11th Commerce OCM Chapter 4 Exercise (Forms of Business Organisation – I) Maharashtra Board – Free Resource

11th Commerce OCM Chapter 4 Exercise

Chapter 4 – Forms of Business Organisation – I

Q.1 (A) Select the correct option and rewrite the sentences.

1) A sole trading concern ensures _____ business secrecy.
a) maximum
b) minimum
c) limited

2) The members of Hindu undivided family business are called _____.
a) Partner
b) coparcener
c) parceners

3) The head of Joint Hindu Family Business is called as _____.
a) KARTA
b) owner
c) manager

4) Registration of partnership firm is _____ in Maharashtra.
a) voluntary
b) compulsory
c) easy

5) The liability of the shareholders in Joint Stock Company is _____.
a) limited
b) unlimited
c) restricted

6) A Joint Stock Company is an artificial person created by _____.
a) Law
b) Articles
c) Memorandum

7) Registration of a Joint Stock Company is _____.
a) compulsory
b) free
c) not required

8) Liability of member of a Co-operative Society is _____.
a) limited
b) restricted
c) maximum

9) Indian Co-operative Society’s Act was passed in _____.
a) 1912
b) 1913
c) 1911

10) _____ acts as a signature of the company.
a) Common seal
b) Common sign
c) Common image

Q.1 (B) Match the pairs.

1)

Group A	Group B
a) Private Company	1) Karta
b) Public Company	2) Local Market
c) Common Seal	3) 1932
d) Partnership Act	4) Maximum 200 members
e) Joint Hindu Family Firms	5) One Man Show
	6) Minimum Seven members
	7) Minimum 10 members
	8) Signature of Company
	9) Maximum 100 members
	10) Manager

Answers.
a. 4) Maximum 200 members
b. 6) Minimum Seven members
c. 8) Signature of Company
d. 3) 1932
e. 1) Karta

Q.1 (C) Give one word/phrase/term for the following statements.

1) An elected body of representatives of co-operative Society for its day to day administrations.
Answer: Managing Committee

2) The owner is the sole manager and decision maker of his business.
Answer: Sole Trader

3) One man show type of business organisation.
Answer: Sole Trading Concern

4) The members of the Joint Hindu Family firm.
Answer: Coparceners

5) A Partner who gives his name to partnership firm.
Answer: Nominal Partrner

6) There is free transferability of shares in this company.
Answer: Public Company

7) A partnership agreement in writing.
Answer: Partnership Deed

8) The motto of the co-operative Society.
Answer: Service

9) An organisation which is service oriented.
Answer: Co-operatives Society

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.1 (D) State True or False.

1) Sole trader is the decision maker of the business. (True)

2) Sole trading concern operates in local markets. (True)

3) Sole proprietorship is useful for small business. (True)

4) The liability of KARTA is unlimited. (True)

5) The maximum number of members is unlimited in Joint Hindu Family Firm. (True)

6) Joint Stock company can raise huge amount of capital. (True)

7) There is a separation of ownership & management in Joint Stock Company. (True)

8) Board of Directors manage the business of Joint Stock Company. (True)

9) Partnership agreement may be oral or written. (True)

10) In partnership firm, the liability of every partner is limited, joint & serveral. (False)

11) The main motto of co-operative society is to render services to its shareholders. (False)

12) The membership of a co-operative society is compulsory. (False)

Q.1 (E) Find the odd one.

1) Sole proprietorship, Joint Hindu family, Non- Governemt Organisation (NGO), Partnership firm.

2) Active Partner, Shareholder, Nominal parmer, Secret partner.

Q.1 (F) Complete the sentences.

1) Private sector enterprises are owned and managed by the private entities.

2) There is only one owner in Sole Trading Concern.

3) A partner who takes active participation in the day to day working of the business is known as Active Partner.

4) When there is no provision in partnership agreement regarding time period for partnership then it is known as Partnership at will.

5) The management of JHF business is handled by the Karta.

6) The management of co-operative society is based on democracy.

7) The rule for voting in co-operative society is one member on vote.

8) The rule for voting in Joint stock company is one share on vote.

9) The face value of the shares of co-operative society is very less.

10) Consumer’s co-operatives are formed by the consumers.

11) Registration of Joint stock company is compulsory according to the Companies Act 2013.

Q.1 (G) Complete the following table

A	B
1) Minimum 2 and maximum 200	Private Company
2) Minimum 10 and maximum no limit	Co-operative Society
3) Public Company	Minimum 7 and maximum unlimited
4) Form of business organisation having only one member	Sole Trading Concern
5) Minimum 2 and maximum 50	Partnership

Q.1 (H) Answer in one sentence.

1) What is sole Trading concern?
Answer: The sole proprietorship is an informal type of business owned by one person.

2) What is partnership firm?
Answer: In a partnership firm two or more Partners come together to undertake a business activity and share profits.

3) What is the meaning of Joint-stock Company?
Answer: It is an incorporated association of individuals for profit having capital divided into transferable shares, the ownership of which is the condition of membership.

4) What is JHF business?
Answer: The ancestral business is conducted by family members of Joint Hindu Family.

5) What is co-operative Society?
Answer: It is a voluntary association of individuals to provide services to its members.

6) What is minor partner?
Answer: A person who is under the age of 18 is regarded as a minor. Generally, a minor cannot be admitted as a partner. However, a minor may be admitted for the benefit of an existing partnership with the consent of all partners.

7) What is Quasi Partner?
Answer: Quasi Partner is a partner in a partnership firm who retired from the firm but left his capital with the firm.

8) What is partner-in-profits only?
Answer: When a partner agrees to share only the profits of the firm and would not be liable for its losses, he is known as a partner in profits only.

9) What is a general partnership?
Answer: General partnership is a form of partnership where, the liability of all the partners is unlimited, joint and several. Every partner has an equal right and it can be formed under the Partnership Act of 1932.

10) What is the meaning of a Private Company?
Answer: A private company is a company that by its articles, restricts the right to transfer its shares, if any, and limits the number of its members to 200.

