Plus One Business Studies Chapter Wise Previous Questions Chapter 2 Forms of Business Organisation

Kerala Plus One Business Studies Chapter Wise Previous Questions Chapter 2 Forms of Business Organisation

Question 1.
Gopal Krishna Associates is a partnership firm in which Gopalswamy, Krishna Kumar and Ranga Rao are the three partners. Owing to ill-health, Ranga Rao wants to retire from the firm and he asked the other partners to admit his 16 years old son Manohar Rao into the partnership. The other partners agreed to it. Mention any three rights that Manohar Rao deserves from the partnership firm. (June 2008)
Answer:
IP The rights of a minor partner are

1. The liability of a minor partner is limited.
2. A minor can share only the profits.
3. He can inspect the accounts of the firm.

Question 2.
Sukumar Shetty approaches you with the intention of subscribing to shares in a Private Limited Company. He wants to know the privileges enjoyed by a Private Limited Company. Can you help him? (June 2008)
Answer:
Privileges of a private company are:

1. A private company can be formed by only two members.
2. There is no need to issue a prospectus
3. Allotment of shares can be done without receiving the minimum subscription.
4. A private company can start a business as soon as it receives the certificate of Incorporation.
5. A private company needs to have only two directors.
6. A private company is not required to keep an index of members.
7. There is no restriction on the number of loans to directors in a private company.

Question 3.
P, Q and R are doing partnership business. P has no time to engage in the business and all management activities are performed by Mr, Q. R behaves in such a fashion that he is mistaken to be a partner by third parties. Identify the types of partners as P, Q and R. (March 2009)
Answer:

• P – Sleeping partner
• Q – Active partner
• R – Partner by estoppel

Question 4.
‘One man control is best in the world’. Write the form of business suitable for the above statement. Explain its advantages. (March 2009)
Answer:
Sole proprietorship.
Advantages of Sole proprietorship.

1. The sole trader is the single owner and manager of the business.
2. The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship.
3. The liability of a sole trader is unlimited. i.e. in case of loss, his personal properties can be used to pay the business liabilities.
4. The entire profit of the sole trading business goes to the sole proprietor. If there is any loss it is also to be borne by the sole proprietor alone.
5. The sole trader has full control over the affairs of the business. So he can take quick decisions.
6. A sole trading concern has no legal existence separate from its owner.
7. The death, insolvency, etc. of a sole trader causes discontinuity of business.

Question 5.
“Each for all and all for each” is the motto of a Co-operative Society. In the inaugural address of a co-operative society, the minister for Co-operation described some good features of a Co-operative Society. List any eight important features of a Co-operative Organisation you can recollect. (August 2009)
Answer:
Features: The important features of a co-operative society are:

1. Voluntary membership: The membership of a cooperative society is voluntary. Membership is open to all, irrespective of their religion, caste, and gender.
2. Legal status: Registration of a cooperative society is compulsory.
3. Limited liability: The liability of the members of a cooperative society is limited to the extent of the amount contributed by them as capital.
4. Control: Management and control lie with the managing committee elected by the members.
5. Service motive: ‘Self-help through mutual help’ or ‘each for all and all for each’ is the foundation of the co-operative society.

Question 6.
Match the following: (August 2009)

A	B
Sole trader	Common seal
Partnership	One man one vote
Joint Stock Company	Working partner
Co-operative Society	Entire profit

Answer:

A	B
Sole Trader	Entire Profit
Partnership	Working Partner
Joint Stock Company	Common Seal
Cooperative Society	One man One vote

Question 7.
Vinod, a science graduate, while travelling through Cochin happened to see the offices of two companies. One was a Private Company and the other was a Public Company, but he does not know the differences between these two. His friend helped him to discriminate between the two types of Companies. Write any eight differences which helped to clarify the doubts of Vinod. (August 2009)
Answer:
The differences between a private company and a public company are:

