NIOS Class 12 Business Studies Chapter 5 Forms of Business Organisation

NIOS Class 12 Business Studies Chapter 5 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 5 Forms of Business Organisation and select need one. NIOS Class 12 Business Studies Chapter 5 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 5 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 5 Forms of Business Organisation, NIOS Senior Secondary Course Data Business Studies for All Chapter, You can practice these here.

Forms of Business Organisation

Chapter: 5

Module – 2 : BUSINESS ORGANISATIONS

INTEXT QUESTIONS 5.1

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

Ans: J.L. Hanson: “A type of business unit where one person is solely responsible for providing the capital and bearing the risk of the enterprise, and for the management of the business.”

Thus, ‘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.

Q. 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 form. 

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.

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

Ans. 

INTEXT QUESTIONS 5.2

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

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

Q. 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.

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

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

(d) In a partnership firm Hari and Madhu contri’ uted Rs 10,000 each Madhu’s liability would be limited to Rs 10,000 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) Maximum 10 members can join a banking business in partnership firm.

(b) Partnership deed is always in the writing form.

(c) There is a principal agent relationship among the partners. 

(d) 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 can acquires interest in a partnership firm by entering into an agreement. 

Q. 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 5.3 

Q. 1. Why should the liability of Karta be unlimited?

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. 

Q. 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 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 decision without any interference.

Ans: M. 

Q. 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 Joint Hindu Family the membership is acquired by virtue of birth in the same 

family.

INTEXT QUESTIONS 5.4

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

Ans: Cooperative society 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.

Q. 2. Answer the followings 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: 

TERMINAL EXERCISE

Very Short Answer Type Questions:

Q. 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.

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

Ans: The sole proprietorship is suitable where the market is limited, localised and the customers give importance topersonal attention. It is also considered suitable where the capital requirement is small and risk involved is limited. It is also considered suitable for the production of goods which involve manual skill e.g. handicrafts, filigree work, jewelry, tailoring, haircutting etc. 

Q.3. Who is a partner by estoppel?

Ans: A person who behaves in the public in such a way as to give an impression that he/she is a partner of the firm, is called “partner by estoppel’.

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

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.

‘Partnership’ is an association of two or more persons who pool their financial and managerial resources and agree to carry on a business, and share its profit. The persons who form a partnership are individually known as partners and collectively a finn or partnership firm.

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

Ans: The Joint Hindu Family (JHF) business is a form of 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 known as Karta manages the business. The other members are called co-parceners and all of them have equal ownership right over the properties of the business. 

Short Answer Type Questions:

Q. 6. State the suitability of sole proprietorship form of business organisation.

Ans: The sole proprietorship is suitable where the market is limited, localised and the customers give importance to personal attention. It is also considered suitable where the capital requirement is small and risk involved is limited. It is also considered suitable for the production of goods which involve manual skill e.g. handicrafts, filigree work, jewelry, tailoring. haircutting etc.

Q. 7. Explain any two limitations of partnership form of business organisation. 

Aus: Limitations of partnership form of business organisation are:

(a) Limited Resources: The resources of a sole proprietor are always limited. Being the single owner it is not always possible to arrange sufficient funds from his own sources. Again borrowing funds from friends and relatives or from banks has its own implications. So, the proprietor has a limited capacity to raise funds for his business.

(b) Lack of Continuity: The continuity of the business is linked with the life of the proprietor. Illness, death or insolvency of the proprietor can lead to closure of the business. Thus, the continuity of business is uncertain.

(c) Unlimited Liability: There is no separate entity of the business from its owner. In the eyes of law the proprietor and the business are one and the same. So personal properties of the owner can also be used to meet the business obligations and debts.

Q.8. What is meant by ‘partnership deed’? Is it essential for partnership?

Ans: When two partners share the profits and losses in the agreed ratio. In fact, for all terms and conditions of their working, they have to sit together to decide about all aspects. There must be an agreement between them. The agreement may be in oral, written or implied. When the agreement is in writing it is termed as partnership deed.

Partnership deed is not essentail. However, it is always better to have agreement in writing due to fallowing causes: 

(a) Partnership agreement regulates the right duties and liabilities of the partners.

(b) Partnership agreement avoids dispute in future. 

Q. 9. 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 the partners. However, a minor can be admitted to the benefits of partnership firm i.e., he can have share in the profits without any obligation for losses.

