PU1: Business Studies Chapter 2 Solutions

Chapter 2

Forms of Business Organization

One Mark Questions

1. Name any one form of Business Organization.

Ans. Sole proprietorship.

Also

2. Joint Hindu family business,

3. Partnership,

4. Cooperative societies, and

5. Joint stock company. (any one can be written)

2. Give the meaning of Sole Proprietorship.

Ans. 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.

3. Give an example for Sole Proprietorship.

Ans. Beauty parlours.

Also 1. hair salons and

2. small scale activities like running a retail shop in a locality. (any one can be written)

4. State the nature of liability of a Sole Proprietor.

Ans. Unlimited liability.

5. Name the form of business organization which is found only in India?

Ans. Joint Hindu family business

Hindu Undivided Family Business

(both are right)

6. In which country only do you find Hindu Undivided Family Business?

Ans. India

7. Which Law governs Hindu Undivided Family in India?

Ans. Hindu Law

Hindu succession Act,1956

(both should be written)

8. Give the meaning of Hindu Undivided Family (business)

Ans. Hindu Undivided Family business refers to a form of organisation wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF). It is governed by the

a. Hindu Law and

b. Hindu Succession Act, 1956.

9. Who is the head of Hindu Undivided Family Business?

Ans. The eldest member of the family also known as Karta

10. Who is Karta?

Ans. The Joint Hindu family business is controlled by the head of the family who is the eldest member of the family. He is called karta.

11. Who are co-parceners?

Ans. All other members of the Hindu Undivided Family (other than Karta) are called coparceners.

12. State the nature of liability of Karta.

Ans. Unlimited Liability.

13. State the nature of liability of co-parceners.

Ans. Limited Liability.

14. State the minimum number of persons required to set up a partnership.

Ans. 2

15. What is the maximum number of partners in a partnership firm carrying on banking

business?

Ans. 20 (not in text book)

16. Which Act governs partnership business in India?

Ans. Indian Partnership Act, 1932.

17. Who is a Minor Partner?

Ans. Minor partner is a person who is below 18 years old and has been admitted to the benefits of a partnership firm with the mutual consent of all other partners.

18. State any one consequence of Non-Registration of Partnership firm.

Ans. If a partnership firm does not get registered, it is deprived of many benefits. For example, A partner of an unregistered firm cannot file a suit against the firm or other partners.

Also

2. The firm cannot file a suit against third parties.

3. The firm cannot file a case against the partners.

(any one can be written)

19. State any one type of Partnership.

Ans. One type of partnership classified on the basis of duration is – Partnership at will

Also

2. partnership classified on the basis of duration – Particular partnership

3. partnership classified on the basis of liability – General partnership

4. partnership classified on the basis of liability – Limited partnership

(any one can be written)

20. Which Act governs Co-operative Societies in India?

Ans. Co-operative Societies Act 1912.

21. State the minimum number of persons required to form a co-operative society.

Ans. Minimum 10 adult persons are required to form a co-operative society.

22. State the nature of liability of the members of co-operative societies.

Ans. Limited liability.

23. State the main objective of co-operative societies.

Ans. The main objective of co-operative societies is the promotion of economic interests of its members in accordance with cooperative principles. (as defined in The Indian Cooperative Societies Act 1912.

24. State the voting principle in co-operative societies.

Ans. The voting principle in co-operative societies is ‘one man one vote’.

25. Mention any one type of co-operative societies.

Ans. Consumer’s cooperative societies

Also

2. Producer’s cooperative societies.

3. Marketing cooperative societies.

4. Farmer’s cooperative societies.

5. Credit cooperative societies.

6. Cooperative housing societies.

(any one can be written)

26. Which Act governs the Joint Stock Companies in India?

Ans. The Companies Act, 2013.

27. State any one type of Joint Stock Companies.

Ans. Private Company

Also

Public Company

(any one can be written)

28. Mention the minimum number of members in a private company.

Ans. 2 members

29. Mention the maximum number of members in a private company.

Ans. 200 members.

30. Mention the minimum number of members in a public company.

Ans. 7 members.

31. Mention the maximum number of members in a public company.

Ans. In a public company, there is no limit on the maximum number of members.

32. Name the type of company in which its shares are freely transferable.

Ans. In a Public Company , the shares are freely transferable.

33. Which type of company restricts the free transferability of its shares?

Ans. A private company restricts the free transferability of its shares.

34. State any one feature of public company.

Ans. A public company has a minimum of 7 members and no limit on maximum members.

Also

2. A public company has no restriction on transfer securities.

3. A public company is not prohibited from inviting the public to subscribe to its securities.

(any one can be written)

35. State any one feature of private company.

Ans. A private company restricts the right of members to transfer its shares.

Also

2. A private company has a minimum of 2 and a maximum of 200 members, excluding the present and past employees

3. A private company does not invite the public to subscribe to its securities.

4. uses the word private limited after its name.

(any one can be written)

36. State the minimum amount of capital required to form a public company.

Ans. A Public Company must have a minimum paid-up capital of Rs. 5,00,000. (Rs. 5 lakh) (not in text book)

37. State the minimum amount of capital required to form a private company.

Ans. The minimum amount of capital required to form a private company is Rs. 1,00,000. (Rs. 1 lakh). (not in text book)

Multiple choices One Mark Questions

1. Profits do not have to be shared. This statement referrers to

(a) Partnership

(b) Joint Hindu family business

(d) Company

Ans. (c) Sole Proprietorship

2. The Head of the Joint Hindu family business is called

(a) Proprietor

(b) Director

(d) Manager

Ans. (c) Karta

3. Karta in a Joint Hindu family business has

(a) Limited liability

(b) Unlimited liability

(d) Joint liability

Ans. (b) Unlimited liability

4. The maximum number of partners allowed in the banking business is

(a) Twenty

(b) Ten

(d) Two

Ans. (a) Twenty

5. A Partner whose association with the firm is unknown to the general public is called

(a) Active partner

(b) Sleeping partner

(d) Secret partner

Ans. (d) Secret partner

6. In a cooperative society the principle followed is

(a) One share one vote

(b) One man one vote

(d) Multiple votes

Ans. (b) One man one vote

7. Provision of residential accommodation to the members at reasonable rates is the

objective of

(a) Producers’ cooperative

(b) Consumers’ cooperative

(d) Credit cooperative

Ans. (c) Housing cooperative

8. The structure in which there is separation of ownership and management is called

(a) Sole proprietorship

(b) Partnership

(d) All the above business organizations

Ans. (c) Company

9. The capital of a company is divided into a number of parts each one of which is called

(a) Dividend

(b) Profit

(d) Share

Ans. (d) Share

10. Minimum numbers of members to form a private company is

(a) Two

(b) Three

(d) Seven

Ans. (a) Two

11. Minimum number of members to form a public company is

(a) Five

(b) Seven

(d) Twenty one

Ans. (b) Seven

12. Board of Directors in joint stock company is selected by

a) General Public

b) Government agencies

c) Shareholders

d) Employees

Ans. c) Shareholders

Two Marks Questions

1. State any two merits of Sole Proprietary Organization.

Ans. 1. Quick decision making.

2. Confidentiality of information.

Also

3. Direct incentive

4. Sense of accomplishment

5. Ease of formation and closure.

(any two can be written)

2. Specify any two demerits of Sole Proprietary Organization.

Ans. 1. Limited resources.

2. Limited life of a business concern.

Also

3. Unlimited liability of the sole proprietor.

4. Limited managerial ability.

(any two can be written)

3. Give the meaning of Hindu Undivided Family business.

Ans. Hindu Undivided Family business refers to a form of organisation wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF). It is one of the oldest forms of business organisation and is found only in India.

4. State any two features of Hindu Undivided Family business.

Ans. Following are the features of the Hindu Undivided family(HUF) business

1. Formation - There should be at least two members in the family and ancestral property to be inherited by them.

2. Liability- The karta has unlimited liability. All other members (co-parceners) liability is limited to their share of co-parcenery property of the business.

Also

3. Control- The control of the family business lies with the karta.

4. Continuity - The business continues even after the death of the karta as the next eldest member takes up the position of karta.

5. Minor members - Minors can also be members of the business as the basis of membership in the business is birth in a particular family.

( any two can be written)

5. Define Partnership.

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

6. State the minimum and maximum number of partners in a partnership firm.

Ans.

7. Who is an Active Partner?

Ans. An active partner is one who

a. contributes capital,

b. participates in the management of the firm,

c. shares its profits and losses, and

d. is liable to an unlimited extent to the creditors of the firm.

8. Who is a Sleeping Partner?

Ans. A sleeping partner (or dormant partner) is one who

a. contributes capital to the firm,

b. shares its profits and losses,and

c. has unlimited liability.

d. but he does not take part in the day to day activities of the business.

9. Who is a Nominal Partner?

Ans. A nominal partner is one who

a. does not contribute to its capital.

b. does not take active part in managing the firm

c. does not share its profit or losses

d. but allows the use of his/her name by the firm, and so is liable, like other partners, to the third parties, for the repayments of the firm’s debt.

10. Who is a Partner by Estoppel?

Ans. A person is considered a partner by estoppel if, through his/her own initiative, conduct or behaviour, he/she gives an impression to others that he/she is a partner of the firm. Such person

a. does not contribute capital

b. does not participate in management

c. does not share profit or losses, but

d. has unlimited liability.

11. Compare active partner with partner by estoppel by taking capital contribution and

sharing of profits and losses as bases.

Ans. A). Capital Contribution - An active partner contributes to the capital of the firm whereas a partner by estoppel does not contribute capital.

B). Sharing of profits and losses – An active partner shares the profits and losses whereas a partner by estoppel does not share profits/losses.

Basis	Active Partner	Partner by Estoppel
Capital Contribution	He contributes to the capital of the firm	He does not contribute capital
Sharing of profits and losses	He shares the profits and losses	He does not share profits/losses

12. Give the meaning of Partnership Deed.

Ans. In order to enter into partnership, a clear agreement with respect to the terms, conditions and all aspects concerning the partners is essential so that there is no misunderstanding later among the partners. Such written agreement which specifies the terms and conditions that govern the partnership is called the partnership deed.

