NIOS Class 12 Business Studies Chapter 4 Forms of Business Organisation

NIOS Class 12 Business Studies Chapter 4 Forms of Business Organisation Solutions to each chapter is provided in the list so that you can easily browse throughout different chapters NIOS Class 12 Business Studies Chapter 4 Forms of Business Organisation and select need one. NIOS Class 12 Business Studies Chapter 4 Forms of Business Organisation Question Answers Download PDF. NIOS Study Material of Class 12 Business Studies Notes Paper 319.

NIOS Class 12 Business Studies Chapter 4 Forms of Business Organisation

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Also, you can read the NIOS book online in these sections Solutions by Expert Teachers as per National Institute of Open Schooling (NIOS) Book guidelines. These solutions are part of NIOS All Subject Solutions. Here we have given NIOS Class 12 Business Studies Chapter 4 Forms of Business Organisation, NIOS Senior Secondary Course Business Studies for All Chapter, You can practice these here.

Forms of Business Organisation

Chapter: 4

Module – 1 Introduction to Business

INTEXT QUESTION 4.1 

1. Define ‘Sole Proprietorship’ in your own words.

Ans: The term ‘sole’ means single and ‘proprietorship’ means ‘ownership’. So, only one person is the owner of the business organisation. This means, that a form of business organisation in which a single individual owns and manages the business, takes the profits and bears the losses, is known as sole proprietorship form of business organisation 

2. Below are given the merits and limitations of sole proprietorship form of business organisation. Write ‘M’ against Merits and ‘L’ against Limitations in the space provided against each. 

(a) A sole proprietorship business is easy to start. ( )

Ans: M. 

(b) A sole proprietor is personally liable for all the liabilities of the business. ( )

Ans: L. 

(c) A sole proprietor has a limited capacity to raise funds for his business. ( )

Ans: L. 

(d) A sole proprietor can maintain secrecy about the affairs of his business. ( ) 

Ans: M.

(e) A sole proprietor maintains good personal contact with the customers. ( )

Ans: M. 

3. Match the following with reference to sole proprietorship business.

Ans:

INTEXT QUESTIONS 4.2 

1. State the position of minors in relation to a partnership firm.

Ans: A minor can only share the profits of the business. 

2. Following are the statements related to partnership form of business organisation. Rewrite the statement in correct form if found wrong. 

(a) Maximum 20 partners can join in a partnership firm running banking business.

Ans: Maximum 10 members can join a banking business in partnership form. 

(b) Partnership Deed may be either oral or in writing.

Ans: Partnership deed is always in the writing form.   

(c) There is an employer-employee relationship among the partners.

Ans: There is a principal-agent relationship among the partners. 

(d) In a partnership firm Hari and Madhu contributed Rs. 10,000 each. Madhu’s liability would be limited to Rs. 10,000 in case of losses in firm’s business.

Ans: In a partnership Hari and Madhu contributed Rs. 10,000 each. Madhus’s liability would be unlimited in case of losses in firm’s business. 

(e) A person acquired interest in a partnership firm by virtue of his relationship with the existing partners.

Ans: A person can acquire interest in a partnership firm by entering into an agreement.  

3. Identify the type of partners in the following situation: 

(a) The liability of Sridhar, a 25 years old partner is limited to the extent of his capital contribution.

Ans: Limited partner.  

(b) Madan has neither contributed any capital nor shares the profits of the firm though he is treated as a partner.

Ans: Nominal Partner. 

(c) Sunita has been admitted to the benefits of the firm at the age of 15.

Ans: Partner in profit or Minor partner. 

(d) Sudhir had contributed to capital and shares the profit and loss of the firm. But he does not take part in the day-to-day activities.

Ans: Sleeping Partner/dormant partner. 

(e) A firm declares that Sachin is a partner of their firm. Knowing the declaration Sachin did not disclaim it.

Ans: Partner by holding out.   

INTEXT QUESTIONS 4.3 

1. Why should the liability of Karta be unlimited? State the liability of the members of a Joint Hindu Family business.

Ans: Since Karta has absolute power to manage the business as per his own will, he may misuse the authority for his personal gain. The clause unlimited liability restricts the Karta to do harm to the business.  