Basis	Private Company	Public Company
Members:	Minimum – 2 Maximum – 50	Minimum – 7 Maximum – Unlimited
The minimum number of directors:	Two	Three
Minimum paid-up capital:	₹ 1 lakh	₹ 5 lakh
Transfer of shares:	Restriction on transfer	No restriction
Prospectus:	Need not issue prospectus	Can issue prospectus
Starting of business:	After getting a Certificate of incorporation	After getting a certificate of Commencement of business
Name:	End with ‘Private limited’	End with ‘Public limited’
Minimum subscription:	Need not have to obtain a minimum subscription	Need minimum subscription
Index of members:	Not compulsory	Compulsory
Statutory meeting:	Need not require statutory meeting	Need statutory meeting
Quorum:	Two	Five

Question 8.
The most common form of business organization in India is __________ (March 2010)
a) Joint-stock companies
b) Sole proprietorship
c) Partnership
d) H.U.F
Answer:
b) Sole Proprietorship

Question 9.
The minimum number of persons required to form a co-operative society is ________ (March 2010)
a) 10
b) 2
c) 7
d) 3
Answer:
a) 10

Question 10.
Drisya, your friend, states that there is no difference between a public company and a private company. Do you agree? Justify your answer. (March 2010)
Answer:
No. There are differences between a Private company and a Public company.

Basis	Private Company	Public Company
Members:	Minimum – 2 Maximum – 50	Minimum – 7 Maximum – Unlimited
Minimum number of directors:	Two	Three
Minimum paidup capital:	₹ 1 lakh	₹ 5 lakh
Transfer of shares:	Restriction on transfer	No restriction
Prospectus:	Need not issue prospectus	Can issue prospectus
Starting of business:	After getting Certificate of incorporation	After getting certificate of Commencement of business
Name:	End with ‘Private limited’	End with ‘Public limited’
Minimum subscription:	Need not have to obtain the minimum subscription	Need minimum subscription
Index of members:	Not compulsory	Compulsory
Statutory meeting:	Need not require statutory meeting	Need statutory meeting
Quorum:	Two	Five

Question 11.
Mr. Johnson, after completing his degree in Hotel Management, decided to start a restaurant. In order to meet the capital requirement, he seeks the help of his friends, Subhash and Rahim. At last, they decided to form a business under a certain agreement. (March 2010)
i) Which type of business did they decide to form?
ii) What are the advantages of that business?
Answer:
a) Partnership
b) Advantages of partnership

1. Formation: For the formation of a partnership, an agreement between partners is essential.
2. Liability: The partners of a firm have unlimited liability. The partners are jointly and individually liable for the payment of debts.
3. Risk bearing: The profit or loss shall be shared among the partners equally or in an agreed ratio.
4. Decision making and control: The activities of a partnership firm are managed through the joint efforts of all the partners.
5. Lack of Continuity: The retirement, death, insolvency, insanity etc of any partner brings the firm to an end.
6. Membership: There must be at least two persons to form a partnership. The maximum number of persons is ten in the banking business and twenty in the nonbanking business.
7. Mutual agency: In partnership, every partner is both an agent and a principal.

Question 12.
Mrs. Suganthy is running a fancy store at Kovalam. When her business expanded, she appointed two ladies to assist her in business with a monthly salary of ₹ 3,000 each. (March 2011)
a) Which form of business organization does Mrs. Suganthy own?
b) State any two of its features
Answer:
a) Sole Trading Concern
b) Features of Sole trading concern:

• The sole trader is the sole owner and manager of the business.
• There are no legal formalities for the formation of a sole trading concern.
• The liability of a sole trader is unlimited.

Question 13.
The most suitable form of organization for risky business is ___________ (March 2012)
a) Sole proprietorship
b) Partnership firm
c) Joint Hindu Family business
d) Joint Stock Company
Answer:
d) Joint Stock Company

Question 14.
The rubber producers in your locality propose to form an organization to safeguard themselves from the exploitation of large-scale manufacturers and to get better prices for their products. (March 2012)
a) Suggest the form of the organization most suitable to these farmers.
b) State its salient features.
Answer:
a) Co-operative Society.
b) Features of Co-operative Society:

1. Voluntary membership: The membership of a cooperative society ¡s voluntary. Membership is open to all, irrespective of their religion, caste. and gender.
2. Legal status: Registration of a cooperative society is compulsory.
3. Limited liability: The liability of the members of a cooperative society is limited to the extent of the amount contributed by them as capital.
4. Control: Management and control lie with the managing committee elected by the members.
5. Service motive: ‘Self-help through mutual help’ or ‘each for all and all for each’ is the foundation of the co-operative society.

