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NIOS Class 12 Business Studies Chapter 6 Company form of Business Organisation
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Company form of Business Organisation
Chapter: 6
Module – 2 : BUSINESS ORGANISATIONS
INTEXT QUESTIONS 6.1
Q. I. If all the members of a joint stock company die in a road accident, then the company will be closed down. Do you agree with this statement? Give reasons in support of your answer.
Ans: No, since the company has perpetual existence. It can continue working with new members.
Q. 2. Name the following in reference to a joint stock company:
(a) The smallest unit into which the capital of company is divided.
Ans: Share.
(b) The Act that governs the joint stock companies in India.
Ans: Companies Act 1956
(c) The sum total of the money contributed by the members of a joint stock company.
Ans: Share capital.
(d) The official signature of a joint stock company.
Ans: Common seal.
(e) The elected representatives of the members who manage the day to day affairs of the joint stock company.
Ans: Directors.
INTEXT QUESTIONS 6.2
Q.1. ‘X’ Company controls more than 50% of the nominal value of ‘Y’ Company’s equity share capital. Hence, ‘X’ Company is termed as holding company. State the other circumstances when a company can become a holding company.
Ans: (a) If the company has control over the appointment of the Board of Directors of another company.
(b) When its subsidiary company is the holding company of another company.
Q. 2. Below are given certain characteristics of Joint stock company. Identify the characteristics of public limited company and private limited company from these statements and put tick mark in the circle of the boxes given after the statements.
(a) There can be maximum of 50 members.
(b) It can be started with minimum of seven members.
(c) Its minimum paid up capital is five lakh rupees.
(d) The shareholders cannot transfer its share.
(e) It can invite the public to subscribe to its share.
Ans: Private limited company – (a) (d).
Public limited company- (b) (c) (e).
Q. 3. Complete the following incomplete words by taking clues from the statements given for each. Every blank represents one letter only. First one has been done for you.
(a) P __________L ________ (PUBLIC)
(b) F ________ R ________ N Company
(c) ST________ UT _______Y Company
(d) ________ LD _______ NG Company
(e) M______L _____ N ______IO____ AL Company
(f) G____E ____N ____ ENT Company
Clues:
(a) A Company which requires minimum of seven members.
(b) A company which is incorporated outside India.
Ans: FOREIGN
(c) A company created by a special Act of th Parliament.
Ans: STATUTORY
(d) A company that holds more than 50% share capital of another company.
Ans: HOLDING
(e) A company which carries on business in more s than one country.
Ans: MULTINATIONAL
(f) A company in which at least 51% paid up capital is held by the Government.
Ans: GOVERNMENT.
INTEXT QUESTIONS 6.3
Q. 1. Mr. Mohit has invested Rs 2 lakh in shares of a public limited company. After one year he noticed that the company does not perform well, and the market value of its shares is going down. He thinks, if this situation continues, he will lose his Rs 2 lakh rupees and if required his house will be sold out to discharge his liabilities of the company.
Is he thinking in the right direction? Give reason in support of you answer.
Ans: No. The liabilities of the shareholders is limited. Again, he has the option to transfer or sell the shares to avoid further loss.
Q. 2. Below are given certain statement. Put ‘M’ in the box given at the end of the sentence, if it is the merit and ‘L’ if it is limitation of joint stock company.
(a) The liability of the members of joint stock company is limited.
Ans: M
(b) The shares of the public limited company can be traded easily in the stock exchange.
Ans: M
(c) A number of legal formalities have to be complied with in the formation of joint stock company.
Ans: L
(d) The shareholders holding majority of shares take all decisions of the company.
Ans: L
(e) A company can spend a lot of money on research and development for improved process of production, designing and innovating new products.
Ans: M.
INTEXT QUESTIONS 6.4
Q. 1. A Joint Stock Company is suitable where the volume of business is large, the area of operation is widespread and the risk involved is high. What are other conditions under which Joint Stock Company is more suitable. Write any two such conditions.
Ans. (a) Need for professional management.
(b) Huge financial requirement.
(c) More manpower requirement.
Q. 2. There are a number of factors that determine the choice of a particular form of business organization. Name the form of organization i.e., either sole proprietorship or joint stock company which may be preferred keeping in mind the following factors:
(a) It can raise huge capital and hire expert knowledge to manage a big business.
Ans: Joint stock company.
(b) Maximum secrecy can be maintained.
Ans: Sole proprietorship.
(c) The government controls is very little.
Ans: Sole proprietorship.
(d) Death or insolvency of a member does not affect the existence.
