Class XI BUSINESS STUDIES

CHAPTER -2 FORMS OF BUSINESS ORGANISATION

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

Who elects B.O.D of Joint Stock Company?

Answer

The Board of Director of Joint Stock Company is elected by shareholders

Question 2

In which form of business profits are not shared?

Answer

In a sole proprietorship all profits, losses, assets and liabilities are the direct and sole responsibility of
the owner

Question 3

Where a business act as an artificial person what act as an official signature

Answer

The common seal with the name of the company engraved on it, is used as a substitute of its signature

Question 4

Write the names of systems which govern membership in Joint Hindu Family business

Answer

There are two Schools of Hindu Laws which govern the Hindu Undivided Family(HUF):
1. Mitakshara Law
The Mitakshara Law applies tothe whole of India except Bengal and Assam.

2. Dayabhaga Law
Dayabhaga Law applies to the communities like Bengalis and Assamese living in the States of Bengal and
Assam and other parts of the world.

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Question 5

Enumerate the two conditions necessary for formation of Joint Hindu Family business

Answer

1. Atleast two member in the family

2. Ancestral property to be inherited by them

Question 6

What is the minimum no. of persons required to form a co-operative society

Answer

The minimum number of persons required to form a Co-operative is ten (10).

Question 7

Explain the meaning of unlimited liability.

Answer

Unlimited liability refers to Indefinite extent of liability to pay a firm's debts or obligations, extending
beyond the investments of the firm's owner(s), partners, or shareholder(s) to their personal assets. This
extent of liability is assumed in an unlimited liability company such as a sole-proprietorship or a general
partnership.

Question 8

Identify a company which has no restriction of on transfer of shares

Answer

Public company has no restriction of on transfer of shares

Question 9

Name two types of business in which sole proprietorship is very suitable.

Answer

Tutorial classes, Small Cell phone repair shop is very suitable examples of business for sole
proprietorship

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Question 10

Write the name of form of business organisation found only in India

Answer

Joint Hindu family form of business is the form of business which is only found in india

Question 11

Name the person who manages a Joint Hindu Family business

Answer

Karta is the person who manages a Joint Hindu family business

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Partners in affirm has different roles and liabilities, Identify and explain the type of partner in a firm
from the given examples:

a) Rama is a partner in a business who has no actual interest in business trade or its profits but she is
Paid fee by the firm for lending its name to firm.

b) In Ram Hari & co. Ltd, Ram & Hari declare Gopal as a partner with knowing that Gopal remain silent
then Gopal will be liable to third parties for any loss.

c) What type of partner is Geeta if she only contribute capital, shar profit and loss if any?

d) What type of patner is Giri in Ram Hari & co. Where he is an outsider but represent himself as a
partner.

Answer

a) Rama is a partner in a business who has no actual interest in business trade or its profits but she is
Paid fee by the firm for lending its name to firm- Nominal Partner

b) In Ram Hari & co. Ltd, Ram & Hari declare Gopal as a partner with knowing that Gopal remain silent
then Gopal will be liable to third parties for any loss- Partner by holding out

c) What type of partner is Geeta if she only contribute capital, shar profit and loss if any- Sleeping
Partner

d) What type of patner is Giri in Ram Hari & co. Where he is an outsider but represent himself as a
partner-Partner by Estoppel

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Question 2

Explain the forms: sole proprietorship, H.U.F & Joint stock company on the basis of following points:
Liability, members & Continuity

Answer

Basis Sole Proprietorship HUF Joint Stock Company

Liability Unlimited Liability Karta has unlimited The liability of the
liability, his personal members is limited to
property is used to the extent of the
repay the debts. capital contributed by
Liability of co- them in a company.
parceners is limited to The members can be
their share and their asked to contribute to
risk is well defined and the loss only to the
precise extent of the unpaid
amount of share held
by them
Member Owner is the member Atleast two member in In Public company-
family is required to Minimum 7 and
form Joint hindu family maximum is unlimited
business. Membership and In Private company
is attained at the time Minimum 2 and
of birth Maximum is 200
Continuity Death, insanity, Operation of business It will only cease to
imprisonment, physical are not terminated and exist when a specific
ailment, bankruptcy continuity of business procedure for its
affects the business is not at stake closure, called winding
and can lead to its up, is completed.
closure Members may come
and members may go,
but the company
continues to exist

Question 3

Explain the concept of mutual agency in partnership with suitable example

Answer

Mutual agency is the legal relationship between partners in a partnership where each partner has
authorization powers and the ability enter the partnership into business contracts. In other words, each
partner in the partnership is an agent in the business and 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.

