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Class 11 Business Studies Chapter 2 Forms of Business Organisation
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Forms of Business Organisation
VERY SHORT TYPE QUESTIONS ANSWERS (1 MARK EACH)
1. The structure in which there is separation of ownership and management is called.
(a) Sole proprietorship.
(d) All business Organisations.
And: (c) company.
2. The karta in Joint Hindu family business has.
(a) Limited liability.
(b) Unlimited liability.
(c) No liability for debts.
(d) Joint liability.
Ans: (a) Limited liability.
3. In a co-operative society the principle followed is
(a) One share one vote.
(b) One man one vote.
(c) No Vote.
(d) Multiple votes.
Ans: (b) One man one vote.
4. The board of directors of a joint stock company is elected by.
(a) General public.
(b) Government bodies.
Ans: (c) Shareholders.
5. The maximum number of partners allowed in the banking business are.
(c) No limit.
Ans: (b) Ten.
6. Profits do not have to be shared this statement refers to.
(b) Joint Hindu family business.
(c) Sole proprietorship.
Ans: (c) Sole proprietorship.
7. The capital of a company is divided into number of parts each one of which is called.
Ans: (d) Share.
8. The Head of the Joint Hindu family business is called.
Ans: (c) Karta.
9. Provision of residential accommodation to the members at reasonable rates is the objective of.
(a) Producers Co-operative.
(b) Consumers Co-operative.
(c) Housing Co-operative.
(d) Credit Co-operative.
Ans: (c) Housing Co-operative.
10. A partner whose association with the firm is unknown to the general public is called.
(a) Active partner.
(b) Sleeping partner.
(c) Nominal partner.
(d) Secret partner.
Ans: (d) Secret partner.
Short Answer Questions
1. For which of the following types of business do you think a sole proprietorship form of organisation would be more suitable and why?
(a) Grocery store.
(b) Medical store.
(c) Legal Consultancy.
(d) Craft centre.
(e) Internet cafe.
(f) Chartered accountancy firm.
Ans: (a) Grocery store.
2. For which of the following types of business do you think a partnership firm of organisation would be more suitable, and why.
(a) Grocery store.
(b) Medical clinic.
(c) Legal consultancy.
(d) Craft centre.
(e) Internet cafe.
(f) Chartered accountancy firm.
Ans: (f) Chartered accountancy firm.
3. Explain the following terms in brief.
(a) Perpetual Succession.
(b) Common seal.
(d) Artificial person.
Ans: (a) Perpetual Succession: The company has a permanent existence. The shareholders may come or may go but the company will go on forever. The continuity of the company is not affected by death, lunacy or insolvency of its shareholders. The company can be wound up only by the operation of law. The shares of the company may change hands a number of times, but the continuity of the company is not affected at all.
(b) Common seal: A company being an artificial person cannot put its signatures. The law requires every company to have a seal and get its name engraved on it. The seal of the company is affixed on all important documents and contracts as a token of signature. The directors must witness the affixation of the seal.
(c) Karta: All the affairs of the joint Hindu Family are controlled and managed by one person who is known as ‘Karta’ or ‘Manager’. He is having a very unique position which no other office of any organisation in the world is having. He works in consultation with other members of the family but ultimately he has a final say. The liability of ‘Karta’ is unlimited but the liability of other members is limited to their shares in the business. According to Hindu law, the senior most male member of the family is “karta’ by virtue of his position in the family. However, there can be a deviation from this and a junior male member can be a “Karta’ provided all coparceners agree to it.
Karta’s powers are almost unlimited. He acts on behalf of the other members of the family but is not like a partner. Neither he is accountable to anyone nor he is to prepare accounts. No one can ask what was the income and what was the expenditure. He is the great of the grand show.
(d) Artificial person: A corporation is an artificial being, invisible, intangible and existing only in contemplation of the law. Being a more creation of law, it possesses only the properties which the charter of its creation confers upon it either expressly or as incidental to its very existence. A company is a creation of law and exists independent of its members. Like natural persons, a company can own property, incur debts, borrow money, enter into contracts, sue and be sued but unlike them it cannot breathe, eat run, talk and so on. It is therefore, called an artificial person.
4. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership firm.
Ans: The following are the differences between the two:
(i) Governance: Partnership firm is governed by the Indian partnership Act whereas the Joint Hindu Family firm is governed by the two schools :
(b) Dayabhaga, of Hindu law.
(ii) Creation: The partnership firm is created by the mutual agreement between the partners, which may be written or oral. Their relationship is contractual whereas for the creation of Joint Hindu Family firm no such contract is required.
(ii) Legal Position: The partnership firm has a legal entity and identical to its partner in the eyes of law, whereas the Joint Hindu Family is not having any separate and distinct legal entity from its members.
(iv) Number of Members: In partnership firm the maximum number of members is fixed. It is ten in case of a banking business and twenty in other cases. But there is no such maximum number fixed in case of Joint Hindu Family Firm. It can consist of any number of members.
(v) Admission: A new partner can be admitted to partnership only with the consent of other partners. But in case of Joint Hindu Family firm, the birth of a person in family brings him in the folds. However, one can also be admitted by adoption or by marriage to male member of the Family
(vi) Position of a minor: A minor cannot become the partner in the firm. He can, however, be admitted to the benefits of firm with the consent of other partners. But in Joint Hindu Family firm there is no such restriction and a child, as soon as he is born, becomes the members.
(vii) Management: Every partner can take active part in the management of partnership firm whereas in joint Hindu family firm the power to manage is centralised in the hands of karta.
(viii) Outside position of a members: In partnership firm each partners is the agent of the other and is having the authority to bind the firm with his dealings. But in Joint Hindu Family firm this authority is not available to any member except karta.
(ix) Accounts: Accounts are to be properly maintained and any partner can inspect the accounts at any time in case of partnership firm. But in Joint Hindu firm karta is not under any obligation to maintain Accounts. No member can even ask for the accounts from karta.
(x) Liabilities: The liabilities of partners in partnership firm are unlimited. Their responsibility is Joint and several. For the business liabilities, the private properties of partners are also liable in addition to their share in the business. But in joint Hindu family firm the liability of karta is unlimited. All the other members are having limited liability to their respective undivided shares in the Joint family property. The self acquired property of a member cannot be held liable in any case.
(xi) Dissolution: Partnership firm can be dissolved on the death or insanity of a partner. On the other hand the continuity of a joint Hindu Family firm is not affected by death or insanity of a member. Only partition can bring it to an end.
(xii) Registration: It is not compulsory but advisable for a partnership firm to enable it to enforce a claim against outsider. But in case of Joint Hindu Family firm it is not at all necessary.
5. If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.
Ans: Though the registration of a partnership is no compulsory, yet it has many advantages The registration of a firm is not only advantageous for the firm but also for those who deal with it. The following advantages are derived from the registration of firm
(i) Advantages to the firm: The firm gets a right to the third parties in civil suits for getting its rights enforced. In the absence of registration, the firm cannot see outside partners in courts.
(ii) Advantages to creditors: A creditor can see any partner for recovering his money due from the firm. All partners whose names are given in the registration are personally responsible to the outsiders. So creditors can recover their money from any partner of the firm.
(iii) Advantages to Partners: The partners can approach a court of law against each other in case of dispute among partners. The partners can sue outside parties also for recovering their amounts, etc.
(iv) Advantages to Incoming parties: A new partner can fight for his rights in the firm if the firm is registered. If the firm is not registered then he will have to depend upon the honesty of other partners.
(v) Advantages of out going Partners: The registration of a firm benefits the outgoing partners in a number of ways. The out going partners may be divided into two categories
(i) on the death of a partner.
(ii) On the retirement of a partner.
