lt facilitates partnership between those having capital and those having technical qualifications.<\/li>\n<\/ul>\nQuestion\u00a0 3. \nWhy Is It Important to choose an appropriate form of organization? Discuss the factors that determines the choice of form of organization. \nAnswer: \nThe important factors determining the choice of organization are discussed below: \n(i) Cost and ease in setting up the organisation: \nAs far as initial business setting-up costs are concerned, sole proprietorship is the most inexpensive way of starting a business. However, the legal requirements are minimum and the scale of operations is small. In the case of partnership also, the advantage of fewer legal formalities and lower cost is there because of the limited scale of operations.<\/p>\n
Cooperative societies and companies have to be compulsorily registered. The formation of a company involves a lengthy and expensive legal procedure. From the point of view of initial cost, therefore, sole proprietorship is the preferred form as it involves least expenditure. Company form of organisation, on the other hand, is more complex and involves greater costs.<\/p>\n
(ii) Liability: \nIn case of sole proprietorship and partnership firms, the liability of the owners\/partners is unlimited. This may call for paying the debt from personal assets of the owners. In joint Hindu family business, only the Karta has unlimited liability.<\/p>\n
In cooperative societies and companies, however, liability is limited and creditors can force payment of their claims only to the extent of the company\u2019s assets. Hence, from the point of view of investors, the company form of organisation is more suitable as the risk involved is limited.<\/p>\n
(ii) Continuity: \nThe continuity of sole proprietorship and partnership firms is affected by such events as death, insolvency or insanity of the owners. However, such factors do not affect the continuity of business in the case of organisations like joint Hindu family business, cooperative societies and companies.<\/p>\n
In case the business needs a permanent structure, company form is more suitable. For short term ventures, proprietorship or partnership may be preferred.<\/p>\n
(iv) Management ability: \nA sole proprietor may find it difficult to have expertise in all functional areas of management. In other forms of organisations like partnership and company, there is no such problem. Division of work among the members in such organisations allows the managers to specialise in specific areas, leading to better decision making.<\/p>\n
But this may lead to situations of conflicts because of differences of opinion amongst people. Further, if the organisation\u2019s operations are complex in nature and require professionalised management, the company form of organisation is a better alternative.<\/p>\n
Proprietorship or partnership may be suitable, where the simplicity of operations allow even people with limited skills to run the business. Thus, the nature of operations and the need for professionalised management affect the choice of the form of organisation.<\/p>\n
(v) Capital considerations: \nCompanies are in a better position to collect large amounts of capital by issuing shares 10 a large number of investors. Partnership firms also have the advantage of the combined resources of all partners. But the resources of a sole proprietor are limited.<\/p>\n
Thus, if the scale of operations is large, company form may be suitable whereas for medium and small-sized business one can opt for partnership or sole proprietorship. Further, from the point \u2019 of view of expansion, a company is more suitable because of its capability to raise more funds and invest in expansion plans.<\/p>\n
It is precisely for this purpose that in our opening case Neha\u2019s father suggested she should consider switching over to the company form of organisation.<\/p>\n
(vi) Degree of control: \nIf direct control over operations and absolute decision-making power is required, proprietorship may be preferred. But if the owners do not mind sharing control and decision making, partnership or company form of organisation can be adopted.<\/p>\n
The added advantage in the case of a company form of organisation is that there is complete separation of ownership and management and it is professionals who are appointed to independently manage the affairs of a company.<\/p>\n
(vii) Nature of business: \nIf direct personal contact is needed with the customers such as in the case of a grocery store, proprietorship maybe more suitable. For large manufacturing units, however, when direct personal contact with the customer is not required, the company form of organisation may be adopted.<\/p>\n
Similarly, in cases where services of a professional nature are required, a partnership form is much more suitable. It would not be out of place to mention here that the factors stated above are inter-related. Factors like capital contribution and risk vary with the size and nature of the business, and hence a form of business organization that is suitable from the point of view of the risks for a given business when run on a small scale might not be appropriate when the same business is carried on a large scale.<\/p>\n
It is, therefore, suggested that all the relevant factors must be taken into consideration while making a decision with respect to the form of organisation that should be adopted.<\/p>\n
