Forms of Business Organisations - Solutions

 CBSE Class 11 Business Studies

NCERT Solutions
Forms of Business Organisation


1. For which of the following types of business do you think a sole proprietorship firm of organization would be more suitable, and why?

(i) Grocery store

(ii) Medical store

(iii) Legal consultancy

(iv) Craft centre

(v) Internet cafe

(v) Internet cafe

(vi) Chartered accountancy firm

Ans. Sole proprietorship will be more suitable for grocery store, medical store, and internet cafe because:

1. It has easy formation and closure.

2. It needs limited resources.

3. He will be sole risk bearer which is not so high and profit recipient.

4. He will have 100% control.

2. For which of the following types of business do you think a partnership firm of organization would be more suitable, and why?

(i) Grocery store

(ii) Medical store

(iii) Legal consultancy

(iv) Craft centre

(v) Internet cafe

(vi) Chartered accountancy firm

Ans. For legal consultancy and chartered accountancy firm, partnership firm will be more suitable because it has:

1. Ease of formation and closure

2. Balanced decision making

3. More funds

4. Sharing of risks

5. Maintain secrecy

3. Explain the following terms in brief:

(i) Perpetual succession

(ii) Common seal

(iii) Karta

(iv) Artificial person

Ans. (i) 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 go out, but the company continues to exist. 

(ii) Common Seal: The company being an artifical person acts through its Board of Directors. The Board of Directors enters into an agreement with others by indicating the company's approval through a common seal.

(iii) Karta: In the Joint Hindu Family business, the business is controlled by the head of the family who is the eldest member and is called Karta. The Karta has unlimited liability.

(iv) Artificial Person: A company is a artifical person created by law as it does not have physical existence  as other human beings. 

4. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership firm.

Ans. 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 buisness. On the other hand, in a partnership firm, the minor cannot be a partner of a business. In the partnership firm, the age of the partners should be above 18 years. 

5. If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.

Ans. It is not compulsory for partnership firms to get themselves registered. However, it is beneficial to get themselves registered because an unregistered firm has to suffer the following consequences:

1. A partner of an unregistered firm cannot file a suit against any other partner or the firm for enforcing his legal rights.

2. An unregistered firm cannot file a suit against any third party or partner for enforcing legal rights.

3. Any partner of an unregistered firm cannot claim a set off in a legal proceeding carried on against the firm by a third party for enforcing any legal rights.

4. No salary or commission is provided to any of the partners.    

6. State the important privileges available to a private company.

Ans. 1. Number of directors: Only two directors are required in case of a private company whereas a public company requires minimum three directors.

2. Issue of prospectus: A private company does not invite the public to subscribe to its share capital. Hence, it does not issue a prospectus.

3. Allotment of shares: Shares of a private company can easily be allotted without receiving a minimum subscription. However, before issuing the shares to the public at large, a public company must receive minimum subscription.

4. Index of members: There is no compulsion for a private company to maintain an index of members. However, it  is necessary for a public company to maintain such an index.  

7. How does a cooperative society exemplify democracy and secularism? Explain.

Ans. Cooperative is a form of organization wherein persons voluntarily associate together as human beings on the basis of equality for the promotion of an economic interest for themselves. In a cooperative society, the power to take decisions lies in the hands of an elected managing committee. The right to vote gives the members a chance to choose the members who will constitute the managing committee and this lends the cooperative society a democratic character. Also, the principle of 'one man, one vote' governs the cooperative society. irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights. The membership of a cooperative society is voluntary. A person is free to join a cooperative society, and can also leave anytime as per his desire. Membership is open to all, irrespective of their religion, caste and gender. Thus, by keeping all these points in mind, a cooperative society exemplifies democracy and secularism.

8. What is meant by 'partner by estoppel'? Explain.

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

1. If a partnership liability results, he or she is liable as though he or she were an actual member of the partnership.

2. If no partnership liability results, he or she is liable jointly with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.

3. When a person has been thus represented to be a partner in an existing partnership, · or with one or more persons not actual partners, that person is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though that person were a partner in fact, with respect to persons who rely upon the representation where all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation.