcener and they do not become coparceners themselves.
• Number of members: In partnership the maximum limit of partners is 10 for banking business and 20 for any other business, but there is no such maximum limit of members in the case of Joint Hindu Family business.
• Liability of members: In partnership, the liability of the partners is joint and several as well as unlimited. In other words, each partner is personally and jointly liable to an unlimited extent and if partnership liabilities cannot be fully discharged out of the partnership property each partner’s separate personal property is liable for the debts of the firm.

In a Joint Hindu family business, only the ‘Karta’ is personally liable to an unlimited extent, i.e., his self-acquired or other separate property besides his share in the joint family property is liable, for debts contracted on behalf of the family business.

Question 5. Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organization. Why? Answer:  Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organization because of following merits:

• Easy to start and close: It can be easily started and closed without any legal formalities.
• Quick decision making: As sole trader is not required to consult or inform anybody about his decisions.
• Secrecy: He is not expected to share his business decisions and secrets with anybody.
• Direct incentive: Direct relationship between efforts and reward provide incentive to the sole trader to work hard.
•  Personal touch: The sole trader can maintain personal contacts with his customers and employees.
• Social utility: It provides employment to persons with limited money who are not interested to work under others. It prevents concentration of wealth in a few hands.

MORE QUESTIONS SOLVED

I. Multiple Choice Questions Question 1. Name the form of business organization found only in India. (a) Sole Proprietorship (6) Partnership (c) Joint Hindu Family (d) Cooperatives Question 2. Choose the type of business in which sole proprietorship is very suitable. (a) CA Firm (b) Beauty Parlour (c) A shopping mall (d) All of these Question 3. Name the person who manages a Joint Hindu Family Business. (a) Manager (b) Minor (c) Members (d) Karta Question 4. Name the law which governs Joint Hindu Family Business. (a) Partnership Act (b) Hindu Law (c) Companies Act, 1956 (d) Contract Act Question 5. Which document is called charter of a company? (a) Memorandum of Association (b) Articles of Association (c) Prospectus (d) All of the above Question 6. What is the minimum number of persons required to form a co-operative society? (a) 2 (6) 7 (c) 10 (d) 20 Question 7. Which of the following has unlimited liability in business? (a) Sole Proprietor (b) Karta (c) Partners (d) All of the above Question 8. Name the type of company which must have a minimum paid up capital of 5 lacks, (a) Public Company (b) Private Company (c) Government Company (d) All of the above Question 9. Which of the following has a separate legal entity? (a) Joint Stock Company (b) Co-operative Society (c) Both of the above (d) None of the above Question 10. Minor can be full-fledged member of: (a) Co-operative Society (b) Joint Stock Company (c) Joint Hindu Family (d) Partnership Answer: 1. (c) 2. (b) 3. (d) 4. (b) 5. (a) 6. (b) 7. (d) 8. (a) 9. (c) 10. (c)

II. Short Answer Type Questions Question 1. Explain the concept of mutual agency in partnership with suitable example. Answer:  The right of all the partners in a partnership to act as the agents for the partnership’s normal business activities, with the authority to bind the partnership in to business agreements which have been entered into is called mutual agency. This statement sums up the partnership relationship. The relationship should offer flexibility, opportunity and balanced against that, risk. In partnership you entrust to fellow partners your future reputation and prosperity. Each of us has within our power the ability to enter into undertakings which could bankrupt our fellow partners.

Question 2. What is the role of Karta in Joint Hindu Family business? Answer:  In a Hindu Joint Family, the Karta or Manager occupies a pivotal and unique place. In that there is no comparable office or institution in any other system in the world. His office is independent and hence, his position is termed as sui generis. Karta’s position is sui generis. As had been explained earlier, his position/ office is independent and there is no comparable office in any system in the world.

• He has unlimited powers and even though he acts on behalf of other members, he is not a partner or agent.
•  He manages all the affairs of the family and has widespread powers.
• Ordinarily he is accountable to none. The only exception to this rule is if charges of misappropriation, fraud or conversion are levelled against him.
• He is not bound to save, economise or invest. That is to say that he need not invest in land if the land prices are about to shoot up, and hence, miss out on opportunities etc. He has the power to use the resources as he wishes, unless the above mentioned charges are levelled against him.
• He is not bound to pay income of joint family in any fixed proportion to other members. This means that the Karta need not divide the income generated from the joint family property equally among the family members. He can discriminate one member from another and is not bound to treat everyone impartially. Only responsibility is that he has to pay everyone something so that they can avail themselves of the basic necessities such as food, clothing, shelter, education etc. Karta’s Liabilities:

Apart from all the unlimited powers that are bestowed upon the Karta, he also has liabilities thrust on him.

• Karta has to maintain all the members of the joint family properly. If there is any shortfall in his maintenance, then any of the members can sue for maintenance.
• He is responsible for marriage of all the unmarried members in the family. Special emphasis is laid with respect to daughters in this case.
• In case of any partition suit, the Karta has to prepare accounts.
• He has to pay taxes on behalf of the family.
• Karta represents the family in all matters including legal, religious and social matters.

Question 3. Explain procedure of registering a partnership firm. Answer:  Procedure for Registration: In order to get a partnership firm registered an application in the prescribed form must be filed with the Registrar of Firms. The application should contain the following information:

• The name of the firm,
•  The principal place of business of the firm,
• Names of other places where the firm’s business is carried on,
• Names in full and permanent addresses of the partners,
• The date on which each partner joined the firm,
•  Duration of partnership, if any.

The application should be signed and verified by each partner. A small amount of registration fee is also deposited along with the application. The application is to be submitted to the Registrar for registration of the firm for its verification. If everything is in order and all legal formalities have been observed, the Registrar shall make an entry in the register of firms. He will also issue a certificate of registration. Any change in the information submitted at the time of registration, should be communicated to the Registrar. Registration does not provide a legal entity to the partnership firm.

Question 4. Is registration of partnership firm compulsory? What are the consequences of non-registration? Answer:  Registration of a partnership firm is not compulsory under law. The Partnership Act, 1932 provides hat if the partners so desire they may register the firm with the Registrar of Firms of the state in which the main office of the firm is situated. Consequences of Non-Registration: An unregistered partnership firm suffers from the following situations:

• It cannot enforce its claims against a third party in a court of law.
• It cannot claim adjustment for any sum exceeding Rs 100. Suppose an unregistered firm owes ? 1200 to A and A owes Rs 1000 to the firm the firm cannot enforce adjustment of ? 1000 in a court of law.
• It cannot file a legal suit against any of its partners.
• Partners of an unregistered firm cannot file any suit to enforce a right against the firm.
• The right of a partner to sue for the dissolution of the firm or for the accounts of a dissolved firm or to enforce any right or power to realise the property of a dissolved firm.
• The power of an Official Assignee or Receiver to realize the property of an insolvent partner.
• The rights of the firm, or its partners, having no place of business.
• Any suit or set off in which the claim does not exceed rupees one hundred.
• The right of a third party to sue the unregistered firm or its partners.

Question 5. What are the steps required for raising funds from public? Answer:  Following steps are required for raising funds from public:

• SEBI Approval: SEBI regulates the capital market of India. A public company is required to take approval from SEBI.
• Filing of Prospectus: Prospectus means any documents which invites offers from the public to purchase share and debenture of the company.
• Appointment of Bankers, Brokers, Underwriters: Bankers of the company receive the application money. Brokers encourage the public to apply for the shares. Underwriters are the persons who undertake to buy the shares if these are not subscribed by the public. They receive a commission for underwriter.
• Minimum Subscription: According to the SEBI guidelines, minimum subscription is 90% of the issue amount. If minimum subscription is not received then the allotment cannot be made and the application money must be returned to the applicants within 30 days.
• Application to Stock Exchange: It is necessary for a public company to list their shares in the stock exchange. Therefore, the promoters apply in a stock exchange to list company shares.
• Allotment of Shares: Allotment of shares means acceptance of share applied. Allotment letters are issued to the shareholders. The name and address of the shareholders is to be submitted to the Registrar.

Question 6. Define Articles of Association. What are its contents? Answer:  The Articles of Association are the rules for the management of the internal affairs of a company. The articles define the duties, rights and power of the officer and director of the company. Contents of the Articles of Association (It is not an exhaustive but illustrative list)

• The amount of share capital and different types of shares.
• Rights of each class of shareholder.
• Procedure for making allotment of shares.
• Procedure for issuing share certificates.
•  Procedure for forfeiture and reissue of share.
• Procedure for conducting, voting and proxy.
• Procedure for appointment of director.
•  Procedure for declaration of dividend.
• Procedure for alteration of share capital.
•  Procedure regarding winding up of the company.

Question 7. Differentiate between:

• Memorandum of Association and Articles of Association.
• Private and Public Company

Question 8. Define promoter. What are the functions of a promoter? Answer:  Promoter is a person who conceives the idea of starting a business, examines the feasibility of idea, assemble various resources, prepare necessary documents and perform other activities needed to commence the business. Functions of a promoter

•  Identification of business opportunity;
• Feasibility studies: the following feasibility studies may be undertaken: (a) technical feasibility (b) financial feasibility (c) economic feasibility
•  Name approval;
• Fixing up signatories to the Memorandum of Association;
•  Appointment of professionals;
•  Preparation of necessary documents.

Question 9. Explain the contents of Memorandum of Association. Answer:  Contents of Memorandum of Association: The memorandum must contain the following clauses:

• The Name Clause: It contains the name of company with which the company will be known.
• Registered Office Clause: It contains the name of the state, in which the registered office of the company is proposed to be situated.
•  Objects Clause: It defines the purpose for which the company is formed. It is further divided into two sub-clauses: (1) the main objects (2) other objects.
• Liability Clause: It states that the liability of members is limited to the amount unpaid on shares owned by them.
• Capital Clause: It specifies the maximum capital, which the company will be authorized to raise through issue of shares.
• Association Clause: In this clause, signatories to the memorandum, state their intention to be associated with the company and give their consent to purchase qualification shares.