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For example, a partner of a grocery store who purchases a delivery truck creates a binding contract in
the name of the partnership even if the partnership agreement denies this authority. On the other hand,
if a partner in a law firm purchased a snowmobile for the partnership, such as act would not be binding
on the partnership. The purchase is clearly outside the scope of partnership business.

Question 4

What is meant by partner by estoppel

OR

Mr. Singh is in ‘lighting’ business for the post 15 years. To help his friend, Mr Yadav, a beginner he
projected himself as a partner before Mohd. Abdul, a whole sale dealer of fancy lights. Mohd. Abdul
gave Mr. Yadav the stock without asking for payment and gave him credit limit of one month.

Will Mr. Singh be liable to Md. Abdul if Mr. Yadav does not pay him on time ?

Classify Mr. Singh’s role here along with an explanation

Answer

Partner by Estoppel refers to Legally binding partnership that may arise where, in fact, no formal
partnership agreement is in effect. A person who by conduct or words represents, or allows him/herself
to be represented, as a partner in a firm is liable for the credit or loans obtained by firm on the basis of
such representation. Also called presumption of partnership.

The partner does not contribute to capital nor does he participate in management but his liability is
unlimited

Question 5

What is secret partner

Answer

Secret Partner is A person or partner who is not disclosed in a venture or enterprise. He contributes to
the capital. He participates in the management but secretly. He also shares the profits and losses of
business. His liability is unlimited as others.

Question 6

Write a short note on producer co-operative society

Answer

Producer’s Cooperative Societies is set up to protect the interest of small producer. The members
comprise of producers desirous of procuring inputs for production of goods to meet the demands of

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consumers. Profits are distributed on the basis of their contributions to the total pool of goods produced
or sold by the society.

Question 7

Explain a co-operative organisation in democratic setup.

Answer

The cooperative society is a voluntary association of persons, who join together with the motive of
welfare of the members. The principle of ‘one man one vote’ governs the cooperative society. Each
member is entitled to equal voting rights. Thus, cooperative society is run on democratic principles.

Question 8

Shiv, Anandi & John were partners John died in a car accident Both Shiv & Anandi decided to admit his
son Ryan who was 16 years old as partner. Can they do so? Justify.

Answer

Yes they can admit Ryan as partner to benefits of partnership firm with mutual consent of partners.

A minor is a person who has not attained the age of 18 years. Since a minor is not capable of enlarging
into a valid agreement. He cannot become partner of a firm. However a minor can be admitted to the
benefits of an existing partnership firm with the mutual consent of all other partners. He cannot be
asked to bear the losses. His liability will be limited to the extent of the capital contributed by him. He
will not be eligible to take an active part in the management of the firm.

Question 9

Differentiate between private co. and public company

Answer

Basis for Comparison Public Company Private Company

Meaning A company which is owned A company which is owned
and traded publicly and traded privately
Minimum member 7 2
Maximum Member Unlimited 200
Minimum Director 3 2
Suffix Limited Private Limited
Start of Business After receiving certificate of After receiving certificate of
incorporation and certificate incorporation
of commencement of
business
Statutory Meeting Compulsory Optional

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 Issue of Prospectus/ Obligatory Not required
Statement in lieu of
Prospectus
Public Subscription Allowed Not allowed
Quorum at AGM 5 members must present in 2 members must present in
person person
Transfer of shares Free Restricted

Question 10

Akriti, Sonam & Supreeti were friends who started a partnership business. They did not get their firm
registered as it was optional. Soon, Sonam & Supreeti started having conflicts. Sonam wanted to
approach a lawyer. If you were a lawyer than how would you guide her ?

