Chapter-2

Forms of Business Organization

Forms of Business Organisation

Sole Joint Co-operative Company

Proprietorship Hindu Society
Family 1. Consumer's Co-operative
Business Society
2. Producer's Co-operative
Society
3. Marketing Co-operative
Society
4. Farmers Co-operative
Partnership Society
5. Credit Co-operative Society
6. Co-operative Housing
Society

One Person Public Private

Company Company Company

One the basis of duration One the basis of Liability

1. Partnership at Will 1. General Partnership
2. Particular Partnership 2. Limited Partnership

Active

Partner by Sleeping
Holding or
out Dormant

Types of
Partners

Partner by
Estoppel Secret

Nominal

27 XI – Business Studies
 Private
company

Public
company

28 XI – Business Studies
 Meaning :- A business enterprises is an institutional arrangement to
form any business activity. On the basis of ownership business enterprises
can be divided into following 3 categories.

Forms of Business Enterprise

$
$ Joint Sector
Private Enterprises Public Enterprises Enterprises
Owned, Managed and Owned, managed Owned managed
controlled by and controlled and controlled
Private person by Government by Private &
Govt. Enterprises

Types of Private Enterprises Types of Public Enterprises

1. Sole proprietorship 1. Departmental under taking.
Non-Corporate
2. Partnership 2. Statutory corporation
form
3. Hindu (Joint)family business 3. Govt. Company
4. Co-operative society
Corporate Form
5. Joint stock Company

Sole Proprietorship :-
Meaning : Sole Proprietor
$ $
Only Owner
Sole proprietor means a form organization in which there is only
owner of business. He himself manages and is the only receipt of all
profits and losses (risks).

Features of Sole-Proprietorship :-
1) Single ownership :- He is sole owner of all the assets and
resources of business.
2) No separate Legal Entity :- The Business has no separate
existance or entity that of the business. All the assets and
liabilities of the business are that of the business man.
3) No Legal Formalities :- No Legal Formalities are required to
start, manage and dissolv2e such business organization.

29 XI – Business Studies
 4) Control and management :- Sole proprietor has full power
to control and manage such organizations.
5) Unlimited liability :- The liability of owner is unlimited. In
case, the assets of business are not sufficient to meet its
debts, the personal property of owner can be used for paying
debts.
6) Undivided Risk :- Means the owner bears all the losses and
enjoys all the gains.
Unlimited Liability
7) Suitable for some special form It refers that if the business gets
of business :- It is suitable in into difficulty and can't pay its
areas of personalized services debts, the owner of the business is
hold personally liable for those
and small scale activities like debts.
agriculture, the job of stitching,
bakery, beauty parlour etc.
8) Secrecy :- All the important informations concerning the
business rests only with the owner so that no outside party
can take any under advantage of it.
Merits :-
1) Easy Formation :- It can be easily started and closed as
there is no need to observe any legal formalities.
2) Quick Decision :- A Sole trader takes the decision quickly
as he is not required to consult anybody about his decisions.
3) Secrecy :- All the secrets are confined with the owner. They
are not shared with any body.
4) Direct motivation :- Direct relationship between efforts and
reward provide incentive to the sole trader to work hard.
5) Personal touch :- The side trader can maintain personal
contacts with his customers and employees. In this way,
good work is possible at less cost and time.
Limitations :-
1) Limited financial resources :- Funds are limited to the
owner's personal savings (i.e. his capital) and his borrowing
capacity.
2) Limited managerial ability :- Sole trader can't be good in all
aspects of business and he can't afford to employ experts
also.
3) Unlimited liability :- As the sole trader has to face the entire
risk of business, so he compels him to avoid risky and bold
decisions.
30 XI – Business Studies
 4) Uncertainty :- Death, insolvency, lunacy or illness of a
proprietor may leads to its closure.
5) Limited scape for expansion :- Due to limited capital and
managerial skills, it can't expand to a large scale.

SUITABILITY :
Sole Trader-ship is suitable.
• Where the personal attention to customer is required as in
tailoring beauty parlour.
• Where goods are unstandardized like artistic jewelery.
• Where modest capital & limited managerial skills are required as
in case or retail store.
• Business where risk is not extensive i.e., lesser fluctuation in
price and demand i.e. stationary shop.

Joint Hindu Family Business

It is owned by the members of undivided joint Hindu Family and
managed by the eldest member or manager of teh family known as
KARTA. It is governed by the provisions of Hindu Law. The basis of
membership is birth in a particular family. The common properties
include-
a) There should be at least two member in a family.
b) Ancestral property to be inherited by them.
There are two systems which govern membership:-

Dayabhaga System Mitakshara System

i) It prevails in West Bengal. i) It prevails all over India except
West Bengal.
ii) It allows both male and female
member to co-parceners . ii) It allows only male members to
be co-parceners