III. Long Answer Type Questions Question 1. What do you mean by incorporation of a company? What are the steps involved in corporation of a company? Answer:  Incorporation of the company: It means registration of the company under Companies Act, 1956. The second stage involves the following steps:

• Memorandum of Association;
•  Articles of Association or statement in lieu of the prospectus (in case table A is adopted by public limited company);
• Written consent of proposed directors;
•  Agreement (if any) with proposed managing director, manager, etc.;
•  Copy of registrar’s letter approving the company’s name;
•  Statutory declaration;
• Notice of the exact address of the registered office.
• Payment of fees: Along with the above documents, necessary fees is to be paid.
•   Certificate of incorporation: The registrar issues a certificate of incorporation after being satisfied. Certificate is a conclusive evidence of regularity of incorporation of a company irrespective of any deficiency in its registration.

Question 2. Explain different types of partners. Answer:  Different types of partners are given below:

• General/Active Partner: Such a partner takes active part in the management of the firm.
• Sleeping of Dormant Partner: Although he does not take active part in the management of the firm, he invests money, shares profit and loss, has unlimited liability.
• Secret Partner: He participates in business secretly without disclosing his association with the firm to general public. His liability is also unlimited.
•   Nominal Partner: Such a partner only gives his name and goodwill to the firm. He neither invests money nor takes profit. But his liability is unlimited.
• Partner by Estoppels: He is the one who by his words or conduct gives impression to the outside world that he is a partner of the firm whereas actually he is not. His liability is unlimited towards the third party who has entered into dealing with firm on the basis of his pretension.
• Partner by Holding out: He is the one who is falsely declared partner of the firm whereas actually he is not. And even after becoming aware of it, he does not deny it. His liability is unlimited towards the party who has dealt it with firm on the basis of this declaration.

Question 3. Explain meaning, features, merits and demerits of Sole Proprietorship. Answer:  Sole Proprietorship means a business owned, financed and controlled by a single person who is recipient of all profits and bearer of all risks. It is suitable in areas of personalized services like beauty parlour, hair cutting saloons and small scale activities like retail shops. Features:

• Single Ownership: It is wholly owned by one individual.
• Control: Sole proprietor has full power of decision making.
• No Separate legal entity: Business and businessman are not separate entities in the eyes of law.
• Unlimited liability: The liability of owner is unlimited. In case the assets of business are not sufficient to meet its debts, the personal property of owner can be used for paying debts.
• No legal formalities: No legal formalities are required to start, manage and dissolve such business organization.
• Sole risk bearer and profit recipient: He bears the complete risk and there is nobody to share profit / loss with him.
• Quick decision making: As sole owner is not required to consult or inform anybody about his decisions.
•  Direct incentive: Direct relationship between efforts and reward provide incentive to the sole trader to work hard.
• Personal touch: The sole trader can maintain personal contacts with his customers and employees.

Limitations:

• Limited financial resources: Funds are limited to the owner’s personal savings and his borrowing capacity.
• Limited managerial ability: Sole trader can’t be good in all aspects of business and he can’t afford to employ experts also.
• Unlimited liability: Unlimited liability of sole trader compels him to avoid risky and bold business decisions.
• Uncertain life: Death, insolvency, lunacy or illness of a proprietor affects the business and can lead to its closure.
• Limited scope for expansion: Due to limited capital and managerial skills, it cannot expand to a large scale.

Question 4. Explain meaning, features, merits and demerits of partnership firm. Answer:  Partnership is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses. The partnership was evolved to overcome the shortcomings of sole proprietorship and Joint Hindu Family business. Features:

• Two or more persons: There must be at least two persons to form a partnership. The maximum number of persons is 10 in banking business and 20 in non-banking business.
• Agreement: It is an outcome of an agreement among partners which may be oral or in writing.
• Lawful business: It can be formed only for the purpose of carrying on some lawful business.
• Decision making and control: Every partner has a right to participate in management and decision making of the organization.
• Unlimited liability: Partners have unlimited liability.
•   Mutual agency: Every partner is an implied agent of the other partners and of the firm. Every partner is liable for acts performed by other partners on behalf of the firm.
• Lack of continuity: Firms existence is affected by the death, lunacy and insolvency of any of its partner. It suffers from lack of continuity.
• Ease of formation and closure: It can be easily formed. Only an agreement among the partners is required.
• Larger financial resources: There are more funds as capital is contributed by number of partners.
• Balanced decisions: As decisions are taken jointly by partners after consulting each other.
• Sharing of risks : In it, risk gets distributed among partners which reduces anxiety, burden and stress on individual partner.
• Secrecy: Secrecy can be easily maintained about business affairs as they are not required to publish their accounts or to file any report to the government.
• Limited resources: There is a restriction on the number of partners and hence capital contributed by them is also limited.
• Unlimited liability: The liability of partners is unlimited and they are liable individually as well as jointly. It may prove to be a big drawback for those partners who have greater personal wealth. They will have to repay the entire debt in case the other partners are unable to do so.
• Lack of continuity: Partnership comes to an end with the death, retirement, insolvency or lunacy of any of its partners.
• Lack of public confidence: Partnership firms are not required to publish their reports and accounts. Thus they lack public confidence.

Question 5. Explain meaning, features, merits and demerits of joint stock company. Answer:  Joint stock company is a voluntary association of persons having a separate legal existence, perpetual succession and common seal. Its capital is divided into transferable shares. Features:

• Separate legal existence: It is created by law and it is a distinct legal entity independent of its members. It can own property, enter into contracts, can file suits in its own name.
• Perpetual existence: Death, insolvency and insanity or change of members has no effect on the life of a company. It can come to an end only through the prescribed legal procedure.
• Limited Liability: The liability of every member is limited to the nominal value of the shares bought by him or to the amount, guaranteed by him.
• Transferability of shares: Shares of public company are easily transferable. But there are certain restrictions on transfer of share of private company.
•  Common seal: It is the official signature of the company and it is affixed on all important documents of company.
• Separation of ownership and control: Management of company is in the hands of elected representatives of shareholders known individually as director and collectively as board of directors.
• Limited liability : Limited liability of shareholders reduces the degree of risk borne by him.
• Transfer of Interest: Easy transferability of shares increases the attractiveness of shares for investment.
• Perpetual existence: Existence of a company is not affected by the death, insanity, insolvency of member or change of membership. Company can be liquidated only as per the provisions of companies Act.
• Scope for expansion: A company can collect huge amount of capital from unlimited number of members who are ready to invest because of limited liability, easy transferability and chances of high return.
• Professional management: A company can afford to employ highly qualified experts in different areas of business management.
• Legal formalities: The procedure of formation of company is very long, time consuming, expensive and requires lot of legal formalities to be fulfilled.
• Lack of secrecy: It is very difficult to maintain secrecy in case of public company, as company is required to publish and file its annual accounts and reports.
• Lack of motivation: Divorce between ownership and control and absence of a direct link between efforts and reward lead to lack of personal interest and incentive.
• Delay in decision making: Red tapism and bureaucracy do not permit quick decisions and prompt actions. There is little scope for personal initiative.
• Oligarchic management: Company is said to be democratically managed but actually managed by a few people i.e., Board of Directors. Sometimes they take decisions keeping in mind their personal interests and benefit, ignoring the interests of Shareholders and company.

Question 6. Explain the meaning, features, merits and demerits of cooperative society. Answer:  A cooperative society is a voluntary association of persons of moderate means, who unite together to protect and promote their common economic interests. Features:

• Voluntary association: Everyone having a common interest is free to join a cooperative society and can also leave the society after giving proper notice.
• Legal status: Its registration is compulsory and it gives it a separate identity.
• Limited liability: The liability of the member is limited to the extent of their capital contribution in the society.
• Democratic control: Management and control lies with the managing committee elected by the members by giving vote. Every member has one vote irrespective of the number of shares held by him.
• Service motive: The main aim is to serve its members and not to maximize the profit.
• State control: They have to abide by the rules and regulations framed by government for them.
• Distribution of surplus: The profit is distributed on the basis of volume of business transacted by a member and not on the basis of capital contribution of members.
• Ease of formation: It can be started with minimum of 10 members. Registration is also easy as it requires very few legal formalities.
• Limited liability: The liability of members is limited to the extent of their capital contribution.
• Stable existence : Due to registration it is a separate legal entity and is not affected by death, lunacy or insolvency of any of its members.
• Economy in operations: There is economy in operation due to elimination of middle man and voluntary services provided by its members.
• Government support: Government provides support by giving loans at lower interest rates, subsidies and by charging less taxes.
• Social utility: It promotes personal liberty, social justice and mutual cooperation. They help to prevent concentration of economic power in a few hands.
• Shortage of capital: It suffers from shortage of capital as it is usually formed by people with limited means.
• Inefficient management: Cooperative society is managed by elected members who may not be competent and experienced. Moreover it can’t afford to employ expert and experienced people at high salaries.
• Lack of motivation: Members are not inclined to put their best efforts as there is no direct link between efforts and reward.
•   Lack of secrecy: Its affairs are openly discussed in its meeting which makes it difficult to maintain secrecy.
• Excessive government control: It suffers from excessive rules and regulations of the government. It has to get its accounts audited by the auditor and has to submit a copy of its accounts to registrar.
• Conflict among members: The members are from different sections of society with different view points. Sometimes when some members become rigid, the result is conflict.