A Joint Hindu Family business is formed as per the provision of Hindu law. It comes into existence on the death of the person who established the business. His success or automatically become the coparceners if ‘ they decide to continue it as a joint family business. The children become its members by birth. The senior most member of the family will become the Karta of the business. 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.

Q. 10. Mention any four characteristics a cooperative society gets after getting the registration certificate. 

Ans: In India, cooperative societies are registered under the Cooperative 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 attain certain characteristics. 

These are as follows. 

(i) The society 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.

Long Answer Type Questions: 

Q. 11. Describe any four different types of partners.

Ans: Normally every partner in a firm contributes to its capital, participates in the day-to-day management of firm’s activities, and shares its profits and losses in the agreed ratio. In other words, all partners are supposed to be active partners. However, in certain cases there are partners who play a limited role. They may contribute capital and such partners cannot be termed as active partners. Similarly, some persons may simply lend their name to the firm and make no contribution to capital of the firm. Such persons are partners only in name. Thus, depending upon the extent of participation and the sharing of profits, liability etc., partners can be classified into various categories. These are summarised as under:

(A) Based on the extent of participation in the day-to-day management of the firm partners can be classified as “Active Partners’ and ‘Sleeping Partners’. The partners who actively participate in the day-to-day operations of the business are known as active partners or working partners. Those partners who do not participate in the day-to-day activities of the business are known as sleeping or dormant partners. Such partners simply contribute capital and share the profits and losses.

(B) Based on sharing of profits, the partners may be classified as ‘Nominal Partners’ and ‘Partners in Profits’. Nominal partners allow the firm to use their name as partner. They neither invest any capital nor participate in the day-to-day 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. 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 the irliability is limited to their capital contribution.

(C) Based on Liability, the partners can be classified as ‘Limited Partners’ and General  Partners’. The liability of limited partners is limited to the extent of their capital contribution. This type of partners is found in Limited Partnership firms in some European countries and USA. The partners having unlimited liability are called as 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.

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

These are:

(a) Partner by Estoppel. and 

(b) Partner by Holding out.

(a) Partner by Estoppel: A person who behaves in the public in such a way as to give an impression that he/she is a partner of the firm, is called ‘partner by estoppel’.

(b) Partner by Holding out: Such partners are not entitled to share the profits of the firm, but are fully liable if some body suffers because of his/her false representation. 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. 

Q. 12. What is a Joint Hindu Family business? Describe its main characteristics.

Ans: The Joint Hindu Family (JHF) business is a form of 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 known as Karta manages the business.

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 but by operation of law.

(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-parcenership 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 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 coparceners 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 coparceners does not affect the continuity of business. Even on the death of the Karta, it continues to exist as the eldest of the coparceners takes position of Karta. However, JHF business can be dissolved either through mutual agreement or by partition suit in the court. 

Q. 13. Explain the various merits of a Joint Hindu Family form of business organisation.

Ans: Joint Hindu Family business has the following merits:

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

(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 coparceners except the Karta is limited to the extent of his 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 makes the Karta has 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 coparceners is not to be included in their individual income for tax purposes.

Q. 14. Give the definition of cooperative society as per the Indian Cooperative Societies Act 1912. State any two characteristics of cooperative society form of business organisation.

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.”

Characteristics of Cooperative: Society Based on the above definition we can identify the following characteristics of cooperative society form of business organisation:

(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 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.

(e) 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 member may specify the maximum numbers of members.

(d) Registration of the Society: In India, cooperative societies are registered under the Cooperative 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 attain certain characteristics. 

These are as follows:

(i) The society 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.

(e) State Control: Since registration of cooperative societies is compulsory, every cooperative society comes under the control and supervision of the government. The cooperative department keeps a watch on the functioning of the societies. Every society has to get its accounts audited from the cooperative department of the government.

Q. 15. State the different types of cooperative societies that exist in India.

Ans: Types of Cooperative Societies: Cooperative organisations are set up in different fields to promote the economic well-being of different sections of the society. So, 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 price.

(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, like raw materials, tools and equipments etc.

(c) Marketing Cooperative Societies: To solve the problem of marketing the products, small producers join hands to form marketing cooperative 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 Co-operative Societies accept deposits from the members and grant them loans at reasonable rate of interest.