Features:-
1) Formation :- There should be at best two members in a
family and some ancestral property to be inherited by them
to form this type of Business.
2) Membership :- Membership automatically starts by birth in
the family.
3) Control :- In this, Business is managed wholly by Karta only.
31 XI – Business Studies
The others members can suggest him only.
4) Liability :- Liability of Karta is unlimited but of all other
members in limited to the extent of their share in property.
5) Permanent Existence :- The existence is permanent like the
existence of the company. There is no effect of the death,
insolvency or luncy of the members on the business.
6) Minor Members :- A minor can also become full-fledged
member of the family business.
7) Registration :- There is no need of any registration.
Merits
1) Effective Control :- The Karta can prompty take decisions
as he has the absolute decision making power.
2) Continued business Existance :- The death, Lunacy of
Karta will not affect the business as next eldest member will
then take up the position.
3) Limited Liability :- The ilabilty of all members except Karta
is limited. It gives them a relief.
4) Secrecy :- Complete secrecy regarding business decisions
can be maintained by Karta.
5) Loyalty and Co-operation :- It helps in securing better co-
operation and greater loyalty from all the members who run
the business.
LIMITATION
1) Limited capital :- There is shortage of capital as it is limited
to ht ancestral property.
2) Limited Managerial Skill :- In this, all the decision have to be
taken by the Karta but he is not intelligent in all fields of
business. Therefore, sometimes the decisions taken are not
fevourbale to the business.
3) Unlimited Liabilities :- In this, the responsibility of the Karta
is unlimited so, he hesitates in taking new and risky
decisions.
4) Unbalances decision :- As Karta is overburdened, with
work, he may take hart and unbalances decisions.
Note :- The joint Hindu Family business is an decline
because of the diminishing number of joint Hindu families in
the country.

32 XI – Business Studies
Q. Abdul is the sole owner of a shoe manufacturing factory, It
expands and grows, but now it faces the problem of limited
financial and managerial resources.
i) Name the form of organization on which is being carried out
by Abdul.
ii) Give two alternatives to solve the problem.
[Hint : (i) Employ a paid assistant (ii) Admit one or more partners
PARTNERSHIP
Q.1 What is the maximum number of partners in a partnership firm
with :-
i) Banking Business
ii) Non-Banking Business

Definition :- According to Indian Partnership Act 1932. "Partnership is the

relation between persons who have agreed to share profits of a business
carried on by all or any of them acting for all."
Characteristic of Partnership :-
i) More than one person :- Partnership needs a minimum
number of two persons and maximum 20.
ii) Agreement :- It is an outcome of an ord or written
agreement.
iii) Profit motive and sharing of profit :- Main characteristic
of partnership into earn profit in business and divide it
among the partners.
iv) Decision making and control :- Every partner has a right
to participate in management and decision making.
v) Unlimited Liability :- Partners have unlimited liability.
vi) Lock of continuity :- Firms existance comes to end by the
death, Lunacy and insolvency of any of its partner.
vii) Principal Agent Relationship :- Every partner plays double
role of an owner and an agent.
Merits of Partnership :-
i) Ease of Formation and closure :- It can be easily formed and
closed without any legal formalities.
ii) Large financial Resources :- There are more funds as

33 XI – Business Studies
capital in contributed by number of partners.
iii) Balanced Decisions :- As all important decisions are taken
jointly by partners, they are good and balanced.
iv) Sharing of Risks :- Risks get distributes among partners.
Which reduces burden and stress on individual partner.
v) Secrecy :- The accounts of partnership firms are not
presented before public and are not required to publish. So,
business affairs are kept secret.
Limitations :-
i) Limited Resources :- As there is a restriction on the number of
partners so capital contributed by them is also limited.
ii) Unlimited liability :- The liability of all partners is unlimited.
iii) Lock of continuity :- Partnership comes to an end with the
death, retirement, insolvency or lunacy on any of its partner.
iv) Lack of public confidence :- Partnership firms are not
required to publish their reports and accounts. Thus, they lack
public confidence.
v) Lack of Harmony :- Because of more people, there can be
difference of opinions which leads to discard and lack of co-
ordination.
Note : When the business happens to be of medium size and te partners
have mutual understanding and goodwill, then partnership form of
business organisation is the best eg. C.A. firms, hotels and
factories of middle level etc.
Types of Partners
i) Classification on the Basis of Duration
Partnership at Will Particular Partnership
This type of partnership exits at the will of This type of partnership is formed by
partners and continue for unlimited time. specified objective and come to end after
accomplishment of objective.

ii) Classification on the basis of Liability :-

General Partnership Limited Partnership

i) Liability of partnership is limited and i) Liability of at best one partner is
joint. unlimited where as the others may
ii) Each partner participates actively in have limited.
business management. ii) They do not have right to manage
business management.
iii) Registration in optional. iii) Registration is compulsory.
iv) The continuity of business is affected iv) Continuity of limited partnership
by the death, lunacy, insolvency or doesn't get affected by the death,
retirement of the partners. lunacy or in solvency of the partner
with limited liability.

34 XI – Business Studies
 2)
1)
Type Capital Contribution Managing business Profit Sharing Liability
Active Participated in Share its profits & Unlimited Liability
Partner Contribution capital management of firm. losses.

Sleeping/ Doesn't take part in Share its profits & Unlimited Liability
Dormant Contributes capital day to day activities of losses.
Partner business.

Secret Contributes capital Participates in Share its profits & Unlimited Liability
Partner and is unknown to management of firm. losses.
general public.