Question 7. Explain different types of partners. Answer:  The different kinds of partners that are found in partnership firms are as follows:

• Active or managing partner: A person who takes active interest in the conduct and management of the business of the firm is known as active or managing partner. He carries on business on behalf of the other partners. If he wants to retire, he has to give a public notice of his retirement; otherwise he will continue to be liable for the acts of the firm.
• Sleeping or dormant partner: A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the management of the business. Such a partner only contributes to the share capital of the firm, is bound by the activities of other partners, and shares the profits and losses of the business. A sleeping partner, unlike an active partner, is not required to give a public notice of his retirement. As such, he will not be liable to third parties for the acts done after his retirement.
• Nominal or ostensible partner: A nominal partner is one who does not have any real interest in the business but lends his name to the firm, without any capital contributions, and doesn’t share the profits of the business. He also does not usually have a voice in the management of the business of the firm, but he is liable to outsiders as an actual partner.
• Partner by estoppel or holding out: If a person, by his words or conduct, holds out to another that he is a partner, he will be stopped from denying that he is not a partner. The person who thus becomes liable to third parties to pay the debts of the firm is known as a holding out partner. There are two essential conditions for the principle of holding out : (a) The person to be held out must have made the representation, by words written or spoken or by conduct, that he was a partner ; and (b) The other party must prove that he had knowledge of the representation and acted on it, for instance, gave the credit.
• Partner in profits only: When a partner agrees with the others that he would only share the profits of the firm and would not be liable for its losses, he will own as partner in profits only.
• Minor as a partner: A partnership is created by an agreement. And if a partner is incapable of entering into a contract, he cannot become a partner. Thus, at the time of creation of a firm a minor (i.e., a person who has not attained the age of 18 years) cannot be one of the parties to the contract. But under section 30 of the Indian Partnership Act, 1932, a minor ‘can be admitted to the benefits of partnership, with the consent of all partners. A minor partner is entitled to his share of profits and to have access to the accounts of the firm for purposes of inspection and copy. He, however, cannot file a suit against the partners of the firm for his share of profit and property as long as he remains with the firm. His liability in the firm will be limited to the extent of his share in the firm, and his private property cannot be attached by creditors. On his attaining majority, he has to decide within six months whether he will remain regular partner or withdraw himself from partnership. The choice in either case is to be intimated through a public notice, failing which he will be treated to have decided to continue as a partner, and he becomes personally liable like other partners for all the debts and obligations of the firm from the date of his admission to its benefits (and not from the date of his attaining the age of majority). He also becomes entitled to file a suit against other partners for his share of profit and property.
• Other partners: In partnership firms, several other types of partners are also found, namely, secret partner who does not want to disclose his relationship with the firm to the general public. Outgoing partner, who retires voluntarily without causing dissolution of the firm, limited partner who is liable only up to the value of his capital contributions in the firm, and the like.

IV. Higher Order Thinking Skills (HOTS) Question 1. X is interested in the floatation of a company. Briefly discuss the steps he should take. Answer:  Stages in the formation of a company: The formation of a company involves the following four stages: 1. Promotion, 2. Incorporation, 3. Subscription of capital, 4. Commencement of business. These four stages are relevant for formation of a public limited company. For a private limited company, only the first two stages are needed.

• Promotion: Promotion stage includes all the steps right from the identification of a business opportunity till the company is formed. All the tasks during the stage of promotion are performed by a promoter.
•   Incorporation of the company: It means registration of the company under Companies Act, 1956. This second stage involves the following steps: 1. Filing of documents: An application to the registrar for incorporation must be accompanied with the following documents: (i) Memorandum of Association. (ii) Articles of Association or statement in lieu of the prospectus (in case table A is adopted by Public Limited Company). (iii) Written consent of proposed directors. (iv) Agreement (if any) with proposed managing director, manager, etc. (v) Copy of registrar’s letter approving the company’s name. (vi) Statutory declaration. (vii) Notice of the exact address of the registered office 2. Payment of fees: Along with the above documents, necessary fees is to be paid. 3. Certificate of Incorporation: The registrar issues a certificate of incorporation after being satisfied. Certificate is a conclusive evidence of regularity of incorporation of a company irrespective of any deficiency in its registration.
• SEBI approval;
• Filling of prospectus or statement in lieu of prospectus;
• Appointment of bankers, brokers and underwriters;
• Minimum subscription;
• Application to stock exchange.
• Commencement of business: In this stage, public company makes an application (along with some documents) to registrar for issue of “Certificate of Commencement of Business”. The registrar issues the certificate after being satisfied. The company can start its business activities from the date of issue of the certificate.

Question 2. Distinguish between Joint Hindu Family Business and Partnership. Answer:

• Regulating law: A partnership is governed by the provisions of the Indian Partnership Act, 1932. A Joint Hindu Family business is governed by the principles of Hindu law.
• Admission of new members: In a partnership no new partner is admitted without the consent of all the partners, while in the case of a Joint Hindu family firm a new member is admitted just by birth.
• The position of females: In a partnership women can be full-fledged partners, while in a Joint Hindu family business membership is restricted to male members only. After the passage of the Hindu Succession Act, 1956, females get only co-sharer’s interest at the death of a coparcener and they do not become coparceners themselves.
• Number of members: In partnership the maximum limit of partners is 10 for banking business and 20 for any other business but there is no such maximum limit of members in the case of Joint Hindu Family business.
• Authority of members: In partnership each partner has an implied authority to bind his co-partners by act done in the ordinary course of the business, there being mutual agency between various partners. In a joint family business all the powers are vested in the ‘Karta’ and he is the only representative of the family who can contract debts or bind his coparceners by acts done in the ordinary course of business, there being no mutual agency between various coparceners.
• Liability of members: In partnership, the liability of the partners is joint and several as well as unlimited. In other words, each partner is personally and jointly liable to an unlimited extent and if partnership liabilities cannot be fully discharged out of the partnership property each partner’s separate personal property is liable for the debts of the firm. In a Joint Hindu family business only the ‘Karta’ is personally liable to an unlimited extent, i.e., his self-acquired or other separate property besides his share in the joint family property is liable, for debts contracted on behalf of the family business. Other coparceners’ liability is limited to the extent of their interest in the joint family property and they do not incur any personal liability.
• Right of members to share in profits: In a partnership each partner is entitled to claim his separate share of profits but a member of a Joint Hindu family business has no such right. His only remedy lies in a suit for partition.

Question 3. Explain the factors which affect the choice of form of business organization. Answer:  The following factors are important for taking decision about form of organization.

• Cost and Ease in Setting up the Organization: Sole proprietorship is least expensive and can be formed without any legal formalities to be fulfilled. Company is most expensive with a lot of legal formalities.
• Capital Consideration: Business requiring less amount of finance prefer sole proprietorship and partnership form, where as business activities requiring huge financial resources prefer company form.
• Nature of Business: If the work requires personal attention such as tailoring unit, hair cutting saloon, it is generally set up as a sole proprietorship. Units engaged in large scale manufacturing are more likely to be organized in company form.
• Degree of Control Desired: A person who desires full and exclusive control over business prefers proprietorship rather than partnership or Co. because control has to be shared in these cases.
• Liability or Degree of Risk: Projects which are not very risky can be organized in the form of sole proprietorship and partnership. Whereas the risky ventures should be done in company form of organization because the liability of shareholders is limited.

Question 4. Which form of business is suitable for following types of business and why? (a) Beauty Saloon; (b) Garments shop; (c) Garment Factory. Answer:   (a) Beauty Saloon: Sole Proprietor is the right form of business because:

• It needs limited capital.
• It is easy to form.
• Entire profits will belong to the owner.
•  It requires personal attention.

(b) Garments Shop: Sole Proprietor is the right form of business because:

•  It is easy to form.

(c) Garment Factory: Partnership is more suitable because:

• It can be easily started and closed without any legal formalities.
• He is not expected to share his business decisions and secrets with anybody.
• Direct relationship between efforts and reward provide incentive to the sole trader to work hard.
• The sole trader can maintain personal contacts with his customers and employees.
• It provides employment to persons with limited money who are not interested to work under others. It prevents concentration of wealth in a few hands.

Question.5. Differentiate between a Joint Stock Company and a Cooperative Society. Answer. The main differences between Cooperative Organisation and Company Organisation are given below:

• Governing statute: A company is governed by the Companies Act, 1956 while a co-operative organisation is subject to the provisions of the Cooperative Societies Act, 1912 or State Cooperative Societies Acts.
• Basic objects: The primary objective of a cooperative society is to provide service, whereas a company seeks to earn profits. This does not mean that a cooperative society does not earn profits or a company does not render service to society. It simply means that all the activities of a cooperative society are guided by service motive and profits are incidental to this objective. On the other hand, the activities of a company are inspired by profit taking and services rendered to society are incidental to profit motive.
• Number of members: The minimum number of persons is 7 in a public company and 2 in a private company. A cooperative requires at least 10 members. The maximum number of members is 50 in a private company and 100 in cooperative credit society. There is no maximum limit in case of public companies and non-credit cooperative societies.
• Member’s liability: The liability of members of a company is generally limited to the face value of shares held or the amount of guarantee given by them though the Companies Act permits unlimited liability to companies. The members of a cooperative society can opt for unlimited liability. But in practice their liability is generally limited.
• Management and control : The management of a cooperative society is democratic as each member has one vote and there is no system of proxy. In a company, the number of votes depends upon the number of shares and proxies held by a member. There is little separation between ownership and management in a cooperative society due to limited and local membership.
• Distribution of surplus: The profits of a company are distributed as dividends in proportion to the capital contributed by the members. In a cooperative society a minimum part of surplus must be set aside as a reserve and for the general welfare of the public. The rest is distributed in accordance with the patronage provided by different members after paying dividend up to 10 per cent on capital.
• Share capital: In a company, one member can buy any number of shares but an individual cannot buy more than 10 per cent of the total number of shares or shares worth Rs 1,000 of a cooperative society. A public company must offer new shares to the existing members while a cooperative society issues new shares generally to increase its membership. The subscription list of a cooperative society is kept open for new members whereas, the subscription list of a company is closed after subscriptions. A company is thus capitalistic in nature while a cooperative society is socialistic.
• Transferability of interest: The shares of a public limited company are freely transferable while the shares of cooperative society cannot be transferred but can be returned to the society in case a member wants to withdraw his membership. A member of a cooperative society can withdraw his capital by giving a notice to the society. A shareholder, on the other hand, cannot demand back his capital from the company until it’s winding up.

Question 6. How is a partnership firm different from a sole proprietorship? Answer:  The difference between a partnership and sole proprietorship form of business may be as follows. This helps the entrepreneur in selecting form of business of his choice.