Question 15.
“One man control is best in the world if that one man is big enough to manage everything”. Explain this statement by highlighting the merits and demerits of such a form of business organization. (March 2012)
Answer:
Advantages & Disadvantages of Sole proprietorship:
Advantages

1. Easy formation: The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship.
2. Quick Decision: The sole trader has full control over the affairs of the business. So he can take quick decisions and prompt actions in all business matters.
3. Motivation: The entire profit of the sole trading business goes to the sole proprietor. It motivates him to work hard.
4. Secrecy: A sole trader can keep all the information related to business operations and he is not bound to publish the firm’s accounts.
5. Close Personal Relation: The sole proprietor can maintain good personal contact with the customers and employees and thus, business runs smoothly.

Disadvantages

1. Limited capital: A sole trader can start a business only on a small scale because of limited capital.
2. Lack of Continuity: Death, insolvency or illness of a proprietor affects the business and can lead to its closure.
3. Limited managerial ability: A sole proprietor may not be an expert in every aspect of management.
4. Unlimited liability: The liability of a sole trader is unlimited. i.e. in case of loss, his personal properties can be used to pay off the business liabilities.
5. Suitability: Sole proprietorship is suitable in the following cases.
   • Where the market is limited, localized and customers demand personalized services. Eg. tailoring, beauty parlour etc.
   • Where goods are unstandardised like artistic jewelry.
   • Where lower capital, limited risk & limited managerial skills are required as in the case of a retail store.

Question 16.
Miss Lindzy approaches you with the intention of subscribing to shares in a private limited company. She wants to know the privileges enjoyed by a private limited company. Can you help her? (March 2013)
Answer:
Privileges of a private company

1. A private company can be formed with two persons.
2. It can commence business immediately after getting a certificate of incorporation.
3. It need not observe the provisions regarding the issue of the prospectus, receiving the minimum subscription, allotment of shares, etc.
4. It need not convene a statutory meeting
5. A private company needs only 2 directors.
6. There is no restriction with regard to the remuneration of directors.
7. Its profit & Loss account and Balance sheet need not be published.

Question 17.
Match column ‘A’ with columns ‘B’ and ‘C. (March 2013)

A	B	C
1. Sole proprietorship	1932	One man-one vote
2. HUF	Service motive	No legal formalities
3. Partnership business	Co-partners	Implied agency
4. Cooperative society	1956	Karta
5. Registered company	Complete secrecy	H.M.T

Answer:

A	B	C
Sole proprietorship	Complete secrecy	No legal formalities
HUF	Co-partners	Karta
Partnership business	1932	Implied agency
Co-operative Society	Service motive	One man – one vote
Registered company	1956	H.M.T

Question 18.
Match column ‘A’ with columns ‘B’ and ‘C’. (October 2013)

A	B	C
a) Partnership	Co-operative Society	Business Secretary
b) Joint Stock Company	H.U.F.	Optional
c) Unlimited liability	Artificial Person	One man one vote
d) Service motive	Registration	Co-parceners
e) Karta	Sole Trader	Limited liability

Answer:

A	B	C
Partnership	Registration	Optional
Joint-stock company	Artificial person	Limited liability
Unlimited liability	Sole trader	Business secrecy
Service motive	Co-operative society	One man one vote
Karta	HUF	Co-parceners

Question 19.
Mr. Kiran is a science student, who doesn’t know the idea behind using the word ‘limited’ with the names of many enterprises. Can you help him? (October 2013)
Answer:
A public limited company must use the word ‘limited’ at the end of its name. It helps to identify whether it is a private or public company.

