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Page No 35:

Question 1.A1:

Select the proper option from the options given below and rewrite the completed sentences.

A sole proprietorship is the ________ form of organization.
(a) private sector
(b) public sector
(c) none of

Answer:

Correct option- a
A sole proprietorship is the private sector form of organisation.
Explanation:
A sole proprietorship is completely owned and managed by an individual. This kind of business is not regulated by any government and is controlled and managed by the proprietor himself. Hence, it is regarded as a private sector organisation.

Page No 35:

Question 1.A2:

Select the proper option from the options given below and rewrite the completed sentences.

A sole proprietorship has ________ owner/owners.
(a) one
(b) two
(c) unlimited.

Answer:

Correct option- a
A sole proprietorship has one owner.
Explanation:
Sole means one and proprietor means owner. Therefore, a sole proprietorship is the one which is controlled and managed by only one or single owner.



Page No 36:

Question 1.A3:

Select the proper option from the options given below and rewrite the completed sentences.

A proprietor has ________ liability.
(a) unlimited
(b) limited
(c) restricted.

Answer:

Correct option- a
A proprietorship has unlimited liability.
Explanation:
Under unlimited liability, if the owner fails to pay the debts of the business, then his/her personal property can be utilised to pay the debt. This implies that there is no difference between the property of the owner and the business. The term “unlimited liability” pertains specifically to a sole proprietorship, as the proprietor is solely liable for the debts incurred by the business.

Page No 36:

Question 1.A4:

Select the proper option from the options given below and rewrite the completed sentences.

A sole trading concern ensures ________ business secrecy.
(a) minimum
(b) maximum
(c) limited.

Answer:

Correct option- b
A sole trading concern ensures maximum business secrecy.
Explanation:
The proprietor is the sole owner of the business; therefore, all decisions are taken by the proprietor himself. All business-related information remains with the owner. Further, it is the prerogative of the proprietor to share business information with others. Thus, a sole proprietorship guarantees maximum secrecy.

Page No 36:

Question 1.A5:

Select the proper option from the options given below and rewrite the completed sentences.

Business organization which is controlled by Hindu succession Act is known as ________
(a) Joint stock company
(b) partnership firm
(c) Joint Hindu family firm

Answer:

Correct option- c
Business organisation which is controlled by Hindu Succession Act is known as joint Hindu family firm.
Explanation:
A joint Hindu family business is governed by the Hindu Succession Act. Enacted in 1956, it specifies the rights and liabilities of coparceners. This law has further extended the line of co-parcenery to the daughters in a joint Hindu family.

Page No 36:

Question 1.A6:

Select the proper option from the options given below and rewrite the completed sentences.

The members of Hindu Undivided family business are called ________
(a) Karta
(b) partners
(c) co-parceners

Answer:

Correct option- c
The members of Hindu Undivided family business are called co-parceners.
Explanation:
Co-parceners refer to the members or the common ownership of the ancestral property. In other words, the members of a Hindu undivided family business enjoy common ownership in the ancestral property; therefore, they are called co-parceners.

Page No 36:

Question 1.A7:

Select the proper option from the options given below and rewrite the completed sentences.

Limited managerial skill is the ________ of Joint Hindu family business.
(a) feature
(b) limitation
(c) advantage

Answer:

Correct option- b
Limited managerial skills is the limitation of Joint Hindu family business.
Explanation:
The head of the family, also known as Karta, manages and controls the family business whereas; other members cannot interfere in the decisions of business. Thus, as a joint Hindu family business is managed and controlled by only one person, it results in limited ideas and management.

Page No 36:

Question 1.A8:

Select the proper option from the options given below and rewrite the completed sentences.

The Karta in Joint Hindu family Business has ________ Liability.
(a) Unlimited
(b) limited
(c) joint

Answer:

Correct option- a
The Karta in Joint Hindu family business has unlimited liability.
Explanation:
The Karta’s property can be used to pay the liabilities of the business if the business assets are not sufficient to pay off the debts, thus, he has unlimited liability. The liabilities of coparceners are limited.  

Page No 36:

Question 1.A9:

Select the proper option from the options given below and rewrite the completed sentences.

The Head of Joint Hindu family Business is called as ________.
(a) Proprietor
(b) Karta
(c) Director

Answer:

Correct option - b
The head of a joint Hindu family business is called Karta.
Explanation:
The Karta is the eldest male member of a joint Hindu family who controls and manages the joint Hindu family business. He takes all the decisions relating to the family business and has unlimited liability.

Page No 36:

Question 1.A10:

Select the proper option from the options given below and rewrite the completed sentences.

The maximum number of partners for a firm carrying on banking business is ________
(a) Ten
(b) Twenty
(c) Seven

Answer:

Correct option- a
The maximum number of partners for a firm carrying on banking business is ten.
Explanation:
The maximum number of partners in a banking business is 10. For other businesses, the maximum number of partners is 20.

Page No 36:

Question 1.A11:

Select the proper option from the options given below and rewrite the completed sentences.

Indian partnership Act was passed in the year ________.
(a) 1932
(b) 1923
(c) 1942

Answer:

Correct option- a
Indian Partnership Act was passed in the year 1932.
Explanation:
Indian Partnership Act was passed in the year 1932. According to this Act, “partnership is the relation between two or more persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

Page No 36:

Question 1.A12:

Select the proper option from the options given below and rewrite the completed sentences.

Registration of partnership firm is ________ in Maharashtra.
(a) Compulsory
(b) no compulsory
(c) optional.

Answer:

Correct option- a
Registration of partnership firm is compulsory in Maharashtra.
Explanation: Registration of a partnership firm was made compulsory in Maharashtra with effect from 1 April 1985. It is not compulsory in other states.

Page No 36:

Question 1.A13:

Select the proper option from the options given below and rewrite the completed sentences.

In partnership firm the liability of partners is ________.
(a) limited
(b) unlimited
(c) non of above.

Answer:

Correct option- b
In partnership firm the liability of partners is unlimited.
Explanation:
Unlimited liability imply that, if a business’s assets are not sufficient to pay the business liabilities, then personal assets of the partners can be used to pay off the debts. Thus, in partnership firm the liability of partners is said to be unlimited.

Page No 36:

Question 1.A14:

Select the proper option from the options given below and rewrite the completed sentences.

In a partnership firm every partner is the principal as well as the ________.
(a) agent
(b) karta
(c) partner

Answer:

Correct option- a
In a partnership firm every partner is the principal as well as the agent.
Explanation:
In a partnership firm, every partner is the principal as well as the agent. It means that any partner can enter into a contract with other firms by himself (as the principal), without discussing it with other partners (acting as an agent on behalf of others).

Page No 36:

Question 1.A15:

Select the proper option from the options given below and rewrite the completed sentences.

At least ________ persons are required to form a partnership firm.
(a) two
(b) one
(c) three

Answer:

Correct option - a
At least two persons are required to form a partnership firm.
Explanation:
A partnership is not meant for one person. It involves an agreement between two or more persons. Under partnership, two or more person comes into contact which each other and agrees to share profit or loss equally or in some decided ratio.

Page No 36:

Question 1.A16:

Select the proper option from the options given below and rewrite the completed sentences.

The maximum number of members in a private limited company are ________
(a) 50
(b) 40
(c) 20

Answer:

The maximum number of members in a private limited company are 50.
Explanation:
As per the Companies Act 1956, the number of members in a private limited company is minimum 2 and maximum 50. On the other hand, in public limited companies, minimum 7 members are required and there is no limit for the maximum number of members.

Page No 36:

Question 1.A17:

Select the proper option from the options given below and rewrite the completed sentences.

The liability of the shareholders in the public limited joint stock company is ________.
(a) limited
(b) unlimited
(c) collectively

Answer:

Correct option- a
The liability of the shareholders in the public limited joint stock company is limited.
Explanation:
The liability of shareholders is limited to the amount of their investment in the shares. Because of the company’s legal status, the company’s liabilities are its own; thus, personal property of shareholders cannot be used to pay the liabilities.

Page No 36:

Question 1.A18:

Select the proper option from the options given below and rewrite the completed sentences.

The elected representatives of shareholders are called ________.
(a) Directors
(b) Members
(c) Owners

Answer:

Correct option- a
The elected representatives of shareholders are called directors.
Explanation:
Directors are the representatives of shareholders in a company. This is because the number of shareholders is large and they may belong to different places across the country. Therefore, they cannot take part in meetings. Thus, directors are elected or chosen to attend meetings on their behalf.



Page No 37:

Question 1.A19:

Select the proper option from the options given below and rewrite the completed sentences.

A joint stock company is an Artificial person created by ________.
(a) law
(b) public
(c) directors

Answer:

Correct option- a
A joint stock company is an artificial person created by law.
Explanation:
A joint stock company is an artificial person created by the law. It cannot be seen physically but it has a name, it uses the common seal in place of its signature and it can enter into contracts.

Page No 37:

Question 1.A20:

Select the proper option from the options given below and rewrite the completed sentences.