13. State any two contents of Partnership Deed.

Ans. The partnership deed contains the following aspects:

1. Name of firm

2. Nature of business and location of business

Also

3. Duration of business

4. Investment made by each partner

5. Distribution of profits and losses

6. Duties and obligations of the partners

7. Salaries and withdrawals of the partners

8. Terms governing admission, retirement and expulsion of a partner

9. Interest on capital and interest on drawings

10. Procedure for dissolution of the firm

11. Preparation of accounts and their auditing

12. Method of solving disputes
(any 2 can be written)

14. What is Particular Partnership?

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

15. What is Partnership at Will?

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

16. What is General Partnership?

Ans. In general partnership, the liability of partners is unlimited and joint. The partners enjoy the right to participate in the management of the firm and their acts are binding on each other as well as on the firm. Registration of the firm is optional. The existence of the firm is affected by the death, lunacy, insolvency or retirement of the partners.

17. Give the meaning of unlimited liability.

Ans. Unlimited liability implies that the person is personally responsible for payment of debts in case the assets of the business are not sufficient to meet all the debts.

For example, suppose the total outside liabilities of XYZ drycleaner, a sole proprietorship firm, are Rs. 80,000 at the time of dissolution, but its assets are Rs. 60,000 only. In such a situation the proprietor will have to bring in Rs.20,000 from her personal sources even if she has to sell her personal property to repay the firm’s debts.

18. State any two consequences of Non-Registration of partnership firm.

Ans. The consequences of non-registration of a firm are as follows:

(a). A partner of an unregistered firm cannot file a suit against the firm or other partners,(b). The firm cannot file a suit against third parties.

Also

(c). The firm cannot file a case against the partners.

(any two can be written)

19. Give the meaning of Co-operative Societies.

Ans. The cooperative society is a voluntary association of persons, who join together with the motive of welfare of the members. The cooperative society is compulsorily required to be registered under the Cooperative Societies Act 1912.

20. State the minimum and maximum number of members in Co-operatives.

Ans. A co-operative society should have

minimum – 10 adults.

Maximum – unlimited (not in textbook)

21. State any two types of Co-operative Societies.

Ans. Refer to Q25 of 1 mark questions.

22. Give the meaning of Consumers’ Co-operative Societies.

Ans. The consumer cooperative societies are formed to protect the interests of consumers. The members comprise of consumers desirous of obtaining good quality products at reasonable prices.The society aims at eliminating middlemen to achieve economy inoperations by purchasing goods in bulk directly from the wholesalers and selling to the members. Profits, if any, are distributed on the basis of either their capital contributions to the society or purchases made by individual members.

23. Give the meaning of Producers’ Co-operative Societies.

Ans. These societies are set up to protect the interest of small producers. The members comprise of producers desirous of procuring inputs for production of goods to meet the demands of consumers. The society aims to fight against the big capitalists and enhance the bargaining power of the small producers. It supplies raw materials, equipment and other inputs to the members and also buys their output for sale. Profits among the members are generally distributed on the basis of their contributions to the total pool of goods produced or sold by the society.

24. Give the meaning of Housing Co-operative Societies.

Ans. Cooperative housing societies are established to help people with limited income to construct houses at reasonable costs. The members of these societies consist of people who are desirous of procuring residential accommodation at lower costs. The aim is to solve the housing problems of the members by constructing houses and giving the option of paying in instalments. These societies construct flats or provide plots to members on which the members themselves can construct the houses as per their choice.

25. Give the meaning of Marketing Co-operative Societies.

Ans. Such societies are established to help small producers in selling their products. The members consist of producers who wish to obtain reasonable prices for their output. The society aims to eliminate middlemen and improve competitive position of its members by securing a favourable market for the products. It pools the output of individual members and performs marketing functions like transportation, warehousing, packaging, etc., to sell the output at the best possible price. Profits are distributed according to each member’s contribution to the pool of output.

26. Give the meaning of Farmers’ Co-operative Societies.

Ans. These societies are established to protect the interests of farmers by providing better inputs at a reasonable cost. The members comprise farmers who wish to jointly take up farming activities. The aim is to gain the benefits of large scale farming and increase the productivity. Such societies provide better quality seeds, fertilisers, machinery and other modern techniques for use in the cultivation of crops. This helps not only in improving the yield and returns to the farmers, but also solves the problems associated with the farming on fragmented landholdings.

27. Give the meaning of Credit Co-operative Societies.

Ans. Credit cooperative societies are established for providing easy credit on reasonable terms to the members. The members comprise of persons who seek financial help in the form of loans.The aim of such societies is to protect the members from the exploitation of lenders who charge high rates of interest on loans. Such societies provide loans to members out of the amounts collected as capital and deposits from the members and charge low rates of interest.

28. State any two advantages of Co-operative Societies.

Ans. advantages of the cooperative form of organisation are as follows:

(i)Equality in voting status

(ii)Limited liability

Also

(iii)Stable existence

(iv)Economy in operations

(v)Support from government

(vi)Ease of formation

(any two can be written)

29. State any two limitations of Co-operative Societies.

Ans. (i)Limited resources

(ii)Inefficiency in management

Also

(iii) Lack of secrecy

(iv)Government control

(v)Differences of opinion

(any two can be written)

30. Give the meaning of a Joint Stock Company.

Ans. A Joint Stock company is an association of persons formed for carrying out business activities and has a legal status independent of its members. A company can be described as an artificial person having a separate legal entity, perpetual succession and a common seal. It is governed by The Companies Act, 2013.

31. Define Joint Stock Company.

Ans. Refer to Q30 of 2 mark questions.

32. State any two features of Joint Stock Company.

Ans. The features of Joint Stock Company are:

(i)Artificial person

(ii)Separate legal entity

Also

(iii)time consuming, expensive and complicated process of formation.

(iv)Perpetual succession

(v) Control and management of company by Board of Directors.

(vi) limited liability of the members – to the extent of capital contributed by them in the company.

(vii)Common seal

(viii)Risk bearing by all the shareholders.

(any two can be written)

33. State any two features of a private company.

Ans. Refer to Q 35 of 1 mark questions

34. State any two features of a public company.

Ans. Refer to Q 34 of 1 mark questions

35. State the minimum and maximum number of members in a public company.

Ans. Refer to Q 30 and 31 of 1 mark questions

36. State the minimum and maximum number of members in a private company

Ans. Refer to Q 28 and 29 of 1 mark questions

37. State any two differences between public and private companies.

Ans. Following are the differences between a public and a private company

1.Members - A private company can be formed by only two members whereas seven people are needed to form a public company.

2. Issue of prospectus - There is no need to issue a prospectus as the public is not invited to subscribe to the shares of a private company.

3.Need for minimum subscription - Allotment of shares can be done without receiving the minimum subscription. A private limited company can start business as soon as it receives the certificate of incorporation.

4.Minimum number of directors - A private company needs to have only two directors as against the minimum of three directors in the case of a public company.

5.Index of members - A private company is not required to keep an index of members while the same is necessary in the case of a public company.

6. Transfer of shares – members of a public company have no restriction on transfer of securities in the company whereas shares of a private company are not freely transferable.

38. State any two merits of Joint Stock Company.

Ans. Merits of Joint Stock Company are:

(i). Limited liability of shareholders are to the extent of the amount unpaid on the shares held by them

(ii). Transfer of interest / ownership is easy.

Also

(iii). Perpetual existence

(iv). Greater scope for expansion

(v). Professional management

(any two can be written)

39. State any two limitations of Joint Stock Company.

Ans. Limitations of Joint Stock Company are:

(i)Complexity in formation

(ii) Lack of secrecy

Also

(iii)Impersonal work environment

(iv)Numerous regulations

(v)Delay in decision making

(vi)Oligarchic management

(vii)Conflict in interests

(any two can be written)

Four Marks Questions

1. Explain briefly any four features of Sole Proprietorship form of business organisation.

Ans. Meaning of sole proprietorship- Refer to Q2 of 1 mark questions.

Features of Sole Proprietorship form of business organisation are -

(i). Formation and closure: There is no separate law that governs sole proprietorship. Hardly any legal formalities are required to start a sole proprietary business. Closure of the business can also be done easily.

(ii). Liability: Sole proprietors have unlimited liability. This implies that the owner is personally responsible for payment of debts in case the assets of the business are not sufficient to meet all the debts.

(iii). Sole risk bearer and profit recipient: The risk of failure of business is borne all alone by the sole proprietor. However, if the business is successful, the proprietor enjoys all the benefits. He receives all the business profits which become a direct reward for his risk bearing.

(iv). Control: The right to run the business and make all decisions lies absolutely with the sole proprietor. He can carry out his plans without any interference from others.

Also

(v). No separate entity: In the eyes of the law, no distinction is made between the sole trader and his business, as business does not have an identity separate from the owner. The owner is,therefore, held responsible for all the activities of the business.

(vi). Lack of business continuity: The sole proprietorship business is owned and controlled by one person, therefore death, insanity, imprisonment, physical ailment or bankruptcy of the sole proprietor will have a direct and detrimental effect on the business and may even cause closure of the business.

(any four can be written)

2. Explain briefly any four merits of Sole Proprietorship form of business organisation.

Ans. Meaning of sole proprietorship- Refer to Q2 of 1 mark questions.

Merits of Sole Proprietorship form of business organisation are:

(i). Quick decision making: A sole proprietor enjoys considerable degree of freedom in making business decisions. Further the decision making is prompt because there is no need to consult others. This may lead to timely capitalisation of market opportunities as and when they arise.

(ii). Confidentiality of information: Sole decision making authority enables the proprietor to keep all the information related to business operations confidential and maintain secrecy. A sole trader is also not bound by law to publish firm’s accounts.

(iii). Direct incentive: A sole proprietor directly reaps the benefits of his/her efforts as he/she is the sole recipient of all the profit. The need to share profits does not arise as he/she is the single owner. This provides maximum incentive to the sole trader to work hard.