11) What is a Public Company?
Answer: A public company is a company which is not a private company and has a minimum paid-up capital of 5 lacs rupees and have the right to transfer the shares of a company

Q.1(I) Correct the underlined word and rewrite the following sentences.

1) In public company, shares are not freely transferrable.
Answer: private

2) In Private Company, there are minimum 3 (Three) directors.
Answer: 2

3) Registration of Joint stock Company is not compulsory.
Answer: compulsory

4) There is less secrecy is sole trading concern.
Answer: maximum

5) In partnership firm minimum three member are required.
Answer: two

6) In Joint Hindu Family business the senior most member of family is called as co-parcener.
Answer: Karta

7) Indian Partnership Act 1940 is applicable in India.
Answer: 1932

Q.2 Explain the following terms/concepts.

1) Sole Trading Concern.
Answer:
a) In this form of business, an individual invests his own capital, uses his own skill and undertakes the business activities.
b) He manages affairs of the business, enjoys profits and bears losses on his own.
c) This form of a commercial organisation is also known as a proprietorship, the sole trader, individual entrepreneurship, proprietorship concern or sole trading concern.
d) According to Prof. James Lundy, “The sole proprietorship is an informal type of a business owned by one person.”

2) Partnership Firm.
Answer:
a) A business organisation owned and managed by more than one person where all partners
shares in profits and losses of the business, as well as liability, is known as a partnership business.
b) The partnership firm is jointly owned by the partners.
c) The liability of each partner is unlimited, joint and several.
d) A Partnership firm must have a minimum of two persons at any time during the entire life of the partnership firm. The maximum number of partners permitted is 50.

3) Joint Hindu Family Business.
Answer:
a) Under Hindu Law, a HUF is a family which consists of all persons lineally descended from
a common ancestor and includes their wives and unmarried daughters.
b) A HUF cannot be created under a contract.
c) This unique form of organization is found in India only.
d) The property of a joint Hindu family business is jointly owned by the KARTA and the co-parceners.

4) Co-operative Society.
Answer:
a) A Co-operative organisation is a voluntary association of individuals formed in order to achieve certain economic objectives.
b) The nature of co-operative organisation is service oriented.
c) ‘Each for all and all for each’ is the principle of co-operative society.
d) Registration of co-operative society is compulsory.

5) Joint Stock Company
Answer:
a) A Joint Stock Company is a voluntary association of persons who generally contribute capital.
b) They carry on a particular type of business, which is established by law.
c) The total capital of a Joint Stock Company is known as ‘Share Capital’. It is divided into small units called ‘Shares’.
d) Every member holds some shares. These members are called as ‘Shareholders’.
e) In India, every joint stock company is registered as per “The Companies Act, 2013”.

6) Karta
Answer:
a) The seniormost member is called as ‘KARTA’.
b) The Joint Hindu Family Business is managed by KARTA.
c) The liability of KARTA is unlimited.
d) KARTA is the manager of this business. He uses his knowledge and skill for running the business successfully.

7) Managing Committee
Answer:
a) The management of co-operative society is in the hands of the Managing Committee of members.
b) They are elected representatives of shareholders.
c) All the important business decisions are taken by managing committee members.
d) The committee members look after the day-to-day administration of society.

8) Nominal Partners
Answer:
a) A nominal partner is one who only lends his name to the firm.
b) He neither contributes to capital nor shares profits of the business.
c) Due to his presence in firm, the business may get more credit in the market or may promote its sales.
d) A nominal partner is liable to those third parties who give credit to the firm on the assumption of that person being a partner in the firm.

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.3 Study the following case/situation and express your opinion.

1) Mr. Raghunath is running business from last 30 years. This business is ancestoral business of Mr. Raghunath. Kiran and Naman, two sons of Mr. Raghunath are helping him along with their wives.

i) Find out type of business.
ii) Who is Raghunath?
iii) What Kiran & Naman are called?

Solution:
i) Joint Hindu Family Firm.
ii) Raghunath is a Karta.
iii) Kiran & Naman are called as co-parceners.

2) Mr. Sawant a Chartered Accountant by profession and Mrs. Tambe, an Architect by profession running a firm namely ‘ST Firms’ in Nagpur.

i) Identify the form of business organisation in the above examples.
ii) Is it a registered organisation?
iii) What is the Profession of Mr. Sawant?

Solution:
i) Partnership firm.
ii) Yes, it is a registered firm.
iii) Mr Sawant is a Chartered Accountant.

Q.4 Distinguish between

1) Private Limited Company and Public Limited Company.

Sr. No.	Point of difference	Private Limited Company	Public Limited Company
1	Meaning	A private company is a company which by its Articles restricts the right to transfer its shares, if any & limit the number of its members to 200.	A public company means a company which is not a private company.
2	Number of Members	Minimum – 2 Maximum – 200	Minimum 7 Maximum – unlimited
3	Statutory Meeting	This meeting is not compulsory.	It is compulsory.
4	Transfer of Shares	Shares are not freely transferable.	Shares are freely transferable.
5	Capital	The minimum paid-up capital is Rs. 100,000.	In public limited minimum paid-up capital it is Rs. 500,000.
6	Issue of prospectus	In a private company, statements in lieu of a prospectus are issued.	A prospectus is compulsory.
7	Commencement of business	A Private Company can start its business activities immediately after getting an ‘Incorporation Certificate’.	It can start its business only after getting a ‘Commencement Certificate’.
8	Number of Directors	There are minimum 2 directors.	There are minimum 3 directors.
9	Name of the Company	It is compulsory to add aword ‘Private Limited’ after the name of the company.	It is compulsory to add aword ‘Limited’ after the name of the company.