Registration of a Joint stock company is ________.
(a) compulsory
(b) not necessary
(c) optional

Answer:

Correct option- a
Registration of a joint stock company is compulsory.
Explanation:
According to the Indian Companies Act 1956, every Indian company has to be registered with the Registrar of Companies.

Page No 37:

Question 1.A21:

Select the proper option from the options given below and rewrite the completed sentences.

The minimum numbers of persons required for the registration of a private company is ________.
(a) 5
(b) 2
(c) 7

Answer:

Correct option- b
The minimum numbers of persons required for the registration of a private company is two.
Explanation:
A private company is formed with minimum two persons. Thus, it can be registered when there are atleast two members. On the other hand, a public limited company is formed with minimum 7 members.

Page No 37:

Question 1.A22:

Select the proper option from the options given below and rewrite the completed sentences.

The minimum number of Directors in a public company are ________.
(a) two
(b) three
(c) five.

Answer:

Correct option- b
The minimum number of directors in a public company are three.
Explanation:
A public company needs to have at least three directors. On the other hand, a private company must have at least two directors.

Page No 37:

Question 1.A23:

Select the proper option from the options given below and rewrite the completed sentences.

The minimum amount of paid up capital for public company is ________.
(a) Five lakhs
(b) one lakh
(c) ten lakhs

Answer:

Correct option- a
The minimum amount of paid up capital for public company is five lakhs.
Explanation:
According to Section 3(I)(4) of the Companies Act 1956, the minimum amount of paid-up capital for a public company is five lakhs. Whereas, it is 1 lakh in case of private company.

Page No 37:

Question 1.A24:

Select the proper option from the options given below and rewrite the completed sentences.

The minimum of members allowed in a co-operative society is ________.
(a) 20
(b) 10
(c) 7

Answer:

Correct option- b
The minimum of members allowed in a co-operative society is 10.
Explanation:
 A co-operative society can be formed with a minimum of 10 members. There is no maximum limit on the number of members in a co-operative society.

Page No 37:

Question 1.A25:

Select the proper option from the options given below and rewrite the completed sentences.

In a co-operative society the principle followed is ________.
(a) one share one vote
(b) one man one vote
(c) on vote.

Answer:

Correct option- b
In a co-operative society the principle followed is one man one vote.
Explanation:
“One man, one vote” means that equal voting rights are given to all members of a co-operative society. Hence, there exists a democratic style of management in a co-operative society.

Page No 37:

Question 1.A26:

Select the proper option from the options given below and rewrite the completed sentences.

The co-operative societies Act was passed in the year ________.
(a) 1932
(b) 1912
(c) 1956

Answer:

Correct option - b
The Co-operative Societies Act was passed in the year 1912.
Explanation:
The Co-operative Societies Act was passed in 1912. All co-operative societies are required to get themselves registered under this Act or under the State Co-operative Act.

Page No 37:

Question 1.A27:

Select the proper option from the options given below and rewrite the completed sentences.

The Maharashtra State co-operative societies Act was came in force in ________.
(a) 1956
(b) 1960
(c) 1932

Answer:

Correct option- b
The Maharashtra State co-operative societies Act came in force in 1960.
Explanation:
In 1960, the Maharashtra State Co-operative Societies Act was passed. All co-operative societies in Maharashtra are required to register themselves under the Maharashtra State Co-operative Societies Act.

Page No 37:

Question 1.A28:

Select the proper option from the options given below and rewrite the completed sentences.

While selecting the place of business _______ is important.
(a) locality
(b) region
(c) capital

Answer:

Correct option- a
While selecting the place of business locality is important.
Explanation:
Availability of raw material, labor, modes of transportation and other facilities are important for any business. Thus, while selecting the place of business, it is important to consider the locality and ensure that all these components are easily available.

Page No 37:

Question 1.A29:

Select the proper option from the options given below and rewrite the completed sentences.

From the point of continuity ________ business organizations is the most suitable.
(a) company
(b) partnership
(c) sole proprietorship

Answer:

Correct option- a
From the point of continuity company business organisation is the most suitable.
Explanation:
A joint stock company enjoys a continuous and stable life. This feature is known as perpetual succession, which means that the company remains unaffected by the death, retirement, insolvency or insanity of its members. Thus, from the point of continuity, a company form of business organisation is the most suitable.

Page No 37:

Question 1.B1:

Match the correct pairs.

Group “A”
Group “B”
a)
Private company
1)
Compulsory
b)
Public company
2)
Minimum 7 members
c)
Common Seal
3)
Maximum 50 members
d)
Registration of a company
4)
61% share capital
e)
Government company
5)
51% share capital
 
 
6)
Symbol of a company
 
 
7)
Optional
 
 
8)
Simple formation
 
 
9)
Easy dissolution
 
 
10)
Hindu succession Act 1956.

Answer:

Group A
Group B
a)
Private company
3)
Maximum 50 members
b)
Public company
2)
Minimum 7 members
c)
Common Seal
6)
Symbol of a company
d)
Registration of a company
1)
Compulsory
e)
Government company
5)
51% share capital

Explanation:

a. A private company can have minimum 2 members and maximum 50 members. Hence, as per the definition of a private company, any company with less than two members will be regarded as a sole proprietorship firm. On the other hand, if the number of members exceeds 50, it will be regarded as a public company.

b. A public company can have a minimum of seven members, but there is no limit on the maximum number of members.

c. A company is an artificial person; therefore, it cannot sign its documents. However, to validate the documents, the directors of the company use a common seal on behalf of the company. Hence, the common seal is regarded as the symbol of the company.

d. According to the Indian Companies Act 1956, every company has to be registered with the Registrar of Companies.

e. In a government company, minimum 51% of share capital is owned by the government and the rest 49% can be owned by the private players of the market. Therefore, the decision-making power rests with the government.



Page No 38:

Question 1.B2:

Match the correct pairs.
 

Group “A”
Group “B”
a)
Sole proprietorship
1)
No legal status
b)
Joint stock company
2)
Partner
c)
Partnership Act
3)
1956
d)
Co-operative society
4)
1960
e)
Joint Hindu family firms
5)
One member one vote
 
 
6)
Karta
 
 
7)
Maximum business secrecy
 
 
8)
Common seal
 
 
9)
1932
 
 
10)
member

Answer:

Group A
Group B
a)
Sole proprietorship
7)
Maximum business secrecy
b)
Joint stock company
8)
Common seal
c)
Partnership Act
9)
1932
d)
Co-operative society
5)
One member, one vote
e)
Joint Hindu family firms
6)
Karta

a. A sole trading concern ensures maximum business secrecy. All the information related to the business remains with the owner and it is up to him whether he wants to share the information with others or not. So, others cannot take undue advantage.

b. In 1956, the Indian Companies Act was enacted. It specifies the rules and regulations for companies.

c. The Indian Partnership Act was passed in 1932. As per the act, “partnership is the relation between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

d. In a co-operative society, the principle of “one man, one vote” is followed. It means that one person can cast vote only once. This gives equal voting rights to all members of a co-operative society.

e. The head of a joint Hindu family business is called the Karta. He is the eldest male member of a joint Hindu family. He controls and manages the business and has unlimited liability.

Page No 38:

Question 1.C1:

Write a word or a phrase or a term which can substitute each one of the following.

The business organization which has minimum ten members.

Answer:

The business organisation which has minimum ten members - Co-operative society.
Explanation:
As per the Co-operative Societies Act 1912, minimum 10 persons are required to start a co-operative society.

Page No 38:

Question 1.C2:

Write a word or a phrase or a term which can substitute each one of the following.

The type of commercial organization established for providing services to its members.

Answer:

The type of commercial organisation established for providing services to its members- Co-operative society.
Explanation:
The purpose of a co-operative society is not to earn profits but to provide services to its members. It is registered under the Co-operative Societies Act 1912.

Page No 38:

Question 1.C3:

Write a word or a phrase or a term which can substitute each one of the following.

An elected body of representatives of a co-operative organization for its day-to-day administration.

Answer:

An elected body of representatives of a co-operative organisation for its day to day administration- Managing committee.
Explanation:

A cooperative society is formed to provide services to its members. It is managed and controlled by the managing committee which is a body that consists of elected representatives of cooperative organisation.

Page No 38:

Question 1.C4:

Write a word or a phrase or a term which can substitute each one of the following.

The rules and regulations laid down by the managing committee of a co-operative organization.

Answer:

The rules and regulation laid down by the managing committee of a co-operative organisation- one member one vote.
Explanation:

The rules and regulation laid down by the managing committee of a co-operative organisation is ‘one member one vote’. This implies that, in a co-operative organisation, any decision or rule is passed only after consulting each member. It is done through voting, where each member’s vote is counted as one vote. If the majority is in favor, then the rule is passed, otherwise not.

Page No 38:

Question 1.C5:

Write a word or a phrase or a term which can substitute each one of the following.

The owner is the sole manager and decision maker of his business.

Answer:

The owner is the sole manager and decision maker of his business- Sole proprietorship.
Explanation:

In a sole proprietorship, the business is owned and managed by one individual. This individual is solely responsible of the business and doesn’t share profits and loss with anyone.

