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.
Difference between Partnership and Sole Trader:

Points of Difference Partnership 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?
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:

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

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

(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.

(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?
Admission of a Partner:
By taking one or more partners, the proprietor obtains the following benefits and drawbacks –

(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.

(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.
Difference Between Private Company And Public Company:

Basis Private Limited Company Public Limited 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.
Difference between Joint Stock Company and Cooperative:

Points of Difference Joint Stock Company 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.
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.
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.
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.
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:

Point of Distinction Public enterprise Private enterprise Joint sector
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?
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.
A partnership firm can have different types of partners with different roles and liabilities. There can be the following types of partners:

  1. Active Partner
  2. Sleeping or Dormant Partner
  3. Secret Partner
  4. Nominal Partner
  5. Partner by estoppel
  6. Partner by holding out
  7. 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.
A partnership can be classified on the basis of two factors:

  1. Duration,
  2. Liability.

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

  1. Partnership at will,
  2. Particular partnership

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

  1. Partnership with limited liability
  2. 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.