On the death of a partner his successors are not responsible for the liabilities incurred by the firm after the date of his death. In case of a retiring partner, he continues to be responsible up to the time he does not give public notice. The public notice is not registered with the Registrar and he this notice. So, it is essential to get a firm registered for getting these advantages.
6. State the important privileges available to a private company.
Ans: A private company is given certain exemptions and privileges as compared to a public company. So of the main privileges are as follows.
(i) A private company can be started with just two members whereas a public company requires at least seven members.
(ii) A private company is not required to file a prospectus or a statement in lieu of prospectus with the Registrar of companies.
(iii) There is not restriction of minimum subscription as in the case of public company. It can directly allot the shares.
(iv) The company can start its work just after getting a certificate of incorporation. It is exempted from getting the certificate of commencement.
(v) It can work with just two directors.
(vi) A private company is not required to hold a statutory meeting and filing a statutory report.
(vii) It is not under legal obligation to offer its issue of shares to the existing shareholders on a pro rate basis as is in the case of a public company.
(viii) Unless other wise a higher quorum is provided, the minimum quorum in a general meeting of shareholders is only two members personally present.
(ix) There is no limit on the remuneration of directors, managers, etc. in a private company. It can be fixed beyond 11 per cent which is a statutory limit for a public company.
(x) Investment in the same group of companies can be done without restrictions.
7. How does a co-operative society exemplify democracy and secularism? Explain
Ans: The management of co-operative societies is always on democratic lines. All the members of a society elect a body of persons to conduct and control the day to day working of the society. The members frequently meet and give guidelines to its executive. The management is elected through ‘One man, One votes’ system. The day to day work is conducted by expert persons but the ultimate control lies with the members. In a co – operative, democracy is move than a system, it is a condition of its business success co-operative business stands or falls with democracy. The membership of a co-operative society is open to all irrespective of religion, caste creed, colour or political affiliation, the co-operative movement can attract a large membership only by staying out of policies where people have divided opinions. Co-operative represents universal brotherhood and it should not lose its path in political contradictions. There is no place for caste or discrimination in co-operatives. The primary aim of co-operatives is to serve its members. So, co-operative societies are neutral as far as political and religions affiliations are concerned.
8. What is meant by ‘partner by estoppel? Explain.
Ans: When a person is not a partner but poses himself as a partner, either by words or in writing or by his acts, he is called a partner by estoppel or by holding out. A partner by estoppel or by holding out shall be liable to outsiders who deal with the firm on the presumption of that person being a partner in the business even though he is not a partner and does not contribute anything to the business.
Long Answer Questions
1. What do you understand by a sole proprietorship firm? Explain its merits and limitation?
Ans: Sole-tradership is the oldest form of the business organisation. In this form of business organisation one person takes the initiative of starting the business. He invests his own resources and bears all the risks of the business. He personally looks after the whole work with the help of his family members. He may employ some persons to work in his business or hire experts for technical works. The liability of sole-trader is unlimited. In case of need he has to satisfy his creditors even from his private property. The competence of the sole trader determines the fate of the business. He is in fact the sole organiser, manager, controller and master of his business
The advantages and disadvantages of a sole trader business are discussed below:
(i) Easy in formation: It is easy to form a sole trader business because no legal formalities are require to be performed in its formation. Anybody desiring to start a sole-trader business can do so. Business is absolutely free from legal formalities.
(ii) Better Control: In sole trader business one man is responsible for all types of activities. He controls every functions of the business He himself takes the decision regarding the various activities of the business in appropriate time. The owner is all in all and he cannot escape his work. He call exercise better control over the business.
(iii) Flexibility in operation: If any change is required in the operation of business, it can be possible without involving much expenditure and performing legal formalities. Bocaneuf being flexible in operation a sele-trade concern is most sunshade for industries dealing in fashionable and seasonal goods.
(iv) Retention of Business Secrets: A sole-trader can maintain his business secrets. He is not to discuss his business secrets to anybody else. He is not to publish his accounts. He can maintain secrecy from his competitors.