2. State whether it is a merit or a limitation of Joint Hindu Family business. Write ‘M’ for merit and ‘L’ for limitation in the box given against each statement. 

(a) Young family member gains knowledge and experiences from other members.

Ans: M. 

(b) The death or insolvency of a member does not affect the continuity of the business.

Ans: M. 

(c) The coparceners are not motivated to put their best efforts. 

Ans: M.

(d) The members get equal share in the profits irrespective of their participation.

Ans: M. 

(e) The Karta takes quick decisions without any interference. 

Ans: M.

3. Distinguish between partnership and Joint Hindu Family business on the basis of membership.

Ans: (a) Minimum two members are required in both the cases. 

(b) Maximum 10 for banking and 20 for other business in case of partnership. Whereas there is no such limit fixed for Joint Hindu Family business. 

(c) Membership is acquired by entering into agreement in partnership business. In the Joint Hindu Family the membership is acquired by virtue of birth in the same family. 

INTEXT QUESTIONS 4.4 

1. Define ‘Cooperative Society’ in your own words.

Ans: The cooperative society is the only form of business organisation which gives utmost importance to its members rather than maximising its own profits. After studying its characteristics and different types, we may now study the merits of this form of business organisation. 

2. Answer the following in one or two words. 

(a) Who manages the cooperative society? 

Ans: Managing committee.

(b) How many members are required to start a multistate cooperative society?

Ans: 50 (Individual members). 

(c) Which type of cooperative society is formed to solve the credit need of the people?

Ans: Credit Cooperative society. 

(d) To whom the application should be made for seeking registration of a cooperative society?

Ans: Registrar of Cooperative societies. 

(e) What is the maximum limit of membership in a cooperative society?

Ans: Maximum limit is not fixed by the Act. It is the members who can decide about the maximum limit of membership in the society if they so want.   

3. Match the following: 

Ans:

Very Short Answer Questions: 

1. Define sole proprietorship. 

Ans: Sole Proprietorship’ form of business organisation refers to a business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.

2. List any two situations in which sole proprietorship form of business organisation is found to be most suitable.

Ans: (i) Small Scale Business.

(ii) Personalised Services. 

3. Who is a partner by estoppel? 

Ans: A person, who by his/her conduct or behaviour in the public gives an impression that he/she is a partner of the firm, is called ‘partner by estoppel’. Such partners are not entitled to share the profits of the firm, but are fully liable if somebody suffers because of their false representation.

4. Distinguish between partnership and sole proprietorship business on the basis of membership. 

Ans:

5. State the meaning of the term ‘Coparcener’.

Ans: In JHF business outsiders are not allowed to become the coparcener. Only the members of an undivided family acquire co-partnership rights by birth. 

1. State the suitability of sole proprietorship form of business organisation. 

Ans: To assist you in such exercise, it can be stated that the sole proprietorship is suitable where:  

(i) The market is limited, localised and the customers give importance to personal attention.  

(ii) The capital requirement is small and risk involved is limited.  

(iii) The production of goods involves manual skills e.g., handicrafts, filigree work, jewellery, tailoring, haircutting etc. 

2. Explain any two limitations of partnership form of business organisation. 

Ans: A partnership firm also suffers from certain limitations. These are as follows: 

(a) Unlimited Liability: The liability of the partners is unlimited i.e., the partners are personally liable for the debt and obligations of the firm. In other words, their personal property can also be utilised for payment of firm’s liabilities incase the firm’s assets are insufficient to pay debts. 

(b) Instability: Every partnership firm has an uncertain life. The death, insolvency, incapacity or the retirement of any partner brings the firm to an end. Not only that, any dissenting partner can give notice at any time for dissolution of partnership. 

3. What is meant by ‘partnership deed’? Is it essential for partnership?

Ans: A partnership deed, also known as partnership agreement, is a written document that outlines in detail the rights and responsibilities of all partners in a business operation. For lasting relationship among partners, there must be a written agreement among the partners to carry out the business and share the profits and losses.

Yes, it is essential For lasting relationship among partners, there must be a written agreement among the partners to carry out the business and share the profits and losses. 