<\/p>\n
Question\u00a0 4. \nDiscuss the characteristic, merits and limitations of cooperative firm of organization. Also describe breifly different types of cooperative societies. \nAnswer: \nCharacteristics of Cooperatives – The essential features of a cooperative form of organisation are discussed below<\/p>\n
(1) Voluntary Association – A cooperative society is a voluntary organization of persons desirous of improving their economic status on cooperative basis. They can become the members of the cooperative society on their own and can leave it whenever they feel like, by giving a notice to the society,<\/p>\n
(2) Open Membership – There is no restriction on entry into a cooperative society. Its membership isopen to all persons having certain common interests. Caste, creed, religion or sex is no bar on membership.<\/p>\n
(3) Separate Legal Entity – A cooperative society is required to be registered with the Registrar of Cooperative Societies under the Cooperative Societies Act, 1912. On registration, it becomes a body corporate. It can own property in its own name. It can enter into contracts with other persons; It becomes an autonomous and self-governing organisation. It can also sue and be sued in its own name.-<\/p>\n
(4) Service Motive – The primary aim of a cooperative society is \nto provide service to its members. Its motto is \u201ceach for all and all for each\u201d. However, a cooperative society may earn some profits for the benefit of its members. ,<\/p>\n
(5) Democratic Management – A cooperative society is a democratic form of organisation because each member has equal voting rights. One member, one vote ensures democratic management and control of a cooperative society. The organisation of a cooperative society is democratic and all members have an equal voice in the management.<\/p>\n
(6) Disposal of surplus – The surplus arising out of year\u2019s working is not distributed among the members by way of dividend. A specified portion of the profits is transferred to Statutory Reserve Fund and then a fair rate of interest is paid on the capital subscribed by the members. The remaining profits are distributed equitably among the members according to the extent of the business transacted with it by each member.<\/p>\n
Advantages and Disadvantages of Cooperative Organisation<\/p>\n
Advantages of Cooperative Organisation – The cooperative form of organisation is gaining popularity because of the following advantages:<\/p>\n
(1) Mutual Benefit Association Cooperatives are formed on the basis of voluntary association of persons to provide them with certain services at \u2018no profit, no loss\u2019 basis. The members form a society on the basis of mutual help. This promotes a feeling of cooperation and selflessness among the members.<\/p>\n
(2) Steady Supply of Goods and Services – Consumers\u2019 cooperative stores ensure a steady and regular supply of goods at reasonable prices by eliminating middlemen and thus avoiding their excessive profits.<\/p>\n
(3) Fair Dealings – Cooperatives ensure fair and honest business practices. They do not indulge in overstocking and speculative buying of goods.<\/p>\n
(4) Open Membership – Any person having a common interest can become a member of a cooperative society having one share. Moreover, the shares are non-transferable. Hence, the shares are free from Speculation.<\/p>\n
(5) Democratic Management – Management of cooperative is fully democratic in nature because of the principle of \u2018one man, one vote\u2019. It prevents the domination of the rich shareholders having greater number of shares over the other shareholders of the society.<\/p>\n
<\/p>\n
(6) Equitable Distribution of Surplus – The entire surplus is not distributed in the form of dividend on capital. The rate of dividend cannot exceed a certain limit. The yearly profit or surplus is utilised in transferring apart of it to the reserve fund and the remaining in the form of bonus to the members on the basis of their transactions with the society. This leads to the equitable distribution of surplus.<\/p>\n
(7) Limited Liability- The liability of the members in a cooperative organisation is limited to the extent of their capital contribution. The effect of limited liability is mentioned in the bye-laws of the cooperatives which is checked by the registrar at the time of registering the same.<\/p>\n
(8) Continuity – The cooperative society enjoys a separate legal \nentity of its own independent of the entity of its members who own it. The death, leniency or insolvency of a member does not affect its existence.<\/p>\n
(9) Government Assistance – Since cooperatives have been accepted by the Government as an instrument of economic policy, a number of grants, loans and financial assistance are offered to them to make them function efficiently.<\/p>\n
Disadvantages of Cooperative Organisation – The cooperatives suffer from the following drawbacks:<\/p>\n
(1) Limited Capital – Cooperative societies is not able to mobilise adequate capital for their large-scale operations because the rate of dividend on capital is low and every member has equal voting rights irrespective of the member of shares held by him. A cooperative society often faces shortage of funds.<\/p>\n