2) Sole Trading Concern & Partnership Firm

Sr. No.	Point of difference	Sole Trading Concern	Partnership Firm
1	Meaning	It is owned and controlled by one person.	In this form two or more Partners come together to undertake a business activity and share profits.
2	Number of Members	Only one member.	Minimum Two partners & maximum 50 partners are there
3	Registration	It is not required.	It is not compulsory in India, but it is compulsory in Maharashtra.
4	Liability	Liability of Sole trader is unlimited.	Liability of partner is unlimited, joint and several.
5	Capital	Comparatively limited capital.	Due to the contribution of all partners, capital is more.
6	Secrecy	There is maximum secrecy.	Secrecy is shared by partners.
7	Management	A sole trader is the only manager of his business.	All partners in a partnership firm have equal managerial rights.
8	Stability	There is lack of stability, as the business may be affected due to death, insolvency of sole trader.	There is lack of stability, as the business may be affected due to death, insolvency of Partners.
9	Government Control	There is minimum govenment interference.	There is minimum government interference.

3) Partnership Firm & Joint Hindu Family

Sr. No.	Point of difference	Partnership Firm	Joint Hindu Family
1	Meaning	In this form, two or more Partners come together to undertake a business activity and share profits.	The ancestral business is conducted by family members of Joint Hindu Family.
2	Number of Members	Minimum Two partners & maximum 50 partners are there.	There is no limit to number of members.
3	Registration	It is not compulsory in India, but it is compulsory in Maharashtra.	It is not required.
4	Liability	Liability of partner is unlimited, joint and several.	Liability of Karta is unlimited and liability of coparceners are limited.
5	Capital	Due to the contribution of all partners, capital is more.	Ancestral property is used as capital.
6	Secrecy	Secrecy is shared by partners.	Secrecy can be maintained because it is family business.
7	Management	All partners in a partnership firm have equal managerial rights.	The Karta is the manager of the business who is assisted by co-parceners.
8	Stability	There is lack of stability, as the business may be affected due to death, and insolvency of Partners.	It is comparatively more stable after the death of KARTA, the next senior most family member becomes KARTA and continues business activity.
9	Government Control	There is minimum government interference.	There is limited government interference.

4) Co-operative Society & Joint Stock Company

Sr. No.	Point of difference	Co-operative Society	Joint Stock Company
1	Meaning	It is a voluntary association of individuals to provide services to its members.	It is an incorporated association of individuals for profit having capital divided into transferable shares, the ownership of which is the condition of membership.
2	Number of Members	Minimum 10 and maximum no limit for number of members.	Private company Minimum 2-maximum 200. Public Company Minimum 7 and there is no limit of maximum number of members.
3	Registration	It is compulsory.	It is compulsory.
4	Liability	Liability of shareholders is limited up to the extent of unpaid amount on share held by them.	Liability of shareholders is limited up to the extent of unpaid amount on shares held by them.
5	Capital	Comparatively more capital than sole trading concern. Partnership Firm and JHFB.	Huge Capital.
6	Secrecy	Less business secrecy.	Less business secrecy.
7	Management	Managing Committee is the managing body of co operative society.	Board of Directors looks after the management of the company.
8	Stability	It is a stable business due to independent legal status.	It is stable business due to independent legal status.
9	Government Control	There is is strict government control.	There is strict Government control.

5) Joint Hindu Family Firm and Joint Stock Company

Sr. No.	Point of difference	Joint Hindu Family Firm	Joint Stock Company
1	Meaning	The ancestral business is conducted by family members of Joint Hindu Family.	It is an incorporated association of individuals for profit having capital divided into transferable shares, the ownership of which is the condition of membership.
2	Number of Members	There is no limit to number of members.	Private company Minimum 2-maximum 200. Public Company Minimum 7 and there is no limit of maximum number of members.
3	Registration	It is not required.	It is compulsory.
4	Liability	Liability of Karta is unlimited and liability of coparceners are limited.	Liability of shareholders is limited up to the extent of unpaid amount on shares held by them.
5	Capital	Ancestral property is used as capital.	Huge Capital.
6	Secrecy	Secrecy can be maintained because it is family business.	Less business secrecy.
7	Management	The Karta is the manager of the business who is assisted by co-parceners.	Board of Directors looks after the management of the company.
8	Stability	It is comparatively more stable after the death of KARTA, the next senior most family member becomes KARTA and continues business activity.	It is stable business due to independent legal status.
9	Government Control	There is limited government interference.	There is strict Government control.

6) Co-operative Society & Partnership Firm

Sr. No.	Point of difference	Co-operative Society	Partnership Firm
1	Meaning	It is a voluntary association of individuals to provide services to its members.	In this form, two or more Partners come together to undertake a business activity and share profits.
2	Number of Members	Minimum 10 and maximum no limit for number of members.	Minimum Two partners & maximum 50 partners are there.
3	Registration	It is compulsory.	It is not compulsory in India, but it is compulsory in Maharashtra.
4	Liability	Liability of shareholders is limited up to the extent of unpaid amount on share held by them.	Liability of partner is unlimited, joint and several.
5	Capital	Comparatively more capital than sole trading concern. Partnership Firm and JHFB.	Due to the contribution of all partners, capital is more.
6	Secrecy	Less business secrecy.	Secrecy is shared by partners.
7	Management	Managing Committee is the managing body of co operative society.	All partners in a partnership firm have equal managerial rights.
8	Stability	It is a stable business due to independent legal status.	There is lack of stability, as the business may be affected due to death, and insolvency of Partners.
9	Government Control	There is strict government control.	There is a minimum government interference.

Q.5 Answer in brief.

1) State any four features of Sole Trading Concern.

Answer:
Features of Sole Trading Concern:

1) Individual Ownership

There is only one owner in sole trading concern. He invests all the capital required for the business. He owns all the assets of the business. He also remains responsible for all the liabilities of the business.

2) No Sharing of Profit and Risk

A proprietor is a single owner of the business. There is nobody to share his profits or losses. He enjoys the profit of the business as well as he bears all risks alone.

3) Self-employment

A sole trading concern is the best suitable form for self-employment. Any unemployed person can start a business with small capital and earn for his livelihood. He gets a source of income by starting his own business.

4) Local Market Operations

A large amount of capital and expert managerial ability is required for large-scale business. A sole trader has limited capital and limited managerial ability. Hence, generally a sole trader operates in local market.

2) State any four types of partners.

Answer:
In partnership business, according to the nature of work or role of partners, there are different types of partners.