Question 20.
Your neighbour is asking you about the merits and demerits of joint-stock companies. Can you prepare a paper regarding the merits and demerits of a joint-stock company? (March 2014)
Answer:
Merits

1. Limited liability: The liability of the shareholders is limited to the extent of the face value of shares held by them. This reduces the degree of risk borne by an investor.
2. Transferability of shares: Shares of a public company are freely transferable. It provides liquidity to the investor.
3. Perpetual existence: A company has continuous existence. Its existence not affected by death, insolvency, or insanity of shareholders.
4. Scope for expansion: A company has large financial resources. So it can start a business on a large scale.
5. Professional management: A company can afford to pay higher salaries to specialists and professionals. This leads to greater efficiency in the company’s operations.
6. Public confidence: A company must publish its audited annual accounts. So it enjoys public confidence.

Limitations

1. Difficulty information: The formation of a company is very difficult. It requires greater time, effort and extensive knowledge of legal requirements.
2. Lack of secrecy: It is very difficult to maintain secrecy in case of public company, a company is required to publish its annual accounts and reports.
3. Impersonal work: It is difficult for the owners and top management to maintain personal contact with the employees, customers and creditors.
4. Numerous regulations: The functioning of a company is subject to many legal provisions and compulsions. This reduces the freedom of operations of a company.
5. Delay in decision making: A company takes important decisions by holding company meetings. It requires a lot of time.
6. Oligarchic management: Theoretically a company is democratically managed but actually it is managed by a few people. i.e board of directors. The Board of Directors enjoys considerable freedom in exercising their power which they sometimes ignore the interest of the shareholders.
7. Conflict in interests: There may be a conflict of interest amongst various stakeholders of a company. It affects the smooth functioning of the company.
8. Lack of motivation: The company is managed by a board of directors. They have little interest to protect the interest of the company.

Question 21.
Mr. Manoj is running a lady’s store. As he has no business partners in the shop, he appointed two more ladies to assist him in trading activities for a salary of Rs. 2,000 per month. (March 2014)
a) What form of organization does Mr. Manjo own?
b) State any four advantages and three disadvantages of the organization.
Answer:
b) Sole Proprietorship
b) Merits

1. Easy formation: The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship.
2. Quick Decision: The sole trader has full control over the affairs of the business. So he can take quick decisions and prompt actions in all business matters.
3. Motivation: The entire profit of the sole trading business goes to the sole proprietor. It motivates him to work hard.
4. Secrecy: A sole trader can keep all the information related to business operations and he is not bound to publish the firm’s accounts.
5. Close Personal Relation: The sole proprietor can maintain good personal contact with the customers and employees and thus, business runs smoothly.

Limitations

1. Limited capital: A sole trader can start a business only on a small scale because of limited capital.
2. Lack of Continuity: Death, insolvency, or illness of a proprietor affects the business and can lead to its closure.
3. Limited managerial ability: A sole proprietor may not be an expert in every aspect of management.
4. Unlimited liability: The liability of a sole trader is unlimited. i.e. in case of loss, his personal properties can be used to pay off the business liabilities.
5. Suitability: Sole proprietorship is suitable in the following cases.
   • Where the market is limited, localized and customers demand personalized services. Eg. tailoring, beauty parlour etc.
   • Where goods are unstandardised like artistic jewellery.
   • Where lower capital, limited risk & limited managerial skills are required as in the case of a retail store.

Question 22.
What is the form of a public sector undertaking having no autonomy at all called as? (August 2014)
Answer:
Departmental Undertakings

Question 23.
Prepare a seminar report on the merits of the joint-stock company form of business. (August 2014)
Answer:
Merits of Joint-stock company:

1. Limited liability: The liability of the shareholders is limited to the extent of the face value of shares held by them. This reduces the degree of risk borne by an investor.
2. Transferability of shares: Shares of a public company are freely transferable. It provides liquidity to the investor.
3. Perpetual existence: A company has continuous existence. Its existence not affected by death, insolvency, or insanity of shareholders.
4. Scope for expansion: A company has large financial resources. So it can start a business on a large scale.
5. Professional management: A company can afford to pay higher salaries to specialists and professionals. This leads to greater efficiency in the company’s operations.
6. Public confidence: A company must publish its audited annual accounts. So it enjoys public confidence.