4. Compare the status of a minor in partnership firm with that in a Joint Hindu Family business.

Ans: Partnership is created by an agreement among the persons who have agreed to join hands. Such persons must be competent to contract. Thus, minors, lunatics and insolvent persons are not eligible to become partners. However, a minor can be admitted to the benefits of partnership firm i.e., he can have a share in the profits without any obligation for losses. 

The JHF business is a jointly owned business. It is governed by the Hindu Succession Act 1956.

5. Mention any four characteristics a cooperative society attains after getting the registration certificate. 

Ans: The four characteristics a cooperative society attains after getting the registration certificate:

(a) Voluntary Association: Members join the cooperative society voluntarily i.e.by their own choice. Persons having common economic objective can join the society as and when they like, continue as long as they like and leave the society as and when they want. 

(b) Open Membership: The membership is open to all those having a common economic interest. Any person can become a member irrespective of his/her caste, creed, religion, colour, sex etc. 

(c) Number of Members: A minimum of 10 members are required to form a cooperative society. In case of multi-state cooperative societies the minimum number of members should be 50 from each state in case the members are individuals. The Cooperative Society Act does not specify the maximum number of members for any cooperative society. However, after the formation of the society, the members may specify the maximum member of members. 

(d) Registration of the Society: In India, cooperative societies are registered under the Co-operative Societies Act 1912 or under the State Cooperative Societies Act. The Multi-state Cooperative Societies are registered under the Multi-state Cooperative Societies Act 2002. Once registered, the society becomes a separate legal entity and attains certain characteristics.

1. Describe any four different types of partners.

Ans: partners can be classified into various categories. These are summarised as under. 

(i) Based on the extent of participation in the day-to-day management of the firm, partners can be classified as: 

(a) ‘Active Partners’: The partners who actively participate in the day-today operations of the business are known as active partners or working partners. 

(b) ‘Sleeping Partners’: Those partners who do not participate in the dayto-day activities of the business are known as sleeping or dormant partners. Such partners simply contribute capital and share the profits and losses. 

(ii) Based on sharing of profits, the partners may be classified as: 

(a) ‘Nominal Partners’: Nominal partners allow the firm to use their name as partner. They neither invest any capital nor participate in the day-today operations. They are not entitled to share the profits of the firm. However, they are liable to third parties for all the acts of the firm. 

(b) ‘Partners in Profits’: A person who shares the profits of the business without being liable for the losses is known as ‘partner in profits’. This is applicable only to the minors who are admitted to the benefits of the firm and their liability is limited to their capital contribution. 

(iii) Based on Liability, the partners can be classified as: 

(a) ‘Limited Partners’: The liability of limited partners is limited to the extent of their capital contribution. This type of partners are found in Limited Partnership firms in some European countries and the USA. 

(b) ‘General Partners’: The partners having unlimited liability are called ‘general partners’ or Partners with unlimited liability. It may be noted that every partner who is not a limited partner is treated as a general partner. 

(iv) Based on the behaviour and conduct exhibited, there are two more types of partners besides the ones discussed above:

(a) Partner by Estoppel: A person, who by his/her conduct or behaviour in the public gives an impression that he/she is a partner of the firm, is called ‘partner by estoppel’. Such partners are not entitled to share the profits of the firm, but are fully liable if somebody suffers because of their false representation. 

(b) Partner by Holding out: Similarly, if a partner or partnership firm declares that a particular person is a partner of their firm, and such a person does not disclaim it, then he/she is known as ‘Partner by Holding out’. Such partners are not entitled to profits but are fully liable as regards the firm’s debts.  

2. What is a Joint Hindu Family business? Describe its main characteristics. 

Ans: The Joint Hindu Family (JHF) business is a form of ancestral business organisation run by Hindu Undivided Family (HUF) where the family members of three successive generations own the business jointly. The head of the family is known as Karta who manages the business. The other members are called coparceners and all of them have equal ownership right over the properties of the business. It is to be noted here that if any income has been earned by any member of the joint Hindu Family because of his personal skills or traits, then such income will not be treated as income of HUF. The membership of the JHF is acquired by virtue of birth in the same family. There is no restriction for minors to become the members of the business.