(2) Inefficient Management – The guaranteed market for the cooperatives slackens the efforts of the management. Moreover, the management may not comprise of competent and efficient persons to deal with the business problems. A cooperative society cannot afford to employ expert management at high salaries.<\/p>\n
(3) Excessive Government Regulations \u2014 The cooperatives are subjected to a variety of regulations from the cooperative department of the State Government partly because the Government offers a number of financial grants and partly because it is always anxious to see that the movement succeeds. All this has led to excessive Government regulations in the day-to-day functioning of the cooperative which, at times, amounts to interference.<\/p>\n
(4) Lack of Motivation – Honorary office-bearers of a cooperative society have very little incentive to work hard for the society. The members of the managing committee with whom rests the responsibility of managing the cooperative do not feel sufficiently motivated to do their best to see the cooperative a grant success.<\/p>\n
(5) Lack of Secrecy – As is usually common with the forms of organisation which enjoy separate legal entity and as such as under obligation to make full disclosures of their operations to their members, the cooperatives too being corporate in status fail to preserve their business secrets. Therefore, it becomes difficult to keep the secrets of business.<\/p>\n
<\/p>\n
(6) Conflicts – Quite often disputes arise among the managing committee and members. Moreover, some members are indifferent towards the working of the cooperative society which gives unrestricted power to the managing committee.<\/p>\n
(7) Misuse of Funds – Ignorance of business principles and misuse of funds for personal ends may lead to recurring losses. This may put the survival of the cooperative society in danger. The cooperative credit societies may advance loans to the members without sufficient security.<\/p>\n
Types, of Cooperative Societies – Cooperatives Societies may be classified into different categories according to the nature of the services rendered by them. Following are the main types of cooperative societies:<\/p>\n
\nConsumers\u2019cooperative societies.<\/li>\n Cooperative credit societies.<\/li>\n Producers\u2019cooperative societies.<\/li>\n Marketing cooperative societies.<\/li>\n Cooperative fanning societies.<\/li>\n Cooperative housing societies.<\/li>\n<\/ol>\n(1) Consumers’ Cooperative Societies – A consumer cooperative store is set up to ensure a steady supply of essential commodities at fair prices. A consumers\u2019 cooperative store purchases the consumer goods either from the manufacturers or the wholesalers and then sells them to its members a reasonable prices.<\/p>\n
The profits made by the society during a year are utilised for strengthening the reserve fund of the society, for declaring a moderate rate of dividend and for declaring a bonus to the members according to the purchases made by them. Such societies are formed to provide residential accommodation to their members either on ownership basis or at fair rents.<\/p>\n
(2) Cooperative Credit Societies – Cooperative credit societies are formed to provide financial assistance in the form of direct loans to their members. These societies are organised both in rural and urban areas. Funds are pooled together by members\u2019 contributions and are utilised in giving loans to needy members on easy terms. Thus, the members are protected from the clutches of the money-lenders who charge very high rates of interest. Another equally important purpose of credit cooperatives is to encourage the habit of thrift among their members.<\/p>\n
(3) Producers\u2019 Cooperative Societies – An industrial or producer\u2019s cooperative is organised on small scale producers to face competition and to increase the production. The society sells the output in the market and distributes the profits by each member. Thus, a producers\u2019 society not only provides money and materials to the small artisans but also undertakes to sell their products.<\/p>\n
(4) Cooperative Marketing Societies – Cooperative marketing is of great importance to the small producers and agriculturists who face many difficulties in selling their output at remunerative profits. Marketing cooperatives seek to ensure a steady and favourable market for the output of their members. The output of its members is pooled together and sold according to market conditions. The profits on sales are distributed according to the contribution of the members to the pool. Marketing cooperatives eliminate middlemen and ensure honest trading practices as regards weight, measurement and accounting.<\/p>\n
(5) Cooperative Farming Societies – These are voluntary associations of small farmers who join together to avail the benefits of large scale mechanised farming. It provides economic and social security to farmers. They aim at scientific organization of agriculture involving use of improved seeds, fertilizers, irrigation, soil conservation and other modem techniques.<\/p>\n
(6) Cooperative Housing Societies – These societies are formed mostly in urban areas where the problem of housing is acute. These societies are allotted land by the land authority or by the Urban Development Authority at concessional prices. Such societies can also negotiate loans for its members on easy terms from financial institutions.<\/p>\n