Ans: Joint stock company.
(e) Flexibility in operations is maximum.
Ans: Sole proprietorship.
INTEXT QUESTIONS 6.5
Q. 1. State the general features of Multinational Corporation.
Ans. (a) International Operation.
(b) Large size.
(c) Centralised control.
Q. 2. Following points distinguish a joint stock company, partnership and cooperative society from each other. Joint the points with the relevant form of business organization given in the circle by drawing arrows.
(a) The different forms of business organization being governed by different Acts passed in the year-
(i) 1932
(ii) 1956
(iii) 1912
Ans: (i) 1932– Partnership.
(ii) 1956– Joint Stock company.
(iii) 1912 – Cooperative society.
(b) Minimum number of members required to form:
(i) 2
(ii) 7
(iii) 10
Ans: (i) 2 – Partnership.
(ii) 7– Public limited company.
(iii) 10 – Cooperative society.
(c) Maximum number of members:
(i) 50
(ii) 20
(iii) No limit.
Ans: (i) 50 – Private limited company.
(ii) 20 – Partnership.
(iii) No limit – Cooperative society.
(d) Management:
(i) Managed by an Elected committee.
(ii) Managed by one or more members board.
(iii) Managed by elected of directors.
Ans: (i) Managed by elected committee Cooperative society.
(ii) Managed by one or two members-Partnership.
(iii) Managed by elected board of directors-Joint stock company.
Q. 3. Multiple Choice Questions:
(i) A form of business organisation that has been set up jointly by two different business firms is known as:
(a) Sole proprietorship.
(b) Joint venture.
(c) Co-operative society.
(d) Public company.
Ans: (b) Joint venture.
(ii) Name of the organisation set up as a result of the partnership between public sector and private sector is:
(a) Sole proprietorship.
(b) Public company.
(c) Public Private Partnership.
(d) Co-operative society.
Ans: (c) Public Private Partnership.
TERMINAL EXERCISE
Very Short Answer Type Questions:
Q. 1. In joint stock company what is meant by the term ‘share’?
Ans: The money so contributed constitutes the capital of the company. The capital of the company is divided into small units called shares.
Q. 2. State the meaning of the term ‘Company’ as per the Companies Act 1956.
Ans: In India, the joint stock companies are governed by the Companies Act, 1956. According to the Act, a company means ‘a company formed and registered under this Act or an existing company’. An existing company means a company formed and registered under any of the previous Companies Acts. This definition is not exhaustive enough to reveal the basic features of the company.
Q. 3. What is meant by multinational corporation?
Ans: Meaning and Features of Multinational Corporation: Simply speaking, a multinational corporation (also termed as multinational companies) is one which is registered as a company in one country but carries on business in a number of other countries by setting up factories, branches or subsidiary units. Such a company may produce goods or arrange services in one or more countries and sell these in the same or other countries. You might have heard about many Multinational Corporations (MNCs) running business in India, Hyundai Motor Company, Coca Cola Company, Sony Corporation, McDonald’s Corporation, Citi Bank, etc.
Q. 4. State the difference between a public company and a private company as far as the commencement of business is concerned.
Ans.
| Commencement of business | A private limited company can start its business immediately upon its incorporation | A public limited company cannot start its business immediately after its incorporation. It has to obtain a certificate for starting or commencing its business. |
Q. 5. How do you identify a public company and a private company just by seeing their names?
Ans:
| Identification | A private company must suffix ‘Private Limited’ to its name. | A public company must suffix ‘Limited’ to its name. |
Q. 6. What is meant by Public Private Partnership?
Ans: Public Private Partnership means partnership between public sector and private sector in financing, designing and developing infrastructural facilities. In a PPP, the private sector may contribute money, expertise and technical knowhow. Infrastructures like power, transport, education, healthcare, waste management etc are maintained through PPPs.
Q. 7. Name a form of organisation that is formed by combined efforts of two or more Independent firms?
Ans: Joint venture is a form of business, where two or more independent firms contribute capital and participate in business operations, these two organisations may be private or government organisations or a foreign company. In joint venture, business concerns join together for a specified purpose. It facilitates pooling funds, technical knowhow & managerial skills. The rewards and risks will be shared by the concerns in joint venture.e.g. Maruti Ltd. of India and Suzuki Ltd. of Japan joined hands to form Maruti Suzuki India Ltd. which is a joint venture concern.
Short Answer Type Questions:
Q. 8. State how the company is as artificial person?
Ans: Artificial Person: A joint stock company is an artificial person in the sense that it is created by law and does not possess physical attributes of a natural person. It cannot eat or walk, smile or marry, read or write. However, it has a legal status like a natural person.
