Forms Of Business Organisation | Long Questions | Business Studies | 1st Year / Class 11 – Commerce | AHSEC (Assam)

Q. Discuss in detail the reasons for superiority of Joint-Stock Company over Sole proprietorship and partnership. (8marks) (2015)

-> Sole Trade business- A sole proprietorship implies a one-man show and in case more partners are taken on to fastens growth; the structure of the firm has to change to a partnership firm or a company. Lenders are also willing to lend as the business is in the hands of one individual and so, the risk is high. In the case of one individual and so, the risk is high. In case of liabilities arising from the conduct of the business, the losses have to be covered by the personal assets of the proprietor. The liability of the proprietor to pay off all creditors is unlimited.

Partnership Firm- Two or more people can come together to form a partnership firm. It is required to draft a partnership deed, which is signed by all the partners indicating the formation of the partnership. The advantage of the partnership firm is that two or more people can come together to start a business and the regulatory and disclosure norms are relatively simple. The main disadvantage is that even in this form of business, the partner’s liability to pay off creditors is unlimited.

Company- A company may either be a private limited company or may be formed as a public limited company. The members of the company appoint directors who are responsible for the management of the company. The directors are collectively known as the Board of Directors. A minimum of two members and a public company may be formed with a minimum of seven members. A private limited company can have a maximum of 50 members excluding employee members; whereas there are no maximums of a public company. 

The major advantage of a company set-up is that the liability of the members is restricted to the extent of the member’s investment in the company; his/her personal property is not put at risk. The company form of organization is most suitable for modern times because it provides a route whereby ownership can be separated from management. 

Though members can become directors, it is not always necessary. Even outsiders can be appointed as directors. The funding may be provided by the investor-members and the management may be in the hands of the promoter-members. If required, the investor-members may be appointed as directors.

 Q. State the types of business suitable under sole proprietorship with appropriate illustrations. (8marks) (2015)

-> To give you an idea what kind of business are suitable sole proprietorships, consider the following business. These would be suitable for sole proprietorships:

a) Where the market for the product is small and local. For example, selling grocery items, books, stationery, vegetables, etc.

b) Where customers are given personal attention, according to their personal tastes and preferences. For example, making special types of furniture, designing garments, etc.

c) Where the nature of business is simple. For example, grocery, garments business, telephone booth, etc.

d) Where capital requirement is small and risk involvement is not heavy. For example, vegetables and fruits business, tea stalls, etc.

e) Where manual skill is required. For example, making jewellery, haircutting or tailoring, cycle or motorcycle repair shop, etc.

Q. Discuss the modes of dissolution of partnership business. (5marks) (2016)

-> Modes of Dissolution of a Partnership Firm:-

1. Compulsory dissolution- A firm is dissolved compulsory by the adjudication of all the partners or of all the partners but one as insolvent, or by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.

2. Dissolution on the Happening of Certain Contingencies- Subject to contract between the partners, a firm is dissolved:

1. If constituted for a fixed term, by the expiry of that term;
2. If constituted to carry out one or more adventures or undertaking, by the completion thereof;
3. By the death of a partner; and
4. By the adjudication of a partner as an insolvent. 

3. Dissolution by Notice of Partnership at Will- Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

4. Dissolution by Court- A court may order a partnership firm to be dissolved in the following cases:

1. When a partner becomes of unsound mind,
2. When a partner becomes permanently incapable of performing his/her duties as a partner,
3. When partner deliberately and consistently commits breach of agreements relating to the management of the firm;
4. When a partner’s conduct is likely to adversely affect the business of the firm;
5. When a partner transfer his/her interest in the firm to the third party;
6.  When the court regards dissolution to be just and equitable.

Q. Explain any five factors to be considered for choice of form of business enterprise. (5marks) (2016) 

-> The following factors will be taken into account before choosing the form of business organisation are:

a. Ease of Formation- A good form of organisation, as judged from the point of view of ease of formation, is one which involves the least expenses in formation and minimum of legal formalities. Besides, it should involve the least difficulty in the choice of proper associates for running the business.

b. Limit to Liability- From the point of view of risk, the businessman will naturally prefer that form of business organisation where his liability is limited.

c. Flexibility of Operation- A good form of organisation offers the maximum flexibility and adaptability. This means that the organisation should lend itself to change and adjustment without much difficulty as the need be. In choosing a form of organisation, the entrepreneur will consider whether it will add to the flexibility and efficiency of management to associate some more persons as part owners or as employees.

d. Ease of financing- Another important feature of a good form of organisation is the facility of raising the required amount of capital.

e. Retention of Business Secrets- The entrepreneur will also have to be careful to ensure that the form of organisation chosen by him will allow vital business secrets to be retained without being leaked out to the competitors. This will naturally mean that he will have to select his associates with utmost care.