(v) Easy to raise finance: A sole-trader can easily get financial help from the creditors by creating goal will in the market. Creditors also do not hesitate in advancing loans to the sole trader because in case of loss the private property of the owner can also be attached to recover the loan.
(vi) Direct motivation: The sole trader takes keen interest in the working of the business. He tries to put his heart and soul in the business to earn as much profit as he can. In sole trade business nobody is there to share to profit except the own.
(vii) Promptness in decision making: A sale trader can take prompt decision in order to avail an opportunity fitted to his business.
(viii) Direct accessibility to consumers: A sole trader can have direct contact with consumers and employees. This helps him in redressal of the grievances of the consumers and employees. It enables him to make necessary changes in the quality and design of his products according to the need of the consumers.
(ix) Inexpensive management: The sole trader is the owner, manager and controller of the business. He does not appoint specialists for various functions. He personally supervise the various activities and can avoid wastage in business. Thus the managerial costs are saved to a large extent.
(x) Self Employment: The sole proprietorship form of business. organisation offers the means of self employment to those who do not want to serve others. As everyone cannot get a suitable job for earning his livelihood, the individual can easily start a small size business.
(i) Limited Resources: The resources of a sole trader are limited : He makes investments from his family. He may try to manage finance from financial institutions but he may not be in a position to offer sufficient securities to these institutions. As a result he may not get the required amount of finance necessary for his business.
(ii) Limited Managerial ability: One person may not be expert for each and every function of a business. He may not be able to devote sufficient time tor all types of activities. The managing capacity of the sole-proprietor is limited. So he will have to depend upon paid employees. But his limited financial resources will not allow him to appoint professional people. Limited managerial capacity will hinder the growth of business.
(iii) Unlimited Liability: The liability of sole trade is unlimited. He may have to assign his private property in discharging the liability of the business if he suffers heavy loss. Unlimited liability also restricts the growth of business activities.
(iv) Uncertain Continuity: The continuity of a sole trader business is uncertain. The business will continue so long the proprietor is there. In case of mobility or death the business is discontinued. The
successor may not have the ability to continue the business.
(v) Limited scope for Employees: Due to limited carrier opportunities, a sole trader cannot attract qualified and efficient persons. As the continuity of sole trader business is uncertain the employees also feel unsecured. Moreover a sole trader cannot offer financial incentive to the employees because his activities are on a small scale.
(vi) No large scale economics: As the sole trader business is on small scale it cannot economics in purchase, production and marketing. In a sole trade concern overhead expenses are also more. So this type of business organisation cannot enjoy the benefits of large scale economics.
(vii) More Risk involved: A sole trader is to take all decisions by himself. So there is a possibility of-taking wrong decisions. This may lead and create difficult situations involving more risks..
2. Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership.
Ans: Partnership is considered by some ownership because of the following reasons that there is always like livelihood of lack of harmony amongst the partner. Difference of opinion very often results in disharmony and lack of management, when differences arise, each partner tries to blame the other partner about his dishonest dealings and working against the interest of the firm. This is bound to result in disruption and ultimate dissolution of the firm.
The following are the advantage of partnership firm:
(i) Easy to Form: It is easy to form a partnership firm. No legal formalities are required to be performed for its formation. A simple agreement among the partner is sufficient to start a partnership firm. Even the registration of a firm is not compulsory.
(ii) Large Resources: As there is more than one person in a partnership firm larger amount of capital can be arranged for the business. The partnership concern can also arrange funds from the outside sources.
(iii) Greater Managerial Talent: Greater managerial talent is available in a partnership firm because persons having different talent and knowledge may be taken as the partner of the firm. This will help to increase the efficiency of the business resulting in more profits.
(iv) Promptness in Decision making: The partners meet frequently and they can take prompt decision in any matter for the we are of the business.
(v) Sharing Risk: The risk of business is shared by more persons. The burden of every partner will be much less as compared to the burden of sole trader.