• Membership: Partnership is owned by two or more persons subject to the limit ten in banking business and twenty in case of other business. Sole proprietorship is owned by one and only one person.
• Formation: It is formed through an agreement which may be oral or in writing, is formed quite easily as it is the outcome of a single person’s decision without any legal administrative approval.
• Registration: The registration is not compulsory. It needs no registration except some compliance.
• Regulating law: It is governed by the rules contained under the Indian Partnership Act, 1932. There is no specific statutory law to govern the functioning of sole proprietors business.
• Capital: There is more scope for raising a larger amount of capital as there are more than one person. It has a limited financial capability. Hence, the scope for rising capital is naturally least.
• Quickness in decision-making: Decision-making in partnership is corporately delayed as the partners arrive at decision after consultation with one another. The decision of the sole proprietor is prompt as he need not consult anyone.
• Maintenance of secrecy: Maintenance of absolute secrecy is not possible if partnership as business secrets are accessible to more than one partners. The sole proprietor need not share his business secrets with anybody.
• Management: Every partner has the right to take active part in the management of the business. Each partner also enjoys the authority to bind the firm and other partners for his acts in the ordinary course of business. The sole proprietorship is self-managed one and a few employees may support him. However, the decision of the proprietor is final and binding. (i) Risk: The risk connected with the business is comparatively less as it is shared by all the partners. The risk of the sole proprietor is greater than that of partnership form of business. (j) Duration: It continues as long as the partners desire. Even though legally it comes to an end on the death, insolvency or retirement of any of the partners, the business is continue with the remaining partners. It comes to an end with the death, insolvency incapacity of the proprietor. Thus, there is uncertainty of duration of sole proprietorship

V. Value Based Questions Question 1. From social welfare point of view, which type of organization is most desirable from employment generation point of view? Answer:  Sole Proprietorship is most desirable from employment generation point of view because it is done at a small scale and small scale labour intensive methods are used. It will create more employment opportunities.

Question 2. Which value is of utmost importance when partnership form of business is used? Answer:  Maintaining trust and confidentiality of information is of utmost importance in a partnership business. It is also important to use mutual agency in utmost good faith keeping in mind the interests of all partners.

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Forms of Business Organisation Class 11 Important Extra Questions Business Studies Chapter 2

February 12, 2021 by Prasanna

Here we are providing Business Studies Class 11 Important Extra Questions and Answers Chapter 2 Forms of Business Organisation. Business Studies Class 11 Important Questions with Answers are the best resource for students which helps in class 11 board exams.

Class 11 Business Studies Chapter 2 Important Extra Questions Forms of Business Organisation

Forms of business organisation important extra questions short answer type.

Question 1. Differentiate sole proprietorship and partnership form of business. Answer: Difference between Partnership and Sole Trader:

l. Specific Act	It is governed by Partnership Act 1932.	There is no specific Act.
2. Number of Member	The minimum number of partners is two and the maximum number in the case of banking business is ten and in other business is twenty.	It is owned and carried on by only one person. He may employ other persons or take help from the members of his family.
3. Agreement	It arises only by agreement among partners.	No agreement is required in a sole proprietorship.
4. Distribution of profit	Profit is shared among partners.	The entire profit is enjoyed by the proprietor alone.
5. Capital	It has got more capital because there are more members.	It has limited capital because the capital is contributed by one person only.
6. Secrecy	In a partnership business, secrets are open to each partner.	Business secrecy is maintained.
7. Personal touch	It does not have a personal touch as much as the sole trader has with his customers.	It is located amidst consumers, so it has personal contact and touch with them.

Question 2. What is partnership deed and mention in brief the provisions contained in partnership deep? Answer: Partnership Deed: A partnership agreement contains the terms and conditions relating to partnership and the rules and regulations governing its management. It may be oral or in writing. A written agreement of partnership is called ‘Deed of Partnership’. A partnership deed contains all the details on which partnership has been formed. These terms and conditions are also known as articles of partnership.

A partnership deed usually contains the following details:

• The names and addresses of the partnership firm and its partners.
• The nature of the business proposed to be carried on by the firm.
• The duration of the partnership.
• The amount of capital contributed by each partner.
• The rate of interest payable to partners on their capital or to be paid by partners on the amount drawn by them.
• The mode of maintaining accounts and operation of the bank account.
• Rights and duties of the partners for the management of the business of the firm.
• The ratio in which profits will be shared by the partners.
• The amount of salary and/or commission payable to the partners
• Arbitration clause for settlement of disputes between the partners,
• Mode of dissolution and settlement of accounts.

Question 3. What are the advantages and disadvantages of employment of Paid Assistant insole proprietorship business? Answer: Employment of Paid Assistant When the sole proprietor employs a paid assistant, he has the following advantages and disadvantages –

Advantages: (a) Division of work: A specialist assistant can be appointed whose expertise can be used for the benefit of the business. By delegating some of the work, the proprietor can concentrate on more important matters.

(b) No share in profits: The assistant is not entitled to any share in the profits of the firm. He gets a fixed salary which is an expense of the business. The assistant is not given a share in the profits.

(c) Complete control: The paid assistant has no right to interfere in the decision making. Therefore, the proprietor has full control over the affairs of the business.

(d) Independent decision: The proprietor can take decisions independently without consulting the assistant. There is no interference from the assistant.

(e) Easy to dismiss: The proprietor can terminate the services of the assistant as and widen he likes.

Disadvantages: (a) Lack of motivation: The assistant does not have sufficient incentive to work hard unless he is given a share in the profits. Therefore, he may not be as sincere and careful as the proprietor himself,

(b) Lack of sharing right: The employee is not responsible for the losses incurred in the business. The risk of failure has to be borne by the proprietor himself. The monthly salary of a paid assistant is assured as long as he remains in business.

(c) Problem of capital: Appointing a paid assistant does not solve the problem of finance. The employee does not bring any capital with him.

(d) Disclosure of secrets: The business is, in a way, at the mercy of the paid assistant. He may leak out trade secrets to competitors or join them. He may quit his job and set up his own business in competition.

Question 4. What are the advantages and disadvantages of admitting a partner in a sole proprietorship form of business? Answer: Admission of a Partner: By taking one or more partners, the proprietor obtains the following benefits and drawbacks –

Advantages: (a) Availability of additional capital: The new partner brings some capital into the business. This strengthens the financial position of the business.

(b) Division of work: Work can be divided between the original proprietor and the partner on the basis of knowledge and skills. There is the pooling of judgment and experience. This will improve the efficiency of the business.

(c) Motivation: A partner gets a share in profits and, therefore, has an incentive to work hard for the success of the business. Admission of partners also increases the goodwill and borrowing capacity of the firm.

(d) Reduced risk: Each partner shares the loss and liability of a business. As a result, the risk of the sole proprietor is reduced.

(e) Economy of costs: No wage or salary is to be paid to the partner. Therefore, the cost of management is comparatively low.

Disadvantages: (a) Profit-sharing: The proprietor has to share the profits with the partner.

(b) Dilution of freedom: Every partner has a right to be consulted. The proprietor cannot take decisions independently without consulting his partner. Freedom of action and complete control of one individual in the decision: making are lost. As a result, there may be delays in taking decisions.

(c) Lack of stability: By taking a partner the continuity of business is endangered. Lunacy, insolvency or death of one partner may terminate the partnership.

(d) Difficulty in removing partner: A partner cannot be pushed out from the business without the consent of all the other partners. The capital is blocked as a partner cannot withdraw his capital or transfer his interest to outsiders without the approval of the other partners.

(e) Source of disputes: When the partners are unable to take decisions unanimously, conflicts may develop between the partners.

(f) Risk of dishonesty: If a partner is not fair and honest in dealings, the risk of the business may increase manifold.

Question 5. Explain the difference between a private limited company and a public limited company form of business. Answer: Difference Between Private Company And Public Company:

1. Number of Members	Minimum – 2, Maximum – 50	Minimum – 7, Maximum As large as paid-up shares divided by the share lot.
2. Articles of association	It must prepare its own articles of association.	It may adopt Table A given, in the Companies Act
3. Minimum no. of Directors	Minimum -2	Minimum – 3
4. Use of the word ‘Limited’	Use the word ‘Private Limited’ after its name.	Use only the word ‘Limited after its name.
5. Commencement of Business	Can commence business immediately after Incorporation.	Can commence business only after complying with certain statutory’ formalities and obtaining the ‘Certificate to Commence Business.
6. Issue of Shares and Debentures	Prohibited from inviting the public to subscribe to its shares and debentures.	Can issue its shares and debentures to the general public.
7. Issue of Prospectus	Not required to issue a prospectus. Can proceed to allot after incorporation.	It must issue a prospectus or statement in lieu of a prospectus. Can proceed to allot shares only after compliance with certain statutory formalities.
8. Transferability of Shares	Restricted by the Articles of associations.	Shares are freely transferable.
9. Share Certificates	Cannot issue share warrants or share certificates.	Can do so.
10. Statutory Meeting	Not required to bold such a meeting.	Required to hold such a meeting and submit a statutory report to the Registrar of Companies.
11. Qualification Shares	Not prescribed for the directors.	Prescribed as a stipulation to become a director.
12. Filling of Documents	Need not send the list of directors and their consent to act as directors to the Registrar.	Must send the list of directors and their consent to act as directors to the Registrar.

Question 6. What is the difference between a Joint Stock Company and a Cooperative Society? Explain. Answer: Difference between Joint Stock Company and Cooperative:

1. Formation	Companies are formed under the Companies Act. 1956.	It is formed under the Cooperative Societies Act, 1912 in general.
2. Number of Members	There must be at least 2 members in Private and 7 in Public company. The maximum number in the case of a Private company is fifty and unlimited in the case of a Public company.	There should be at least ten members to form a cooperative. The maximum number is unlimited, as many as the number of shares.
3. Objective	The profit motive is the main objective.	Service motive is the main objective.
4. Liability	The maximum liability of its shareholders is limited to the face value of shares held by them	The liability of its members may’ be both limited and unlimited.
5. Transfer of shares	The shares of the public company are transferable.	Shares are not transferable but can be returned to society.
6. Voting rights	One share one vote is the principle regarding voting rights of the company.	One member one vote
7. Distribution of profits	A dividend is distributed on the basis of shares held by the shareholders.	The dividend is distributed on an equitable basis i.e. equal to all members irrespective of the number of shares held by them.
8. Return of capital	No member can demand back his capital except at the time of winding up.	A member can demand his capital during the Lifetime of the society.
9. Privileges	No special exemption except in the case of a Private Company.	Special exemptions by the government.