Q. 9. Enumerate the features of a public company.
Ans: A public company must have the following features:
(a) It can invite the public to subscribe to its shares and debentures by open invitation.
(b) A minimum of seven members is required to establish a public company. There is no limit on the maximum number of its members.
(c) There is no restriction on the transfer of shares i.e., the shareholders are free to sell their shares to the public.
(d) The public company must have a minimum paid up capital of five lakhs rupees.
Q. 10. Distinguish between private company and public company on the basis of members and paid up capital.
Ans.
| Basis of distinction | Private Company | Public Company |
| 1. Minimum number of members | A minimum of two members is required for a private company. | A minimum of seven members is required for a public company |
| 2. Maximum number of members | The maximum number of members in a private company is 50. | There is no limit on maximum number of members in public company. |
| 3. Minimum paid up capital | A private company must have a minimum paid up capital of Rs One lakh. | It must have a minimum paid up capital of Rs Five lakh. |
Q. 11. State the suitability of joint stock company form of business organisation.
Ans: A joint stock company is suitable where the volume of business is large, the area of operation is widespread, the risk involved is high and there is a need for huge financial resources and manpower. It is also preferred when there is need for professional management in its operations. In certain businesses like banking and insurance, joint stock company form is the most suitable. Now-a-days, it is a preferred form for most areas of business because of the preference for operating on large scale.
Q. 12. What conditions are required to be fulfilled by a private company?
Ans: Following conditions are equired to be fulfilled by a private company:
(a) It cannot have more than 50 members. Employees of the company are not included in this.
(b) It cannot invite the public to purchase its shares and debentures through open invitation.
(c) It restricts the rights of the members to sell or transfer their shares.
(d) It must have a minimum paid up share capital of One lakh rupees.
Q. 13. What is meant by a joint venture?
Ans: Joint venture is a form of business, where two or more independent firms contribute capital and participate in business operations, these two organisations may be private or government organisations or a foreign company. In joint venture, business concerns join together for a specified purpose. It facilitates pooling funds, technical knowhow & managerial skills. The rewards and risks will be shared by the concerns in joint venture.e.g Maruti Ltd. of India and Suzuki Ltd. of Japan joined hands to form Maruti Suzuki India Ltd. which is a joint venture concern.
Q. 14. List any three merits of Public Private Partnership.
Ans: Merits of Public Private Partnership are:
1. PPPs approach helps in faster implementation of projects.
2. It helps in higher quality services as there is a combined expertise of public and private sector.
3. It helps to reduce costs due to efficient management practices.
Long Answer Type Questions:
Q. 15. Explain, why the joint stock company form of business organisation is advisable to undertake huge and risky projects.
Ans; A Joint Stock Company or simply a company is a voluntary association of persons generally formed for undertaking some big business activity. It is established by law and can be dissolved by law. The company has a separate legal existence so that even if its members die, the company remains in existence. Its members contribute money for some common purpose. The money so contributed constitutes the capital of the company. The capital of the company is divided into small units called shares. Since members invest their money by purchasing the shares of the company, they are known as shareholders and the capital of the company is known as share capital.In India, the joint stock companies are governed by the Companies Act, 1956. According to the Act, a the members to sell or company means ‘a company formed and registered under this Act or an existing company’. An existing company means a company formed and registered under any of the previous Companies Acts. This definition is not exhaustive enough to reveal the basic features of the company. However, based on the definition given in the previous Companies Act and various judicial decisions, it can be defined as ‘an artificial person created by law, having a separate legal entity, with a perpetual succession’.
Q. 16. Describe any five characteristics of joint stock company.
Ans: Five characteristics of joint stock company are:
(a) Artificial Person: A joint stock company is an artificial person in the sense that it is created by law and does not possess physical attributes of a natural person. It cannot cat or walk, smile or marry, read or write. However, it has a legal status like a natural person.
(b) Formation: The formation of a joint stock company is time consuming and it involves preparation of several documents and compliance of several legal requirements before it starts its operation. A company comes into existence only when it is registered under the Indian Companies Act.
(c) Separate Legal Entity: Being an artificial person, a company exists independent of its members. It can make contracts, purchase and sell things, employ people and conduct any lawful business in its own name. It can sue and can be sued in the court of law. A shareholder cannot be held responsible for the acts of the company.
(d) Common Seal: Since a company has no physical existence, it must act through its Board of Directors. But all contracts entered by them shall have to be under the common seal of the company. This common seal is the official signature of the company. Any document with the common seal and duly signed by an officer of the company is binding on the company.