Types of partners are as follows

1) Active Partner

An active partner is one who takes active participation in the day-to-day working of the business. Active partner contributes to capital, shares profits or losses and has unlimited, joint and several liability. He is also known as working partner, ordinary partner etc. This partner may get some extra benefits for his services rendered other than share in the profit.

2) Dormant Partner

A dormant partner is one who contributes capital, shares profits and contributes to the losses of the business but does not take part in the working of the concern. A person may have money to invest but they may not be able to devote time for the business such a person becomes a dormant partner. A dormant partner also known as a sleeping partner and these partners are liable for the liabilities of the business like other partners.

3) Nominal Partner

A nominal partner is one who only lends his name to the firm. He neither contributes to capital nor shares profits of the business. Due to his presence in firm, the business may get more credit in the market or may promote its sales. A nominal partner is liable to those third parties who give credit to the firm on the assumption of that person being a partner in the firm.

4) Secret Partner

The partner who is not known to third parties is termed as Secret partner. His membership in the firm is kept secret from outsiders. The secret partner contributes to capital, shares profits of the firm, assumes unlimited liability and he is liable for the losses of the business. He can take part in the working of the business.

3) Describe any four types of Co-operative Society.

Answer:

1) Consumers’ Co-operative societies

Consumer Cooperatives are formed by the consumers to obtain their daily requirements at reasonable prices. These societies protect lower and middle-class people from exploitation. The profits of the society are distributed among members in the ratio of purchases made by them during the year. e.g. Super Bazaar, Apana Bazaar

2) Marketing Co-operatives

These are voluntary associations of independent producers who want to sell their output at remunerative prices. The output of different members is pooled and sold through a centralized agency to eliminate middlemen. The sale proceeds are distributed among the members in the ratio of their outputs.

3) Co-operative Farming Societies

These are voluntary associations of small farmers who join together to obtain the economies of large-scale farming. In India, farmers are economically weak and their land- holdings are small. In their individual capacity, they are unable to use modern tools, seeds, fertilizers, etc. They pool their lands and do farming collectively with the help of modern technology to maximise agricultural output.

4) Housing Co-operatives

These societies are formed by a low and middle-income group of people in urban areas to have a house of their own. Housing cooperatives are of different types. Some societies acquire land and give the plots to the members for constructing their own houses. Other societies themselves construct houses and allot them to the members who make payments in instalments. They also arrange loans from Financial Institutions and Government Agencies.

4) State any four merits of Joint Hindu Family Business.

Answer:

1) Easy Formation

A joint Hindu family business is easy to start as registration and agreement is not required for its formation. There is no restriction on the minimum and maximum numbers of members. It comes into existence as per Hindu Law.

2) Protection of Co-parceners Interest

Co-parceners have right to demand partition. KARTA takes utmost care of their interest

3) Quick and Prompt Decision

The KARTA is the senior most family member. KARTA has experience and knowledge of the family business. KARTA takes all business decisions. KARTA can take the right and quick decisions at the right time on the basis of his experience.

4) On The Job Training

The members of a joint Hindu family business get training in business skills automatically. They also observe the management of KARTA. They learn many business tactics.

5) State any four demerits of Joint Stock Company.

Answer:

i) Rigid Formation

Registration of joint stock companies is compulsory. It requires a number of legal documents. It is necessary to pay heavy registration charges. A public company cannot start its actual business without getting a Commencement Certificate. Hence, the procedure of formation is complicated, expensive and time-consuming.

ii) Lack of Secrecy

In order to protect the interest of investors, it is compulsory to publish books of accounts every year. All the important documents of the joint stock company are available for inspection at the registered office. Competitors can take undue advantage of the internal information of a joint stock company. Hence, there is no secrecy in a joint stock company.

iii) Delay in the Decision-Making process

As an owner of the company, every shareholder has the right to participate in the management of the company. Therefore, all important business decisions are taken in the shareholder’s meetings. The procedure of conducting the meeting is very lengthy and time-consuming. Therefore there is always a delay in decision-making.

iv) No Personal Contact

There are large number of employees in a joint stock company. Employees feel that their efforts should be appreciated by their superiors. But it is not possible in a large organisation like a joint stock company. The employees are demotivated to work hard.

Similarly, Manager and Directors of the company are not able to establish personal contact with their customers. Customers’ likes & dislikes are not taken into consideration many times.

v) High Cost of Management

A joint stock company is a commercial organisation. It is ready to spend huge amount for the advertisement. The manager gets best salary and other benefits. It requires huge amount for operational expenses. So the cost of management is very high in joint stock company.

vi) Reckless Speculation

The company is managed by directors. Few unscrupulous directors use confidential information for reckless speculations and their personal gains. This results in sudden fluctuation in the prices of shares in Stock Exchange. It adversely affects public confidence.

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.6 Justify the following statements.

1) The Liability of a ‘Sole trader’ is Unlimited.

Answer:
a) One Of the main features of a sole trader is unlimited liability.
b) If the sole trader becomes insolvent and if his business assets are insufficient to pay off his business debts, he will have to use his private property in order to pay off his creditors.
c) There is no distinction between business property and private property in the case of a sole trading concern.
d) Thus, the liability of a sole trader is unlimited.

2) Karta is the sole manager of ‘Joint Hindu Family Business’.

Answer:
a) The Karta is the eldest or senior most person in the family business.
b) A Karta has unlimited liability.
c) He has the entire decision-making power and he is not binding on the views of the co-parceners.
d) Thus, Karta is the sole manager of the Joint Hindu Family business.

3) The main objective of co-operative society is to provide services to its members.

Answer:
a) The Co-operative Society is a voluntary association of persons formed for the purpose of promoting the interest of its members. It is different from all other organizations.
b) The main objective of a co-operative organization is not to make a profit but to give service to its members.
c) The co-operative society is formed for the welfare of the people.
d) Co-operative societies are rightly called service-oriented organizations. Maximization of profit is not the aim.
e) Thus, the main objective of Co-operative society is to provide services to its members

4) A Joint Stock Company can raise huge capital.