OR

Mangal, Sazia & Suqhbeer Singh wish to start a business in partnership. They want to make a
partnership deed, Suggest what aspects of the deed should be included in it ?

Answer

Partnership refers to 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. Although registration of firm is optional, in order to
avoid conflicts between partners partnership deed can be prepared.

The written agreement which specifies the terms and conditions that govern the partnership is called
the partnership deed.

The partnership deed generally includes the following aspect:

• Name of firm
• Nature of business and location of business
• Duration of business
• Investment made by each partner
• Distribution of profits and losses
• Duties and obligations of the partners
• Salaries and withdrawals of the partners
• Terms governing admission, retirement and expulsion of a partner
• Interest on capital and interest on drawings
• Procedure for dissolution of the firm
• Preparation of accounts and their auditing
• Method of solving disputes

Question 11

Explain limitations of Joint Stock Company

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Answer

Limitations are as follows

• The formation of a company requires greater time, effort and extensive knowledge of legal
requirements and the procedures involved

• Separation of ownership and management leads to lack of effort as well as personal

involvement on the part of the officers of a company

• Information of company is provided to Registrar of companies time to time and hence

information is available to general public

• The functioning of a company is subject to many legal provisions and compulsions. This reduces
the freedom of operations of a company and takes away a lot of time, effort and money

• Communication as well as approval of various proposals to Top, middle and lower level
management may cause delays not only in taking decisions but also in acting upon them.

• Board of Directors are representatives of the shareholders who are the owners. The owners
have minimal influence in terms of controlling or running the business

• Various demands pose problems in managing the company as it often becomes difficult to
satisfy such diverse interest

Question 12

Which form of business is suitable for following types of business and why ?

(a) Beauty Parlour

(b) Coaching Centre for science students

(c) Hotel

(d) Shopping mall

(e) Restaurant

(f) Small repair business

Answer

(a) Beauty Parlour- Sole Proprietorship.

Simple and inexpensive to create and operate. Owner reports profit or loss on his or her personal tax
return

(b) Coaching Centre for science students- Partnership.

Simple and inexpensive to create and operate Partners report their share of profit or loss on their
personal tax returns

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(c) Hotel-Joint Stock Companies.

The main feature of LLCs and corporations that attracts small businesses is the limit they provide on
their owners' personal liability for business debts and court judgments against the business. Another
factor might be income taxes: You can set up an LLC or a corporation in a way that lets you enjoy more
favorable tax rates. In addition, an LLC or corporation may be able to provide a range of fringe benefits
to employees (including the owners) and deduct the cost as a business expense.

(d) Shopping mall-Joint Stock Companies.

Owners have limited personal liability for business debts

(e) Restaurant-Sole Proprietorship.

Simple and inexpensive to create and operate. Owner reports profit or loss on his or her personal tax
return

(f) Small repair business- Sole Proprietorship.

Simple and inexpensive to create and operate. Owner reports profit or loss on his or her personal tax
return

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

In what type of business, individuals associate voluntarily for profit, having capital dividend into
transferable shares, the ownership of which is the condition of membership? Explain with features

Answer

A Joint stock company is a Voluntarily association of persons formed for carrying out business activities
for profit and has a legal status independent of its members, having capital divided into transferable
shares. A company can be described as an artificial person having a separate legal entity, perpetual
succession and a common seal

The shareholders are the owners of the company while the Board of Directors is the chief managing
body elected by the shareholders

The capital of the company is divided into smaller parts called ‘shares’ which can be transferred freely
from one shareholder to another person (except in a private company).

Features of Joint Stock Company are as follows:

• A company is an artificial person. It is creation of law and exists independent of its members

• A company acquires a seperate legal identity. The law does not recognise the business and
owners to be one and the same.

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 • The formation of a company is a time consuming, expensive and complicated process.
Incorporation of companies is compulsory

• 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.