Page No 38:

Question 1.C6:

Write a word or a phrase or a term which can substitute each one of the following.

The commercial organization which has maximum secrecy.

Answer:

The commercial organisation which has maximum secrecy- Sole proprietorship.
Explanation:

A sole trading concern ensures maximum business secrecy. All the information related to the business remains with the owner and it is up to him whether he wants to share the information with others or not. So, others cannot take undue advantage.

Page No 38:

Question 1.C7:

Write a word or a phrase or a term which can substitute each one of the following.

'One man show' type of business organization.

Answer:

One man show type of business- Sole proprietorship.
Explanation:
A sole proprietorship is owned, controlled and managed by one person. Therefore, it is also known as one-man show. The proprietor receives all the profits. At the same time, he/she is responsible for the losses.

Page No 38:

Question 1.C8:

Write a word or a phrase or a term which can substitute each one of the following.

An artificial person created by law.

Answer:

An artificial person created by law- Joint Stock company.
Explanation:

A joint stock company is created as a separate legal entity. It is independent of its members. It cannot be seen physically, but it has a name, it uses the common seal in place of its signature and it can enter into contracts.

Page No 38:

Question 1.C9:

Write a word or a phrase or a term which can substitute each one of the following.

The senior most family member of joint Hindu family firm.

Answer:

The senior most family member of Joint Hindu Family Firm- Karta.
Explanation:

The eldest male member of a joint Hindu family business is called Karta. He controls and manages the business. Other members are called coparceners.

Page No 38:

Question 1.C10:

Write a word or a phrase or a term which can substitute each one of the following.

The members of the Joint Hindu family firm.

Answer:

The members of the Joint Hindu Family Firm- Co-parceners.
Explanation:

The members of a joint Hindu family business are called coparceners. The word “coparceners” means “common ownership in the ancestral property”. The head of the business is called Karta.

Page No 38:

Question 1.C11:

Write a word or a phrase or a term which can substitute each one of the following.

A partner who gave his name to partnership firm.

Answer:

A partner who gave his name to partnership firm- nominal partner.
Explanation:

A nominal partner is the one who only lends his name to the business. He neither contributes capital nor shares the profits or losses of the business.

Page No 38:

Question 1.C12:

Write a word or a phrase or a term which can substitute each one of the following.

A partner in partnership firm who takes active participation in day to day work.

Answer:

A partner in partnership firm who takes active participation in day to day work- Active Partner.
Explanation:

Active partners are the one who contribute capital and take part in the management of the business. They share profits and losses and have unlimited liability.

Page No 38:

Question 2.1:

Distinguish between the following.

Sole Trading concern and partnership firm.

Answer:

Difference between Sole Trading Concern and Partnership Firm
Basis of Difference Sole Trading Concern Partnership Firm
 
Formation Formed at the will of the owner. Formed with a mutual agreement (oral or written) among the partners.
Management and control Managed and controlled solely by the owner. Management and control of ownership are shared by the partners.
Sharing of profits and losses Profits and losses belong to the owner. Profits and losses are shared among the partners in a pre-decided ratio.
Number of members Only one member (owner) runs it. Minimum-2, Maximum (in case of a banking business)- 10, Maximum (in case of ordinary business)- 20.
Governance There is no regulating act to govern it. It is governed by the Indian Partnership Act 1932.
Decision making Decision making is rapid, as all the decisions are taken by the sole proprietor. Decision making is relatively delayed, as it requires the consent of all partners.

Page No 38:

Question 2.2:

Distinguish between the following.

Joint Hindu family firm and Sole Trading concern

Answer:

Difference between Joint Hindu Family Firm and Sole Trading Concern

Basis of Difference

Joint Hindu Family Firm

Sole Trading Concern

Members

No limit on the maximum number of members in a family business.

Has only one member (owner).

Continuity

It continues even after the death of the Karta. The next eldest member of the family becomes the Karta.

It comes to an end after the death, lunacy or insolvency of the owner.

Sharing of profits

Profits and losses are shared by the coparceners.

Profits or losses belong to the owner and are not shared with anyone.

Governance

It is governed by the Hindu laws & the Hindu Succession Act 1956.

There is no regulating act.

Liability

Liability of all members is limited, but Karta has unlimited liability.

Liability of the sole proprietor is unlimited.

Decision making

All decisions are taken by the Karta.

All decisions are taken by the sole proprietor.

Page No 38:

Question 2.3:

Distinguish between the following.

Joint Hindu Family firm and Partnership

Answer:

Difference between Joint Hindu Family Firm and Partnership Firm

Basis of Difference

Joint Hindu Family Firm

Partnership Firm

Regulating Act

Governed by the Hindu laws & the Hindu Succession Act 1956.

Governed by the Indian Partnership Act 1932.

Number of members

Minimum: 2

Maximum: No limit

Minimum: 2

Maximum: 10 for banking business and 20 for other businesses

Minor

Minors can be members.

Minors cannot be members

Liability

Liability of all members is limited, but the liability of the Karta is unlimited.

Liability of the partners is unlimited.

Management and control

Management and control lie in the hands of the Karta.

Management and control are shared by the partners.

Decision making

All decisions are taken by the Karta.

Any decision requires the consent of all partners.

Page No 38:

Question 2.4:

Distinguish between the following.

Partnership firm and Joint Stock company

Answer:

Difference between Partnership Firm and Joint Stock Company

Basis of Difference

Partnership Firm

Joint Stock Company

Regulating Act

Governed by the Indian Partnership Act 1932.

Governed by the Companies Act 1956.

Number of members

Minimum: 2

Maximum: 10 for banking business and 20 for other businesses

In case of a private company:

Minimum: 2

Maximum: 50

In case of a public company:
Minimum: 7

Maximum: No limit 

Liability

Partners have unlimited liability.

Shareholders have limited liability to the extent of the unpaid amount on the shares held by them.

Management and control

Management and control are shared by partners.

Management and control lie in the hands of the managing director.

Formation

Easy to form, as there are no legal formalities.

Difficult to form, as there are many legal formalities.

Financial resources

It can raise limited financial resources.

It can raise a large amount of financial resources.

Page No 38:

Question 2.5:

Distinguish between the following.

Joint Hindu family firm and Joint stock company

Answer:

Difference between Joint Hindu Family Firm and Joint Stock Company

Basis of Difference

Joint Hindu Family Firm

Joint Stock Company

Governance

Governed by the Hindu laws.

Governed by the Companies Act 1956.

Number of members

Minimum: 2

Maximum: No limit

In case of a private company:

Minimum: 2

Maximum: 50

In case of a public company:
Minimum: 7

Maximum: No limit

Minor

Minors can be members.

Minors cannot be members.

Management and Control

Managed and controlled by the Karta.

Managed and controlled by the managing director.

Liability

Karta has unlimited liability; other members enjoy limited liability.

Shareholders have limited liability to the extent of the unpaid amount on the shares held by them.

Formation

Easy to form, as few legal formalities need to be fulfilled.

Comparatively difficult to form, as several legal formalities need to be fulfilled.

Page No 38:

Question 2.6:

Distinguish between the following.

Private Limited company and Public limited company

Answer:

Difference between Private and Public Limited Companies

Basis of Difference

Private Limited Company

Public Limited Company

Number of members

Minimum: 2

Maximum: 50

Minimum: 7

Maximum: No limit

Number of directors

Minimum two directors are required.

Minimum three directors are required.

Minimum paid-up capital

Rs 1 lakh

Rs 5 lakhs

Prospectus

Not compulsory to issue prospectus or a statement in lieu of prospectus.

Compulsory to issue prospectus or a statement in lieu of prospectus (in case of absence of prospectus).

Minimum subscription

Minimum subscription is not required for a private company.

Minimum subscription is required for a public company.

Share certificates

It cannot issue share certificates.

It can issue share certificates.

Page No 38:

Question 2.7:

Distinguish between the following.

Sole trading concern and Joint stock company

Answer:

Difference between Sole Trading Concern and Joint Stock Company

Basis of Difference

Sole Trading Concern

Joint Stock Company

Governance

Not governed by any law.

Governed by the Companies Act 1956.

Members

It has only one member who is the owner of the business.

In case of a private company:

Minimum: 2

Maximum: 50

In case of a public company:
Minimum: 7

Maximum: No limit

Liability

Liability of the sole owner is unlimited.

Shareholders have limited liability to the extent of the unpaid amount on the shares held by them.

Formation

Easy to form, as there are no legal formalities.

Difficult to form, as there are several legal formalities.

 Decision making

All decisions are taken solely by the sole proprietor.

All decisions are taken by the board after the approval of shareholders.

Management and control

Management and control lie in the hands of the owner.

Management and control lie in the hands of the managing director.

Page No 38:

Question 3.1:

Write short notes on the following.