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

Also

(v). Ease of formation and closure: An important merit of sole proprietorship is the possibility of entering into business with minimal legal formalities. There is no separate law that governs sole proprietorship. As sole proprietorship is the least regulated form of business, it is easy to start and close the business as per the wish of the owner.

(any four can be written)

3. Explain briefly the limitations sole proprietorship form of business organisation.

Ans. Meaning of sole proprietorship- Refer to Q2 of 1 mark questions.

The limitations of sole proprietorship form of business organisation are:

(i). Limited resources: Resources of a sole proprietor are limited to his/her personal savings and borrowings from others. Banks and other lending institutions may hesitate to extend a long term loan to a sole proprietor. Lack of resources is one of the major reasons why the size of the business rarely grows much and generally remains small.

(ii). Limited life of a business concern: The sole proprietorship business is owned and controlled by one person, so death, insanity, imprisonment, physical ailment or bankruptcy of a proprietor affects the business and can lead to its closure.

(iii). Unlimited liability: A major disadvantage of sole proprietorship is that the owner has unlimited liability. If the business fails, the creditors can recover their dues not merely from the business assets, but also from the personal assets of the proprietor. A poor decision or an unfavourable circumstance can create serious financial burden on the owner. That is why a sole proprietor is less inclined to take risks in the form of innovation or expansion.

(iv). Limited managerial ability: The owner has to assume the responsibility of varied managerial tasks such as purchasing, selling, financing, etc. It is rare to find an individual who excels in all these areas. Thus decision making may not be balanced in all the cases. Also, due to limited resources, sole proprietor may not be able to employ and retain talented and ambitious employees.

4. Explain briefly any four features of Hindu Undivided Family business.

Ans. Meaning of Hindu Undivided Family business – Refer to Q8 of 1 mark questions.

Features of Hindu Undivided Family business are:

(i). Formation: For a joint Hindu family business, there should be at least two members in the family and ancestral property to be inherited by them. The business does not require any agreement as membership is by birth. It is governed by the Hindu Succession Act, 1956.

(ii). Liability: The liability of all members except the karta is limited to their share of co-parcenery property of the business. The karta, however, has unlimited liability.

(iii). Control: The control of the family business lies with the karta. He takes all the decisions and is authorised to manage the business. His decisions are binding on the other members.

(iv). Continuity: The business continues even after the death of the karta as the next eldest member takes up the position of karta, leaving the business stable. The business can, however, be terminated with the mutual consent of the members.

Also

(v). Minor Members: The inclusion of an individual into the business occurs due to birth in a Hindu Undivided Family. Hence, minors can also be members of the business.

(any four can be written)

5. Explain briefly the merits of Hindu Undivided Family business.

Ans. Meaning of Hindu Undivided Family business – Refer to Q8 of 1 mark questions.

The merits of Hindu Undivided Family business are:

(i). Effective control: The karta has absolute decision making power. This avoids conflicts among members as no one can interfere with his right to decide. This also leads to prompt and flexible decision making.

(ii). Continued business existence: The death of the karta will not affect the business as the next eldest member will then take up the position. Hence,operations are not terminated and continuity of business is not threatened.

(iii). Limited liability of members: The liability of all the co-parceners except the karta is limited to their share in the business, and consequently their risk is well-defined and precise.

(iv). Increased loyalty and cooperation: Since the business is run by the members of a family, there is a greater sense of loyalty towards one other. Pride in the growth of business is linked to the achievements of the family. This helps in securing better cooperation from all the members.

6. Explain briefly the limitations of Hindu Undivided Family business.

Ans. Meaning of Hindu Undivided Family business – Refer to Q8 of 1 mark questions.

The limitations of Hindu Undivided Family business are:

(i). Limited resources: The joint Hindufamily business faces the problem of limited capital as it depends mainly on ancestral property. This limits the scope for expansion of business.

(ii). Unlimited liability of karta: The karta is burdened not only with the responsibility of decision making and management of business, but also suffers from the disadvantage of having unlimited liability. His personal property can be used to repay business debts.

(iii). Dominance of karta: The karta individually manages the business which may at times not be acceptable to other members. This may cause conflict amongst them and may even lead to break down of the family unit.

(iv). Limited managerial skills: Since the karta cannot be an expert in all areas of management, the business may suffer as a result of his unwise decisions. His inability to decide effectively may result into poor profits or even losses for the organisation.

7. Explain briefly any four features of Partnership.

Ans. Meaning of partnership - Refer to Q5 of 2 mark questions.

Features of Partnership are:

(i). Formation: The partnership form of business organisation is governed by the Indian Partnership Act, 1932. It can be formed by putting an agreement between the prospective partners into place whereby they agree to share risks from a lawful business carried out with a motive of profit.

(ii). Liability: The partners of a firm have unlimited liability. Also, they are jointly and individually liable for payment of debts.

(iii). Risk bearing: The partners bear the risks involved in running a business as a team. They share the profits and losses of the business in a pre-determined agreed ratio.

(iv). Decision making and control:The partners share amongst themselves the responsibility of decision making and control of day to day activities. Decisions are generally taken with mutual consent. Thus, the activities of a partnership firm are managed through the joint efforts of all the partners.