Do not contribute

Partnership Deed.
Partner by capital but by his Do not participate in Do not share its
Estoppel words or conduct, management of firm. profits & losses.
impress other to be a
Unlimited Liability
partner.

Name and address of the firm.

35
Names and Address of Partners.
Do not contribute
Partner by capital. He doesn't Do not participate in Do not share it's
Holding out deny others to management of firm. profits & losses.

It generally includes the following aspects :–

represent him as Unlimited Liability
partner.

Nominal Do not contribute Do not participate in Generally do not

Partner capital. He allows the managerial activities. share its profits & Unlimited Liability
use of his name. losses.

Minor Do not participate in

Partner Do not contribute management of firm. Share its profits & not
Partner of capital. the losses. Unlimited Liability
age
below 18
year

XI – Business Studies
specifies the terms and conditions of partnership is called the
Partnership Deed :- The Written agreement on a stamped paper which
3) Duration of Partnership.
4) Scope of Business.
5) Contribution of Capital by Partners.
6) Profit and loss Ratio.
7) Terms relating or salaries, drawing interest on capital and
interest on drawing of partners.
8) Duties & obligations of partners.
9) Terms governing admission, retirement & expulsion of a power.
10) Method for solving disputes.
11) Valuation of goodwill.
Registration of Partnership :- Registration is not compulsory but it is
always beneficial to get the firm registered. The consequences of non-
registration of a firm are as follows :-
i) A partner of an unregistered firm can't file suit against the firm
or the partner.
ii) The firm can't file a suit against third party.
iii) The firm can't file a case against it's partner.

Co-operative Society
Co-operative

Co + Operative
$ $
together Operate for the motive
of welfare.
'Co-operative' means working together and with others for a common
purpose. A Co-operative society means a voluntary organization which
is established by some persons on the basis of co-operative and
equality to safeguard their common economic interests.
Features :-
1) Voluntary Membership :- Every one having a common interest
is free to join a co-operative society.
2) Legal Status :- Its registration is compulsory and it gives it a
separate legal identify.

36 XI – Business Studies
3) Limited Liability :- The liability of the members is limited to the
extent of their capital contribution in the society.
4) Control :- Management and control lies with the managing
committee elected by the members by giving vote.
5) Service motive :- The main aim is to serve it's members and not
to maximize the profit.
6) Cash trading :- They give preference to cash trading.
7) Government control :- They have to sent their annual report
and accounts to the register so that the government exercise it's
control from time to time by checking their accounts.
8) Arrangement of Finance :- They arrange finance from sale of
shares to members, loans obtained from the government etc.
Merits of Co-operative Societies :-
1) Ease of Formation :- Any ten adults having common objective
can establish co-opetative society by getting registered with
register.
2) Stable existance :- Due to registration it is a separate legal
entity and is not affected by the death, lunacy or in solvency of
any of its member.
3) Limited liability :- The liability of members is limited to the
extent of their capital contribution.
4) Supply of Goods ay Cheaper Role :- These societies benefit
their members by supplying them goods at cheaper rates than
the market.
5) Government Support :- Govt. provides support by giving loans
at lower interest rates, subsidies and by charging less taxes.
Limitations :-
1) Shortage of Capital :- It suffers from shortage of capital as it is
usually formed by people with limited means.
2) Inefficient Management :- These are managed by elected
members who may not be competent and experienced. Due to
lack of managerial knowledge. They can't run the society
effectively.
3) Lack of Secrecy :- These have to send their annual reports and
accounts to the registrar of co-oprative societies. In this way, the
secrets of business become public.

37 XI – Business Studies
4) Excessive Govt. Control :- It suffers from excessive rules and
regulations of Good.
5) Conflict among members :- The members are from different
sections of society with different view point. Sometime as when
some members become rigid the result is conflict.
6) Lack of motivation :- Members are not in dined to put their best
efforts as there is no direct link between efforts and rewards.
TYPES OF CO-OPERATIVE SOCIETIES
1. Consumers co-operative Society :- It seeks to eliminate
middleman by establishing a direct link with the producers. It
purchases goods of daily consumption directly from
manufacturer or wholesalers and sells them to the members at
reasonable prices.
2. Producer s Co-operative Society :- The main aim is to help
small producers who cannot easily collect various items of
production and face some problem in marketing. These societies
purchase raw materials, tools, equipments and other items in
large quantity and provide these things to their members at
reasonable price.
3. Marketing Co-operative Society :- It performs various
marketing function such as transportation, warehousing,
packing, grading, marketing research etc. for the benefit of its
members. The production of different members is pooled
together and sold by society at good price.
4. Farmer's Co-operative Society :- In such societies, small
farmers join together and pool their resources for cultivating their
land collectively. Such societies provide better quality seeds,
fertilizers, machinery and other modern techniques for use in the
cultivation of crops. It provides them opportunity of cultivation on
large scale.
5. Credit co-opearative Society :- Such societies protect the
members from exploitation by money lenders. They provide
loans to their members at easy terms and reasonably low rate of
interest.
6. Co-operative Housing Society :- The main aim is to provide
houses to people with limited means/income at reasonable
price.