Features of a proprietorship

Answer:

Features of a proprietorship:

i. Easy formation and closure: This form of organisation requires minimum legal formalities while forming and closing down the business.

ii. Unlimited liability: A sole proprietor has unlimited liability; this implies that the personal assets of the proprietor can be utilised in case the business assets fall short of debt obligations.

iii. Direct incentives: As the sole proprietor enjoys all the profits and bears all the risks and losses associated with the business, he/she gets direct incentives while running the business.

iv. Single ownership: It is managed and controlled single-handedly by the proprietor only.

v. Secrecy of information: In a proprietorship firm, all the decisions are taken by the proprietor; therefore, he/she retains maximum business-related secrecy.

vi. Minimum government regulations: As a sole proprietorship firm is not governed by any laws and acts, there is minimum government interference in its operations.

Page No 38:

Question 3.2:

Write short notes on the following.

Merits of a proprietorship

Answer:

Merits of a proprietorship:

i. Ease of formation and closure: There are hardly any legal formalities required while forming and shutting down a sole proprietorship firm; hence, its formation is relatively easy.

ii. Quick decision making: A sole proprietor enjoys complete control over the business. This makes the decision-making process quick and easy.

iii. Minimum government regulations: There is minimum interference by the government, as this business form is not governed by any laws and acts.

iv. Direct incentives: The profits and losses wholly belong to the proprietor. Hence, he/she enjoys direct incentives for operating the business.

v. High degree of flexibility: There exists a high degree of operational flexibility, as all the decisions are taken by the proprietor alone. Thus, for any variation in business plans, the proprietor enjoys complete flexibility.

vi. Secrecy of information: In a proprietorship firm, all the decisions are taken by the proprietor; therefore, he/she retains maximum business-related secrecy.

Page No 38:

Question 3.3:

Write short notes on the following.

Features of partnership firm.

Answer:

Features of a partnership firm:

i. Risk bearing: The risk associated with the fluctuations in the firm’s profits is borne jointly by the partners.

ii. Decision making and control: In a partnership firm, decisions are jointly taken by the partners. Also, the operations are controlled jointly by the partners.

iii. Unlimited liability: In a partnership firm, all the partners have unlimited liability. That is, all the partners are liable for the debts of the firm to an unlimited extent.

iv. Agreement: A partnership requires an agreement (either oral or written) between two or more partners.

v. Number of members: In a partnership firm, the minimum and maximum numbers of members are 2 and 20, respectively. However, for a banking business, the maximum number of members is 10.

vi. Continuity: According to the Partnership Act, the death, lunacy, insolvency or insanity of any of the partners ends the partnership.

Page No 38:

Question 3.4:

Write short notes on the following.

Type of partners

Answer:

There are various types of partners in a partnership firm. They are:

i. Active partners: They contribute capital to the business and share profits and losses; they are also actively involved in the working of the business.

ii. Sleeping partners: They contribute capital to the business and share profits and losses, but they are not involved in the working of the business.

iii. Nominal partners: They only lend their names to the business. They neither contribute any capital to the business nor share profits or losses.

iv. Minor partners: Minors partners are members below 18 years of age who are made partners in the business with the mutual consent of all partners. They share only profits and have no liability.

v. Partners in profits only: They only share the profits of the business and do not take part in the working of the business.

vi. Limited partners: The liability of these partners is limited to the extent of their investment in the business. They do not take part in the management of the business.

vii. Partners by holding out: They are not partners in the firm, but they represent themselves as partners by their actions or conduct.

viii. Secret partners: Their association with the firm is unknown to the general public.



Page No 39:

Question 3.5:

Write short notes on the following.

Merits of a partnership firm

Answer:

Merits of a partnership firm:

i. Easy formation: It requires an agreement (oral or written) between two or more partners for its formation. Thus, easy formation.

ii. Sharing of risks: The risks in a partnership firm are shared jointly by all partners. This reduces the burden on each partner.

iii. Balanced decision making: Decision making is balanced, as all decisions are taken collectively by all partners.

iv. Confidentiality: As a partnership firm is not required to publish its accounts or submit its reports legally, confidentiality and secrecy of information are maintained.

v. Greater flexibility: A partnership firm enjoys greater flexibility because not many restrictions are there under the Partnership Act.

vi. Greater availability of resources: As partners pool their capital and resources, the business gets higher amount of funds for its operations.

Page No 39:

Question 3.6:

Write short notes on the following.

Type of partnership firm.

Answer:

Partnership firms can be classified into the following categories:
i. On the basis of duration:

a. Partnership at will: This partnership exists as long as the partners wish to carry it.

b. Particular partnership: This partnership is formed to accomplish a particular project.

ii. On the basis of liability:

a. General partnership: Under this partnership, the partners have unlimited liability. Also, its registration is optional.

b. Limited partnership: Under this partnership, the liability of the partners is limited to the share agreed by them in the partnership agreement.

iii. On the basis of registration:

a. Registered partnership: This partnership is registered under the Indian Partnership Act 1932.

b. Unregistered partnership: This partnership is not registered under the Indian Partnership Act 1932.

Page No 39:

Question 3.7:

Write short notes on the following.

Features of Joint Hindu family.

Answer:

Features of a joint Hindu family business:

i. Formation: The formation of a joint Hindu family business requires the existence of ancestral property. Also, at least two members are required for its formation.

ii. Control: The Karta is solely responsible for all the management decisions of the business.

iii. Continuity: The continuity of a joint Hindu family business remains unaffected by the death of the Karta as the next eldest member becomes the Karta.

iv. Unlimited liability: The Karta being the head of the joint Hindu family has unlimited liability.

v. Status of minors: A minor also has membership rights in the business; that is, membership in the business is acquired by virtue of birth.

vi. Quick decision making: Complete control by the Karta enables proper administrative functioning and quick decision making.

Page No 39:

Question 3.8:

Write short notes on the following.

Merits of Joint Hindu family

Answer:

Merits of a joint Hindu family business:  

i. Easy formation: The formation of a joint Hindu family business requires the existence of ancestral property, with at least two members. It is governed by the Hindu Succession Act 1956 and does not require any agreement.

ii. Continuity: The continuity of a joint Hindu family business remains unaffected by the death of the Karta.

iii. Quick decision making: Complete control by the Karta enables proper administrative functioning and quick decision making.

iv. Greater cooperation: As the business is run by the members of a family, there exists greater cooperation and loyalty.

v. Secrecy: As all the decisions are taken by the Karta, secrecy of information is maintained among the family members.

vi. Limited liability: The liability of all members or co-partners (except the Karta) is limited to the extent of their share in the business.

Page No 39:

Question 3.9:

Write short notes on the following.

Features of Joint Stock company.

Answer:

Features of a joint stock company:

i. Artificial person: Unlike human beings, a company, as an artificial person, cannot sign its documents and negotiate with its customers.

ii. Separate legal entity: It implies that the company is created as a separate legal entity by law and is a juristic person.

iii. Perpetual succession: A company is a separate legal entity that cannot come to an end by itself. It continues to operate even if all of its members die.

iv. Limited liability: The shareholders of a company enjoy limited liability to the amount of capital invested by them in the business.

v. Common seal: The board of directors uses the common seal as an official signature of the company to validate official documents.

vi. Risk bearing: The risks are shared jointly by the shareholders. It reduces the burden on a single shareholder.

Page No 39:

Question 3.10:

Write short notes on the following.

Merits of Joint stock company.

Answer:

Merits of a joint stock company:

i. Limited liability: The liability of the shareholders is limited to the amount paid by them for the shares purchased.

ii. Perpetual existence: A company is a separate legal entity that cannot come to an end by itself. It continues to operate even after the death of its members.

iii. Professional management: A joint stock company hires professionals and specialised managers for handling complex operations. Thus, increasing efficiency.

iv. Transferability of shares: The ownership of shares is freely transferable in a company.  This acts as an incentive for investors to invest in the company.

v. Huge capital: The capital can be easily expanded by issuing new shares.

vi. Sharing of risks: The risks in a company are jointly shared by all shareholders. This reduces the burden on a single shareholder.

Page No 39:

Question 3.11:

Write short notes on the following.

Features of Co-operative society.

Answer:

Features of a co-operative society:

i. Separate legal entity: A co-operative society has an independent legal status. This implies that it can hold properties in its name and enter into contracts.

ii. Management and control: A co-operative society is managed and controlled by a managing committee formed by its members.

iii. Voluntary association: The membership is on voluntary basis and is not affected by caste, gender or religious considerations.

iv. Limited liability: The degree of liability of a member is limited to the amount of capital contributed by him or her.

v. State control: Co-operative societies follow certain rules and regulations framed by the co-operative departments of the concerned state governments.

vi. Equality in voting rights: It serves the value of equality through its policy of ‘one member, one vote’, regardless of the share of capital contributed by each member.

Page No 39:

Question 3.12:

Write short notes on the following.

Merits of Co-operative society.

Answer:

Merits of a co-operative society:

i. Ease of formation: The formation of a co-operative society is quite easy, as it requires the induction of only 10 adult members. Its registration process is also simple.

ii. Continued existence: A co-operative society is a stable form of organisation, as its existence remains unaffected by the death, insolvency or insanity of its members.

iii. Equal voting rights: There is equality in voting rights, as it follows the policy of “one member, one vote”.

iv. Limited liability: The degree of liability of a member is limited to the amount of capital contributed by him or her.

v. Open membership: Membership of a co-operative society is open to all persons; caste, creed, religion or sex is no bar to membership.

vi. Democratic management: The management of a co-operative society is democratic in nature, as it is managed and controlled by a managing committee formed by its members.

