Forms of Business Organisation

 

 Short Answer Questions:


1. Compare the status of a minor in a Joint Hindu family business with that in a partnership firm.

Ans- JHF: Member by birth, limited role till 18, liability capped. Partnership: No membership, can share profits with all partners' consent, no liability. Think JHF like training wheels in family business, partnership like profit-sharing guest pass.

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

Ans-Optional, but valuable! Registration protects partners from unlimited liability, eases disputes, boosts borrowing, builds trust, and simplifies taxes. Worth the legal formality!

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

Ans- Private companies enjoy perks like fewer reporting requirements, lower director minimums, no independent directors, and flexible financial arrangements. Think less paperwork, more freedom!

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

Ans- Democracy:

*One member, one vote: Each member has equal say in decisions, regardless of financial contribution.

*Elected leadership: Members choose their representatives through periodic elections.

*Open membership: Anyone can join, promoting inclusivity.

Secularism:

*Non-discriminatory membership: Open to all irrespective of religion, caste, or gender.

*Focus on mutual benefit: Aims for collective well-being, transcending individual differences.

*Separation of religion and society: Operates on principles of cooperation and shared goals, not religious beliefs.

5. What is meant by ‘partner by estoppel’? Explain.

Ans- Partner by estoppel refers to someone not legally a partner, but held liable as one due to their actions or conduct. They misrepresent themselves as a partner, leading others to believe they are part of the business. This can happen through:

*Directly claiming to be a partner

*Allowing others to present them as a partner

*Actively participating in business decisions while appearing like a partner

    The key is that their actions mislead third parties, who then rely on this belief to enter into contracts or extend credit. As a result, the "partner by estoppel" becomes liable for the business's debts and obligations.

6. Briefly explain the following terms in brief.

(a) Perpetual succession (b) Common seal

(c) Karta (d) Artificial person

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Long Answer Questions

1. What do you understand by a sole proprietorship firm? Explain its merits and limitation?

Ans- Sole Proprietorship: Simple Business, Double-Edged Sword (116 words)

One-person show: Sole proprietor owns and runs the business, with full control and profits (but also losses).

Merits:

*Easy & cheap startup: Few formalities, minimal costs.

*Be your own boss: Make all decisions, enjoy direct rewards.

*Flexible: Adapt quickly to market changes.

Limitations:

*Unlimited liability: Personal assets at risk for business debts.

*Limited funds: Harder to raise capital compared to other structures.

*Growth constraints: Reliant on owner's skills and resources.

*Fragile continuity: Business ends with owner's exit.

2. Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership.

Ans- While offering combined skills and resources, partnerships face drawbacks:

Unpopularity:

*Unlimited liability: Partners' personal assets on the line for debts.

*Decision-making conflicts: Shared control can lead to disagreements.

*Continuity uncertainties: Dissolved by partner exit (death, retirement).

Merits:

*Combined skills & resources: Access to diverse expertise and capital.

*Shared workload & risks: Distribute responsibilities and financial burdens.

*Faster growth potential: Leverage combined strengths for expansion.

    Limited popularity due to liability concerns and potential for internal conflicts, but offers benefits through collaboration and shared resources.

3. Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.

Ans- Choosing the right organizational form is crucial, impacting:

Success & Sustainability:

*Liability: Unlimited vs. limited (protecting personal assets).

*Capital access: Ease of raising funds for growth.

*Management expertise: Matching structure to required skills.

Continuity: Business survival beyond individual members.

Key factors to consider:

*Nature of business: Size, risk, complexity, industry norms.

*Financial needs: Capital requirements, fundraising goals.

*Management capabilities: Individual skills, need for specialization.

*Growth aspirations: Scalability and expansion potential.

*Tax implications: Different structures have varying tax burdens.

4. Discuss the characteristics, merits and limitation of cooperative form of organisation. Also describe briefly different types of cooperative societies.

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5. Distinguish between a Joint Hindu family business and partnership.

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6. Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisation? Why?

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