(vi) Relationship between Reward and work: The partners can put more labour to earn more and more profits. There is a direct relationship between reward and work The more they work. The more they will be benefited.
(vii) More possibility of Growth and Expansion: As compared to a sole trade business, partnership concern has more possibilities for expansion and growth of business activities.
(vii) Flexibility of operations: There is no statutory obligation to seek approval from government before making major in the business set up. The changes in the managerial setup, capital arid Scale of operation can be made easily depending upon the business opportunities.
(ix) Secrecy: A partnership concern is not to publish its profit and loss account and balance sheet as is necessary in case of a joint stock company. The partners can keep the business secrets to themselves.
(x) Protection of Minority Interest: Every partner has a right to participate in the management of the business. All important decisions are taken by the consent of all partners.
(xi) Easy Dissolution: No legal formalities are required for the dissolution of a firm. It is easy to start as to dissolve a partnership concern. A partner-ship firm can be dissolved on insolvency, lunacy or death of a partner.
(xii) Democratic administration: All partners can take active interest in the working of the firm. All important decisions of the business are taken with the consultation and consent of all the partners.
3. Why is it important to choose an appropriate form of organization.
Ans: The pattern of ownership is an important decision to be taken before establishing a business enterprise. The forms of organisation are sole proprietorship. Partnership Joint Stock company. Co-operative societies etc. They have their own advantages and disadvantages. The selection of a suitable form of business organisation is an important managerial decision. It provides the best medium for the attainment of business objectives.
The following points are taken into consideration while selecting a form of business organisation.
(i) Easy in Formation: The primary consideration in making the choice is which type or form of organisation can be set up easily or without any difficulty. The important considerations are facility of forming, minimum legal requirement, freedom of payment of fees to state or authority.
(ii) Easy in Raising finance: The other important consideration is the case with which the requisite capital can be raised. Small amount of capital can be invested by the entrepreneur himself and he would be content to put up a business and sale proprietorship of organization would serve the purpose effectively. If a large business requiring huge amount of capital is to be set up, company form of organisation may be necessary which will entail certain formalities to be followed for raising the capital.
(iii) Extent of Liability: This is another important factor in making the choice of a form of business ownership. The extent of liability means the extent upto which one is accountable to law. He is either fully liable or he is liable to a limited extent. In the former one the liability is said to be unlimited, his personal or private estate will be liable for the debt but in the later case the liability is limited and he can be made to pay only to the extent of certain definite limit. Ordinarily he would like a liability where his liability is limited unlimited liability, however, acts as a stimulus for hard work and may result in good gain the greater the extent of liability the greater one could feel his responsibility and risk and hence would always try his best to escape from the risk of the liability which is only possible by doing hard work. He may in that case choose sole proprietorship or partnership.
(iv) Flexibility of operation: A good form of business ownership is one which permits maximum flexibility, as changes can be introduced promptly without any difficulty. Individual proprietorship enjoys to the maximum extent the characteristic of flexibility of operation.
(v) Stability and continuity: The continuity of existence and stability are the essential factors which make an organisation superior in status as against those which lack continuity. The company form of organisation is the only form which ensures stability and continuity. The life span of sole proprietary organisation is not long. This may be closed after the death of its owner. A partnership too does not have a permanent life. It may be dissolved for a number of reasons. Hence, a company form of organisation will be suitable if stability of operation is essential.
(v) Secrecy: Secrecy is of supreme importance, particularly in small business concerns. Accordingly, the entrepreneur would select the sole proprietorship for that reason. In case, he has partners, he will have to carefully weigh whether other partners will be able to maintain the secrecy. He will have to exercise great care in taking partners.
(vii) Government Regulations: Different forms of organisations are subject to various kinds of control exercised by government rules and regulations. In case of sale proprietorship, the government control is minimum. A sole proprietary organisation is not expected to meet any legal requirement. Similarly, a partnership form of organisation is free from government regulations. Even the registration of partnership is not compulsory. But a number of formalities are required to be complied with while incorporating a company. A company is created by the process of law and govt. reserves the right to control its actions more closely than the other two forms of organisations.