Page No 39:

Question 3.13:

Write short notes on the following.

Demerits of Co-operative society.

Answer:

Demerits of a co-operative society:

i. Excessive government control: A co-operative society has to follow certain rules and regulations framed by the co-operative department of the concerned state government.

ii. Limited capital: The financial resources that a co-operative society can raise from the public are limited, as the rate of dividend on capital is low and the principle of “one member, one vote” is followed.

iii. Lack of secrecy: Secrecy of information in a co-operative society cannot be maintained, as it discloses information about its operations to its members.

iv. Lack of motivation: Members of a co-operative society do not feel motivated to do their best, as there is no incentive for hard work.

v. Conflicts: Members of a co-operative society may lack maturity and experience to deal with business problems. This may lead to conflicts among the members.

vi. Inefficiency in management: The management of a co-operative society generally comprises part-time or inexperienced people. They may not be skilled enough to handle managerial functions effectively.

Page No 39:

Question 4:

State with reasons whether the following statements are true or false.
1. There is no limit for membership in Joint Hindu family Business.
2. The liability of a Karta in a Joint Hindu family firm is limited.
3. The maximum number of members in a Joint Hindu family is 20.
4. Company form of organization has developed before industrial revolution.
5. A joint stock company can raise huge capital.
6. Share holders can manage the business.
7. The ownership and management are not separate in Joint stock company.
8. The main purpose of a co-operative organization is to earn profit.
9. The membership of a co-operative society is voluntary.
10. Co-operative society differs from other forms of commercial organizations.
11. Maximization of profit is the main motto of co-operative society.
12. In partnership agreement may be oral or written.
13. In a partnership the liability of every partner of a firm is unlimited.
14. The owner of the sole proprietorship is the sole decision maker of his business.
15. Sole Proprietorship is useful for small business.
16. A sole trading concern is easiest to form.

Answer:

1. There is no limit for membership in Joint Hindu family Business: True
Explanation: In a joint family business, each member of the family becomes a coparcener in the business by virtue of his or her birth. No agreement is required to become the member of the business. Thus, there is no limit for membership in Joint Hindu family Business.

2. The liability of a Karta in a Joint Hindu family firm is limited​: False
Explanation: The Karta of a joint Hindu family business has unlimited liability. It implies that his personal property can be used for paying debts of the business if business assets are not sufficient. The liability of coparceners is limited.

3. The maximum number of members in a Joint Hindu family is 20​: False
Explanation: There is no maximum limit on the number of members in a joint Hindu family business, as the membership comes in the form of legacy.

4. Company form of organization has developed before industrial revolution​: False
Explanation: Company form of organisation was not developed prior to the industrial revolution. It came into existence in the post-revolution period. Soon after the industrial revolution, the need for capital, managerial skills, professional specialisation, etc., was realised. This eventually led to the emergence of a new form of organisation, which is formally regarded as the company form of organisation.  

5. A joint stock company can raise huge capital​: True
Explanation: A joint stock company has numerous sources of raising funds.  A few of the fund-raising sources include, issuing financial securities (such as shares, debentures and bonds), raising finance from the general public via public deposits and borrowings from banks or other financial institutions. Thus, a joint stock company can raise huge capital.

6. Share holders can manage the business​: False
Explanation: All shareholders cannot manage the business. This is because shareholders are large in number and are spread across the globe. In this scenario, managing the business by shareholders would lead to chaos and confusion. That is why shareholders elect representatives (directors) who collectively manage the business.
 
7. The ownership and management are not separate in Joint stock company: False
Explanation: The ownership and management are separate in a joint stock company. While the ownership lies in the hands of the shareholders, the management lies in the hands of the directors.

8. The main purpose of a co-operative organization is to earn profit​: False
Explanation: The prime motive of a co-operative society is to render services and focus on the welfare of its members. Earning profit takes a subsidiary role in a co-operative organisation.

9. The membership of a co-operative society is voluntary​: True
Explanation: The membership of a co-operative society is open to everyone, and all those who wish to join may do so, to fulfill their common mutual interests. Thus, the membership of a co-operative society is said to be voluntary or intentionally.

10. Co-operative society differs from other forms of commercial organizations​: True
Explanation: The main purpose of other forms of commercial organisations is to maximise profit. On the other hand, the main purpose of a co-operative organisation is to provide services to its members. Thus, it differs from other forms of commercial organisations.

11. Maximization of profit is the main motto of co-operative society​: False
Explanation: A co-operative society does not aim at profit maximisation but rather to provide services to its members. Earning profit takes a subsidiary role in a co-operative organisation.

12. In partnership agreement may be oral or written​: True
Explanation: In a partnership, the agreement among partners may be oral or written, depending on the willingness of the partners. If partners wish to prepare a written agreement, they may do so, however, it is not mandatory.

13. In a partnership the liability of every partner of a firm is unlimited​: True
Explanation: The liability of every partner in a partnership firm is unlimited. This implies that the personal property of each partner can be used for paying business debts if the assets of the business are not sufficient to pay them off.

14. The owner of the sole proprietorship is the sole decision maker of his business​: True
Explanation: A sole proprietorship is owned and managed by an individual. Hence, he/she is the sole decision maker of the business.

15. Sole Proprietorship is useful for small business​: True
Explanation: A sole proprietorship is good for small businesses. This is because in a sole proprietorship, the individual requires modest capital and limited managerial skills to operate the business.

16. A sole trading concern is easiest to form​: True
Explanation: A sole trading concern is easy to form, as limited capital and few legal formalities are required. Any person who is a major (adult) and mentally sound can start a business.

Page No 39:

Question 5.1:

Write short answer of the following.

State the demerits of proprietorship.

Answer:

The following are the limitations of a sole proprietorship:

i. Limited capital: The financial resources that are available to a sole proprietor are limited to his/her personal savings and the borrowings that he/she can raise from relatives and friends. Thus, the scope of enlarging its capital falls short.

ii. Limited managerial abilities: A sole proprietor manages all core functions by himself. Being the sole owner, he/she has limited skills, imagination and energy. As a result, he/she cannot perform all managerial functions single-handedly.

iii. Uncertain life: The life of the sole proprietorship business is uncertain as it is adversely affected in the event of death, insanity, bankruptcy or physical ailment of a sole proprietor.

iv. Unlimited liability: The liability of a sole proprietor is unlimited. If the proprietor fails to pay the debts of the business, his/her personal property can be used to pay the debts.

v. Unsound business decisions: A sole trader takes all decisions himself/herself. As a result, the probability of taking wrong decisions is quite high.

vi. Lack of specialisation: A sole proprietorship has limited resources. As a result, the proprietor may not be able to employ specialised employees to handle specific business operations.

Page No 39:

Question 5.2:

Write short answer of the following.

State the features of Proprietorship.

Answer:

The following are some of the important features of a proprietorship:

i. Easy formation and closure: A proprietorship requires no legal formalities for its formation and closure. Thus, it is easy to start up a sole proprietorship business.

ii. Unlimited liability: A sole proprietor has unlimited liability. This implies that the personal assets of the proprietor can be used if the business assets fail to pay off the debts.

iii. Secrecy: A sole proprietorship is not required to publish its accounts. This enables the proprietor to maintain complete secrecy regarding the business.

iv. Suitability: A sole proprietorship model is suitable for businesses that require modest capital, personal attention and limited managerial skills.

v. Single ownership: A sole proprietorship is owned by an individual. As the sole owner of the business, he/she is solely responsible for all the decisions made and the consequences thereafter.

vi. Risk bearing: A sole proprietor is the sole bearer of all the risks associated with the business. He/she is also the single recipient of all profits and losses earned by the business.

Page No 39:

Question 5.3:

Write short answer of the following.

Define partnership and state its important features.

Answer:

Partnership is a form of organisation wherein two or more persons work together, pool funds and share the profits earned (or bear the losses incurred). The following are some of the important features of partnership: 

i. Easy formation: A partnership firm requires an agreement (oral or written) among its members to share the profits and losses as per the specified ratio.

ii. Unlimited liability: All the partners have unlimited liability. In other words, if the business assets fail to meet all the business debts, personal properties of the partners can be utilised for the purpose.

iii. Risk bearing: The risk associated with the fluctuations in the firm’s profits is borne jointly by the partners. This reduces the burden on each partner.

iv. Sharing of decision making and control: In a partnership firm, the decision making and control are shared by the partners.

v. Number of members: In a partnership business, the minimum number of members is 2 and the maximum number of members is 20. However, for a banking business, the maximum number of members is 10.

vi. Continuity: According to the Partnership Act, the death, lunacy, insolvency or insanity of any of the partners ends the partnership.

Page No 39:

Question 5.4:

Write short answer of the following.

State the types of partners.