38 XI – Business Studies
JOINT STOCK COMPANY
Meaning - Joint stock company is a voluntary association of persons
having a separate legal existence, perpetual succession and common
seal. Its capital is divided into transferable shares.
FEATURES
1. Incorporated association :- The company must be
incorporated or registered tender the companies Act 1956.
without registration no companies Act. 1956. Without
registration no company can come into existence.
2. Seperate Legal Existence :- It is created by law and it is a
distinct legal entity independent of its members. It can own
property, enter into contracts, can file suits in its own name.
3. Perpetual Existence :- Death, insolvency and insanity or
change of members as no effect on the life of a company It can
come to an end only through the prescribed legal procedure.
4. Limited Liability :- The liability of every member is limited to the
nominal value of the shares bought by him or to the amt.
guaranteed by him.
5. Transferability of shares :- Shares of public Co. are easily
transferable. But there are certain restrictions on transfer of
share of private Co.
6. Common Seal :- It is the official signature of the company and it
is affixed on all important documents of company.
7. Separation of ownership and control :- Management of
company is in the hands of elected representatives of
shareholders known individually as c.,•rector and collectively as
board of directors.
MERITS
1. Limited Liability :- Limited liability of shareholder reduces the
degree of risk borne by him.
2. Transfer of Interest :- Easy transferability of shares increases
the attractiveness of shares for investment.
3. Perpetual Existence :- Existence of a company is not affected
by the death, insanity. Insolvency of member or change of
membership. Company can be liquidated only as per the
provisions of companies Act.
4. Scope for expansion :- A company can collect huge amount of
capital from unlimited no. of members who are ready to invest

39 XI – Business Studies
because of limited liability, easy transferability and chances of high
return.
5. Professional management :- A company can afford to employ
highly qualified experts in different areas of business
management.

LIMITATIONS
1. Legal formalities :- The procedure of formation of Co. is very
long, time consuming, expensive and requires lot of legal
formalities to be fulfilled.
2. Lack of secrecy :- It is very difficult to maintain secrecy in case
of public company, as company is required to publish and file its
annual accounts and reports.
3. Lack of Motivation :- Divorce between ownership and control
and absence of a direct link between efforts and reward lead to
lack of personal interest and incentive.
4. Delay in decision making :- Red papism and bureaucracy do
not permit quick decisions and prompt actions. There is little
scope for personal initiative.
5. Oligarchic management :- Co. is said to be democratically
managed but actually managed by few people i.e. board of
directors. Sometimes they take decisions keeping in mind their
personal interests and benefit, ignoring the interests of
shareholders and Co.

Types of Companies :-
On the basis of ownership, companies can be divided into two
categories :-
i) Private Company ii) Public Company
Private Company :
Acc to Sec 2(68) of Companies Act, 2013, a Private Company
means a company which :
40 XI – Business Studies
1. Restricts the right of members to transfer shares.
2. Restricts the no. of its members between 2 to 200 excluding
present and previous employees of Co. who are members also.
3. Puts a ban on inviting the public to subscribe to its shares.
4 Puts a ban on inviting the public to subscribe to its public
deposits.
5 Must have a min. paid up share capital of 1 lakh rupees.

Public Company :
Acc to Sec 2 (71) of Companies At, 2013 a Public Company
means a company which is not a private company. A public
Company is one which :
1. has no restriction on the transfer of its shares.
2. has no max limits of its members
3. has no restriction on inviting the public to subscribe to its shares
and debentures
4. has no restriction on inviting public to subscribe to its Public
deposits.
5. has a min. paid up capital of 5 lakh rupees.

41 XI – Business Studies
Difference between A Private and A Public Company.
Basis Private Company Public Company

1. Name It has to write private Ltd. after its It has to write only Ltd. after it'a
name name.
2. No. of Minimum -2 Minimum-7
Members
Maximum-50 Maximum-No Limit

3. No. of
Minimum -2 Directors Minimum - 3 Directors
Directors

5 Lakh
4. Minimum 1 Lakh
paid-up
share
capital

5. Invitation Public Company can invite public

to public Pvt. Co. can't invite public for for issuing its shares &
issuing shares and debentures. debentures.
6. Transfer of No restriction on transfer of
shares No freedom to transfer shares. shares.

7. Index of If no. of members exceeds 50,

members Not essential to prepare an index
then it is necessary to prepare
of members.
index of members
8.Commence After obtaining certificate of
After getting certificate of commencement of business
-ment
Incorporation.
business

Questions :-
i) How will you identify whether the company is private or Public?
ii) Give two examples of Private companies?
iii) Give two examples of Public companies ?
One Person Company :
One Person Company refers to a company which has only one peron as
a member and which works on the principle of an ordinary company.
Causes of the Formation of OPC
1. Making the unorganised sector as organised - Sole traders have
got a good opportunity to move from the unorganised sector and
enter the organised sector without getting other people to join
him and have all benefits of on organised sector.