• The management and control of the affairs of the company is undertaken by the Board of
Directors, which appoints the top management for running of business

• A company may or may not have a common seal.

• The risk of losses in a company is borne by all the share holders.

Question 2

If registration is optional, why do partnership firms willingly go through this legal formality? Explain
the reason with procedure to get them registered.

Answer

It is optional for partnership firm to get registered. But to avoid conflicts between partners it is
preferred to have a written agreement.

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, and

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

The written agreement which specifies the terms and conditions that govern the partnership is called
the partnership deed.

The partnership deed generally includes the following aspect:

• Name of firm
• Nature of business and location of business
• Duration of business
• Investment made by each partner
• Distribution of profits and losses
• Duties and obligations of the partners
• Salaries and withdrawals of the partners
• Terms governing admission, retirement and expulsion of a partner
• Interest on capital and interest on drawings
• Procedure for dissolution of the firm
• Preparation of accounts and their auditing
• Method of solving disputes

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Procedure for firm registration:

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

• Name of the firm

• Location of the firm
• Names of other places where the firm carries on business
• The date when each partner joined the firm
• Names and addresses of the partners
• Duration of partnership

This application should be signed by all 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.

Question 3

Who have equal ownership right over the property of an ancestor? Highlight with its essential
characteristics

Answer

Joint Hindu Family is a form of organisation wherein the business is owned and carried by the members
of the Hindu Undivided Family (HUF). The basis of membership in the business is birth in a particular
family and three successive generations can be members. The business is controlled by the head of the
family who is the eldest member and is called karta.

Members of Joint Hindu Family Business have equal ownership right over the property of an ancestor
and they are known as co-parceners.

Characteristics of Joint Hindu Family Business are as follows:

• Business does not require any agreement as membership is by birth.

• There should be at least two members in the family and ancestral property to be inherited by
them

• The liability of all members except the karta is limited to their share of co-parcenery property of
the business. The karta has unlimited liability.

• Karta controls the family business and his decision are binding to all

• Business continues even after the death of karta, next eldest becomes karta

• Minors are also member of the business

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Question 4

Why cooperative forms of organisation are formed? Explain various types of cooperative societies

Answer

The cooperative society is a voluntary association of persons, who join together with the motive of
welfare of the members. They are driven by the need to protect their economic interests in the face of
possible exploitation at the hands of middlemen obsessed with the desire to earn greater profits. The
process of setting up a cooperative society is simple enough and at the most what is required is the
consent of at least ten adult persons to form a society. The capital of a society is raised from its
members through issue of shares. The society acquires a distinct legal identity after its registration

Types of Cooperative Societies

• Consumer’s Cooperative Societies

 It is formed to protect the interests of consumers
 Society aims at eliminating middlemen to achieve economy in operations
 It purchases goods in bulk directly from the wholesalers and sells goods to the
members
 Profits are distributed on the basis of either their capital contributions to the
society or purchases made by individual members.

• Producer’s Cooperative Societies

 It is set up to protect the interest of small producer
 The members comprise of producers desirous of procuring inputs for production
of goods to meet the demands of consumers
 Profits are distributed on the basis of their contributions to the total pool of
goods produced or sold by the society.

• Marketing Cooperative Societies

 It is established to help small producers in selling their products.
 The members consist of producers who wish to obtain reasonable prices for
their output
 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

• Farmer’s Cooperative Societies

 It is formed 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.
 Improves the yield and returns to the farmers, but also solves the problems
associated with the farming on fragmented land holdings

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 • Credit Cooperative Societies
 It is 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.

• Cooperative Housing Societies

 It is 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

Question 5

Dhirubhai Chaurasiya operates a textile business. His family is joint and has a lot of ancestoral
property. All the 15 family members are a part of this business. He is the eldest male member in the
family so he heads the business. He is liable to all the creditors of the business as he is the decision
maker. Dhirubhai’s grandson has just born a few days ago and he is also the member of the business.

(a) Which form of business is being undertaken by Dhirubhai Chaurasiya ?

(b) Identify the features of this form of business based on the information given.

(c) Textile business is part of which type of industry according to you ?