From the above discussion, it must have been clear to you that the Joint Hindu family business has certain special characteristics which are as follows: 

(a) Formation: In JHF business there must be at least two members in the family, and family should have some ancestral property. It is not created by an agreement. No legal formalities are required for its establishment. But it has to be registered with the Income tax department to avail the tax concessions involved. 

(b) Legal Status: The JHF business is a jointly owned business. It is governed by the Hindu Succession Act 1956. 

(c) Membership: In JHF business outsiders are not allowed to become the coparcener. Only the members of undivided family acquire co-partnership rights by birth. 

(d) Profit Sharing: All coparceners have equal share in the profits of the business. 

(e) Management: The business is managed by the senior most member of the family known as Karta. Other members do not have the right to participate in ,The Hindu Succession (Amendment) Act, 2005  the management. The Karta has the authority to manage the business as per his own will and his ways of managing cannot be questioned. If the coparceners are not satisfied, the only remedy is to get the HUF status of the family dissolved by mutual agreement. 

(f) Liability: The liability of co-parceners is limited to the extent of their share in the business. But the Karta has an unlimited liability. His personal property can also be utilised to meet the business liability. 

(g) Continuity: Death of any co-parceners does not affect the continuity of business.Even on the death of the Karta, it continues to exist as the eldest of the co-parceners takes position of Karta. However, JHF business can be dissolved either through mutual agreement or by partition suit in the court.  

3. Explain the various merits of a Joint Hindu Family form of business organisation. 

Ans: Since Joint Hindu Family business has certain peculiar features as discussed above, it has the following merits. 

(a) Assured Shares in Profits: Every co-parcener is assured of an equal share in the profits irrespective of his participation in the running of the business. This safeguards the interest of the minor, sick and physically and mentally challenged co-parceners. 

(b) Quick Decision: The Karta enjoys full freedom in managing the business. It enables him to take quick decisions without any interference. 

(c) Sharing of Knowledge and Experience: A JHF business provides opportunity for the young members of the family to get the benefits of knowledge and experience of the elder members. It also helps in inculcating virtues like discipline, self-sacrifice, tolerance etc. 

(d) Limited Liability of Members: The liability of the co-parceners except the Karta is limited to the extent of their share in the business. This enables the members to run the business freely just by following the instructions or direction of the Karta. 

(e) Unlimited Liability of the Karta: Because of the unlimited liability of the Karta, his personal properties are at stake in case the business fails to pay the creditors. This clause of JHF business enables the Karta to manage business most carefully and efficiently. 

(f) Continued Existence: The death or insolvency of any member does not affect the continuity of the business. So it can continue for a long period of time. 

(g) Tax Benefits: HUF is regarded as an independent assessee for tax purposes.The share of co-parceners is not to be included in their individual income for tax purposes.

4. Give the definition of cooperative society as per the Indian Cooperative Societies Act.1912. 

Ans: The Section 4 of the Indian Cooperative Societies Act 1912 defines Cooperative Society as “a society, which has its objectives for the promotion of economic interests of its members in accordance with cooperative principles.” 

The term cooperation is derived from the Latin word ‘co-operari’, where the word ‘Co’ means ‘with’ and ‘operari’ mean ‘to work’. Thus, the term cooperation means working together. So those who want to work together with some common economic objectives can form a society, which is termed as a cooperative society. 

It is a voluntary association of persons who work together to promote their economic interest. It works on the principle of self-help and mutual help. The primary objective is to provide support to the members. People come forward as a group, pool their individual resources, utilise them in the best possible manner and derive some common benefits out of it.

5. State any two characteristics of cooperative society form of business organisation. 

Ans: The two characteristics of cooperative society form of business organisation:

(a) Number of Members: A minimum of 10 members are required to form a cooperative society. In case of multi-state cooperative societies the minimum number of members should be 50 from each state in case the members are individuals. The Cooperative Society Act does not specify the maximum number of members for any cooperative society. However, after the formation of the society, the members may specify the maximum member of members. 