Q. What is a partnership deed? Explain the contents of a partnership deed? (2+6=8) (2016)

-> Partnership deed is a written agreement between the partners of a firm. It contains several clauses regarding name and address of partners, nature of business, Capital, profit sharing ratio etc.

Contents of Partnership Deed:

1. Names and address of partners
2. Nature and scope of business
3. Duration of partnership
4. Contribution of capital by the partners
5. Sharing of profit or loss
6. Loans to and by the partners
7. Amount of drawings and interest on drawings for each partner.
8. Commission and salary of partners
9. Rights, duties and liabilities of partners
10. Admission and retirement of partners.

Q. What are the different types of cooperative societies? Discuss. (8marks) (2016)

-> Types of cooperative societies:-

1. Consumers cooperative societies- These types of business are owned by the customer for their mutual benefits. Its basic aim is to eliminate middlemen and sell goods at a cheaper rate to its members.
2. Credit cooperative societies- Credit cooperative societies are established for providing easy credit on reasonable terms to the members. The members comprise persons who seek financial help in the form of loans.
3. Producers cooperative societies- These societies are formed for the purpose of marketing, support and purchasing of goods of its members who are performing similar products.
4. Marketing cooperative societies- Such societies are established to help small producers in selling their products. The members consist of producers who wish to obtain reasonable prices for their output.
5. Farmers cooperative societies- This is a cooperative where farmers pool their resources such as land, machinery, and marketing of farm products.
6. Credit cooperative societies- Credit cooperative societies are established for providing easy credit on reasonable terms to the members. The members comprise persons who seek financial help in the form of loans.
7. Housing cooperative societies- Housing cooperative societies are established to help people with limited income to construct houses at reasonable costs. The members of these societies consist of people who are desirous of procuring residential accommodation at lower costs.

Q. What is joint Hindu family business? Explain its features. (2+6=8) (2017)

-> The Joint Hindu family business is a form of business organisation run by Hindu Undivided members of three successive generations owns the business jointly. The business is controlled by the head of the family who is the eldest member and is called Karta. All members have equal ownership rights over the property of an ancestor and they are known as coparceners.

Features:-

1. Formation of Joint Hindu family business by operation of Hindu Law.

2. Liability of Karta is unlimited in case of Joint Hindu family.

3. Joint Hindu family is fully controlled by Karta.

4. Joint Hindu family business is assumed to be continued for an indefinite period of time.

5. Minor can also be members.

6. All male members of the family are called coparceners. They are members by birth.

Q. Explain the process of registration of a partnership firm. State the effects of non-registration of such a firm. (5+3=8) (2018)

-> The registration of the firm is not compulsory but it should register with the Registrar of Firm soon after its formation. Because an unregistered firm cannot sue outsiders although outsiders can sue the firm.

Procedure of Registration: A partnership firm can be registered providing the following information to the Registrar of Firms-

1. The name of the firm.
2. The principal place of the business of the firm.
3. The names and address of the partners.
4. The names and addresses of the partners.
5. The names of the places where the firm has its branches.
6. Date of the commencement of the business of the firm.
7. Dates on which the various partners joined the partnership firm.
8. The director of the partnership firm.

The statement providing the above mentioned information should be submitted along with prescribed fees and must be signed by all the partners. Registrar shall make an entry of the statement in a register and shall file the statement when he will be satisfied that all legal formalities have been completed.

Effects of Non-Registered: In firm is not registered, and then the firm and partners will have to be deprived of the following advantages.

1. The firm cannot file a suit against the third party. 
2. No partners can file a suit against other partners of the firm.
3. The firm cannot file a suit to enforce a right rising from the contract.
4. A partner cannot file a suit to enforce a right rising from the contract or conferred by the partnership Act against the firm.
5. Third parties can file a suit against the firm to enforce their rights.

Rights not Affected by Non-Registration: Non-Registration of the firm does not affect the following-

1. The right of the partner to sue for dissolution of the firm or for accounts of, and his shares, the dissolved firm.
2. The rights of the firm or its partners having no place of business in India.
3. Suits not exceeding Rs. 100
4. The power of an official assignee to realize the property of an insolvent partner.
5. Suits arising otherwise than under a contract, for example, a suit against the third party for infringement of trademarks of the firm.