(e) Perpetual Existence: The company enjoys continuous existence. Death, lunacy, insolvency or retirement of the members does not affect the life of the company. It goes on forever. Since it is created by law, it can only be dissolved by law.
Q. 17. You were running your business in partnership, but now you have formed a joint stock company. What difference did you notice in respect of
(a) legal status.
(b) liability. and
(c) finance?
Ans:
| Basis | Partnership business | Joint Stock Company |
| (a) Legal status | No Separate legal entity | Separate legal entity from that of its members. |
| (b) Liability | Joint and several to an unlimited extent. | Limited to the face value of shares helder. |
| (c) Finance | Relatively limited scope for raising finance. | Vast and unlimited scope for raising finance. |
Q. 18. Explain any five advantages of multinational corporation for the host country.
Ans. Advantages of Multinational Corporation:
The Multinational Corporations enjoy several advantages by way of huge earnings due to large-scale production and distribution activities across national borders. Besides, the host countries in which the Multinational Corporations operate also derive a number of advantages. These are:
(a) Investment of Foreign Capital: Direct investment of capital by multinational corporatior helps under-developed countries to speed up their economic development.
(b) Generation of Employment: Expansion of industrial and trading activities by multinational corporation leads to creation of employment opportunities and raising the standard of living in host countries.
(c) Use of Advanced Technology: With substantial resources multinational corporation undertake Research and Development activities which contribute to improved methods and processes of production and thus, increase the quality of products. Gradually, other countries also acquire these technologies.
(d) Growth of Ancillary Units: Suppliers of materials and services and ancillary industries often grow in host countries as a result of the operation of multinational corporation.
(e) Increase in Exports and Inflow of Foreign Exchange: Goods produced in the host countries are sometimes exported by multinational corporation. Foreign exchange thus earned contributes to the foreign exchange reserves of host countries.
Q. 19. State any five factors required to be considered while choosing the right form of business organisation.
Ans: While selecting a form of business organisation, we analyse different factors and try to choose the most suitable form according to our financial and managerial capabilities.
These factors are:
(a) Ease of formation: A sole trader can commence and withdraw from business at any time at his own option. In partnership, mutual trust and faith is very much required. Company requires many legal formalities for its formation. Sole proprietorship is therefore the easiest to form.
(b) Availability of Large Resources: One-man business is the best in the world if the owner has enough resources and ability to manage. This statement shows that a single person is unable to undertake big business mainly because of limited resources and managerial ability. In partnership also the financial resources of partners are limited. Therefore, only a company can raise enough capital and hire expert knowledge required for the management of a big business.
(c) Liability or Risk: Liability of members is unlimited both in sole proprietorship and partnership and limited in case of a company and cooperative societies. Since members hesitate to undertake big risk, they prefer to invest in a company.
(d) Stability: Stability is essential for the success of any business. The existence of a company and cooperative society does not depend on the health and wealth of its members. Sole proprietorship and partnership forms are dissolved but company form of an organisation continues irrespective of the death or insolvency of any of its members.
(e) Flexibility: An ideal form of business must have flexibility in operations. Decisions must be taken quickly and implemented promptly for its functioning. Any rigidity in its functioning will not be beneficial for the survival and growth of a business. A company enjoys better flexibility whenever more finances are required. It can raise more capital and include more members whenever needed. In a partnership, the number of members at any time cannot exceed 20. In sole proprietorship there is only one owner and availability of finances is also limited.
But flexibility in operations is maximum in sole proprietorship. He does not require approval of other members as in partnership or compliance with the provisions of the Act as in a company. Hence, the change in the nature of business or its operations is easiest in the case of sole proprietorship.
Q. 20. Discuss briefly the features of Joint Venture.
Ans: Following are the features of Joint Venture:
1. Access to advanced Technology: When two or more companies join together, there can be access to latest techniques of production. This will lead to cost reduction and improvement in quality and increased production.
2. Optimum Use of Capital: Joint Venture helps in the optimum utilisation of capital. There will be least wastage of capital and other resources.
3. Pooling of Resources and Expertise: The resources of two or more companies can be effectively pooled by forming a joint venture. This helps in large scale production and can avail economies of large scale production.
4. Innovation: It the highly competitive market, the ideas and technology of two enterprises will help to innovative new ideas and products.
5. Sharing of Risk and Reward: The enterprises which join hands to form joint venture will share the reward in the form of increased profit. The partners in joint venture have to share the risk that may occur in business.