Answer:

The following are the types of partners in a partnership firm:  

i. Active partners: They contribute capital to the business and share profits and losses and are actively involved in the working of the business. They have unlimited liability, which means that their personal property can be used to pay off the debts of the business.

ii. Sleeping partners: Although they contribute capital to the business and share profits and losses, they are not involved in the working of the business. Their liability is unlimited.

iii. Nominal partners: They only lend their names to the business. They neither contribute any capital to the business nor share profits or losses of the business.

iv. Minor partners: They are below 18 years of age and are made partners in the business with the mutual consent of all partners. They share only profits and have no liability for the losses of the business.

v. Partners in profits only: They share only profits of the business and do not take part in the working of the business. The liability of these partners is unlimited.

vi. Limited partners: The liability of these partners is limited to the amount of their investment in the business. They do not take part in the management of the business.

vii. Partners by holding out: They are not the partners of the firm; they represent themselves as partners by their action or conduct. They neither contribute any capital to the business nor participate actively in the operations of the business. They do not share profits or losses of the business.

viii. Secret partners: Their association with the business is unknown to the general public. Such partners do not contribute any capital but have participation rights in the management of the business. They are entitled to the profits and losses of the business.

Page No 39:

Question 5.5:

Write short answer of the following.

State the types of partnership firm.

Answer:

Partnership firms can be classified into the following categories:
i. On the basis of duration:

a. Partnership at will: This partnership exists as long as the partners wish to carry on the partnership. It comes to an end when a partner gives a notice to the firm regarding the withdrawal of his/her partnership from the business.

b. Particular partnership: It is formed for the accomplishment of a particular project. It comes to an end as soon as the project gets completed or the period of partnership gets over.   

ii. On the basis of liability:

a. General partnership: Under this partnership, partners have unlimited liability. The registration of the business is optional.

b. Limited partnership: Under this partnership, the liability of the partners is limited to the share they have in the partnership agreement. Such partnerships must be compulsorily registered with the Registrar of Firms.

iii. On the basis of registration:

a. Registered partnership: Under this partnership, the firm must be registered under the Indian Partnership Act 1932.

b. Unregistered partnership: Such partnerships are not registered under the Indian Partnership Act 1932.

Page No 39:

Question 5.6:

Write short answer of the following.

State any five features of partnership firm.

Answer:

The following are the five features of a partnership firm:

i. Easy formation: A partnership firm requires an agreement (oral or written) among the members on the share of profits and losses.

ii. Unlimited liability: In a partnership, all partners have unlimited liability. That is, all partners are liable for the debts of the firm to an unlimited extent.

iii. Risk bearing: The risk associated with the fluctuations in the firm’s profits is borne jointly by the partners. This reduces the burden on each partner.

iv. Sharing of decision making and control: In a partnership firm, the decision making and control are jointly shared by the partners.

v. Number of members: In a partnership business, the minimum number of members is 2 and the maximum number of members is 20. However, for a banking business, the maximum number of members is 10.

Page No 39:

Question 5.7:

Write short answer of the following.

State the merits of partnership firm.

Answer:

The following are the merits of a partnership firm:

i. Secrecy of information: It is not mandatory for a partnership firm to publish its annual accounts. A partnership firm can thus, maintain complete secrecy of its information.

ii. Easy formation: A partnership requires an agreement (oral or written) between two or more partners. This eases its formation.

iii. Risk sharing: The risks in a partnership firm are shared jointly by all partners. This reduces the burden on each partner.

iv. Balanced decision making: Decision making is balanced, as all decisions are taken collectively by all partners.

v. Simple dissolution: The partnerships are easy to dissolve as the dissolution requires either a 14 day notice by any of the partners or the completion of the specified time period for which the partnership was formed.

vi. Greater flexibility: A partnership firm enjoys greater flexibility because not many restrictions are laid down under the Partnership Act.

Page No 39:

Question 5.8:

Write short answer of the following.

State the Registration of partnership and its procedure.

Answer:

The following steps are required to be followed for the registration of a partnership firm with the Registrar of Firms:

i. At first, the partnership firm is required to submit its application with the Registrar of Firms. This application must contain all important details, and it should be duly signed by all partners. The information that needs to be mentioned in the application is as follows:
a. Name of the firm
b. Location of the firm
c. Names of places where the firm carries out its business
d. Dates of joining of all partners
e. Name and address of each partner
f. Duration of partnership

ii. Once the application form is duly filled and signed, the firm must deposit the application to the Registrar of Firms with the required fees.

iii. After receiving and critically examining the documents, the Registrar of Firms enters the name of the firm in the Register of Firms and issues a Certificate of Registration to the partnership firm.

Page No 39:

Question 5.9:

Write short answer of the following.

State the types of Co-operative societies.

Answer:

The following are the types of co-operative societies:

i. Consumer co-operative societies: These are formed to provide consumer goods at reasonable prices to their members.

ii. Producer co-operative societies: The objective of producer co-operative societies is to procure raw materials and other inputs at low costs and supply them to small producers.

iii. Marketing co-operative societies: These societies pool the outputs of the members and are responsible for certain marketing functions for them such as transportation, labelling, packaging and warehousing.

iv. Farmers’ co-operative societies: Such societies are formed by small farmers who pool their resources to reap the benefits associated with large-scale operations. These societies ensure the availability of better and advanced inputs at low rates to farmers.

v. Credit co-operative societies: These societies ensure the availability of funds to its members at comparatively low interest rates on reasonable terms.

vi. Co-operative housing societies: The aim of co-operative housing societies is to provide accommodation to their members by constructing houses for them.

Page No 39:

Question 5.10:

Write short answer of the following.

State the features of co-operative society.

Answer:

The following are the features of a co-operative society:

i. Democratic management: A co-operative society is a democratic form of organisation, as it is managed and controlled by a managing committee formed by the members of the society.

ii. Equal voting rights: A co-operative society grants equal voting rights to all its members. This implies that each member in the society has an equal voting right, regardless of the share of capital contributed by each member.

iii. Separate legal entity: A co-operative society has an independent legal status. This implies that the co-operative society can hold properties in its own name and enter into contracts.

iv. Voluntary association: Membership is on voluntary basis and is not influenced by caste, gender or religious considerations.

v. Limited liability: The degree of liability of a member is limited to the amount of capital contributed by him or her.

vi. State control: Co-operative societies follow certain rules and regulations imposed on them by the co-operative departments of the concerned state governments.

Page No 39:

Question 5.11:

Write short answer of the following.

State the merits of co-operative societies.

Answer:

The following are the merits of co-operative societies:

i. Limited liability: The liability of all members in a co-operative society is limited to the amount unpaid on the shares held by them.

ii. Ease of formation: The formation of a co-operative society is quite easy, as it requires the induction of only 10 adult members. Also, the registration procedure of a society is quite simple.

iii. Continued existence: A co-operative society is a stable form of organisation, as its existence remains unaffected by the death, insolvency or insanity of its members.

iv. Equal voting rights: There is an equality in the voting rights, as the voting process follows the policy of “one member, one vote”, regardless of the share of capital of each member.

v. Open membership: Membership of a co-operative society is open to all, regardless of caste, creed, religion or sex.

vi. Democratic management: A co-operative society is democratic in nature, as it is managed and controlled by a managing committee formed by its members.

Page No 39:

Question 5.12:

Write short answer of the following.

What are demerits of co-operative society?

Answer:

The following are the demerits of a co-operative society:

i. Excessive government control: Co-operative societies have to follow certain rules and regulations framed by the co-operative departments of the concerned state governments.

ii. Inefficiency in management: The management of a co-operative society generally comprises part-time or inexperienced people. They may not be skilled enough to handle the managerial functions effectively.

iii. Limited resources: The resources available with a co-operative society are limited to the extent of capital contribution by its members. The limited availability of resources restricts the scope of expansion of the co-operative society.

iv. Lack of secrecy: Secrets in a co-operative society are difficult to maintain, as the society has to disclose information related to its operations to its members.

v. Lack of motivation: Members of a co-operative society do not feel motivated to give their best, as there is no incentive for their hard work.

vi. Conflicts: Members of a co-operative society may lack maturity and experience to deal with business problems. This can lead to conflicts among the members.

Page No 39:

Question 5.13:

Write short answer of the following.

State features of Joint Stock Company.

Answer:

The following are the features of a joint stock company:

i. Artificial person: Unlike human beings, a company, is an artificial person. It cannot sign its documents, negotiate with its customers and breathe and talk.

ii. Separate legal entity: It implies that a company is created as a separate legal entity by the law. A company can carry out a business under its name and own assets.

iii. Formation: The formation of a company requires the fulfilment of a set of legal formalities. This makes the formation of a company expensive and time-consuming.

iv. Perpetual succession: A company, being a separate legal entity, cannot come to an end by itself; it continues to operate even after the death of its members.

v. Limited liability: The liability of shareholders is limited to the amount of capital invested by them in the business.

vi. Common seal: The board of directors uses the common seal as an official signature of the company to validate official documents.



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Question 5.14:

Write short answer of the following.

State merits of Joint Stock Company.