Also

(v). Continuity: Partnership is characterised by lack of continuity of business since the death, retirement, insolvency or insanity of any partner can bring an end to the business. However, the remaining partners may if they so desire continue the business on the basis of a new agreement.

(vi). Number of Partners: The minimum number of partners needed to start a partnership firm is two. According to section 464 of the Companies Act 2013, maximum number of partners in a partnership firm can be 100, subject to the number prescribed by the government. As per Rule 10 of The Companies (miscellaneous) Rules 2014, at present the maximum number of members can be 50.

(vii). Mutual agency: partnership is a business carried on by all or anyone of the partners acting for all. In other words, every partner is both an agent and a principal. He is an agent of other partners as he represents them and thereby binds them through his acts. He is a principal as he too can be bound by the acts of other partners.

(any four can be written)

8. Explain briefly any four merits of Partnership.

Ans. Meaning of partnership - Refer to Q5 of 2 mark questions.

Merits of Partnership are:

(i). Ease of formation and closure: A partnership firm can be formed easily by putting an agreement between the prospective partners into place whereby they agree to carryout the business of the firm and share risks.There is no compulsion with respect to registration of the firm. Closure of the firm too is an easy task.

(ii). Balanced decision making: The partners can oversee different functions according to their areas of expertise. Because an individual is not forced to handle different activities, this not only reduces the burden of work but also leads to fewer errors in judgements. As a consequence, decisions are likely to be more balanced.

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

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

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

(any four can be written)

9. Explain briefly the limitations of Partnership.

Ans. Meaning of partnership - Refer to Q5 of 2 mark questions.

The limitations of Partnership are:

(i) Unlimited liability: Partners are liable to repay debts even from their personal resources in case the business assets are not sufficient to meet its debts. The liability of partners is both joint and several which may prove to be a 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.

(ii). Limited resources: There is a restriction on the number of partners, and hence contribution in terms of capital investment is usually not sufficient to support large scale business operations. As a result, partnership firms face problems in expansion beyond a certain size.

(iii). Possibility of conflicts: Partnership is run by a group of persons wherein decision making authority is shared. Difference in opinion on some issues may lead to disputes between partners. Further,decisions of one partner are binding on other partners. Thus an unwise decision by some one may result in financial ruin for all others.

(iv). Lack of continuity: Partnership comes to an end with the death, retirement, insolvency or lunacy of any partner. It may result in lack of continuity. Also, in case a partner desires to leave the firm, this can result in termination of partnership as there is a restriction on transfer of ownership.

(v). Lack of public confidence: A partnership firm is not legally required to publish its financial reports or make other related information public. It is,therefore, difficult for any member of the public to ascertain the true financial status of a partnership firm. As a result, the confidence of the public in partnership firms is generally low.

10. Explain briefly the types of Partnership.

Ans. Meaning of partnership - Refer to Q5 of 2 mark questions.

The types of Partnership are:

A. Classification on the basis of duration

(i) Partnership at will: refer to Q15 of 2 mark questions.

(ii) Particular partnership: refer to Q14 of 2 mark questions.

B. Classification on the basis of liability

(i). General Partnership: refer to Q16 of 2 mark questions.

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

The limited partnership was permitted in India after introduction of New Small Enterprise Policy in 1991 with a view to enable the partnership firms to attract equity capital from friends and relatives of small scale entrepreneurs who were earlier reluctant to help, due to the existence of unlimited liability clause in the partnership form of business.

11. Explain briefly any four types of partners.

Ans. Meaning of partnership - Refer to Q5 of 2 mark questions.

Types of partners are:

(i) Active partner: Refer to Q7 of 2 mark questions.

(ii). Sleeping or dormant partner: Refer to Q8 of 2 mark questions.

(iii). Secret partner: A secret partner is one whose association with the firm is unknown to the general public. Other than this distinct feature, in all other aspects he is like the rest of the partners. He contributes to the capital of the firm, takes part in the management, shares its profits and losses, and has unlimited liability towards the creditors.

(iv). Nominal partner: Refer to Q9 of 2 mark questions.

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(v). Partner by estoppel: Refer to Q10 of 2 mark questions. For example, Suppose Rani is a friend of Seema who is a partner in a software firm—Simplex Solutions. On Seema’s request, Rani accompanies her to a business meeting with Mohan Softwares and actively participates in the negotiation process for a business deal and gives the impression that she is also a partner in Simplex Solutions.If credit is extended to Simplex Solutions on the basis of these negotiations, Rani would also be liable for repayment of such debt, as if she is a partner of the firm.

(vi). Partner by holding out: A partner by ‘holding out’ is a person who though is not a partner in a firm but knowingly allows himself/herself to be represented as a partner in a firm. Such person

a. does not contribute capital

b. does not participate in management

c. does not share profits / losses, but

d. has unlimited liability to those outside creditors for repayment of any debts which have been extended to the firm on the basis of his representation.

12. Explain briefly the procedure for the registration of Partnership firm.

Ans. According to the Indian Partnership Act 1932, the partners may get the firm registered with the Registrar of firms of the state in which the firm is situated. The registration can be at the time of formation or at any time during its existence.