Answer:
a) A Joint Stock Company is an incorporated association. It has a legal status independent of its members.
b) A Joint Stock Company has a large membership. There is no maximum limit.
c) Shares are available in the open market.
d) A large number of investors are interested in buying shares.
e) Shares are freely transferable and members have limited liability.
f) Capital can also be raised by the company from financial institutions.
g) Thus, a Joint Stock Company can raise huge capital.

5) The liability of Co-parceners is limited in ‘Joint Hindu Family Business’.

Answer:
a) In a Joint Hindu Family Business, there are two types of members Karta and Co-parceners.
b) Karta has unlimited liability and he is the only decision-making authority. The Co-parceners have limited liability and therefore cannot take part in the management of the firm.
c) They can only share the profit but cannot challenge decisions taken by the Karta.
d) The liability of coparceners is limited up to the extent of their share in the Joint Hindu Family Business.
e) The personal property of co-parceners is not used for payment of the liability of the Joint Hindu Family business.
f) Thus, the liability of Co-parceners is limited in ‘Joint Hindu Family Business’.

6) Sole proprietorship is useful for small business.

Answer:
a) Sole trading concern is owned by only one person. He uses his own skill and intelligence for his business.
b) Sole trader brings capital from his own savings. He may borrow from friends and relatives. However, the capital collected is limited.
c) He alone takes decisions for the business. Therefore, managerial ability is also limited.
d) Due to limited capital and limited managerial ability, it is not possible to expand the business beyond a certain limit.
e) Thus, a sole proprietorship is useful for a small business where limited capital and less managerial ability are needed.

7) Co-operative society follows democratic principles.

Answer:
a) The members of a Co-operative organization form the general body which manages the co-operatives.
b) This body exercises power through annual general meetings.
c) They elect their representatives who look after the day-to-day management which is collectively known as Managing Committee.
d) ‘One member One vote’ is the principle followed by Co-operative Societies. All these denote that it follows democratic principles.
e) Thus, Co-operative society follows democratic principles.

8) There is separation of ownership and managment in Joint Stock Company.

Answer:
a) Shareholders are the owners of the joint stock company.
b) They elect their representatives to look after day-to-day business activities. These
representatives are called as ‘Directors’.
c) The directors appoint professional managers and other employees for the day-to-day working of the company.
d) These employees work on a salary basis. Therefore, the ownership of a Joint Stock Company is with shareholders and the management is in the hands of the directors.
e) So there is separation of ownership and management.

9) Shares of Private limited company are not freely transferable.

Answer:
a) According to the Companies Act, the right to transfer shares is restricted by its articles.
b) Only a public limited company has the right to transfer shares freely.
c) Thus, shares of Private Limited company are not freely transferable.

10) All partners are joint owners of partnership firm.

Answer:
a) According to the Indian Partnership Act, 1932, all the partners are joint owners of the property of the partnership firm.
b) No partner can use the property of the firm for his personal interest.
c) No partner is allowed to take any decision without the consent of all the partners.
d) No partners can make any secret profit in the business.
e) Profits and losses are shared among the partners in the profit-sharing ratio mentioned in the deed.
f) Thus all partners are joint owners of a Partnership firm.

11) Active partners take active part in day to day management of partnership firm.

Answer:
a) An active partner is one who takes active participation in the day-to-day working of the business.
b) Active partners may act in different capacities such as manager, organizer, adviser, and controller of all the affairs of the firm.
c) Active partner contributes to capital, shares profits or losses, and has unlimited, joint, and
several liabilities. He is also known as a working partner, ordinary partner, etc.
d) This partner may get some extra benefits for his services rendered other than a share in the profit.
e) Thus, active partners take an active part in the day-to-day management of the partnership firm.

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.7 Attempt the following.

1) Explain various types of Co-operative Society.

Answer:
Types of Co-operative societies

1) Consumers’ Co-operative societies

Consumer Cooperatives are formed by the consumers to obtain their daily requirements at reasonable prices. These societies protect lower and middle-class people from exploitation. The profits of the society are distributed among members in the ratio of purchases made by them during the year. e.g. Super Bazaar, Apana Bazaar.

2) Producer’s Co-operatives

Producer’s Cooperatives are voluntary associations of small producers and artisans who join hands to face competition and increase production. These societies are of two types

a) Industrial Service Co-operatives: In this type, the society undertakes to supply raw materials, tools and machinery to the members. The producers work independently and sell their industrial output to the cooperative society. The output of members is marketed by society.

b) Manufacturing Co-operatives: In this type, producer members are treated as employees of the society and are paid wages for their work. The society provides raw material and equipment to every member. The members produce goods at a common place or in their houses. The society sells the output in the market and its profits is distributed among the members.

3) Marketing Co-operatives

These are voluntary associations of independent producers who want to sell their output at remunerative prices. The output of different members is pooled and sold through a centralized agency to eliminate middlemen. The sale proceeds are distributed among the members in the ratio of their outputs.

4) Co-operative Farming Societies

These are voluntary associations of small farmers who join together to obtain the economies of large-scale farming. In India, farmers are economically weak and their land- holdings are small. In their individual capacity, they are unable to use modern tools, seeds, fertilizers, etc. They pool their lands and do farming collectively with the help of modern technology to maximise agricultural output.

5) Housing Co-operatives

These societies are formed by a low and middle-income group of people in urban areas to have a house of their own. Housing cooperatives are of different types. Some societies acquire land and give the plots to the members for constructing their own houses. Other societies themselves construct houses and allot them to the members who make payments in instalments. They also arrange loans from Financial Institutions and Government Agencies.

6) Credit Co-operatives

These societies are formed by poor people to provide financial help and to develop the habit of savings among members. They help to protect members from the exploitation of money lenders who charge exorbitant interest from borrowers. Credit cooperatives are found in both urban and rural areas.

2) Explain the features of Joint Stock Company.

Answer:
Features of Joint Stock company

1) Voluntary Association

A person of any caste, or religion can become a member of a Joint-stock company. There is no restriction regarding a number of shares purchased by one person. After the death, shares of any shareholder, are transferred to his nominees. There is no restriction on the transfer of shares.