Answer:

The following are the merits of a joint stock company:

i. Limited liability: In a joint stock company, the liability of shareholders is limited to the amount paid by them on the shares purchased. Thus, the shareholder’s assets and funds cannot be used for the payment of debts.

ii. Perpetual existence: A joint stock company, being a separate legal entity, cannot come to an end by itself; it continues to operate even after the death of its members.  

iii. Scope for expansion: A company can easily grow and expand its capital by issuing shares. In case of expansion, a company can raise additional funds by issuing new shares.

iv. Professional management: Because of its sound financial base and resources, a company can hire professionals and specialised managers for handling complex operations. This contributes to the overall growth and development of the company, as it ensures greater efficiency.

v. Sharing of risks: The risks are jointly shared by all shareholders. This reduces the burden on each shareholder.

vi. Transferability of shares: The ownership of shares is freely transferable. This acts as an incentive for investors to invest in the company.

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Question 5.15:

Write short answer of the following.

State demerits of Joint Stock company.

Answer:

The following are the demerits of a joint stock company:

i. Complexity information: Formation of a joint stock company requires a large number of procedures and formalities. The legal procedures involved in the formation are not only lengthy but also expensive.

ii. Lack of secrecy: A joint stock company must submit the information about its operations to the Registrar of Companies. This makes it difficult for companies to maintain secrecy.

iii. Impersonal work environment: In a joint stock company, management and ownership are separate. In addition to this, the compensation of the management is not directly affected by the profits of the company. This leads to lack of efficiency on part of the managers.

iv. High degree of regulations: A joint stock company needs to follow certain legal formalities like auditing of accounts, filing of reports and documents and voting. These legal provisions make it difficult for the company to operate freely.

v. Delay in decision making: The board of directors and other executives manage the company. Sometimes, because of so many levels of management, decision making is delayed.

vi. Difficulty in winding up: The procedure of winding up a company is complex and cumbersome.

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Question 5.16:

Write short answer of the following.

State factors to be considered for starting business

Answer:

Before starting a new business venture, an entrepreneur must carefully consider various aspects. He or she must evaluate each aspect, considering various positive and negative consequences. Some of the important factors that must be considered while starting a business are:

i. Selecting the line of business: The line of business is the foremost decision that involves choosing the kind of product to produce, analysing the existing and future market demand and considering the profit margin and the level of technical know how possessed by the entrepreneur.

ii. Scale of business: Once the line of business is selected, the entrepreneur needs to decide upon the scale of business, i.e., the business size (large scale or small scale).

iii. Location: The choice of business location is dependent on numerous factors such as easy and cheap availability of raw materials and labour, well-connected transportation facilities and power and infrastructural facilities.

iv. Financial requirement: Finance is required for every aspect of business—from the purchase of raw materials and machinery to further investment for the growth of the business. Therefore, while starting a business, the availability of alternatives to raise funds should be analysed carefully.

v. Choice of form of ownership: The choice of form of ownership of the business is   dependent on numerous factors such as the capacity to manage and control the business, capital requirements, risks involved, continuity and stability.

vi. Raw materials: While starting a business, an entrepreneur has to decide on the availability of raw materials. Also, he/she has to decide on the requirement of raw materials and the quality and quantity in which they are required.

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Question 5.17:

Write short answer of the following.

State the point of choice of forms of business organization.

Answer:

The following are the factors that determine the choice of form of business organisation:

i. Nature of business activity: An individual first needs to decide upon the nature or kind of business activity that he or she desires to undertake. In case the business type requires direct personal contact with customers, the sole proprietorship form of business proves beneficial. On the other hand, if direct personal contact is not required, a partnership or company form of business is more suitable.

ii. Degree of control: The choice of a business also depends on the degree of control that a businessperson wants to exercise over its management. If a business person aims to have direct control over all business operations, a sole proprietorship is considered appropriate. However, if he or she does not mind sharing the decision-making power with others, a partnership or company form of business is more suitable.

iii. Degree and specialisation of managerial abilities: If business operations are large and require specialised and skilled professionals for managing them, a company form of business is appropriate. However, if business operations are not very complex and the scale of operations is also not very large, a sole proprietorship is a better alternative.

iv. Extent of liability: The extent of liability is also an important factor while choosing a form of business. This is because in case of a sole proprietorship and partnership, the liability of the owner or the partners is unlimited. On the other hand, in a company form of organisation, the liability of the members is limited to the amount of shares held by them. Thus, in case investors want less risk and liability, they may go for a company form of business.

v. Government control: The choice of form of business organisation depends on the government control. If a businessperson wants its business to be free from the government control, a sole proprietorship may be chosen. On the other hand, company and partnership forms of organisations should be chosen if government rules can easily be followed.

vi. Continuity: If a business needs a permanent structure, a joint Hindu family business, a co-operative society or a company can be established. On the other hand, for short-term ventures, a partnership or sole proprietorship can be preferred, as the continuity of these types of organisations is affected by the death, insolvency or insanity of the owners.

Page No 40:

Question 6.1:

Long answer type question.

Define Joint Stock Company and explain its features.

Answer:

A joint stock company refers to an organisation wherein a group of persons forms an association to perform business activities together. It is a separate entity that is managed by a group of members known as the board of directors. Main features of a joint stock company:

i. Artificial person: Unlike human beings, a company, as an artificial person, cannot sign its documents, negotiate with its customers and breathe and talk. Like human beings, a company does have its own life, which is independent of the life of its members.  That is why a company is regarded as an artificial person.

ii. Separate legal entity: It implies that a company is created as a separate legal entity by law and is a juristic person. In other words, a company, from the day of its incorporation, is given a separate legal status distinct from its members. A company can carry out a business in its name and own assets.

iii. Formation: The formation of a company requires the fulfilment of a set of legal formalities. This makes the formation of a company expensive and time-consuming. Also, the registration of a company is mandatory under the Indian Companies Act 1956.

iv. Perpetual succession: A company, being a separate legal entity, cannot come to an end by itself; it continues to operate even after the death of its members. Death, retirement or insolvency of any of its members cannot cease its existence.

v. Control: The management and ownership lie in the hands of different individuals. The company is owned by the shareholders, while its management and control lie in the hands of the elected members (board of directors). This board of directors, in turn, appoints the top management officials who manage the day-to-day operations of the business.

vi. Liability: In a joint stock company, the liability of all shareholders is limited to the amount of capital invested by them in the business. The personal property of the shareholders cannot be used for paying off the liabilities of the company. However, the shareholders can be asked to pay the amount of money that remains unpaid on the shares held by them.

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Question 6.2:

Long answer type questions.

Define a Sole Trading concern. Explain its merits and demerits.

Answer:

A sole trading concern is a form of business that is owned, managed and controlled by a single person known as a sole proprietor. As the sole owner of the business, the proprietor becomes the single recipient of all the profits earned by the business and, in the same way, has to bear all the losses incurred.

Merits of a sole proprietorship:

i. Easy formation and closure: There are hardly any legal formalities for setting up a sole proprietorship. However, if the proprietor is dealing in drugs and liquor products, a licence has to be acquired. The procedure for closing down the firm is also hassle-free.

ii. Quick decision making: A sole proprietor enjoys complete control over the business. This makes decision making quick and easy.

iii. Direct incentive: A sole proprietor is the sole bearer of all the risks associated with the business and, at the same time, is the single recipient of all the profits earned. Thus, this direct link between efforts and rewards motivates the sole proprietor to operate the business efficiently and effectively.

Limitations of a sole proprietorship:

i. Limited capital: The financial resources that are available to a sole proprietor are limited to his/her personal savings and the borrowings that can be raised from relatives and friends. Thus, the amount of capital available to the proprietor is limited. This often prevents business expansion.

ii. Limited managerial abilities: A sole proprietor manages all the core functions such as purchasing, selling and planning. As a result, the benefits of specialisation are not available to the proprietor. Also, because of limited resources, a sole proprietor may not be able to employ specialised employees to handle specific business operations.

iii. Uncertain life: In the eyes of the law, a sole proprietor and his or her business are regarded as the same entity. In the event of death, insanity, bankruptcy or physical ailment of the proprietor, the life of the business is adversely affected.

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Question 6.3:

Long answer type questions.

Define partnership firm. Explain its merits and demerits.

Answer:

A partnership firm is a form of organisation wherein two or more persons work together, pool funds and share the profits earned (or bear the losses incurred).
Merits of a partnership:

i. Easy formation and closure: It involves an agreement (oral or written) between two or more partners. The registration of a partnership firm is not compulsory; this eases its formation. Also, a partnership firm can be shut down at any time with the mutual consent of all partners.

ii. Balanced decision making: In a partnership firm, business decisions are taken collectively by all partners. This makes the decision-making process comparatively more balanced than that in other ownership models.

iii. Sharing of risks: The risks in a partnership firm are shared jointly by all partners. This reduces the burden on each partner.


Demerits of a partnership:

i. Unlimited liability: In a partnership firm, all partners have unlimited liability. This means that if the firm’s assets are insufficient to pay off the firm’s debts, then personal assets of the partners can be used.

ii. Limited resources: A partnership firm faces limited availability of finance because of the restrictions imposed on the maximum number of partners allowed in a partnership firm. As a result, a partnership firm faces financial constraints, which, in turn, impede its growth prospects.

iii. Possibility of conflicts: In a partnership firm, the decision-making power is shared by the partners. This power depends on their respective levels of skills, capabilities and foresightedness. The difference in these qualities may possibly lead to conflicts among the partners.

Page No 40:

Question 6.4:

Long answer type question.

Explain the features of partnership firm.

Answer:

The following points highlight the features of a partnership firm:

i. Easy formation: It requires an agreement (oral or written) among its members to share profits and losses. It requires a minimum of two members to start up a business. Also, the registration of a partnership firm is also not compulsory.

ii. Unlimited liability: All partners in a partnership firm have unlimited liability. In other words, if the business assets are insufficient to meet business debts, then the personal property of the partners can be utilised for the purpose.

iii. Risk bearing: The risk associated with the fluctuations in the firm’s profits is borne jointly by the partners. This reduces the burden on each partner. Therefore, in a partnership firm, all partners share the risk of losses according to their profit-sharing ratio.

iv. Decision making and control: In a partnership firm, the decision-making power and control are shared by all partners. In other words, all the decisions are taken by the partners jointly.

v. Continuity: The death, lunacy, insolvency or insanity of any of the partners brings an end to the partnership. However, the existing partners may decide to continue the business with a new partnership agreement.

vi. Membership: A partnership firm requires a minimum of 2 adult members who agree to share profits and losses. The maximum number of members in a banking business is 10 and that in any other business is 20.

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Question 6.5:

Long answer type question.

Define a Joint Hindu family firm. Explain its merits and demerits.

Answer:

A joint Hindu family firm is owned and managed by the members of a Hindu undivided family. Membership in this business is by birth; that is, as soon as a child is born in the family, he/she becomes the member of the family business. This type of organisation is governed by the Hindu Succession Act 1956.

Merits of a joint Hindu family business:

i. Easy formation: The formation of a joint Hindu family business requires the existence of ancestral property and at least two family members. It is governed by the Hindu Succession Act 1956 and does not require any agreement for its formation.

ii. Continuity: The continuity of a joint Hindu family business remains unaffected by the death of the Karta. This is because, in case of the death of the existing Karta, the next eldest member of the family takes over his responsibilities. Thus, the business continues to operate even after the death of the existing Karta.

iii. Limited liability: In a joint Hindu family business, the liability of all members is limited to the amount of capital invested by them in the business. In other words, the personal property of the members cannot be used to meet the liabilities of the business. However, the liability of the Karta is unlimited.

Demerits of a joint Hindu family business:

i. Limited capital: The amount of capital available with a joint Hindu family firm is limited to the amount of inherited wealth. The limited availability of funds, in turn, restricts the scope of expansion of the business.

ii. Limited managerial skills: The management of the family business lies in the hands of the Karta, who may not be professionally skilled to handle all the business operations. Thus, the efficiency in the management of the business solely depends on the managerial skills of the Karta.

iii. Unlimited liability of Karta: The liability of the Karta is unlimited in a joint Hindu family firm. In other words, if the business assets are insufficient to meet the business debts, then the personal property of the Karta can be utilised for the purpose.

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Question 6.6:

Long answer type question.

Define a Joint Hindu family firm. Explain features of joint Hindu family firm.

Answer:

A joint Hindu family firm is owned and managed by the members of a Hindu undivided family. Membership in this business is by birth; this means that as soon as a child is born in the family, he/she becomes the member of the family business. This type of organisation is governed by the Hindu Succession Act 1956.
The following characteristics distinguish a joint Hindu family business from other forms of organisations:

i. Easy formation: The formation of a joint Hindu family business requires the existence of ancestral property and at least two family members. It is governed by the Hindu Succession Act 1956 and does not require any agreement for its formation.

ii. Liability: In a joint Hindu family business, the liability of all members except the Karta is limited to their amount of share in the family property. However, the liability of the Karta is unlimited.

iii. Control: The Karta is solely responsible for all the management and decision making in the family business. In other words, he has complete control over the business. Other members have a share in the decision making; however, the final decision is taken by the Karta only.

iv. Continuity: The continuity of a joint Hindu family business remains unaffected by the death of the Karta. This is because, in case of the death of the existing Karta, the next eldest member of the family takes over his responsibilities. Thus, the business continues to operate even after the death of the existing Karta.

v. Status of minors: In a joint Hindu family, membership in the family business is by birth. This means that as soon as a boy is born in a Joint Hindu family, he is automatically entitled to a share in the family business. In such cases, a minor has equal ownership rights over the inherited property. However, his liability is limited to the extent of his share in the joint property.

v. Quick decision making: In a joint Hindu family business, the Karta takes all important decisions; he need not consult other members of the family. Thus, it results in quick decision making.

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Question 6.7:

Long answer type question.

Define Co-operative society. Explain its features.

Answer:

The word “co-operative” means “an organisation wherein the stakeholders work with one another”. Thus, a co-operative society is a voluntary association of individuals who work together to protect or promote their common interests.

Features of a co-operative society:

i. Separate legal entity: The registration of a co-operative society is compulsory under the Co-operative Societies Act 1912. Once the registration is complete, the company is granted the status of a separate legal entity. This implies that it can hold properties in its name and enter into contracts. Also, the company can sue others and can be sued by others.

ii. Management and control:  In a co-operative society, the management and control lie in the hands of a managing committee formed by its members.

iii. Democratic Management: A co-operative society is a democratic form of organisation, as it is managed and controlled by a managing committee formed by its members following the principle of “one member, one vote”.

iv. Equal voting rights: A co-operative society grants equal voting rights to all its members. This implies that each member in the society has an equal voting right, irrespective of the amount of capital contributed by him/her in the society.  

v. Limited liability: In a co-operative society, the liability of all members is limited to amount of capital invested by them in the business. In other words, the personal property of the members cannot be used for paying off the liabilities of the business.

vi. Service motive: The primary objective of a co-operative organisation is to provide services to its members, while its secondary objective is to earn profit. Thus, it works in the interest of its members and provides goods and services to them.

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Question 6.8:

Long answer type question.

Define Co-operative society. Explain its merits and demerits.

Answer:

The word “co-operative” means “an organisation wherein the stakeholders work with one another”. Thus, a co-operative society is a voluntary association of individuals who work together to protect or promote their common interests.

Merits of a co-operative society:

i. Ease of formation: The formation of a co-operative society is quite easy, as it requires the induction of only 10 adult members. Its registration procedure under the Co-operative Societies Act 1912 is quite simple.

ii. Continued existence: A co-operative society is a stable form of organisation, as it enjoys the status of a separate legal entity. As a result, the life of a co-operative society remains unaffected by the death, insolvency or insanity of its members.

iii. Democratic management: In co-operative societies, the management is democratic in nature. This implies that every member has a voting right and the decision with maximum votes is implemented. This welcomes the participation of every member in the voting process.
 

Limitations of a co-operative society:

i. Excessive government control: Co-operative societies have to follow rules and regulations framed by the co-operative departments of the concerned state governments. These rules include submission and auditing of accounts.

ii. Inefficiency in management: The management of a co-operative society generally comprises part-time or inexperienced people. They may not be skilled enough to handle managerial functions effectively. Consequently, co-operative societies often lack efficiency.

iii. Limited resources: All resources available with a co-operative society are limited to the extent of capital contribution by its members. The limited availability of resources restricts its scope of expansion.

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Question 6.9:

Long answer type question.

Define Joint Stock Company. Explain its merits and demerits.

Answer:

A joint stock company refers to an organisation formed by a group of persons to perform business activities together. It is considered the most superior form of business organization.

Merits of a joint stock company:

i. Limited liability: In a joint stock company, the liability of the shareholders is limited to the amount paid by them for the purchase of the shares. This implies that in case of unpaid debts, personal property of the shareholders cannot be used for the payment of outstanding business liabilities. Only the company’s assets and funds can be used for the payment of debts.

ii. Perpetual existence: A company, being a separate legal entity, cannot come to an end by itself. It continues to operate even after the death of all its members. This is because the death, retirement or insolvency of any of the members of the organisation cannot cease its existence. Thus, a company enjoys perpetual existence.

iii. Scope for expansion: A company can easily grow and expand its capital. This is because the capital of a company comprises the amount received on its shares. As a result, the company enjoys a large financial resource base. Therefore, in case of expansion, a company can raise additional funds by issuing new shares.


Limitations of a joint stock company:

i. Complexity information: The formation of a company involves a large number of procedures and formalities. The legal procedures involved in the formation are not only lengthy but also expensive.

ii. Impersonal work environment: The management and ownership in a company are separate. Also, the compensation of the management is not directly affected by the profits of the company. This results in lack of efficiency on part of the managers. Moreover, because of the large size of the company, it becomes difficult for the owners to keep track of all operations of the business.

iii. High degree of regulations: A company is required to follow legal formalities like auditing of the accounts, filing of the reports and documents and voting. These legal provisions make it difficult for the company to operate freely.



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