42 XI – Business Studies
 2. Perpetual Succession.
Formation of A Company
Formation of a company means bringing a company into existence and
starting Its business. The steps involved in the formation of a company
are :-
(I) Promotion
(ii) Incorporation
(iii) Capital subscription
(iv) Commencement of business.
A private company has to under go only first two steps but a
public company has to undergo all the four stages.
I. Promotion :-
Promotion means conceiving a business opportunity and taking an
initiative to from a company.
1. Identification of Business Opportunity :- The First and
foremost function of a promoter is to identify a business idea
e.g. production of a new product Or service.
2. Feasibility Studies :- After identifying a business
opportunity the promoters undertake detailed studies of
technical, Financial, Economic feasibility of a business.
3. Name Approval :- After selecting the name of company the
promoters submit an application to the Registrar of companies
for its approval.
4. Fixing up signatories to the Memorandum of Association
:- Promoters have to decide about the director who will be
signing the memorandum of Association.
5. Appointment of professional :- Promoters appoint merchant
bankers, auditors etc.
6. Preparation of necessary documents :- The promoters
prepare certain legal documents such as memorandum of
Association, Articles of Association which have to be submitted
to the Registrar of the companies.
II. Incorporation
Incorporation means registration of the company as body
corporate under the companies Act 1956 and receiving certificate of
Incorporation.

43 XI – Business Studies
Steps for Incorporation
1. Application for incorporation :- Promoters make an
application for the incorporation of the company to the
Registrar of companies.
2. Filing of necessary documents :- Promoters files the
following documents
(i) Memorandum of Association.
(ii) Articles of Association.
(iii) Statement of Authorised Capital
(iv) Consent of proposed director
(v) Agreement with proposed managing director.
(vi) Statutory declaration.
3. Payment of fees :- Along with filing of above documents,
registration fees has to be deposited which depends on
amount of the authorised capital.
4. Registration :- The Registrar verifies all the document
submitted. If he is satisfied then he enters the name of the
company in his Register.
5. Certificate of Incorporation :- After entering the name of the
company in the register. The Registrar issues a Certificate of
Incorporation. This is called the birth certificate of the
company.
III. Capital Subscription:-
A public company can raise funds from the public by issuing shares and
Debentures. For this it has to issue prospectus and undergo various other
formalities:-
Step required for raising funds from public :-
1. SEBI Approval :- SEBI regulates the capital market of India. A
public company is required to take approval from SEBI.
2. Filing of Prospectus :- Prospectus means any documents which
invites offers from the public to purchase share and Debenture of
the company.
3. Appointment of bankers, brokers, underwriters :- Banker of
the company receive the application money. Brokers encourage
the public to apply for the hares, underwriters are the person who
undertake to buy the shares if these are not subscribed by the
public. They receive a commission for underwriting.

44 XI – Business Studies
4. Minimum subscription :- According to the SEBI guide lines
minimum subscription is 90% of the issue amount. If minimum
subscription is not received then the allotment cannot be made
and the application money must be returned to the applicants
within 30 days.
5. Application to Stock Exchange :- It is necessary for a public
company to list their shares in the stock exchange therefore the
promoters apply in a stock exchange to list company shares.
6. Allotment of Shares :- Allotment of shares means acceptance of
share applied. Allotment letters are issued to the shareholders.
The name and address of the shareholders submitted to the
Registrar.
IV. COMMENCEMENT OF BUSINESS :-
To commence business a public company has to obtain a
certificate of com-mencement of Business. For this the following
documents have to be filled with the registrar of companies.
1. A declaration that 90% of the issued amount has been subscribed.
2. A declaration that all directors have paid in cash in respect of
allotment of shares made to them.
3. A statutory declaration that the above requirements have been
completed and must be signed by the director of company.
Important documents used in the formation of company:-
1. Memorandum of Association - It is the principal document of a
company. No company can be registered without a memorandum
of association and that is why it is sometimes called a life giving
document.
Contents of Memorandum of Association :-
1. Name clause - This clause contains the name of the company.
The proposed name should not be identicator similar to the name
of another exiting company.
2. Situation clause - This clause contains the name of the state in
which the registered office of the company is to be situated.
3. Object clause - This clause defines the objective with which the
company is formed. A company is not legally entitled to do any
business other than that specified in the object clause
4. Liability Clauses - This clause limits the liability of the members
to the amount unpaid on the shares held by them.
5. Capital clause - This clause specifies the maximum capital which

45 XI – Business Studies
the company will be authorized to ranise tough the issue of shares called
authorised capital.
2. Articles of Association :-
The articles of Association are the rules for the internal
management of th( affaires of a company the articles defines the duties,
rights and powers of the officers and the board of directors.
Contents of the Article:-
1. The amount of share capital and different classes of shares.
2. Rights of each class of shareholders.
3. Procedure for making allotment of shares.
4. Procedure for issuing share certificates.
5. Procedure for forfeiture and reissue of forfeited shares.
6. Rules regarding casting of votes and proxy voting
7. Procedure for selection and removal of directors
8. Dividend declaration and payment related rules
9. Procedure for capital readjustment
10. Procedure regarding winding up of the company.
I. Prospectus:
Prospectus means any document which invites deposits form the
public to purchase share or debentures of a company.

Main contents of the Prospectus:-

1. Company's name and the address of its registered office.
2. The main object of the company
3. The number and classes of shares.
4. Qualification shares of the directors
5. The name and addresses of the directors, managing director or
manager.
6. The minimum subscription which is 90% fo the size of the issue.
7. The time of opening and closing of the subscription list.
8. The amt. payable on the application and allotment of each class of
share.