Question 7. Explain in brief the merits or advantages of a joint-stock company. Answer: Merits/Advantages of Joint Stock Company: A joint-stock company form of business organization is based on the following advantages – 1. Permanent existence: The life of the company is permanent, ft is not affected by the death, incapability, lunacy, and insolvency of the shareholders. It has a separate legal entity. The ownership and the management of the company change smoothly without the dissolution of the company.

2. Limited liability: The liability of a shareholder is limited to the face value of shares held by him. The personal assets of the shareholders cannot be attached, even if the company is unable to meet the claims of outsiders.

3. Availability of large capital: The capital of the company is contributed by its shareholders, whose number is unlimited as much as the company requires. Different types of securities can be issued to mobilize funds from different kinds of investors.

4. Transferability of shares: The shares of the company are listed on the stock exchange so that member can easily sell their shares. These special features also ensure that the company will not be required ‘to refund the capital. The shares of the company are purchased and sold in the stock exchange in the open market.

5. Economies of large scale: The company form of a business organization provides tremendous scope for growth and expansion. urge capital facilitates. This is why the company enjoys internal and external economies of large scale enterprise.

6. Tax relief: Tax law s offer certain developmental rebates and concessions on certain commodities of export promotion and for the establishment of industries in backward regions. The company is charged income tax at the Hat rate. As such the tax liability on higher-income is comparatively lower.

7. Diffused risk: The risk of business is shared among innumerable shareholders, so every shareholder has to bear the nominal risk. This is not the case in proprietorship and partnership, where the loss has to be borne by the individual proprietor and a limited number of partners of a firm individually or collectively.

Question 8. Mention in brief the main features of sole: proprietorship. Answer: Features of Sole Proprietorship: The salient features or characteristics of sole proprietorship form of organization are discussed below:

1. Single Ownership: A sole proprietorship is wholly owned by an individual. It is run entirely at his risk of loss. The sole trader provides both capital and management to the business from his own resources or borrowed funds.

2. Common Identity: A sole trader ship concern has no separate 1 legal entity independent of the owner. The owner and business exist together. Thus, there is no difference between the sole trader and his business.

3. Capital: Insole tradership, the capital is employed by the owner himself from his personal resources. He may also borrow money from his friends and relatives for investment in the business.

4. Unlimited Liability: The proprietor is personally liable for all the debts of the business. The creditors have the right to recover their dues even from the personal property of the proprietor in case the business assets are not sufficient to pay the debts.

5. Management and Control: Sole leadership is a one-man show. The sole trader provides management to the business. He takes all the decisions, procures materials and other resources, employs workers, and directs and controls the affairs of the enterprise. He is not required to consult anyone else in taking any decision. The sole trader may delegate some of his authority to his employees, but the ultimate authority to manage and control rests with him.

6. No Profit Sharing: The sole proprietor alone is entitled to all the profits and losses of a business. He bears the complete risk and there is nobody to share the profits or losses.

(vii) No Legal Formalities: No legal formalities are required to start, manage and dissolve this type of business. Only a license is necessary for certain business-like chemist shops etc.

Question 9. Explain the meaning and important features of the Joint Hindu Family business. Answer: Meaning of Joint Hindu Family (JHF) The Joint Hindu Family firm is a form of business organization in which the family possesses some inherited property and the ‘Karta’, the head of the family, manages its affairs. It comes into existence by the operation of Hindu Law and not out of a contract between the members or coparcener. If the persons who have coparcenary interest in the ancestral property canyon business, k is a case of Joint Hindu Family firm. Thus, the Joint Hindu Family Business is a business by a coparcener of a Hindu undivided estate.

The Joint Hindu Family Business may be defined as a form of business organization in which all the male members of a Hindu undivided family carries on business under the management and control by the head of the family called ‘Karta’. The property is managed and held by the senior male member of the father as the Head of the Family, technically known as Karta’.

In Hindu law, a family business is taken as a part and parcel of the inheritable property, and therefore’, the family business becomes the subject matter of coparcenary interest. The rights and liabilities, of coparcener, are determined by the general rules of the Hindu Law. It should be noted that a joint family firm is created by the operation of law and does not arise out of a contract between the coparceners.

Features of Joint Hindu Family Firm: The Joint Hindu Family Firm possesses the following features – 1. Status: The membership of the family business is the result of / status arising from birth in the family. There is no question of the members being discriminated against in terms of minority and majority on the basis of age.

2. Male Members: Only male persons of the family can claim coparcenary’s interest in the Joint Hindu Family business firm. The male child becomes copartners immediately on his birth.:

3. Karta: The right to manage the business vests in Karta alone. He has the legal right to obtain loans through a mortgage, etc. for the purpose of the business. Other members have neither any right to manage the affairs of the business nor any right to take loans on the mortgage of business property.

4. Liability: The liability of Karta is unlimited and that of other members of the family is limited to the extent of their share in the property.

5. No need for Registration: The activities of a Joint Hindu Family business are governed by Hindu Law. But the law does not require any registration of the business.

Forms of Business Organisation Important Extra Questions Long Answer Type

Question 1. Explain the important characteristics and differentiate between the various types of business enterprises. Answer: Characteristics of Business Enterprises: The main characteristics of various types of business enterprises are given below – 1. Public Sector Enterprises: Public enterprises or public sector enterprises are those enterprises that are owned and operated by the government. The capital of such enterprise is contributed by the central government, state government, or the local government.

Their characteristics are as follows: (a) State ownership: Public enterprises are owned by the government. Even where private entrepreneurs are permitted to invest capital, more than 50 percent of capital is in government hands.

(b) Government control: The management and control of public enterprise exclusively risk with the government. Parliamentary control is exercised over public enterprises.

(c) Service motive: The public welfare or service is the main objective of public enterprise though it may also earn profits. There is usually benevolent management in public enterprises.

(d) Public accountability: The capital of public enterprise is supplied from the public exchequer or government department in charge of public money. Therefore, public enterprises are accountable to the general public.

2. Private Sector Enterprises: The characteristics of private sector enterprises are as follows: (a) Private ownership: It is owned and managed by a private enterprise or group of individuals. The entire share capital is provided by these businessmen.

(b) No state participation: There is no participation by the Central or state governments in the establishment and ownership of a private-sector enterprise.

(c) Independent management: The management and control of a private-sector enterprise are vested in the hands of one or more private businessmen.

Management is accountable to the owners (their elected representatives). There is no interference by the government in internal management.

(d) Profit motive: The main object of a private-sector enterprise is to earn profits rather than to render service to society.

3. Joint Sector Enterprises: The characteristics of joint sector enterprises are as follows: (a) Mixed ownership: The government, private entrepreneurs, and the investing public jointly own a joint sector enterprise.

(b) Combined management: The management and control of a joint sector enterprise lie with the nominees or representatives of the government, private businessmen, and the public.

(c) Share capital: The shares of the government, private businessmen and the public in the capital are 26 percent, 25 percent, and 49 percent, respectively. The aim is to pool the financial resources and technical knowledge how of the state and the private individuals.

Comparison Between Private, Public, And Joint Sector Enterprises:

1. Ownership	Government-owned	Private persons	Government and private both
2. Management	By government officials	By private owners or professional managers	Both government and private individuals
3. Capital	51 percent or more by the government	By private investors	Government and private both
4. Purpose	Service to the society	Barning profits	Profit and social objectives
5. Government control	Control by Parliament	No strict control by Parliament	Mayor may not be
6. Audit	By Comptroller and Auditor General. Compulsory in all cases	By practicing chartered accountants. Not compulsory in all cases	By qualified auditors
7. Accountability	To the public	To the owner authority	To both government and private

Question 2. What is the scope of setting small business and also give reasons for considerable scope of setting small scale businesses in our country? Answer: Scope of setting up small business enterprises: There is considerable scope for setting up small scale units due to the following reasons –

1. Limited Demand: The demand for certain products is local and seasonal. In such cases, it is not economical to attempt a scale of operation which exceeds local demands. Brick kilns, hair: cutting saloons, restaurants, etc. are examples of such cases. In the case of perishable goods also, the size of firms tends to be small. In certain cases, the nature of the production process favors small units.

2. Specialised Service: When an enterprise supplies specialized services, small scale firms are more suitable. Beauty parlors, interior decorators, and tailoring shops are examples of this type. A small firm can understand its customers and can provide personal attention which may not be possible in a large-scale enterprise. Similarly, firms providing professional services like eye clinic, tax consultancy, chartered accountancy, etc. are also organized as a small scale because they must maintain, personal touch with their clients. Thus, small firms are required to cater to individual tastes and fashions and to render personalized services to consumers.

3. Flexibility: Certain businesses are subject to wide variations in demand, e.g. manufacture of jewelry, ready: made garments, etc. In such cases, greater flexibility of operations is required. Small firms can be more flexible due to simple technology and low overheads. They are capable of being adapted to changing tastes and fashions. They can easily make changes in products and can shift to new lines of business whenever the need arises. Therefore, small firms are more suitable for manufacturing and selling specialty items that may be popular for only a short period of time.

4. Employee relations: When close rapport with employees is essential to provide high-quality products to the customers, small scale unit is in a better position. The owners, also the managers of such business have the most valuable advantage of being close to the employees. They know better their problems and can take necessary remedial measures quickly and efficiently.

5. Introduction of New Products: Before starting the production of a new product on a commercial scale, it is always desirable to test it in the market. In the initial stages, the requirements of customers and management are uncertain and unknown. Therefore, operations are usually carried on a small scale when new products or ideas are being introduced in the market. This also helps to reduce the risk.

6. Direct Motivation: Small scale enterprises foster individual initiative and skill. The identity of ownership and management serves to curb misconduct as mistakes bear directly on one’s property and income. There is maximum incentive to put the resources to best use because the resulting gains accrue directly to the owner. Red: tapis is absent and prompt decisions are possible.

7. Human Inertia: Many businessmen do not want to expand their business due to fear of loss of freedom. Growth may involve more work and worry. People who want to lead a comfortable and simple life may be satisfied with the small scale of business.

8. Shield to Big Business Many small firms serve as ancillary units or feeders to large firms. Such units also provide a training ground for entrepreneurs. Small firms also provide some guarantee against the emergence of new competition. A threat to the big firms. They provide superficial evidence that monopoly does not exist in the industry.