Question 5. \nDistinguish between a Joint Hindu family business and a partnership. \nAnswer: \nJoint Hindu family business is the form of business owned by the members of a family. It is managed by the head of the family, known as karta, whose liability is unlimited. The liability of other members is limited. The membership attains since birth of a child in the family.<\/p>\n
Partnership firm is an agreement between two or more persons to carry on legal business with profit motive, carried on by all or any one of them acting for all.<\/p>\n
<\/p>\n
Difference between joint Hindu family business and partnership firm: \nFollowing are the bases of difference between Joint Hindu family business and partnership- .<\/p>\n
Difference between Partnership and Joint Hindu Family Business :<\/p>\n
\n\n\nPoints of Difference<\/strong><\/td>\nPartnership<\/strong><\/td>\nJoint Hindu Family Business<\/strong><\/td>\n<\/tr>\n\n1. Formation<\/td>\n Partnership a formed on the basis of Agreement according to Partnership Act, 1932.<\/td>\n It is formed according to Hindu law.<\/td>\n<\/tr>\n \n2. New Member<\/td>\n A new member can be admitted with the consent of other part\u00adners.<\/td>\n A male child becomes a member of the family busi\u00adness by birth.<\/td>\n<\/tr>\n \n3. Female membership<\/td>\n A female member can become the partner with the consent of other partners.<\/td>\n Female membership is not allowed.<\/td>\n<\/tr>\n \n4. Membership of minor<\/td>\n A minor can be admitted with the consent of other partners for profit only.<\/td>\n A male minor child becomes a member of the family business since birth.<\/td>\n<\/tr>\n \n5. Operation of a business<\/td>\n Every partner can take part actively in the affairs of the firm.<\/td>\n Karta, the head of the family is responsible for the opera\u00adtion of the business.<\/td>\n<\/tr>\n \n6. Effect of death<\/td>\n The partnership is dissolved with the death of the partner.<\/td>\n Hindu family business is not dissolved by the death of a member.<\/td>\n<\/tr>\n \n7. Number of members<\/td>\n There is a restriction on the number of members maximum of 20. and in the case of the banking business, only 10 members are required<\/td>\n There is no restriction on a maximum number of members.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nQuestion 6. \nDespite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organizations? Why? \nAnswer: \nSole proprietorship refers to a form of business organization which is owned, managed, and controlled by an individual who bears all risks and receives all profits. This form of business is suited mainly in areas of personalized services and small-scale activities due to a shortage of capital and limited abilities of an individual who is the proprietor.<\/p>\n
Still, many people continue to prefer sole proprietorship over other form organization as sole proprietorship offers many advantages such as: \n(i) Prompt Decision Making: \nThe decision-making is prompt under sole proprietorship as there is a considerable degree of freedom in making business decisions and there is no need to consult others as in the case of a partnership or co-operative societies. This results in the effective capitalization of market opportunities as and when they arise.<\/p>\n
(ii) Confidentiality: \nAll the information related to business operations is kept confidential and secrecy is maintained as the sole decision-making authority rests with the proprietor unlike a partnership or co-operative form. A sole proprietor is also not bound legally to publish a firm\u2019s accounts as in the case of a company.<\/p>\n
(iii) Incentive to Work: \nThe sole proprietor receives all the business profits as a reward for bearing the business risk. He is the single owner and does not need to share profit. This provides an incentive to the sole proprietor to work hard.<\/p>\n
(iv) Sense of Accomplishment: \nThere is a sense of personal satisfaction involved in working for oneself. It instills a sense of accomplishment and confidence in the individual as he\/she is the one who takes all the decisions without any interference from others which is present in all other forms of organization.<\/p>\n
(v) Ease of Formation and Closure: \nAn important merit of a sole proprietorship is the possibility of entering into business with minimal legal formalities. There is no separate law that governs sole proprietorship, unlike other forms like co-operative societies or companies. As sole proprietorship is the least regulated form of business, it is easy to start and close the business as per the wish of the owner.<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
Detailed, Step-by-Step NCERT Solutions for 11 Business Studies Chapter 2 Forms of Business Organisation Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation. Forms of Business Organisation NCERT Solutions for Class 11 Business Studies Chapter 2 Forms of Business Organisation Questions …<\/p>\n
NCERT Solutions for Class 11 Business Studies Chapter 2 Forms of Business Organisation<\/span> Read More »<\/a><\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"default","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"default","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","spay_email":""},"categories":[4],"tags":[],"yoast_head":"\nNCERT Solutions for Class 11 Business Studies Chapter 2 Forms of Business Organisation - MCQ Questions<\/title>\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n