46 XI – Business Studies
9. Underwriters to the issue.
10. Merchant bankers to the issue.
4. Statement is Lieu of Prospectus:
A public company having a share capital may sometimes decide
not to funds form the public because it may be confident of obtaining the
required capital privately. In such case it will have to submit a statement in
lieu of prospectus with the Registrar of companies.
It Contains information much similar to that of a prospectus.

Q. 1 Name the documents :-

i) Which document defines the objectives of joint stock company
?
ii) In which document are the rules for attaining the internal
objectives mentioned in the Memorandum of Association.

Difference between Memorandum and

Articles of Association
Basis Memorandum of Association Articles of Association
(M.O.A) (A.O.A.)
It defines the objectives of the It defines the rules for attaining the
1. Objectives
company. objectives mentioned in
memorandum of association.

2. Position Very Important document. Subsidiary document.

The activities beyond the power Activities beyond the powers of

3. Validity of M.O.A. are not considered to A.O.A. are also void . Bus their
be performed by the company rectification in possible by the
and even all the members can't members.
rectify them.

4. Relationship D e f i n e s t h e r e l a t i o n s h i p Defines the relationship between

between the company & the members and the company.
outsides.

5. Necessity It's preparation is necessary to Necessary for private company

get the company registered. but not necessary to prepare for
Public company.
It can't be easily altered many It can be easily. altered by a
6. Alteration matters require approval of special resolution.
court.

47 XI – Business Studies
Choice of Forms of Business Organization :- The following factors
are important for taking decision about form of organization.
i) Cost and ease in setting up the Organization :- Sole
proprietorship is least expensive and can be formed without any
legal formalities to be fulfilled. Formation of a company is
expensive with lot of legal formalities. So, sole proprietorship is
better.
ii) Liability :- The liability of the owners in sole proprietor business
and partnership business is unlimited but the responsibility of the
share holders in a company is limited. So, Company organization
should be selected.
iii) Continuity :- In sole proprietorship and partnership firms death,
lunacy or insolvency of any of its member, business ends but in
Joint Hindu Family Business & Co-oprative Societies company
business is not affected by there above picture. So, company co-
operative society are much better to be chosen.
iv) Managerial Needs :- In sole proprietorship & Joint Hindu Family
Business, experts opinion is not affordable but companies can
afford exports for management. so keeping in view, the nature of
work and managerial needs company is liked.
v) Capital Considerations :- Business activities requiring huge
financial resources prefer company form while for small &
medium size business, partnership or sole proprietorship is
better.
vi) Control :- For direct control & direct decision. Sole proprietor is
liked while where the control has to be shared, they prefer
company.
vii) Nature of Business :- If the work requires personal attention, it
is generally set up as a sole proprietorship Units engaged in
large seals manufacturing are more likely to be organized in
company form or partnership form.

48 XI – Business Studies
Points to be remembered
1. There are different forms of organisation —
– Sole Proprietorship
– Partnership
– Joint Hindu Family Business
– Co-operative Society
– Company
2. There is unlimited liability in sole proprietorship, Joint Hindu
Family Business and Partnership.
3. There is limited liability in co-operative society and company.
4. Registration is not required in sole proprietorship, Joint Hindu
Family Business and Partnership. While it is required in co-
operative society and company.
5. Co-operative society and company are separate legal entity.
6. Schools of Hindu Law —
(I)Mitakshara – It is applicable in all India except Assam, West
Bengal and some parts of Orissa.
(ii) Dayabhag – It is applicable in Assam, West Bengal and some
parts of Orissa only.
7. Stages of formation of company —
(I)Promotion
(ii) Incorporation of registration
(iii) Commencement of Business
8. Main documents of a company —
(i) Memorandum of association
(ii) Articles of association
(iii) Prospectus
9. Clauses of memorandum of Association
(i) Name clause (ii) Situation clause
(iii) Objects clause (iv) Liability clause
(v) Capital clause (vi) Subscription clause

49 XI – Business Studies
Multiple Choice Questions
1. Which forms of business organisation has not the feature of
unlimited liability?
(a) Sole Proprietorship (b) Partnership
(c) Joint Hindu Family Business (d) Company
2. Registration is compulsory in —
(a) Sole proprietorship (b) Co-operative Society
(c) Partnership (d) Joint Hindu Family
Business
3. What are the maximum number of members in a Public
Company?
(a) 50 (b) 10
(c) Unlimited (d) 200
4. What are the main documents required to form a company?
(a) Memorandum of association (b) Article of association
(c) Prospectus (d) All of the above
5. Which of the following in a public company —
(a) Samsung (b) PARLE
(c) BHEL (d) Airtel
6. Which of the following has a separate legal entity?
(a) Co-operative society (b) Partnership
(c) Joint Hindu Family Business (d) All of the above
7. Which of the following statement is true?
(a) Partnership is registered under Partnership Act 1986
(b) A minor can't be partner
(c) Written agreement among partners is called partnership
deed.
(d) There should be minimum 3 directors in one person
company.
8. Partnership is registered under —
(i) Partnership Act 1932
(ii) Partnership Act 1948

50 XI – Business Studies
Active partner
Who is a secret partner?
23. Shiv, Anandi & John were partners John died in a car accident
Both Shiv & Anandi decided to admit his son Ryan who was 16
years old as partner. Can they do so ? Justify.
[Hint : Minor as a partner]
24. Mr. Singh is in 'lighting' business for the post 15 years. To help his
friend, Mr Yadav, a beginner he projected himself as a partner
before Mohd. Abdul, a whole sale dealer of fancy lights. Mohd.
Abdul gave Mr. Yadav the stock without asking for payment and
gave him credit limit of one month. Will Mr. Singh be liable to Md.
Abdul if Mr. Yadav does not pay him on time ? Classify Mr.
Singh's role here along with an explanation.
[Hint : Partner by Estoppel]
25. Akriti, Sonam & Supreeti were friends who started a partnership
business. They did not get their firm registered as it was optional.
Soon, Sonam & Supreeti started having conflicts. Sonam
wanted to approach a lawyer. If you were a lawyer than how
would you guide her ?
26. Mangal, Sazia & Suqhbeer Singh wish to start a business in
partnership. They want to make a partnership deed, Suggest
what aspects of the deed should be included in it ?
27. Explain any four limitations of Joint Stock Company.
28. A, B & C were partners in a financing firm. B&C had gone for a
meeting in America for analysing business prospects in that
country. In the mean while, A invested a huge amount of money
in buying shares of a new company by borrowing money from
Mr. X. This turned out to be a bad deal as the share prices soon
fell. When B&C came back they said they were not liable to pay
to Mr. X as they did not take the money. Were B&C right in doing
so ? Under which aspect of partnership are they bound ?
29. Rohan has a shop of stationary products. He takes assistance
from his brother to handle it and pays him a fixed salary. He also
employed a 11 year old boy for his shop. Both the brothers
regularly abuse him and cut his wages as and when desired.
i) Which form of organization is referred here ?
ii) Write any one feature associated with it.
30. Ravina is a Science teacher in a coaching institute. She is not
satisfied with the salary being received here. So she decides to
start her own coaching institute. But students generally take

53 XI – Business Studies
 coaching for Science as well as maths. What do you recommand
Ravina to do ?
[Hint : Go for partnership with a maths expert.]
31. The business assets of a firm are worth $70,000 but debt remain
unpair at worth $1,00,000. What course of action can creditors
take in following cases !
i) The organization is a sole proprietorship firm.
ii) The organization is a partnership with 2 partners A and B
sharing profits and losses equally.
32. Sita and Zoya are two friends belonging to Hindu and Muslim
religion. They start a business of handicrafts together. They
decide to open the factory in rural area and give employment
opportunities to local residents.
i) Which form of business organization have they opted ?
ii) Write any one feature of the form ?
iii) Mention the values involved in this question.
33. Continous exploitation of milkman of charm wood village by the
intermediaries compel them to form a voluntary association to
protects their interest gain access to markets there by ensuring
maximum returns for their efforts and welfare of the members.
i) Name the form of business organization adopted by the
milkman.
ii) Give an example of organization identifies in (i) above
iii) Which principle governs such organization and how
government support them ?
34. All the members of a company are killed in an earthquake. While
holding a general meeting. Will the company wind up ? Why ?
35. Rohit and Mohit are partners dealing in shares. Mohit uses firm's
money to buy shares on his name. He didn't disclose this
information with his friend Rohit.
a) Does Rohit have any share in the profit earned from sale of
these shares?
36. Rohan, Sohan and Mohan are partners of a business of
publishing books. They have adopted three villages which are
educationally backward. Every year they distribute books to
schools established in these villages for free to promote
education. Write any one feature of partnership. Identify three
values followed by the partnership firm.
54 XI – Business Studies
37. Star Ltd. has received applications for 48 crores (issue size was
50 crores). Discuss the documents filled with the register of
companies.
[Hint]:
i) A declaration that 90% of the issued amount has been
subscribed.
ii) A declaration that all the directors have paid in cash in
respect of allotment of shares made to them.
iii) A statutory declaration that the above requirements have
been completed and must be signed by the director of
company.
38. Aditya is promoting a company. Before the company is formed,
he enters into a contract with DLF for purchase of land and also
agreed to pay 10 crores within a period of 2 moths. The company
was formed within 1 month. On the basis of the facts, answer the
following :-
i) Which type of contract is entered by Aditya ?
ii) Is the contract legally binding on the company ?
iii) Can DLF Ltd. hold Aditya liable for the payment money?
iv) What can the company do to prevent Aditya from such a
situation?
5-6 Marks Questions :-
39. Differentiate between private & public company.
40. Mr. Amit Kumar is interested in the floatation of a company.
Briefly discuss the steps he should take.
41. Discuss the reasons of superiority of joint stock company over
sole proprietorship and partnership.
42. Which form of business is suitable for following types of business
and why ?
(a) Beauty Parlour
(b) Coaching Centre for science students
(c) Hotel
(d) Shopping mall
(e) Restaurant
(f) Small retail business.