9. Social Utility: Small scale industries are helpful in generating self: employment for a large number of persons. These industries are also useful in preventing the concentration of income and wealth. They facilitate the economic development of rural and backward areas. Small firms use local resources and their social cost is comparatively low.

10. State Assistance and Patronage: Small scale industries get several concessions from the government on account of their social benefits. The government provides then loans on concessional rates of interest. Technical, managerial, and marketing assistance is also provided. The government has reserved several products for exclusive production in the small scale sector. Several institutions have been set up to protect and promote the growth of small scale industries in the country.

Question 3. Discuss the main types of partners. Answer: A partnership firm can have different types of partners with different roles and liabilities. There can be the following types of partners:

• Active Partner
• Sleeping or Dormant Partner
• Secret Partner
• Nominal Partner
• Partner by estoppel
• Partner by holding out
• Minor Partner

1. Active Partner: Those partners who contribute capital and also takes an active part in the management of the firm are called active partners. These partners act as agents of the firm and have unlimited liability. All other partners are responsible for their deals.

2. Sleeping or dormant partner: Those partners who contribute capital only but do not take an active part in the affairs of the business are called sleeping partners. They have shared in the profit loss of the firm and also have unlimited liability. But they do not come face to face with the third party.

3. Secret Partner: This type of partner contributes capital and takes an active part in the management of the firm’s business. He shares in the profit and losses of the firm and has unlimited liability. However, his connection with the business of a partnership firm is not known to the outside world.

4. Nominal Partner: Those partners who neither invest money nor have shared in the profit and loss and also have no role in the administration of the firm. The firm makes them partners to gain from their personal goodwill. They have unlimited liability also.

5. Partner by estoppel: A person who by his words or conduct, represents himself as a partner becomes liable to those who advance money to the firm on the basis of such representation. He cannot avoid the consequences of his previous act.

6. Partner by holding out: When a person is declared as a partner and he does not deny this even after becoming aware of it, he becomes liable to third parties who lend money or credit to the firm on the basis of such a declaration.

7. Minor Partner: A minor is a person who has not completed 18 years of age. Minor may be admitted as a partner only for the benefits of the partnership with the mutual consent of all the partners. On being so admitted, a minor can impact and copy the books of accounts but could not take an active part in the management. His liability is limited to the intent of his share in the capital and profit of the firm.

Question 4. Explain the various types of partnerships. Answer: A partnership can be classified on the basis of two factors:

On the basis of duration, there can be two types of partnership:

• Partnership at will,
• Particular partnership

On the basis of liability, the two types of partnership are:

• Partnership with limited liability
• Partnership with unlimited liability.

On the basis of Duration: 1. Partnership at will: It is a partnership formed for an indefinite period. It can continue for any length at any time depending upon the will of the partners. It can be dissolved by any partner by giving notice to the other partners of his desire to quit the firm.

2. Particular Partnership: It is a partnership formed for a particular objective. It is formed fora specific time period or to achieve specified objectives. It is automatically dissolved on the expiry of the specified period or on the completion of the specific purpose for which it was formed.

On the basis of liability: 1. Partnership with limited liability: In this type of partnership the liabilities of partners are limited to the amount of capital introduced by them except one partner who has unlimited liability. Registration of such a partnership is compulsory. The limited partner could not take an active part in the firm’s management and their acts also do not bind the firm or other partners.

2. Partnership with unlimited liability: This is also called a general partnership. In this liability of the partner is unlimited and joint. They 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 this type of firm is optional. Because of unlimited liability, the firm’s creditors can realize these dues in full from any of the partners by attaching their personal property if the firm’s assets are found to be inadequate to pay off its debts.

Test: Forms of Business Organisation- Case Based Type Questions - Commerce MCQ

12 questions mcq test - test: forms of business organisation- case based type questions, direction: manish is a student pursuing final year b.tech. from iit kharagpur. his father mr. sambal singh who owned a small general store in jaipur had a heart attack and became completely paralysed. there was no other source of income for the family, so, manish left his studies and decided to take charge of his father’s general store. while checking the books of accounts, he found that his father had taken a loan of ₹ 2 lakhs from bank of baroda to be repaid this year only, but the business is running into losses due to his father’s illness. hence, his mother advised him to close the business and to look for a job outside. on the basis of the given case, answer the following questions: q. the form of business organisation formed by sambal singh is:.

• A. Joint Stock Company
• B. Partnership
• C. Sole Proprietorship
• D. Co-operative Society

Direction: Manish is a student pursuing final year B.Tech. from IIT Kharagpur. His father Mr. Sambal Singh who owned a small general store in Jaipur had a heart attack and became completely paralysed. There was no other source of income for the family, so, Manish left his studies and decided to take charge of his father’s general store. While checking the books of accounts, he found that his father had taken a loan of ₹ 2 lakhs from Bank of Baroda to be repaid this year only, but the business is running into losses due to his father’s illness. Hence, his mother advised him to close the business and to look for a job outside. On the basis of the given case, answer the following questions: Q. Which of the following shows a merit and a demerit of the type of business organisation mentioned in the above case?

• A. Secrecy, Limited liability
• B. Sole recipient of profits and no diffusion of risk
• C. Secrecy and direct incentive
• D. Limited resources and unlimited liability

Sole proprietorship 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. This is evident from the term itself. The word “sole” implies “only”, and “proprietor” refers to “owner”.

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Direction: Manish is a student pursuing final year B.Tech. from IIT Kharagpur. His father Mr. Sambal Singh who owned a small general store in Jaipur had a heart attack and became completely paralysed. There was no other source of income for the family, so, Manish left his studies and decided to take charge of his father’s general store. While checking the books of accounts, he found that his father had taken a loan of ₹ 2 lakhs from Bank of Baroda to be repaid this year only, but the business is running into losses due to his father’s illness. Hence, his mother advised him to close the business and to look for a job outside. On the basis of the given case, answer the following questions: Q. ”Loan of ₹ 2 lakhs from Bank of Baroda to be repaid this year only, but the business is running into losses.” Identify the nature of liability of the owner in the stated line.

• B. Unlimited
• C. No liability
• D. Partial liability

Direction: Manish is a student pursuing final year B.Tech. from IIT Kharagpur. His father Mr. Sambal Singh who owned a small general store in Jaipur had a heart attack and became completely paralysed. There was no other source of income for the family, so, Manish left his studies and decided to take charge of his father’s general store. While checking the books of accounts, he found that his father had taken a loan of ₹ 2 lakhs from Bank of Baroda to be repaid this year only, but the business is running into losses due to his father’s illness. Hence, his mother advised him to close the business and to look for a job outside. On the basis of the given case, answer the following questions:

Q. ” ....decided to take charge of his father ’s general store.” As per the stated line, what will be the status that Manish holds in the business of his father?

• B. Employee

Direction: Read the following text and answer the questions on the basis of the same:

Madhu, Himanshu and Mayank, after completing B.E. in civil engineering, have jointly taken a project of constructing three government school buildings in a village near Agra within the time period of 6 months. As per the written agreement between them, only Madhu and Mayank will contribute the capital, and take all managerial decisions, whereas Himanshu will contribute capital only but will not be actively involved in management.

Q. What type of a partner Himanshu is?

Q. If the partners are not able to complete the project effectively and efficiently, then who will be held liable for the losses incurred on account of noncompletion of project?

• B. Himanshu
• C. Madhu and Mayank
• D. All of these

Q. Specify the kind of partnership mentioned in the above case.

• A. Limited partnership
• B. Particular partnership
• C. Partnership at will
• D. General partnership

Q. Name the written agreement which defines the terms and conditions of such partnership.

• C. Partnership deed
• D. Partnership registration

Ramkrishan Agrawal is running a Jewellery showroom at a prime location in Jaipur, which he inherited from his father. His joint family consists of his three sons and a younger brother, who are also working in the same showroom. Being head of the family, Ramkrishna takes all the decisions of business, which sometimes causes conflicts among the members. He decided to open one more branch, and the business took a loan of ` 1 crore from Syndicate Bank for three years. But opening of the new branch proved to be a wrong decision and the business suffered heavy losses. Due to financial crises, Ramkrishna had to pay a part of the loan amount from his self-acquired property.

Q. Which form of a business organisation does the above case indicate?

• A. Partnership
• B. Sole Proprietorship
• C. Joint Stock Company
• D. Joint Hindu Family Business

Joint Hindu Family Business: It refers to a form of business organization which is owned and carried on jointly by the members of the Hindu Undivided Family (HUF). It is also known as Hindu Undivided Family Business.

Q. ”Due to financial crises, Ramkrishna had to pay a part of the loan amount from his self-acquired property.” Identify the reason which made him use his personal property to repay the loan.

• A. Unlimited liability of Karta
• B. Unlimited liability of Coparceners
• C. Loan is taken in Karta’s name
• D. Coparceners not ready to sell ancestral property

Q. ”Ramkrishna takes all the decisions of business, which sometimes causes conflicts among the members.” Identify the demerit of the type of business stated here.

• A. Dominance of Karta
• B. Limited managerial skills
• C. Lack of loyalty
• D. Effective control

Dominance of Karta: The karta individually manages the business and takes all the decisions which may at times not be acceptable to other.

Q. ”But opening of new branch proved to be a wrong decision and the business suffered heavy losses.” Which of the following reasons best suits the given statement?

• A. Control by Karta
• B. Limited managerial skills of Karta
• C. Dominance by Karta
• D. Limited liability of coparceners

Management skills are a collection of abilities that include things such as business planning, decision-making, problem-solving, communication, delegation, and time management. While different roles and organizations require the use of various skill sets, management skills help a professional stand out and excel no matter what their level. In top management, these skills are essential to run an organization well and achieve desired business objectives.

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Important Questions for Forms of Business Organisation- Case Based Type Questions

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Blog Beginner Guides 6 Types of Case Studies to Inspire Your Research and Analysis

6 Types of Case Studies to Inspire Your Research and Analysis

Written by: Ronita Mohan Sep 20, 2021

Case studies have become powerful business tools. But what is a case study? What are the benefits of creating one? Are there limitations to the format?

If you’ve asked yourself these questions, our helpful guide will clear things up. Learn how to use a case study for business. Find out how cases analysis works in psychology and research.

We’ve also got examples of case studies to inspire you.

Haven’t made a case study before? You can easily  create a case study  with Venngage’s customizable case study templates .

Click to jump ahead:

What is a case study?

6 types of case studies, what is a business case study, what is a case study in research, what is a case study in psychology, what is the case study method, benefits of case studies, limitations of case studies, faqs about case studies.

A case study is a research process aimed at learning about a subject, an event or an organization. Case studies are use in business, the social sciences and healthcare.

A case study may focus on one observation or many. It can also examine a series of events or a single case. An effective case study tells a story and provides a conclusion.

Healthcare industries write reports on patients and diagnoses. Marketing case study examples , like the one below, highlight the benefits of a business product.

Now that you know what a case study is, let’s look at the six different types of case studies next.

There are six common types of case reports. Depending on your industry, you might use one of these types.

Descriptive case studies

Explanatory case studies, exploratory case reports, intrinsic case studies, instrumental case studies, collective case reports.

We go into more detail about each type of study in the guide below.

Related:  15+ Professional Case Study Examples [Design Tips + Templates]

When you have an existing hypothesis, you can design a descriptive study. This type of report starts with a description. The aim is to find connections between the subject being studied and a theory.

Once these connections are found, the study can conclude. The results of this type of study will usually suggest how to develop a theory further.

A study like the one below has concrete results. A descriptive report would use the quantitative data as a suggestion for researching the subject deeply.

When an incident occurs in a field, an explanation is required. An explanatory report investigates the cause of the event. It will include explanations for that cause.

The study will also share details about the impact of the event. In most cases, this report will use evidence to predict future occurrences. The results of explanatory reports are definitive.

Note that there is no room for interpretation here. The results are absolute.

The study below is a good example. It explains how one brand used the services of another. It concludes by showing definitive proof that the collaboration was successful.

Another example of this study would be in the automotive industry. If a vehicle fails a test, an explanatory study will examine why. The results could show that the failure was because of a particular part.

Related: How to Write a Case Study [+ Design Tips]

An explanatory report is a self-contained document. An exploratory one is only the beginning of an investigation.

Exploratory cases act as the starting point of studies. This is usually conducted as a precursor to large-scale investigations. The research is used to suggest why further investigations are needed.

An exploratory study can also be used to suggest methods for further examination.

For example, the below analysis could have found inconclusive results. In that situation, it would be the basis for an in-depth study.

Intrinsic studies are more common in the field of psychology. These reports can also be conducted in healthcare or social work.

These types of studies focus on a unique subject, such as a patient. They can sometimes study groups close to the researcher.

The aim of such studies is to understand the subject better. This requires learning their history. The researcher will also examine how they interact with their environment.

For instance, if the case study below was about a unique brand, it could be an intrinsic study.

Once the study is complete, the researcher will have developed a better understanding of a phenomenon. This phenomenon will likely not have been studied or theorized about before.

Examples of intrinsic case analysis can be found across psychology. For example, Jean Piaget’s theories on cognitive development. He established the theory from intrinsic studies into his own children.

Related: What Disney Villains Can Tell Us About Color Psychology [Infographic]

This is another type of study seen in medical and psychology fields. Instrumental reports are created to examine more than just the primary subject.

When research is conducted for an instrumental study, it is to provide the basis for a larger phenomenon. The subject matter is usually the best example of the phenomenon. This is why it is being studied.

Take the example of the fictional brand below.

Assume it’s examining lead generation strategies. It may want to show that visual marketing is the definitive lead generation tool. The brand can conduct an instrumental case study to examine this phenomenon.

Collective studies are based on instrumental case reports. These types of studies examine multiple reports.

There are a number of reasons why collective reports are created:

• To provide evidence for starting a new study
• To find pattens between multiple instrumental reports
• To find differences in similar types of cases
• Gain a deeper understanding of a complex phenomenon
• Understand a phenomenon from diverse contexts

A researcher could use multiple reports, like the one below, to build a collective case report.

Related: 10+ Case Study Infographic Templates That Convert

A business or marketing case study aims at showcasing a successful partnership. This can be between a brand and a client. Or the case study can examine a brand’s project.

There is a perception that case studies are used to advertise a brand. But effective reports, like the one below, can show clients how a brand can support them.

Hubspot created a case study on a customer that successfully scaled its business. The report outlines the various Hubspot tools used to achieve these results.

Hubspot also added a video with testimonials from the client company’s employees.

So, what is the purpose of a case study for businesses? There is a lot of competition in the corporate world. Companies are run by people. They can be on the fence about which brand to work with.

Business reports  stand out aesthetically, as well. They use  brand colors  and brand fonts . Usually, a combination of the client’s and the brand’s.

With the Venngage  My Brand Kit  feature, businesses can automatically apply their brand to designs.

A business case study, like the one below, acts as social proof. This helps customers decide between your brand and your competitors.

Don’t know how to design a report? You can learn  how to write a case study  with Venngage’s guide. We also share design tips and examples that will help you convert.

Related: 55+ Annual Report Design Templates, Inspirational Examples & Tips [Updated]

Research is a necessary part of every case study. But specific research fields are required to create studies. These fields include user research, healthcare, education, or social work.

For example, this UX Design  report examined the public perception of a client. The brand researched and implemented new visuals to improve it. The study breaks down this research through lessons learned.

Clinical reports are a necessity in the medical field. These documents are used to share knowledge with other professionals. They also help examine new or unusual diseases or symptoms.

The pandemic has led to a significant increase in research. For example,  Spectrum Health  studied the value of health systems in the pandemic. They created the study by examining community outreach.

The pandemic has significantly impacted the field of education. This has led to numerous examinations on remote studying. There have also been studies on how students react to decreased peer communication.

Social work case reports often have a community focus. They can also examine public health responses. In certain regions, social workers study disaster responses.

You now know what case studies in various fields are. In the next step of our guide, we explain the case study method.

In the field of psychology, case studies focus on a particular subject. Psychology case histories also examine human behaviors.

Case reports search for commonalities between humans. They are also used to prescribe further research. Or these studies can elaborate on a solution for a behavioral ailment.

The American Psychology Association  has a number of case studies on real-life clients. Note how the reports are more text-heavy than a business case study.

Famous psychologists such as Sigmund Freud and Anna O popularised the use of case studies in the field. They did so by regularly interviewing subjects. Their detailed observations build the field of psychology.

It is important to note that psychological studies must be conducted by professionals. Psychologists, psychiatrists and therapists should be the researchers in these cases.

Related: What Netflix’s Top 50 Shows Can Teach Us About Font Psychology [Infographic]

The case study method, or case method, is a learning technique where you’re presented with a real-world business challenge and asked how you’d solve it.

After working through it independently and with peers, you learn how the actual scenario unfolded. This approach helps develop problem-solving skills and practical knowledge.

This method often uses various data sources like interviews, observations, and documents to provide comprehensive insights. The below example would have been created after numerous interviews.

Case studies are largely qualitative. They analyze and describe phenomena. While some data is included, a case analysis is not quantitative.

There are a few steps in the case method. You have to start by identifying the subject of your study. Then determine what kind of research is required.

In natural sciences, case studies can take years to complete. Business reports, like this one, don’t take that long. A few weeks of interviews should be enough.

The case method will vary depending on the industry. Reports will also look different once produced.

As you will have seen, business reports are more colorful. The design is also more accessible . Healthcare and psychology reports are more text-heavy.

Designing case reports takes time and energy. So, is it worth taking the time to write them? Here are the benefits of creating case studies.

• Collects large amounts of information
• Helps formulate hypotheses
• Builds the case for further research
• Discovers new insights into a subject
• Builds brand trust and loyalty
• Engages customers through stories

For example, the business study below creates a story around a brand partnership. It makes for engaging reading. The study also shows evidence backing up the information.

We’ve shared the benefits of why studies are needed. We will also look at the limitations of creating them.

Related: How to Present a Case Study like a Pro (With Examples)

There are a few disadvantages to conducting a case analysis. The limitations will vary according to the industry.

• Responses from interviews are subjective
• Subjects may tailor responses to the researcher
• Studies can’t always be replicated
• In certain industries, analyses can take time and be expensive
• Risk of generalizing the results among a larger population

These are some of the common weaknesses of creating case reports. If you’re on the fence, look at the competition in your industry.

Other brands or professionals are building reports, like this example. In that case, you may want to do the same.

What makes a case study a case study?

A case study has a very particular research methodology. They are an in-depth study of a person or a group of individuals. They can also study a community or an organization. Case reports examine real-world phenomena within a set context.

How long should a case study be?

The length of studies depends on the industry. It also depends on the story you’re telling. Most case studies should be at least 500-1500 words long. But you can increase the length if you have more details to share.

What should you ask in a case study?

The one thing you shouldn’t ask is ‘yes’ or ‘no’ questions. Case studies are qualitative. These questions won’t give you the information you need.

Ask your client about the problems they faced. Ask them about solutions they found. Or what they think is the ideal solution. Leave room to ask them follow-up questions. This will help build out the study.

How to present a case study?

When you’re ready to present a case study, begin by providing a summary of the problem or challenge you were addressing. Follow this with an outline of the solution you implemented, and support this with the results you achieved, backed by relevant data. Incorporate visual aids like slides, graphs, and images to make your case study presentation more engaging and impactful.

Now you know what a case study means, you can begin creating one. These reports are a great tool for analyzing brands. They are also useful in a variety of other fields.

Use a visual communication platform like Venngage to design case studies. With Venngage’s templates, you can design easily. Create branded, engaging reports, all without design experience.

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Business Studies for Class 11 Chapter 2 Forms of Business Organisation

Learn cbse business studies index terms for class 11, chapter 2 including definitions and meanings.

1. Sole Proprietorship – A sole proprietorship, otherwise called a sole tradership, individual business, or individual entrepreneurship or ownership, is a kind of a business enterprise owned and run by one individual and in which there is no lawful differentiation between the proprietor and the business entity.

2. Hindu Undivided Family Business – Hindu Undivided Family Business or Joint Hindu Family Business is a precise kind of business structure found only in India. This is one of the classical methods of business structure in the nation. It is administered by the Hindu Law. The source of membership in the company is birth in a family, and 3 consecutive generations can be members of the company.

