INTERNATIONAL INDIAN SCHOOL,RIYADH

SUB:BUSINESS ADMINISTRATION CLASS:XI

Unit 4 & 5: Type of Organization &

Formation of Partnership Firm and Joint Stock Company

1.What is a business organization?

To carry out any business and achieve its objective of earning profit it is required to bring
together all the resources and put them into action in a systematic way, and coordinate and
control these activities properly. This arrangement is known as business organization.

2.What are the different forms of business organization?

Ans:
i. Sole proprietorship
ii. Joint Hindu family business
iii. Partnership
iv. Joint stock Company
v. Cooperative Societies

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3.What are the different characteristics of business organization?
1. Outlining the Objectives: Born with the enterprise are its long-life objectives of profitable
manufacturing and selling its products. Other objectives must be established by the
administration from time to time to aid and support this main objective.
2. Identifying and Enumerating the Activities: After the objective is selected, the
management has to identify total task involved and its breakup closely related component
activities that are to be performed by and individual or division or a department.
3. Assigning the Duties: When activities have been grouped according to similarities and
common purposes, they should be organized by a particular department. Within the
department, the functional duties should be allotted to particular individuals.
4. Defining and Granting the Authority: The authority and responsibility should be well
defined and should correspond to each other. A close relationship between authority and
responsibility should be established.
5. Creating Authority Relationship: After assigning the duties and delegations of authority,
the establishment of relationship is done. It involves deciding who will act under whom, who
will be his subordinates, what will be his span of control and what will be his status in the
organization. Besides these formal relationships, some informal organizations should also be
developed.

4.What is Sole Proprietorship?

It is a form of organization which is owned, managed and controlled by an individual who
bears all the risk and receives all the profit.

5.What are the features of Sole Proprietorship?

Features
1. Formation and closure: It can be established and closed without any legal formalities.
2. Liability: The liability of the sole proprietor is unlimited in this form of business
organisation.
3. Sole risk bearer and profit recipient: Being a sole owner, he bears all the risk and receives
all the profits.
4. Control: All the decisions are taken and implemented in the organization by the owner.
5. No separate entity: Both owner and business are considered as one in the eyes of law.
6. Lack of business continuity: Business can be continued till the owner wishes to.

6.What are the merits and demerits of sole Proprietorship?

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Merits
● Quick decision making: Prompt decision making as all the decisions are to be taken by the
owner.
● Confidentiality of information: Being a sole owner, it is easy to maintain business secrecy.
● Direct incentive: All the profits are enjoyed by the owner as there is no one to share
profits.
● Sense of accomplishment: Successful business provides satisfaction to the owner and sense
of achievement.
● Ease of formation and closure: No legal formalities for formation and closure of business
which makes it easy to start and end the business.
Limitations
● Limited resources: Business can be funded from savings of the owner or money borrowed
from friends, relatives.
● Limited life of a business concern: Continuity of the business depends on the health and
state of mind of the owner.
● Unlimited liability: In case business fails repayment of debts, his personal assets are at
risk.
● Limited managerial ability: One person may not possess the ability to manage all the
functions.

7.What is Partnership?
According to partnership Act 1932, partnership is the relation between persons who have
agreed to share the profits of the business carried on by all or any one of them acting for all.
Features
● Formation: Business is established as per the provisions of partnership Act 1932.
● Liability: All the partners in the business have unlimited liability.
● Risk bearing: All the risk in the business is shared by all the partners.
● Decision making and control: All the decisions are taken in after the consent of all the
partners and each partner shares responsibility of running business.
● Continuity: Continuity depends upon the partnership deed among the partners at the time
of its formation.
● Number of partners: Minimum 2 and maximum 50 members [as per the Companies
(miscellaneous) Rules 2014}, or maximum could be 100 ( according to Companies Act,
2013).
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● Mutual agency: Each partner is the owner as well as the agent of the firm and agent to
other partners.

8.What are the merits and demerits of Partnership?

Merits
● Ease of formation and closure: Business can be established and closed with the consent of
all the partners as the registration is optional.
● Balanced decision making: All the decisions are taken by consent partners as partners
undertake responsibilities as per their expertise.
● More funds: Funds are provided by all the partners, which increases the scope for large-
scale business operation.
● Sharing of risks: Business risk and responsibilities are shared among all the partners.
● Secrecy: It is easy to maintain business secrecy as there is no need to submit financial
results.
Limitations
● Unlimited liability: Each partner’s liability is extended to their personal property.
● Limited resources: Availability of Finance is limited due to the restriction of number of
partners.
● Possibility of conflicts: All the partners may have different opinions which create conflict
among them.
● Lack of continuity: Any conflict between partners or death of a partner may bring business
to an end.
● Lack of public confidence: It is difficult for an outsider to ascertain true financial position
as there is a lack of availability of financial reports.