(viii) Tax Liability: The basis of taxation is different in each type of organisation. A joint stock company has more tax liability as compared to the sole proprietorship and partnership.
(ix) Decision making Opportunities: Some entrepreneurs, particularly those who attach great value to their own leadership would prefer sole proprietorship as the form of organisation. If a very high leadership is required which he may not possess, he will then be obliged to form a company in order to attract a more able leadership to assume responsibility for the operation of the enterprise.
The above mentioned factors are inter related and cannot be considered singly. The entrepreneur will have to consider all the factors relatively before making choice. The capital requirement and limited liability are also most important factors for taking into consideration before taking a decision.
4. Discuss the characteristics, merits and limitations of co – operative form of organisation. Also describe briefly different types of co-operative societies.
Ans: The characteristics of a co-operative society may be described as follows:
(i) Voluntary Membership: Voluntary membership is the main characteristics of a co-operative society. The members willing to form a co-operative come voluntarily and do so. Nobody is compelled to join a co-operative. Anybody willing if may join or leave the co-operative society as and when he likes.
(ii) Service Motive: Another characteristic of a co-operative is to provide service to their members. The aim of co-operative society is not to earn profit. The service of members is the fundamental objective of a co-operative society.
(iii) Democratic Management: The management of a co-operative society is always on democratic basis. All the members elect a Board of Directors in the general meeting of the society. The Board of Directors frame plans and policies of the society which are executed by the appointed executives.
(iv) One Man One Vote: In a co-operative society every member is given one vote irrespective of his contribution towards the share capital of the society.
(v) Political and Religious Neutrality: The membership of a co – operative society is open to all irrespective of religion, cast and creed.
(vi) Cash Trading: The trading in co-operative is generally carried on the ‘cash basis’. Cash trading ensures economy for the co – operatives.
(vii) Distribution of Surplus: Any surplus arising from the working of a co – operative society is distributed among its members of is spent on their welfare.
(Viii) State Control: The co-operative societies are to follow some rules and regulations framed by the Government for the management of the same.
The various advantages of a co-operatives are discussed below:
(i) Open Membership: The membership of co-operative societies is open to each and every person. There is no bar of joining co – operative societies if enjoy the fruits of a co-operative can join it.
(ii) Service Motto: The co-operative societies are formed not for the purpose of earning profit but, for service. The societies try to promote to create interest of the members.
(iii) Supply of goods at cheaper rates: The co-operative societies purchase goods directly from the producers and sell them at cheaper rates to its members. The middlemen are eliminated from the channel of distribution. The co-operative societies ensure regular supply of goods at cheaper rates.
(iv) Low Management costs: The management of co-operative societies is in the hands of persons elected by the shareholders. Some persons are employed to look after the day-to-day working of the societies. So the societies need not spent large amount of money for management personnel.
(v) Surplus shared by members: The societies sell goods the members on a nominal profit to cover up the administrative costs. The surplus earned by the societies is distributed among the members on the basis of their purchases. Some parts of the profit is spent for the welfare of its members.
(vi) Check on other business: Co-operative societies act as a check on the workings of other forms of business organisation. When businessmen try to exploit consumers supply prices of their commodities, co-operative by raising goods at reasonable prices Then other enterprises will have to lower the prices of their goods.
The limitation of co-operative societies can be explained as follows:
(i) Lack of capital: Generally co-operatives are started by the economically weaker sections of society. The shares are generally of lower denomination i.e. face value to facilitate persons of lower income also to be associated with the societies. The resources of members are not enough to start a large scale enterprise. So co – operative societies suffer from lack of capital.
(ii) Lack of unity among members: As the members of co-operative societies are drawn from different sections of society, there may be lack of harmony among the members. This may again work against the interest of the societies.