3. Coparceners – Under the Hindu undivided family business, all the members hold equal ownership over the property of an ancestor, and they are called coparceners.

4. Dayabhaga – Under the Hindu undivided family business, the dayabhaga system prevails in West Bengal and Assam and allows both the male and female members of the family to be coparceners. A son gets the right to ancestral property only after the death of his father.

5. Mitakshara System – Under the Hindu undivided family business, the Mitakshara system prevails in most parts of India except West Bengal. There are four sub-schools – Benares, Mithila, Maharashtra or Mumbai, and Dravida or Madras school. The application of schools of Mitakshara is region­wise. It allows only male members to be coparceners in the business.

6. Karta – Under the Hindu undivided family business, the Karta is the person who is the head and eldest member of the family and is the person who has full control over business activities.

7. Partnership – A partnership is a plan where parties, known as business partners, consent to participate in propelling their common interests. The partners in a partnership may be people, organisations, interest-based organisations, schools, governments, or any combination.

8. Active Partner – A partner who contributes capital and also actively participates in the management and affairs of the business is called an active partner. The active partner shares the profits and losses of the business and has unlimited liability.

9. Sleeping or Dormant Partner – A partner who contributes capital but does not participate in the management and affairs of the business is called a sleeping or dormant partner. The sleeping partner shares the profits and losses of the business and has unlimited liability.

10. Secret Partner – A secret partner is an individual who does not disclose their identity to the public. Their partnership is kept secret. A secret partner’s name is not associated in any way with the business. This partner enjoys all the benefits of being in a partnership firm.

11. Nominal Partner – A nominal partner is an individual who lends their name to the business but is not involved in the business itself. A nominal partner does not enjoy the return earned from business by way of profits. In simple terms, a nominal partner is not entitled to any profits or any operations of the business but allows the partnership firm to utilise the partner’s name.

12. Partner by Estoppel – A partner by estoppel is a partner who, through their conduct or behaviour, gives an impression that they are a partner of a particular firm. Although such a person neither contributes capital nor participates in the management of the business, in the eyes of the third party, the individual is known as a partner of that firm. Hence, the partner too is liable for the debts of the firms.

13. Partner by Holding Out – A person who is not actually a partner of a firm but knowingly allows themselves to be represented as a partner of the firm is called a partner by holding out. Such a person can be held liable for the repayment of debt extended to the firm due to such representation. In order to avoid this liability, such a person should immediately clarify their position to the third party, stating the fact that the individual is not a partner. Failure to clarify the same would make the individual partner liable to the third party for repayment of any debts taken by the partnership firm.

14. Partnership at Will – Partnership at Will can be defined as when there is no clause mentioned about the expiration of a partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that have to be fulfilled by a firm to become a Partnership at Will are:

• The partnership agreement should have no fixed expiration date.
• No particular determination of the partnership should be mentioned.

Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership at will. Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond the mentioned date that it will be considered as a partnership at will.

15. Particular Partnership – A partnership or an association can be shaped for carrying on a continuing business, or it may be framed for one specific undertaking or project. In the event that the organisation is shaped exclusively to do one undertaking or to finish one project, such an association is known as a particular partnership.

After the culmination of the said activity or business venture, the association or partnership will be broken down or dissolved. Notwithstanding, the partners can come to a consent to proceed with the said association. In any case, without this, the partnership closes when the project or business venture is finished.

16. General Partnership – A general partnership comprises two or more owners to run a business. In this partnership, each partner represents the firm with equal rights. All partners can participate in management activities and decision-making, and have the right to control the business. Similarly, profits, debts, and liabilities are equally shared and divided equally.

In other words, the general partnership definition can be stated as those partnerships where rights and responsibilities are shared equally in terms of management and decision making. Each partner should take full responsibility for the debts and liability incurred by the other partner. If one partner is sued, all the other partners are considered accountable. The creditor or court will hold the partner’s personal assets. Therefore, most of the partners do not opt for this partnership.

17. Limited Partnership – A limited partnership includes both the general and limited partners. The general partner has unlimited liability and manages the business and the other limited partners. Limited partners have limited control over the business (limited to their investment). They are not associated with the everyday operations of the firm.

In most cases, the limited partners only invest and take a profit share. They do not have any interest in participating in management or decision-making. This non-involvement means they do not have the right to compensate the partnership losses from their income tax return.

18. Registration – Registration of a partnership firm means recording the name of the firm along with the relevant prescribed particulars of the partnership in the register of firms that the registrar holds. Registering the partnership firm with the registrar provides an unquestionable existence of the partnership firm. All the rights and responsibilities of each member are recorded in a document known as a Partnership Deed. This deed can be oral or written; however, an oral agreement is of no use when the firm has to deal with tax.

19. Partnership Deed – A partnership is a kind of business where a formal agreement between two or more people is made. They agree to be co-owners, distribute responsibilities for running an organisation and share the income or losses that the business generates. These features of partnerships are documented in a document which is known as a partnership deed.

In other words, a partnership deed is a partnership agreement between the partners of the firm which outlines the terms and conditions of the partnership between the partners. The purpose of a partnership deed is to provide a clear understanding of the roles of each partner, which ensures the smooth running of the operations of the firm.

20. Cooperative Society – A cooperative society is an independent association of people joined deliberately to meet their normal financial, cultural, and social requirements and goals through a mutually claimed venture. Cooperatives are equitably claimed by their members, with every member having one vote in choosing the directorate.

Cooperative societies are formed with the aim of helping their members. This type of business organisation is formed mainly by weaker sections of the society in order to prevent any type of exploitation from the economically stronger sections of the society.

Cooperative societies need to be registered under the Cooperative Societies Act, 1912 in order to function as a legal entity. Members of the society raise the capital within themselves.

21. Joint Stock Company – A joint-stock company is an organisation that is owned jointly by all its shareholders. Here, all the stakeholders have a specific portion of stock owned, usually displayed as a share.

Each joint-stock company share is transferable, and if the company is public, then its shares are marketed on registered stock exchanges. Private joint-stock company shares can be transferred from one party to another party. However, the transfer is limited by agreement and family members.

22. Private Company – As per Section 2 (68) of the Companies Act 2013, a private company means a company having a minimum paid-up capital of Rs.1 lakh or such higher paid-up capital as may be prescribed by its articles – i). restricts the right to transfer its shares; ii). limits the number of its members to 200 (excluding its employees); iii). prohibits any invitation to the public to subscribe for any shares or debentures of the company.

23. Public Company – A public company is defined as a company that offers a part of its ownership in the form of shares, debentures, bonds, and securities to the general public through the stock market. There must be at least seven members to form a public company. As per section 3 (1) (iv) of the Companies Act 1956, a public company means a company that is not a private company, has a minimum paid-up capital of Rs 5,00,000 or such higher paid-up capital, as may be prescribed, is a private company, being a subsidiary of a company which is not a private company.

A public company should not be mistakenly understood as a publicly-owned company, as the latter is exclusively owned and controlled by the government. A public company issues its share to the general public without any restriction on the maximum number of persons.

24. Mutual Agency – Mutual agency is the legal relationship between partners in a partnership where each partner has authorisation powers and the ability to enter the partnership into business contracts. In other words, each partner in the partnership is an agent in the business and has the authority to make business decisions that commit or bind the partnership, as a whole, to a business agreement with a third party or entity.

25. Perpetual Succession – In company law, perpetual succession is the continuation of a company’s/corporation’s or other organisation’s existence despite the death, retirement, bankruptcy, insolvency, insanity, change in membership, or an exit from the business of any owner or member, or any transfer of stock, etc.

26. Artificial Person – By the term artificial person, we mean that a company is created as a separate legal entity under the law and is a juristic person. However, unlike human beings, a company, as an artificial person, cannot breathe or talk, cannot sign its documents, and cannot negotiate with its customers. In contrast, like human beings, a company does have its own life that is truly independent of the life of its members. Hence, because of these dissimilarities and similarities, a company is regarded as an artificial person.

27. Incorporation of a Company – ‘Incorporation of a company’ means the company’s registration under the Companies Act, 1956. Steps to be followed for the registration of a company are as follows:

1. Application for registration: An application in the prescribed format, duly signed by all the partners, is to be submitted to the Registrar of Companies, containing the following information: (i) Name of the company, (ii) Location of the company, (iii) Memorandum of association, (iv) Articles of association, (v) Written consent of directors, (vi) Names and addresses of the directors, (vii) Statutory declaration announcing that all the information is accurate and all the requirements of the act have been duly fulfilled.

2. Fees: Required amount of fees is to be deposited with the Registrar of Companies.

3. Issuance of certificate: When the registrar is satisfied with all the formalities, he enters the company’s name in the register and issues a certificate of registration.

28. Holding Company – A holding company is a business entity that is typically a limited liability company (LLC) or a corporation. Commonly, a holding company manufactures nothing, sells any services or products, or conducts any other business tasks. Instead, holding companies hold the controlling stock in different organisations. A holding company is likewise called an “umbrella” or parent organisation.

However, a holding company claims the resources and assets of different organisations; it frequently keeps up with just oversight capacities. So while it might direct the organisation’s administration decisions, it doesn’t effectively take part in maintaining every day’s economic activity of these subsidiaries.

We hope that the offered Business Studies Index Terms for Class 11 with respect to Chapter 2: Forms of Business Organisations, will help you.

Related Links:

• Business Studies for Class 11 Chapter 1 Nature and Purpose of Business Index Terms
• Business Studies for Class 11 Chapter 3 Public, Private, and Global Enterprise
• Business Studies for Class 11 Chapter 4 Business Services
• Business Studies for Class 11 Chapter 5 Emerging Modes of Business
• Business Studies for Class 11 Chapter 6 Social Responsibility of Business and Business Ethics
• Business Studies for Class 11 Chapter 7 Formation of a Company
• Business Studies for Class 11 Chapter 8 Sources of Business Finance 
• Business Studies for Class 11 Chapter 9 MSME and Business Entrepreneurship
• Business Studies for Class 11 Chapter 10 Internal Trade 
• Business Studies for Class 11 Chapter 11 International Trade

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