9.What are the different types of Partners?

● Active partner: A partner who contributes capital, shares profits and losses, participates in
management and has unlimited liability.
● Sleeping or dormant partner: Partner who contributes capital, shares profits and losses and
has unlimited liability but does not participate in management.
● Secret partner: This partner participates in management operations secretly, but does
contribute in profits and losses.
● Nominal partner: Partner who does not contribute capital and does not share profit and
losses but allows partnership business to project him or her as partner.

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● Partner by estoppel: An individual who is not a partner but projects himself/herself as a
partner to an outsider and has unlimited liability.
● Partner by holding out: An individual who is not a partner but is projected as a partner by
other partners of the partnership firm and his liability is unlimited

10.What is cooperative society? Explain it’s features.

An organization of voluntary people working for a common purpose with an aim to protect
economic and social interests of the members. It must be registered under the Cooperative
Societies Act, 1912.
Features
● Voluntary membership: Any individual irrespective of caste, gender, religion with common
interest is free to join or leave a cooperative society as and when he/she desires.
● Legal status: Cooperative society has separate identity status distinct from its members,
and the registration of such society is also mandatory.
● Limited liability: Members have liability limited to their capital contribution.
● Control: All the decision making power is in the hands of an elected managing committee
which are chosen by members with one man one vote concept.
● Service motive: Society is formed with the motive of providing mutual help to team
members.

11.What are the different types of company? Specify the difference between those types.

a. Private Company
● A company must have minimum 2 or maximum 200 members.
● Right to transfer shares is restricted.
● Funds cannot be generated from the general public.
● Uses 'Private Limited' after the company name.

b. Public Company
● Minimum 7 members with no limit on maximum members.
● Free to transfer shares.
● Issue shares to the general public.
● Uses 'Public Limited' after the company name.
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12.What are the features of joint stock company?
Features of a Joint Stock Company
● Artificial person: A company is created by law and has legal status but it does not function
like human beings. All business activities are done by the board of directors in the name of
the company.
● Separate legal entity: A company has its own identity distinct from its owner with the
incorporation of a company.
● Formation: Company is formed by fulfilling all the legal formalities as stated under
Companies Act, 2013.
● Perpetual succession: A company is created by law and can be wound up by law only.
Existence of the company is not affected by the status of members.
● Control: Business affairs of a company are managed and controlled by the Board of
Directors.
● Liability: A company has limited liability i.e., liability only to the extent of the capital
contribution.
● Common seal: As a company is an artificial legal person, it cannot have a sign on its own/
Hence common seal acts as the official signature for a company. All the official documents
must have a common seal for legal binding.

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● Risk bearing: The risk of loss is shared by all the shareholders in proportion to their
investment in the company.

13.What are the criteria to choose to form of business organization you are opting for?
● Cost and ease in setting up the organization: It is easy to start sole proprietorship with
minimum cost and legal requirements whereas formation of a company is a complex task
with lengthy legal procedure. But partnership has the advantage of less legal requirements
with low cost.
● Liability: In sole proprietorship and partnership, the liability of owner or partners is
unlimited but in cooperative societies and companies, members have limited liability.
● Continuity: In sole proprietorship and partnership, continuity is affected by death and
insolvency of the owners but cooperative societies, companies and Hindu undivided family
enjoy perpetual existence.
● Management ability: In sole proprietorship, it is difficult that the owner may have
expertise in all functions but in other forms of business, division of work is possible which
leads to better decision making.
● Capital consideration: In case of large scale of operation, company form is more suitable
but in case of small scale of operation, partnership or sole proprietorship can be chosen
● Degree of control: If the owner wants all the control in his hand the sole proprietorship
may be preferred but if the owner is ready to share control, then he can adopt partnership or
company form.
● Nature of business: For trading and services, sole proprietorship and partnership form can
be chosen. For manufacturing, a company form of organization can be adopted
14.What is “Karta” ?
Ans: The word Karta is used for the head of the joint hindu family who runs a family
business.
The Karta of a joint Hindu family is responsible for carrying out the business operation of
the family ,extending a new unit and exercising full control over the business.
The Karta is the decision maker of the family, the decision involves matters pertaining to
property management, asset, business management and other financial matters of the family.

15. What do you mean by Artificial Person in business?

Ans: An artificial person is a non-human legal entity that is not a single natural person but an
organization recognized by law’s fictitious person.