The procedure for getting a firm registered is as follows:

1.Submission of application in the prescribed form to the Registrar of firms. The application should contain the following particulars:

a. Name of the firm

b. Location of the firm

c. Names of other places where the firm carries on business

d. The date when each partner joined the firm

e. Names and addresses of the partners

f. Duration of partnership

This application should be signed byall the partners.

2.Deposit of required fees with the Registrar of Firms.

3.The Registrar after approval will make an entry in the register of firms and will subsequently issue a certificate of registration.

13. State any eight contents of Partnership Deed.

Ans. Meaning of Partnership Deed - Refer to Q 12 of 2 mark questions.

contents of Partnership Deed - Refer to Q 13 of 2 mark questions.

14. Explain briefly any four features of Co-operative societies.

Ans. Meaning of Co-operative societies – Refer to Q19 of 2 mark questions.

The features of Co-operative societies are:

(i). Voluntary membership: 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.

(ii). Legal status: Registration of a cooperative society is compulsory. This accords a separate identity to the society which is distinct from its members. The society can enter into contracts and hold property in its name, sue and be sued by others. As a result of being a separate legal entity, it is not affected by the entry or exit of its members.

(iii). Limited liability: The liability of the members of a cooperative society is limited to the extent of the amount contributed by them as capital. This defines the maximum risk that a member can be asked to bear.

(iv). Control: 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.

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(v). Service motive: The cooperative society through its purpose lays emphasis on the values of mutual help and welfare. Hence, the motive of service dominates its working. If any surplus is generated as a result of its operations, it is distributed amongst the members as dividend in conformity with the bye-laws of the society.

(any four can be written)

15. Explain briefly any four merits of Co-operative societies.

Ans. Meaning of Co-operative societies – Refer to Q19 of 2 mark questions.

Merits of Co-operative societies are:

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

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

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

(iv). Economy in operations: The members generally offer honorary services to the society. As the focus is on elimination of middlemen, this helps in reducing costs. The customers or producers themselves are members of the society, and hence the risk of bad debts is lower.

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(v). Support from government: The cooperative society exemplifies the idea of democracy and hence finds support from the Government in the form of low taxes, subsidies, and low interest rates on loans.

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

(any four can be written)

16. Explain briefly any four limitations of Co-operative societies.

Ans. Meaning of Co-operative societies – Refer to Q19 of 2 mark questions.

The cooperative form of organisation suffers from the following limitations:

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

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

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

(iv). Government control: In return of the privileges offered by the government, cooperative societies have to comply with several rules and regulations related to auditing of accounts, submission of accounts, etc. Interference in the functioning of the cooperative organisation through the control exercised by the state cooperative departments also negatively affects its freedom of operation.

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

(any four can be written)

17. Explain briefly any two types of Co-operative societies.

Ans. Meaning of Co-operative societies – Refer to Q19 of 2 mark questions.

Types of co-operative societies -

(i). Consumer’s cooperative societies: Refer to Q22 of 2 mark questions.

(ii). Producer’s cooperative societies: Refer to Q23 of 2 mark questions.

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(iii). Marketing cooperative societies: Refer to Q25 of 2 mark questions.

(iv). Farmer’s cooperative societies: Refer to Q26 of 2 mark questions.

(v). Credit cooperative societies: Refer to Q27 of 2 mark questions.

(vi).Cooperative housing societies: Refer to Q24 of 2 mark questions.

(any two can be written)

18. Explain in brief any four features of Joint Stock Companies.

Ans. Meaning of joint stock company - Refer to Q30 of 2 mark questions.

Features of Joint Stock Companies are:

(i). Artificial person: A company is a creation of law and exists independent of its members. Like natural persons, a company can own property, incur debts, borrow money, enter into contracts, sue and be sued but unlike them it cannot breathe, eat, run, talk and so on. It is, therefore, called an artificial person.

(ii). Separate legal entity: From the day of its incorporation, a company acquires an identity, distinct from its members. Its assets and liabilities are separate from those of its owners. The law does not recognise the business and owners to be one and the same.

(iii). Formation: The formation of a company is a time consuming, expensive and complicated process. Incorporation of companies is compulsory under The Companies Act 2013 or any of the previous company law, as state earlier.

(iv). Perpetual succession: A company being a creation of the law, can be brought to an end only by law. It will only cease to exist when a specific procedure for its closure, called winding up, is completed. Members may come and members may go, but the company continues to exist.

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(v). Control: The management and control of the affairs of the company is undertaken by the Board of Directors, which appoints the top management officials for running the business. Though the shareholders are owners of the company, they do not have the right to be involved in the day-to-day running of the business.

(vi). Liability: The liability of the members (shareholders) is limited to the extent of the capital contributed by them in a company. They can be asked to contribute to the loss only to the extent of the unpaid amount of share held by them.

(vii). Common seal: A company may or may not have a common seal. If a company has a common seal, it must be affixed to the documents such as agreements of a company. If a company does not have a common seal then the person signing the document should be authorised by a board’s resolutions.