2) Registration

Registration is compulsory according to the Companies Act, 2013. An application in prescribed format must be submitted to the Registrar of Company. Necessary registration fees are paid by the promoters. ‘A Certificate of Registration.’ (Incorporation Certificate) is issued to the company after registration. A private limited company can immediately start its business after getting an Incorporation Certificate. A public limited company must obtain ‘A certificate of Commencement of Business(Trading Certificate) to start its business.

3) Registered Office

The address of registered office of company is mentioned in Memorandum of Association. All the important documents of a company are kept in the registered office. e.g. Register of shareholders, Annual Reports, Minutes Book, Memorandum and Articles of Association, Prospectus, Statutory Report etc.

4) Artificial Legal Person

A company is an artificial person created by law. It can enter into contract with third parties after registration. e.g. It can buy or sell asset, borrow money, open an account in bank etc. Therefore, only law can create joint stock company and only law can wind up it.

5) Separate Legal Status

There is a separate legal existence of joint stock company. It is a separate legal entity apart from its members.

6) Common Seal

A company is an artificial person. It does not have a physical existence like a human being. Therefore it is necessary to make provision for the signature of the company. Every joint stock company has a common seal. It is used as a signature of joint stock company. A seal is affixed on all important documents of the company but the document must be signed by a company secretary and by minimum two directors.

7) Limited Liability

The liability of all shareholders is limited up to the extent of unpaid face value of shares held by them. Therefore, private property of shareholders is not used for the payment of company’s liabilities.

8) Transferability of Shares

The total share capital of a company is divided into small shares. To become a member of the company it is compulsory to purchase a share. The shares of public limited company are freely transferable. It means a shareholder can buy or sell shares without permission of the company. The shares of private limited companies are not freely transferable.

9) Separation of Ownership and Management

Shareholders are the owners of joint stock company. They elect their representatives to look after day-to-day business activities. These representatives are called as ‘Directors’. The directors appoint professional managers and other employees for the day-to-day working of the company. These employees work on salary basis. Therefore, the ownership of Joint Stock Company is with shareholder and the management is in the hands of directors. So there is separation of ownership and management.

10) Perpetual Succession

It has a separate legal existence. Its existence does not depend upon its members. The death, retirement, insanity insolvency of any member or employee does not affect the existence of the company. So, joint stock company enjoys perpetual succession.

11) Membership

In a Public limited company the minimum number of members are seven there is no limit for maximum number of members. In a private limited company, minimum number of persons are two and maximum are 200 as per Companies Act 2013. Every shareholder is co-owner of joint stock company.

3) Describe the features of Co-operative Society.

Answer:
Features of Co-operative Society

1) Voluntary Association and Open Membership

Any person can become a member of a co-operative society. There is no discrimination on the basis of caste, religion, gender etc. for membership

2) Democratic Principle

The management of a cooperative society is based on democracy. All the decisions are taken on majority basis. ‘One Member One Vote’ is the rule for voting. According to the rules and regulations of the Co-operative Society Act, meetings are arranged by the society.

3) Management

The management of a cooperative society is in the hands of the Managing Committee of members. They are elected representatives of shareholders. All the important business decisions are taken by managing committee members. The committee members look after the day-to-day administration of society.

4) Registration

Registration of co-operative society is compulsory. Every co-operative society must follow rules and regulations of Indian Co-operative Society’s Act 1912 and the respective State Co-operative Society’s Act. Minimum 10 members are required for registration of the co-operative society. There are number of legal documents required for registration.

5) Separate Legal Status

After registration, every co-operative society is considered as a separate legal entity before the law. Therefore it can enter into a contract, purchase property, open a bank account in its name etc. The shareholders and managing committee members are not responsible for the transactions of the co-operative society. But they are answerable to the court on behalf of society.

6) Limited Liability

The shareholders of a cooperative society have limited liability. It is limited up to the unpaid value of the share purchased by them. Therefore, their private property is not used for payment of society’s liability.

7) Number of Members

Minimum 10 members are required for the formation of the cooperative society. There is no limit for maximum number of members as per the Co-operative Society’s Act.

8) Equal Voting Rights

Every member gets equal rights in a cooperative society as a shareholder. In a cooperative society, membership is open to all. All members have equal voting rights irrespective of the number of shares held by them.

9) Service Motive

A Cooperative society provides various services to its members. Its main objective is to provide services to society. Goods are available at the lowest rates for its members. In a co-operative bank, loan and overdraft facility is available at the lowest interest rates for its shareholders only.

Q.8 Answer the following.

1) Explain features of Sole Trading Concern.

Answer:
In India, Small scale industries are facing many difficulties and problems. So there is an adverse effect on their work. The following are the challenges before Small scale industries.

Features of Sole Trading Concern

1) Individual Ownership

There is only one owner in sole trading concern. He invests all the capital required for the business. He owns all the assets of the business. He also remains responsible for all the liabilities of the business.

2) No Sharing of Profit and Risk

A proprietor is a single owner of the business. There is nobody to share his profits or losses. He enjoys the profit of the business as well as he bears all risks alone.

3) Self-employment

A sole trading concern is the best suitable form for self-employment. Any unemployed person can start business with small capital and earn for his livelihood. He gets a source of income by starting his own business.

4) Local Market Operations

A large amount of capital and expert managerial ability is required for large scale business. A sole trader has limited capital and limited managerial ability. Hence, generally, a sole trader operates in local market.

5) No separate Legal Status

A sole trading concern does not enjoy separate legal status. In the eyes of Law, the sole trader and his business are considered one and the same.

6) Minimum Government Regulations

There is no separate act or law to govern the activities of sole trading concern. The registration of sole trading concern is not compulsory. Rigid legal formalities are not required for formation. Only the tax laws and labour laws have to be followed.

7) Unlimited Liability

Sole Trader has unlimited liability. Unlimited liability implies that, there is no distinction between personal property and business property of sole trader. If business assets are not sufficient to pay off liabilities of business then personal properties of sole trader may be attached to business properties.

2) Explain different types of Partnership.