Question 24.
Prepare a report on the comparison of a private limited company and a public limited company. (August 2014)
Answer:
Differences between a private company and a public company.

Basis	Private Company	Public Company
Members:	Minimum – 2 Maximum – 50	Minimum – 7 Maximum – Unlimited
The minimum number of directors:	Two	Three
Minimum paid-up capital:	₹ 1 lakh	₹ 5 lakh
Transfer of shares:	Restriction on transfer	No restriction
Prospectus:	Need not issue prospectus	Can issue prospectus
Starting of business:	After getting a Certificate of incorporation	After getting a certificate of Commencement of business
Name:	End with ‘Private limited’	End with ‘Public limited’
Minimum subscription:	Need not have to obtain a minimum subscription	Need minimum subscription
Index of members:	Not compulsory	Compulsory
Statutory meeting:	Need not require statutory meeting	Need statutory meeting
Quorum:	Two	Five

Question 25.
Liability of coparceners in a Hindu undivided family business is ____________ (August 2014)
Answer:
Limited

Question 26.
A cooperative society is a voluntary association of persons who join together with the motive of the welfare of the members. State any two merits of a cooperative society. (August 2014)
Answer:

1. Equality in voting status: The principle of ‘one man one vote governs the cooperative society.
2. Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution.

Question 27.
Miss Dalya wants to start a new business. Explain any four basic factors to be considered before starting the business. (August 2014)
Answer:
The important factors determining the choice of the organization are:

1. Cost and Ease of formation: From the point of view of cost, a sole proprietorship is the preferred form as it involves least expenditure and the legal requirements are minimum. Company form of organisation is more complex and involves greater costs.

2. Liability: In case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. In cooperative societies and companies, the liability is limited. Hence, from the point of view of investors, the company form of organisation is more suitable as the risk involved is limited.

3. Continuity: The continuity of sole proprietorship and partnership firms is affected by death, insolvency or insanity of the owners. However, such factors do not affect the continuity of cooperative societies and companies. In case the business needs a permanent structure, company form is more suitable.

4. Management ability: If the organisations operations are complex in nature and require professionalized management,. company form of organisation is a better alternative.

5. Capital: if the sceof operations is large, company form may be suitable whereas for medium and small sized business one can opt for partnership or sole proprietorship.

6. Degree of control: If direct control over business and decision making power is required, proprietorship may be preferred. But if the owners do not mind sharing control and decision making, partnership or company form of organisation canbe adopted.

7. Nature of business: If direct personal contact is needed with the customers, Sole proprietorship may be more suitable. Otherwise, the company form of organisation may be adopted.

Question 28.
Mr. Kumar and Mr. Basheer have started an unregistered business on the basis of an agreement. (August 2014)
a) Identify the form of business on the basis of ownership.
b) Explain its features.
Answer:
a) Partnership
b) Features

1. Formation: For the formation of a partnership, an agreement between partners is essential.
2. Liability: The partners of a firm have unlimited liability. The partners are jointly and individually liable for the payment of debts.
3. Risk bearing: The profit or loss shall be shared among the partners equally or in an agreed ratio.
4. Decision making and control: The activities of a partnership firm are managed through the joint efforts of all the partners.
5. Lack of Continuity: The retirement, death, insolvency, insanity, etc of any partner brings the firm to an end.
6. Membership: There must be at least two persons to form a partnership. The maximum number of persons is ten in the banking business and twenty in the nonbanking business.
7. Mutual agency: In partnership, every partner is both an agent and a principal.