(b) Registration of the Society: In India, cooperative societies are registered under the Co-operative Societies Act 1912 or under the State Cooperative Societies Act. The Multi-state Cooperative Societies are registered under the Multi-state Cooperative Societies Act 2002. Once registered, the society becomes a separate legal entity and attains certain characteristics. 

These are as follows: 

(i) It enjoys perpetual succession. 

(ii) It has its own common seal. 

(iii) It can enter into agreements with others. 

(iv) It can sue others in a court of law. 

(v) It can own properties in its name.

6. State the different types of cooperative societies that exist in India. 

Ans: According to the needs of the people, we find different types of cooperative societies in India. Some of the important types are given below. 

(a) Consumers’ Cooperative Societies: These societies are formed to protect the interest of consumers by making available consumer goods of high quality at reasonable prices. 

(b) Producer’s Cooperative Societies: These societies are formed to protect the interest of small producers and artisans by making available items of their need for production, such as raw materials, tools, equipment etc. 

(c) Marketing Cooperative Societies: To solve the problem of marketing the products, small producers join hands to form marketing co-operative societies. 

(d) Housing Cooperative Societies: To provide residential houses to the members,housing cooperative societies are formed generally in urban areas. 

(e) Farming Cooperative Societies: These societies are formed by the small farmers to get the benefits of large-scale farming. 

(f) Credit Cooperative Societies: These societies are started by persons who are in need of credit. Credit Cooperative Societies accept deposits from the members and grant them loans at a reasonable rate of interest.  

7. There is a saying that it is always better to have a written agreement. Keeping in view this saying it is always advisable for partners to have a written agreement. What is the name of this agreement and what are its contents in general? 

Ans: A partnership deed, also known as partnership agreement, is a written document that outlines in detail the rights and responsibilities of all partners in a business operation. For lasting relationship among partners, there must be a written agreement among the partners to carry out the business and share the profits and losses.

The agreement, i.e., the partnership deed must contain the following: 

(i) The name of the firm. 

(ii) The nature of the business. 

(iii) The names and addresses of the partners. 

(iv) Location of business. 

(v) The term or duration of partnership, if decided. 

(vi) The amount of capital to be contributed by each partner. 

(vii) The ratio in which the profits and losses are to be shared among the partners. 

(viii) Rights and duties of partners. 

(ix) Remuneration to partners and the timing and amount of withdrawals of cash by the partners. 

(x) The interest to be allowed on capital and charge on drawings. 

(xi) Treatment of goodwill.

(xii) Preparation of accounts and their auditing. 

(xiii) Procedure for dissolution of the firm etc. 

(xiv) Procedure for settlement of disputes.

(xv) Arbitration clause. 

8. You have gone through the various forms of business organisations. If you get an opportunity to start a business in the present scenario which form of business organisation will you choose & why? Express your views with valid points.

Ans: Sole Proprietorship because it is a type of business where one person is solely responsible for providing the capital and bearing the risk of the enterprise, and for the management of the business. 

(a) Single Ownership: The sole proprietorship form of business organisation has a single owner who himself/herself starts the business by bringing together all the resources. 

(b) No Separation of Ownership and Management: The owner himself/herself manages the business as per his/her own skill and intelligence. There is no separation of ownership and management as in case of company form of business organisation. 

(c) Less Legal Formalities: The formation and operation of a sole proprietorship form of business organisation does not involve any legal formalities. Thus, its formation is quite easy and simple. 

(d) No Separate Entity: The business unit does not have an entity separate from the owner. The businessman and the business enterprise are one and the same, and the businessman is responsible for everything that happens in his business unit. 

(e) No Sharing of Profit and Loss: The sole proprietor enjoys the profits. At the same time, the entire loss is also borne by him. The profits and losses of the business are not shared by the proprietor. He alone bears the risks and reaps the profits. 

(f) Unlimited Liability: The liability of the sole proprietor is unlimited. In case of loss, if the business assets are not enough to pay the business liabilities, his personal property can also be utilised to pay off the liabilities of the business. 

(g) One-man Control: The controlling power of the sole proprietorship business always remains with the owner. He/she runs the business as per his/her own will.