Answer:

A) General Partnership

In General Partnership, every partner has equal rights. General partnership comes into existence according to provisions of ‘Indian Partnership Act, 1932’.

1) Partnership at will: When there is no provision in partnership agreement regarding time period for partnership then it is known as ‘Partnership at will’. Such partnetship can be easily dissolved. Any partner can give notice of his intension to leave partnership at any time.

2) Partnership for Particular Period: When Partnership is formed for a specific time such partnership is known as ‘Partnership for Particular Period’. For e.g., 6 months, 1 year. Such Partnership firm dissolves after expiry of particular period.

3) Partnership for Particular Venture: When partnership firm is formed for particular venture or business, such partnership is known as ‘Partnership for Particular Venture’. For example, construction of dams, roads or bridges, selling of seasonal products etc.

B) Limited Liability Partnership

Limited liability partnership comes into existence as per the provisions of ‘Limited Liability Partnership Act, 2008’. There are two kinds of partner as follows:

1) Designated Parnter : Every Limited liability partnership should have atleast two Designated Partners. Among two partners one partner must be the resident of India.

2) General Parnter : In limited liability partnership all other partners are General Partners.

The Limited Liability Partnership offers some personal liability protection to the participants. Individual partners in limited liability partnership are not personally responsible for the wrongful acts of other partners, or for the debts or obligations of the business.

3) Explain different types of Partners.

Answer:

Types of Partners: In partnership business according to nature of work or role of partners there are different types of partners .

1) Active Partner

An active partner is one who takes active participation in the day-to-day working of the business. Active partner may act in different capacities such as manager, organizer, adviser and controller of all the affairs of the firm. Active partner contributes to capital, shares profits or losses and has unlimited, joint and several liability. He is also known as working partner, ordinary partner etc.

2) Dormant Partner

A dormant partner is one who contributes capital, shares profits and contributes to the losses of the business but does not take part in the working of the concern. Dormant partner also known as a sleeping partner and these partners are liable for the liabilities of the business like other partners.

3) Nominal Partner

A nominal partner is one who only lends his name to the firm. He neither contributes to capital nor shares profits of the business. Due to his presence in firm, the business may get more credit in the market or may promote its sales. A nominal partner is liable to those third parties who give credit to the firm on the assumption of that person being a partner in the firm.

4) Secret Partner

The partner who is not known to third parties is termed as Secret partner. His membership in the firm is kept secret from outsiders. Secret partner contributes to capital, shares profits of the firm, assumes unlimited liability and he is liable for the losses of the business. He can take part in the working of the business.

5) Minor as Partner

A minor is person who has not attained 18 years of age or age of majority as per the provisions of Indian Contract Act, 1872. However, a minor may be admitted for the benefits of an existing partner with the consent of all partners. The minor is not personally liable for liabilities of the firm, but his name in the partnership property and profits of the firm will be liable for debts of the firm. After attaining 18 years age, he should give public notice about the continuation in the firm.

6) Partner in profits only

When a partner agrees to share only profits of the firm and would not be liable for its losses, he is know as partner in profits only. Such partners share capital of the firm and may not take active participation in the management of the firm. However, such partners are liable for all debts of the firm.

7) Sub – Partner

When a partner agrees to share their own profit derived from the firm with a third person is known as sub – partner. A Sub-partner cannot represent himself as a partner in the original firm.

8) Partner with Limited Liability

This type of partner exists in a limited partnership. The liability of the partner is limited to the extent of capital contributed by him in the firm. He is a special partner and generally does not take active part in the working of the firm.

9) Quasi Partner

Quasi Partner is a partner in partnership firm who retired from firm but left his capital with the firm. Quasi partner does not take active participation in the firm but shares profit of the firm. Such partner is liable for the debts of the firm. Many times such partners receives certain rate of interest on his capital.

4) Explain the five features of Joint Stock Company.

Answer:
For the answer refer to Q.7 (2)

5) Explain the merits of Co-operative Society.

Answer:

1) Democratic Management

Each member of co-operative society enjoys equal voting right. The principle of voting is ‘One member – one vote’. The number of shareholders are large. They are scattered over the region. Thus shareholders elect their representatives. They are called as ‘Managing Committee’ members. They look after the day-to-day management of the society.

2) Open Membership

Membership in co-operative society is voluntary and open to all. i.e. any person of any caste, creed, religion, etc. can purchase shares of co-operative society and become a member of it. There is no compulsion to join or leave the organization.

3) Less Operating Expenses

The cost of operation is low in co-operative society. No middlemen are involved. There are no advertisement expenses. Managing committee members provide honorary services. Various concessions, reliefs, and privileges related to registration fees, stamp duty, income tax, etc. are given by Government.

4) Limited Liability

The liability of the shareholders of co-operative society is limited. It is limited up to the extent of the unpaid amounts on shares held by them. Thus, member’s private property cannot be used even if the assets of the society are insufficient to pay the debts of the third party.

5) Tax Concession

Co-operative society plays an important role in the economic and social development of the country. The government gives many concessions to them, like exemption of payment of income tax upto a certain limit. This helps to increase the profit of society.

6) Self – Financing and Charity

As per the latest amendment act of co-operative society, a society can pay maximum 15% dividend to its members. Therefore, remaining surplus is used as self-financing. Some amount of profit is utilized for charity purpose, social activities and for the growth of co-operative society.

6) Explain the demerits of Partnership firm.

Answer:

1) Problem of Continuity

The partnership business may face problem of continuity unless provided for continuation of business in the event of death, insolvency or insanity to any partner in the partnership firm.

2) Absence of Legal Status

In partnership business, there is no separate legal existence of partnership firm. In the eyes of law both are same. Law does not make any distinction between partners and firm. So there is an absence of separate legal status for partnership firm.

3) Disputes

Disputes are common in partnership business as more than one individuals are involved in various activities. Some partners may or may not agree on some points which leads to disputes among partners. Sometimes disputes may lead to the dissolution of the firm.

4) Non-Transferability of Interest

No partner of business can transfer his share in business to the outsider without the consent of all partners in the firm. In general, there is non-transferability of interest in partnership business.