Question 29.
Kiran is a sole proprietor. He looks after the varied functions of his business. He plans to open new branches. Hence, he is looking to convert his business into a joint-stock company form for better management. (August 2014)
a) Explain the benefits of remaining a sole proprietor.
b) Explain the benefits of converting it into a joint-stock company.
Answer:
a) 1. The sole trader is the single owner and manager of the business.
2. The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship,
3. The liability of a sole trader is unlimited. i.e. in case of loss, his personal properties can be used to pay the business liabilities.
4. The entire profit of the sole trading business goes to the sole proprietor. If there is any loss it is also to be borne by the sole proprietor alone.
5. The sole trader has full control over the affairs of the business. So he cari take quick decisions.
6. A sole trading concern has no legal existence separate from its owner.
7. The death, insolvency etc. of a sole trader causes discontinuity of business.

b) 1. Incorporated association: A company is an incorporated association. i.e. Registration of a company is compulsory under the Indian Companies Act, 1956.
2. Separate legal entity: A company is an artificial person created by law. The company has a separate legal entity apart from its members. It can enter into contracts, own property, sue and be sued, borrow and lend money, etc:
3. Formation: The formation of a company is a time consuming, expensive, and complicated process.
4. Perpetual succession: A company has continuous existence. Its existence not affected by death, insolvency or insanity of shareholders. Members may come and go, but the company continues to exist.
5. Control: The management and control of the affairs of the company are in the hands of the Board of directors who are elected the representatives of the shareholders.
6. Liability: The liability of the shareholders is limited to the extent of the face value of shares held by them.
7. Common seal: The Company being an artificial person acts through its Board of Directors. All documents issued by the company must be authenticated by the company seal.
8. Transferability of shares: Shares of a joint-stock company are freely transferable except in the case of a private company.

Question 30.
Mohan, his parents, grandparents, and his brothers and sisters are living together. They have a family business. (Say 2015)
a) Identify the form of business organization.
b) Write any two features of it.
Answer:
a) Joint Hindu Family Business (HUF)
b) 1. Formation: For a Joint Hindu family business there should be at least two members in the family and some ancestral property to be inherited by them.
2. Membership: Membership by virtue of birth in the family.

Question 31.
‘One man one vote’ is one of the features of this form of business organisation. (Say 2015)
a) Identify the organization.
b) Explain its merits and demerits.
Answer:
a) Co-operative Society
b) Merits

1. Equality in voting status: The principle of ‘one man one vote governs the cooperative society.
2. Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution.
3. Stable existence: Death, insolvency, or insanity of the members do not affect the continuity of a cooperative society.
4. The economy in operations: Co-operative society aims to eliminate middlemen. This helps in reducing costs.
5. Support from the government: A co-operative society gets support from the government in the form of low taxes, subsidies, and low-interest rates on loans.
6. Easy formation: The cooperative society can be started with a minimum of ten members. Its registration procedure is simple involving a few legal formalities

Demerits.

1. Limited resources: Resources of a cooperative society consists of limited capital contributions of the members.
2. Inefficiency in management: Cooperative societies are unable to attract and employ expert managers because of their inability to pay them high salaries.
3. Lack of secrecy: As a result of open discussions in the meetings of members it is difficult to maintain secrecy about the operations of a cooperative society.’
4. Government control: cooperative societies have to comply with several rules and regulations related to auditing of accounts, submission of accounts, etc. It affects its freedom of operations.
5. Differences of opinion: The different viewpoints of members in a co-operative society may lead to difficulties in decision making.

Question 32.
Mr. Madhu decided to start a new restaurant. In order to meet the capital requirement, he seeks the help of his friend Sreeram. At last Madhu and Sreeram decided to form a business under a certain agreement. (Say 2015)
a) Identify the form of business, they decided to form.
b) Explain its merits and demerits.

Answer:
a) Partnership
b) Merits

1. Easy formation and closure: A partnership firm can be formed and closed easily without any legal formalities.
2. Balanced decision making: In partnership, decisions are taken by all partners. So they can take better decisions regarding their business.
3. Division of labour: Division of labour is possible in a partnership firm. Duties can be assigned to different partners according to their ability.
4. Large funds: In a partnership, the capital is contributed by a number of partners. So they can start a business on a large scale.
5. Sharing of risk: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden, and stress on individual partners.
6. Secrecy: A partnership firm is not legally required to publish its accounts and submit its reports. Hence it can maintain the confidentiality of information relating to its operations.