Answer

a) Joint Hindu Family form of Business is undertaken by Dhirubhai Chaurasiya

b) Characteristics of Joint Hindu Family Business based on above information are as follows:

• Business does not require any agreement as membership is by birth as Dhirubhair grandson who
is just born is member by birth

• There should be at least two members in the family and ancestral property to be inherited by
them as 15 family member are part of business and have lot of ancestral property

• The liability of all members except the karta is limited to their share of co-parcenery property of
the business. The karta has unlimited liability as he is the decision maker he is liable to all
creditors of business

• Karta controls the family business and his decision are binding to all as he is the eldest male
member and he heads the business

• Minors are also member of the business as his grandson who is just born is member of business.

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Question 6

'Reva Chemicals' is a partnership firm. Sona and Mona one two partners in this firm. It is recorded in
the Partnership Deed that Sona's liability is unlimited, whereas Mona's is limited. Sona wants to set up
the Anti-Pollution plant in his factory, but Mona does not let him do so. Almost all the transactions of
this firm are done through the internet. The firm Sells its goods to other Business units only. The firm
gets its Research and Development work done by another firm, who is a specialist of such work.
i. Describe the type of partnership.
ii. ldentify the two values being overlooked.
iii. Name the type-business being done by the firm

Answer

i. It is a limited partnership where the liability of at least one partner is unlimited whereas the rest may
have limited liability. 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.

ii. The two values which are overlooked are:

• Violation of government rules

• Social responsibility clause is not fulfilled

iii. It is a Business to Business Commerce. B2B e-commerce (also written as e-Commerce, eCommerce or
similar variants), short for business-to-business, electronic commerce, is selling products or services
between businesses through the internet via an online sales portal. In general, it is used to improve
efficiency for companies. Instead of processing orders manually – by telephone or e-mail – with e-
commerce orders can be processed digitally.

Question 7

Ravi, Pradeep, Satyender and Dharmender are partners in a partnership firm. Ravi and Satyender take
active part in the operation of business whereas Pradeep has contributed in Capital but do not take part
in day to day activities of the business. Dharmender is a nominal partner. All four make partnership for
a specified time period and also make written agreement to govern the partnership but they does not
get the firm registered.
a. What is meant by nominal partner?
b. Which type of partnership is there between the partners in above?
c. What is written agreement between the partners called?
d. What type of partners Pradeep and Ravi are?
e. Give two merits of getting firm registered.

Answer

a) Nominal Partner is a Partner who allows the use of his/her name by a firm. He does not contribute to
capital nor he participate in the management. He generally does not share profit/losses and have
unlimited liability

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b) General Partnership is there between the partners. 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

c) Written agreement between the partners is called partnership deed. The written agreement which
specifies the terms and conditions that govern the partnership is called the partnership deed.

d) Ravi is active partner. Active partner are those Partners who take actual part in carrying out business
of the firm on behalf of other partners. They contribute capital and takes part in the management. He
shares the profit and loss of the partnership. His liability is unlimited.

Pradeep is sleeping partner. Sleeping partner are those Partners who do not take part in day to day
activities of business. They contribute capital and does not takes part in the management. He shares the
profit and loss of the partnership. His liability is unlimited.

e) Two merits of getting firm registered are as follows:

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

Question 8

Explain different types of Partnership on the basis of duration and liability?

Answer

Types of Partnership are as follows:

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On the basis of duration On the basis of Liablity

Partnership at will General Partnership

•It can continue as long as the partners •The liability of partners is unlimited and
want and is terminated when any partner joint.
gives a notice of withdrawal from •The partners enjoy the right to
partnership to the firm participate in the management of the firm
and their acts are binding on each other
as well as on the firm

Particular Partnership Limited Partnership

•Partnership formed for the •the liability of at least one partner is
accomplishment of a particular project unlimited whereas the rest may have
say construction of a building or an limited liability
activity to be carried on for a specified •The limited partners do not enjoy the
time period right of management and their acts do
not bind the firm or the other partners.
•Registration of such partnership is
compulsory.

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