5) Limitations on number of Partners

The Indian Partnership Act limits maximum number of partners. No partnership firm can go beyond maximum prescribed limits of 50 partners. This restricts maximum number of partners admitted in business.

6) Difficulty in Admission of Partner

In partnership business, there is often difficulty in admission of new partner. Admission of new partner may affect profit sharing ratio of existing partners. Therefore existing partner may object admission of new partnersin business.

7) Unlimited Liability

Unlimited liability arises when the assets of the firm are not sufficient to pay off claims of the creditors. The private property of the partners is attached to satisfy such claims.

8) Risk of Implied Authority

There is often risk of implied authority in partnership business. Partners may take undue advantage of managing business on behalf of others which leads to risk of implied authority. For Example, partners may sign some agreements in his own capacity which may be against the interest of the firm or partners may take loans or advances without consent of other partners.

9) Limited Capital

In partnership business, there is less capital as compared to joint stock company. There are restrictions on number of members which leads to limited capital raising capacity of business. Limited capital restricts the expansion of business.

10) Problem of Secrecy

Though books of accounts and financial matters relating to business are not required to be published, partnership firm lacks business secrecy. Some partners may share confidential information of business with competitors or third parties for getting financial benefits from them.

7) Explain the merits of Joint Stock Company.

Answer:

1) Large amount of Capital:

A joint stock company issues shares to the public. The face value of shares is comparatively low. So it can collect huge amount of capital. It can also accept deposits from the public and issue debentures to raise funds.

2) Professional Management:

Management of the company is in the hands of directors. They are elected representatives of shareholders. Due to large financial resources, a company can appoint highly qualified professionals, by paying attractive salary. So the knowledge of experts is used for day to day management of the company.

3) More Scope for expansion:

A joint stock company collects large amount of capital. Attractive salaries are paid to professional managers. Proper authorities are given to take business decisions. Shareholders are interested in getting highest rate of dividend. As a result, company can undertake big and risky projects.

4) Public Confidence:

A joint stock company enjoys public confidence. There is less interference of Government. Every Joint Stock Company in India is governed as per the provisions of ‘The Companies Act 2013’. As per the Act the company has to get its annual accounts audited by a practing Chartered Accountant.

5) Relief in Taxation:

A joint stock company plays important role in the economic development of the country. It requires to pay taxes by flat rate. Certain exemptions and concessions are given to the joint stock companies, which opens branches in economically backward regions for e.g. tax holidays upto 5 years.

6) Expert Services:

A joint stock company can appoint experts for managing business activities like Legal Advisers, Management Experts, Auditors, Consultants etc.

7) Perpetual Succession:

A joint stock company enjoys continuous and stable life. The death, retirement, insolvency or insanity of its members does not result into dissolution of the Company.

8) Limited Liability:

The liability of a member of a company is limited to the extent of the unpaid amount of shares held by him Shareholders are not liable for the debts of the company & there is no need to use their personal property for the purpose.

8) Explain the features of partnership firm.

Answer:

1) Agreement:

The partnership is an outcome of an agreement between two or more persons who are conducting partnership business for earning profit. The agreement between partners may be oral or written. It is always advisable to have written agreement between all partners.

2) Joint Ownership:

The partnership firm is jointly owned by the partners. The partners have to use the partnership property only for business purpose and not for personal use.

3) Joint Management:

Every partner has right to take active participation in the management of the business. However, one or more partners may agree to manage business on behalf of other partners in the firm.

4) Lawful Business:

Every partnership firm must undertake lawful business only. The partnership should not engage in any business which is forbidden by law of land. The partnership firm cannot be formed to carry out any unlawful business. e.g. partnership formed to smuggle goods, sale of illegal arms etc.

5) Liability:

The liability of each partner is unlimited, joint and several. Unlimited liability arises when the assets of the firm are not sufficient to pay off claims of the creditors. The private properties of the partners are attached to satisfy such claims.

6) Number of Partners:

A Partnership firm must have minimum two persons at any time during the entire life of the partnership firm. Maximum partners permitted are 50.

7) Principal-Agent Relationship:

Every partner is the joint owner of the business and partners take part in the management of the firm. Thus, every partner assumes two roles in business –
A) to each other within firm they are acting as ‘Principal’
B) while dealing with outsider or while representing firm they act as an ‘Agent’ of the firm.

8) Restriction on Transfer of Interest:

No partner of firm can transfer or sell their interest or share in the firm to outsider without the prior consent of all other partners in the firm.

9) Registration:

Registration of partnership is not mandatory as per the provisions of Indian Partnership Act, 1932. However, in Maharashtra (from April, 1985) and in some other state registration of partnership is compulsory as per their respective state provisions. If Partners so desire, they can register their firm with the ‘Registrar of Firms’ of their respective States. The firm as well as partners enjoys several benefits after registration of the firm.

10) Sharing of profits and losses:

The partners agree to share profits and losses among themselves in certain proportions. Such profit-loss sharing depends upon amount of capital introduced, services offered, goodwill of the partner and other terms of agreement. If agreement is silent on profit-loss sharing then all partners are assumed as equal partners. 66

11) Termination of Partner:

A partner may resign on his own by giving notice to other partners in writing. The partners may also be removed from the firm for fraudulent activities.

12) Dissolution:

The firm can be dissolved at any time, if the partners agree to do so. The partnership firm gets automatically dissolved in case of death, insolvency or insanity of any one of the partners unless provided in the partnership agreement about continued existence of the firm in such situations.

9) Explain the types of co-operative societies.

Answer:
For the answer refer to Q.7 (1)

10) Explain the demerits of Joint Stock Company.

Answer:
For the answer refer to Q.5 (5)

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

11th OCM Textbook Solutions

Chapter Name	Solution Link
1) Introduction of Commerce and Business	Click Here
2) Trade	Click Here
3) Small Scale Industry and Business	Click Here
4) Forms of Business Organisation – I	Click Here
5) Forms of Business Organisation – II	Click Here
6) Institutes Supporting Business	Click Here
7) Business Environment	Click Here
8) Introduction to Management	Click Here

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