Demerits

1. Unlimited liability: The partners of a firm have unlimited liability. The partners are jointly and individually liable for the payment of debts.
2. Limited resources: There is a restriction on the number of partners. Hence capital contributed by them is also limited.
3. Possibility of conflicts: Lack of mutual understanding and co-operation among partners may affect the smooth working of the partnership business.
4. Lack of continuity: The retirement, death, insolvency, insanity etc of any partner brings the firm to an end.
5. Lack of public confidence: A partnership firm is not legally required to publish its financial reports. As a result, the confidence of the public in partnership firms is generally low.

Question 33.
Seetharam & Sons Pvt.Ltd., and Krishna SagarLtd., are two companies incorporated in India. Identify the types of companies. Differentiate between these two types of companies. (March 2016)
Answer:
Seetharam & Sam Pvt Ltd – Pvt Company Krishna Sagar Ltd – Public Company Any 6 points of differences between the private and public company. Such as No. of members, prospectus, No.of directors, Transfer of shares, Paid-up Capital, Index of members etc.

Basis	Private Company	Public Company
Members:	Minimum – 2 Maximum – 50	Minimum – 7 Maximum – Unlimited
The minimum number of directors:	Two	Three
Minimum paid-up capital:	₹ 1 lakh	₹ 5 lakh
Transfer of shares:	Restriction on transfer	No restriction
Prospectus:	Need not issue prospectus	Can issue prospectus
Starting of business:	After getting a Certificate of incorporation	After getting the certificate of Commencement of business
Name:	End with ‘Private limited’	End with ‘Public limited’
Minimum subscription:	Need not have to obtain the minimum subscription	Need minimum subscription
Index of members:	Not compulsory	Compulsory
Statutory meeting:	Need not require statutory meeting	Need statutory meeting
Quorum:	Two	Five

Question 34.
Which among the following is NOT the feature of co-operative society? (March 2016)
a) Huge financial resources
b) Limited liability
c) Compulsory registration
d) Voluntary membership
Answer:
a) Huge financial resources

Question 35.
A partner whose association with the firm is unknown to the general public is called ____________ (March 2016)
a) sleeping partner
b) nominal partner
c) secret partner
d) silent partner
Answer:
c) Secret partner

Question 36.
Mr. Arjun has decided to start a business. But he is not aware of the basic factors to be considered and analyzed before starting a business. Help him by explaining any three such factors. (September 2016)
Answer:
The important factors determining the choice of the organization are:
1. Cost and Ease of formation: From the point of view of cost, a sole proprietorship is the preferred form as it involves the least expenditure and the legal requirements are minimum. Company form of organisation is more complex and involves greater costs.

2. Liability: In the case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. In cooperative societies and companies, the liability is limited. Hence, from the point of view of investors, the company form of organisation is more suitable as the risk involved is limited.

3. Continuity: The continuity of sole proprietorship and partnership firms is affected by the death, insolvency, or insanity of the owners. However, such factors do not affect the continuity of cooperative societies and companies. In case the business needs a permanent structure, the company form is more suitable.

4. Management ability: If the organization’s operations are complex in nature and require professionalized management, the company form of organisation is a better alternative.

Question 37.
Mr. Ahamad runs a provision store. He himself owns and manages the business. (September 2016)
a) Name the form of business organization
b) Explain any four merits and three demerits.
Answer:
a) Sole Proprietorship
b) Sole proprietorship refers to a form of business organization which is owned, managed, and controlled by an individual who is the recipient of all profits and bearer of all risks. It is the most common form of business organization.

Merits

1. Easy formation: The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship.
2. Quick Decision: The sole trader has full control over the affairs of the business. So he can take quick decisions and prompt actions in all business matters.
3. Motivation: The entire profit of the sole trading business goes to the sole proprietor. It motivates him to work hard.
4. Secrecy: A sole trader can keep all the information related to business operations and he is not bound to publish the firm’s accounts.