55 XI – Business Studies
43. Dhirubhai Chaurasiya operates a textile business. His family is
joint and has a lot of ancestral property. All the 15 family
members are a part of this business. He is the eldest male
member in the family so he heads the business. He is liable to all
the creditors of the business as he is the decision maker.
Dhirubhai's grandson has just born a few days ago and he is also
the member of the business.
(a) Which form of business is being undertaken by Dhirubhai
Chaurasiya ?
(b) Identify the features of this form of business based on the
information given.
(c) Textile business is part of which type of industry according
to you ?
44. Every day Amul collects milk from 2.12 million farmers (many
illiterate) & converts the milk into branded packaged products &
delivers goods all over the country. The story of Amul started in
Dec, 1946 with a group of farmers been to free themselves from
intermediaries, gain access to the market & there by ensure
maximum returns for their efforts"
(a) From the above information, identify the form of business
organisation used by Amul.
(b) Also quote the line which suggest its features ?
(c) According to you. Amul is part of which type of industry ?
45. Mohan, Sohan and Ramesh are brothers living in a village
Mohan is a farmer. He grows sugar cane in his field sohan is
manufacturer of sugar who is doing the business with his friends
Rohan Singh and Jitender. Ramesh is a transporter. He sells the
sugar in the city using his truck. This year the sugar got spoiled
due to heavy rain. Sohan his friends reduced the wages of his
workers to cut down their losses.
1. Classify the business activity undertaken by Mohan &
Ramesh.
2. What form of business is Sohan doing with his friends. write
any two features of the form ?
3. What type of business risk is faced by them ? Explain
46. Rahul and Sanchali felt that there was an opportunity of business
in providing a service of online grocery stores for working people.
They analysed the idea in terms of technical, financial and
economic liability. Once they found all the aspects satisfactory

56 XI – Business Studies
 they decided to start a company called 'convenience @ home'
private Ltd. They got the name registered with the registrar.
(a) Which steps of formation of company are being referred to
here ?
(b) Also write the next 3 steps associated with it.
[Hint : steps in promotion of a company]
47. Lakhvinder Singh is confused as to which form of business he
should follow for his garment business. You are his friend. Help
him by rationally discussing the different factors so that he can
take a sound business decision.
48. Comment on the following :-
i) Meeting of X Ltd. was going on in which all the members of
the company were present suddenly a natural calamity
occurred and all the members of the company X Ltd. died.
What would happen to the existence of the company 'X' Ltd.
Why?
ii) The company being an artificial person acts through its Board
of Directors. All teh agreements on behalf of the company are
entered by the Board of Directors. When is an agreement
entered by the Board of directors not legally binding on the
company.
49. Sachin's father Mahesh was running a small shop selling
accessories such as artificial jewellay, hair caps etc. Over the
past couple of month he has been facing problem in managing it
due to increase demand of the items. Although Sachin also helps
his father but they both fail to attend all the customers due to
space constraint. Non-availability of required finance acts as a
hindrance in expanding their business. Sachin asks his father to
join hands with Raja (his father's friend) to solve the problem. His
father agreed and entered in to agreement with Raja in writing
containing various terms and conditions.
i) Which form of business organization does Mahesh form with
Raja ?
ii) Which documents contains the written agreement specifying
the terms and conditions between Mahesh and Raja ?
iii) In which form of business organization Sachin help his father
to attend customers.
50. Sonu, a tailor by profession was working in a famous boutique in
Kamla Nagar. He was a skilled worker with many years of
experience at and saving worth rupees 5 lakh. He finally decided
57 XI – Business Studies
 that he would start his own boutique. He rented a shop in Rohini.
He was not sure about his venture as now he would not have any
security of income. But soon he started getting lot of work due to
his efficiency & his profits increased.
(a) Which type of economic activity was Sonu undertaking when
he was working in a boutique?
(b) Which form of business organization did he opt for later?
(c) Identify any 2 merits & 2 demerits you can recognize of the
form of business opted by him.
51. Aarti is a sole proprietor. Over the part 15 years, her business
has grown from operating a neighbourhood shop selling Kurtis,
bags, cosmetics etc. to a retail chain with four branches in the
branches, she is thinking to form a company to manage the
business better. She also wants to grow further.
a) Explain two merits of Aarti remaining a sole proprietor.
b) Explain two advantages of her converting to a joint stock co.
c) If she wishes to grow further then which of the two options is
better?
52. Identify the type of partner highlighted in the following statements:
i) This partner doesn't take part in the day to day activities of the
business.
ii) He gives an impression of his being partners to others by his
words or conduct.
iii) He allows reuse of his goodwill to benefit the firm and can be
represented as a partner.
iv) He is represented as a partner and in spite of knowing this, he
does not deny such impression.
v) His association with the firm is not disclosed to the general
public.
vi) This takes active part in carrying out business of the firm.
53. Which form of business organization is suitable in the following
cases :-
i) A business organization having stability and continuity.
ii) There should be minimum expenses in starting the business.
iii) The business organization should be suitable from the point
of view of investors.
iv) The ancestral property is to be used for doing the business.
v) More funds and professional services are required.
58 XI – Business Studies