(viii). Risk bearing: The risk of losses in a company is borne by all the shareholders. This is unlike the case of sole proprietorship or partnership firm where one or few persons respectively bear the losses. In the face of financial difficulties, all shareholders in a company have to contribute to the debts to the extent of their shares in the company’s capital. The risk of loss thus gets spread over a large number of shareholders.

(any four can be written)

19. Explain in brief any four merits of Joint stock Companies.

Ans. Meaning of joint stock company - Refer to Q30 of 2 mark questions.

The merits of Joint stock Companies are:

(i). Limited liability: The shareholders are liable to the extent of the amount unpaid on the shares held by them. Also, only the assets of the company can be used to settle the debts, leaving the owner’s personal property free from any charge. This reduces the degree of risk borne by an investor.

(ii). Transfer of interest: The ease of transfer of ownership adds to the advantage of investing in a company as the share of a public limited company can be sold in the market and as such can be easily converted into cash in case the need arises.This avoids blockage of investment and presents the company as a favourable avenue for investment purposes.

(iii). Perpetual existence: Existence of a company is not affected by the death, retirement, resignation, insolvency or insanity of its members as it has a separate entity from its members. A company will continue to exist even if all the members die. It can be liquidated only as per the provisions of the Companies Act, 2013.

(iv). Scope for expansion: As compared to the sole proprietorship and partnership forms of organisation, a company has large financial resources. Further, capital can be attracted from the public as well as through loans from banks and financial institutions. Thus there is greater scope for expansion. The investors are inclined to invest in shares because of the limited liability, transferable ownership and possibility of high returns in a company.

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(v). Professional management: A company can afford to pay higher salaries to specialists and professionals. It can, therefore, employ people who are experts in their area of specialisations. The scale of operations in a company leads to division of work. Each department deals with a particular activity and is headed by an expert. This leads to balanced decision making as well as greater efficiency in the company’s operations.

(any four can be written)

20. Explain in brief any four limitations of Joint stock Companies.

Ans. Meaning of joint stock company - Refer to Q30 of 2 mark questions.

The limitations of Joint stock Companies are:

(i). Complexity in formation: The formation of a company requires greater time, effort and extensive knowledge of legal requirements and the procedures involved. As compared to sole proprietorship and partnership form of organisations, formation of a company is more complex.

(ii). Lack of secrecy: The Companies Act requires each public company to provide from time-to-time a lot of information to the office of the registrar of companies. Such information is available to the general public also. It is, therefore, difficult to maintain complete secrecy about the operations of company.

(iii). Impersonal work environment: Separation of ownership and management leads to situations in which there is lack of effort as well as personal involvement on the part of the officers of a company. The large size of a company further makes it difficult for the owners and top management to maintain personal contact with the employees,customers and creditors.

(iv). Numerous regulations: The functioning of a company is subject to many legal provisions and compulsions. A company is burdened with numerous restrictions in respect of aspects including audit, voting, filing of reports and preparation of documents, and is required to obtain various certificates from different agencies, viz., registrar, SEBI, etc. This reduces the freedom of operations of a company and takes away a lot of time, effort and money.

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(v). Delay in decision making:Companies are democratically managed through the Board of Directors which is followed by the top management, middle management and lower level management. Communication as well as approval of various proposals may cause delays not only in taking decisions but also in acting upon them.

(vi). Oligarchic management: In theory, a company is a democratic institution wherein the Board of Directors are representatives of the shareholders who are the owners. In practice, however, in most large sized organisations having a multitude of shareholders; the owners have minimal influence in terms of controlling or running the business. It is so because the shareholders are spread all over the country and a very small percentage attend the general meetings. As the directors virtually enjoy the rights to take all major decisions, it leads to rule by a few.

(vii). Conflict in interests: There may be conflict of interest amongst various stakeholders of a company. The employees, for example, may be interested in higher salaries, consumers desire higher quality products at lower prices, and the shareholders want higher returns in the form of dividends and increase in the intrinsic value of their shares. These demands pose problems in managing the company as it often becomes difficult to satisfy such diverse interests.

(any four can be written)

21. State any four privileges of a private company as against a public company.

Ans. Refer to point no. 1 to 5 of Q 37 of 2 mark questions.

(any four can be written)

22. State any four differences between public and private companies.

Ans. Refer to Q37 of 2 mark questions.

Eight Marks Questions

1. Explain the merits and demerits of Sole Proprietorship form of business organization.

Ans. Refer to Q 2 and Q 3 of 4 mark questions

2. Explain any four merits and four limitations of Partnership form of business.

Ans. Refer to Q 8 and Q 9 of 4 mark questions

3. Explain the types of co-operative societies.

Ans. Refer to Q 17 of 4 mark questions

4. Explain any four merits and four limitations of Co-operative societies.

Ans. Refer to Q 15 and Q 16 of 4 mark questions

5. Explain the features of Joint Stock Company.

Ans. Refer to Q 18 of 4 mark questions

6. Explain any four merits and four limitations of Joint Stock Company.

Ans. Refer to Q 19 and Q 20 of 4 mark questions

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