Limitations

• Limited capital: A sole trader can start a business only on a small scale because of limited capital.
• Lack of Continuity: Death, insolvency or illness of a proprietor affects the business and can lead to its closure.
• Limited managerial ability: A sole proprietor may not be an expert in every aspect of management.

Question 38.
It is an artificial person having a separate legal entity, perpetual succession, and a common seal. It is governed by the Companies Act. (September 2016)
a) Name the form of a business organization.
b) Explain any four merits and three demerits.
Answer:
a) Joint Stock Company
b) Merits

1. Limited liability: The liability of the shareholders is limited to the extent of the face value of shares held by them. This reduces the degree of risk borne by an investor.
2. Transferability of shares: Shares of a public company are freely transferable. It provides liquidity to the investor.
3. Perpetual existence: A company has continuous existence. Its existence not affected by death, insolvency, or insanity of shareholders.
4. Scope for expansion: A company has large financial resources. So it can start a business on a large scale.
5. 5. Professional management: A company can afford to pay higher salaries to specialists and professionals. This leads to greater efficiency in the company’s operations.

Limitations

1. Difficulty information: The formation of a company is very difficult. It requires time, effort and extensive knowledge of legal requirements.
2. Lack of secrecy: It Is very difficult to maintain secrecy in case of a public company, a company is required to publish its annual accounts and reports.
3. Impersonal work: It is difficult for the owners and top management to maintain personal contact with the employees, customers and creditors.
4. Numerous regulations: The functioning of a company is subject to many legal provisions and compulsions. This reduces the freedom of operations of a company.

Question 39.
The business operations in a Joint Hindu Family business is controlled by __________ (March 2017)
a) partners
b) Karta
c) co-parceners
d) shareholders
Answer:
b) Karta

Question 40.
Identify the form of business organization related to the following statements. (March 2017)
a) An artificial person created by law.
b) Association of persons with the motive of the welfare of members.
Answer:
a) Joint Stock Company
b) Co-operative Societies

Question 41.
Write a short note on the partnership deed. (March 2017)
Answer:
The written agreement which specifies the terms and conditions that govern the partnership is called the partnership deed.
Contents

1. Name of firm
2. Nature of business and location of the business
3. Duration of business
4. Investment made by each partner

Question 42.
Ram and Rahim decided to start a mobile shop at Aluva. (March 2017)
Answer:
a) Which form of business organization is suitable for them?
b) Explain different types of such organizations.
Answer:
a) Partnership
b) On the basis of duration, there are two types of partnerships:

• Partnership at will
• Particular partnership

On the basis of liability, the two types of partnerships are;

• General partnership
• Limited partnership

Partnership at will: This type of partnership exists at the will of the partners. It can continue as long as the partners want and is terminated when any partner gives notice of withdrawal from the partnership to the firm.

Particular partnership: A partnership formed for the accomplishment of a particular project or for a specified time period is called a particular partnership.

General Partnership: In a general partnership, the liability of partners is joint and unlimited. Registration of the firm is optional. The existence of the firm is affected by the death, lunacy, insolvency or retirement of the partners.

Limited Partnership: In a limited partnership, the liability of at least one partner is unlimited whereas the rest may have limited liability. Registration of such a partnership is compulsory. Such a partnership does not get terminated with the death, lunacy or insolvency of the limited partners.

Question 43.
Find the one, which does not enjoy a separate legal entity. (SCERT Sample Question Paper-I)
a) Private Ltd Company
b) Public Ltd Company
c) Registered partnership firm
d) Co-operative Society
Answer:
c) Registered partnership firm

Question 44.
Arathy and Anju are partners in a business. Create a situation how Rani, an outsider can become a partner by estoppel. (SCERT Sample Question Paper-I)
Answer:
If a partner by his talk or action leads others to believe that he is a partner in a firm, then he is known as a partner by estoppel. However, he is liable to third parties.

Plus One Business Studies Chapter Wise Previous Questions