(iii) Cash trading: As goods are sold on cash basis in co-operative societies, the poor persons may not be able to purchase the goods all the time on cash. So they are to go credit purchase from private traders who help the consumers by extending credit facilities.
(iv) Political interference: The co-operative societies are generally under the regulations of government. Therefore, co-operative societies have to face interference from governments to the Managing committees. This has some adverse affect in the growth of co-operative societies.
Different type of co-operative societies:
The principal types of business cooperatives are as follows:
(i) Co-operative societies: The societies are voluntary associations of people with moderate means, formed with the objective of providing the short time financial accommodation to their members. These societies are formed with the idea of saving their members from the clutches of money lenders.
(ii) Consumers co-operative societies: These societies are formed by consumers for obtaining their requirement at reasonable prices. Their basic object is to eliminate middlemen. The consumers join together and manage the business. The profit of the business is returned back to the members in the ratio of purchases made by them during the year.
(iii) Co-operative Marketing Societies: Co-operative marketing is essential for marketing the produce of the cultivators at reasonable prices in co-operative way. The main purpose is that the cultivator should get reasonably good price. These are voluntary associations which aim of collectively marketing their produce. The purpose is to save the producer from the clutches of money lenders.
(iv) Industrial co-operatives: An industrial co-operatives society may be defined as a co-operative unit which is formed by industrial labourers or small industrial labourers or small industrialists for the purpose of pooling their resources with the object in creasing their production and marketing their produce. The members join hands as a body and avoid middlemen services both in production and distribution.
(v) Co-operative forming societies: These societies are the voluntary associations of small formers who joint hands as a body and avoid middlemen services both in production and distribution.
(vi) Co-operative forming societies: These societies are the voluntary associations of small formers who join hands with objective achieving the economics of large scale farming and maximising agricultural output.
5. Distinguish between a Joint Hindu family business and partnership.
6. Despite limitations of size and resources, may people continue to prefer sole proprietorship over other forms of organisation? Why?
Ans: A business managed and controlled by one person is said to be best because the owner is free to take initiative for the growth of the business. The following are some of the points is favour of one man control.
(i) Easy Formation: One man business is easy to form. No legal formalities are required to start a business. A person willing to set p a business can do so without loss of time.
(ii) Effective control: Since one person is responsible for running the whole business, he will be able to supervise each and every aspect effectively. He can take quick decision according to the requirement of situation.
(iii) Efforts and Reward linked: One-man control is the source of inspiration to the proprietor because – he himself gets the fruits of his rewards.
(iv) Retaining Business Secrets: One man control of business is helpful for retaining, business secrets. Because maintenance of business secrets is very important for its success.
(v) Personal contact with-consumer: Under one man ownership proprietor directly comes into the contract with consumers. He gets the opportunity to know the consumer behaviour for the products of ‘his business. He will be able to know the individual tastes of the consumers. This will enable him to know consumers patronage for goods.
(vi) Getting all profits: In one man business, owner gets all the profits of the business. This act as a motivator for hard work. As nobody is there to share the profits, the proprietor will put his best effort to accelerate his efficiency and profitability.
(vii) In expensive Management: The owner acts as the manager and controller, so there will be economy in management, He personally supervise every activity and this helps in avoiding wasteful managerial expenses.
(viii) No Legal Restrictions: There is no legal restrictions for starting a sole trading business. He is not to file various returns to the government as in the case of company form of business.
(ix) Cordial Relations with employees: Under one man control there is a direct contact between the owner and employees. So he will be able to know the difficulties of the employees personally and may take the remedial steps as early as possible.
(x) Social Desirability: One man ownership business is generally on a small scale basis. This helps in diffusing concentration of economic power. The wealth will be in the hands of many people.
In pursuance of this discussion, a conclusion can be drawn that one man control is best in the world. The owner is greatly motivated to work hard and improve the working of his business. Of course of this type ownership may not be successful in every type of business. The business can provide sufficient funds and scale of operation should be such which may be easily supervised by him.
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