Forms of Business Organization – CS Foundation Business Environment Notes

Introduction :
1. Business organisations are also known as Business undertaking, enterprises, firms or concerns.

2. Business is an organisation in which organised production and exchange of goods and services are undertaken with a view to earn profits.

3. All business activities fall under 3 categories :

Industry
Trade
Commerce.

4. Business organisation also referred as process of organizing all the steps that are required to be undertaken for establishment of relationship between men, material and machinery in order to carry on business efficiently.

5. Selection of right form of business organisation is responsible for the success of any enterprise.

6. Every organization possess the following characteristics :

Distinct Ownership: Business firm can be owned by an individual or group of individuals jointly.
Separate Status and Management: Every firm is a separate and an independent entity. So, any other firm cannot be accounted for it’s functioning.
Continuity in operations: Operations of every firm are carried on a continuous basis.
Lawful business: Business firms must carry on lawful business activities.
Dealing in goods and services: Every firm is engaged either in production or distribution (or both) of goods and services.
Risk involvement: Every business involves risk and uncertainty due to uncertain future decisions.

Characteristics of Ideal Business Organisation – Before selecting any form of business organisation, one must consider the following factors:

Easy Formation: Its formation must not involve much legal formalities. It must consume less time.
Liability of Owner: It can be limited or unlimited. Limited liability is more preferred from risk view point.
Continuity and Stability: This is essential as it enables the businessman to make long terms plans for his business.
Capital Adequacy: Business form must ensure raising of adequate amount of capital at most reasonable cost.
Flexibility of operations: Business must be flexible enough to adjust itself to the changes taking place in its environment.
Relationship between ownership, control and management: For efficient management, the control and management of the firm must be in the hands of the owners.
Lawful Business: Every business enterprise must undertake such business which is lawful, that is, the business must not involve activities which are illegal.
Dealing in Good and Services: Every business undertaking is engaged in the production and for distribution of goods or services in exchange of money.

Sole Proprietorship:
1. Sole Proprietorship is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk of enterprise and for the management of the business.”

2. It refers to a form of business that is owned, managed and controlled by an individual with all authority, responsibility and risk.

3. It is also known as single ownership or single proprietorship.

4. The individual who owns and runs the business is known as sole proprietor or sole trader.

5. It is the oldest and most common business form.

6. It possess the following characteristics:

Single Ownership: It is run by single individual who owns and controls all assets and properties of the business and bears all risks.
individual Capital Contribution: Capital is arranged by sole proprietor himself either from personal resources or through borrowing.
individual Management and Control: All business decisions are taken by sole proprietor himself.
No sharing of Profit and Loss: Entire Profit arising out of business is enjoyed by sole proprietor himself. Similarly, he himself has to bear all the business losses.
Unlimited liability: In case of any loss, sole proprietor’s personal property can be used to pay off all the liabilities.
Less legal formalities: No legal formalities are required for its formation or even in its day to day operations.

It has the following advantages:
(i) Easy formation and winding up: No legal formalities are required for its formation. It can be started with small amount of capital. Similarly, its winding up also is completely dependent upon sole proprietor.

(ii) Prompt Decisions: Sole proprietor is free to take any decision on his own, thereby enabling quick decision making.

(iii) Flexibility in operations: Sole proprietor can take decision to change the nature, scope or scale of his business all by himself.

(iv) Maintenance of Business Secrecy: It is an important part of any business. Sole Proprietor is in better position to maintain business secrets as he has the complete ownership and control.

(v) Personal Contacts with Customers: Sole proprietor is able to maintain close and personal contacts with his customer’s, thus enabling him to know their likes and dislikes.

(vi) Direct Motivation: All profits earned are of proprietor. By working hard, he can earn more profits. This ensures direct link between reward and effort.

(vii) Encourages self employment: Unemployed people can start their business by being self employed. It also provides job opportunities to others by employing them. Apart from various advantages, sole proprietorship form of business also has certain disadvantages:

Unlimited liability and Risks: In case of loss, the proprietor’s personal property can be attached to meet the obligations. This increases the risks.
Limited Capital: Proprietor’s individual capital is insufficient to meet certain business requirements.
Limited managerial capability: It lacks professional management as the proprietor himself may not be an expert in every field.
Limited Size: It has a limited scope for expansion. Expanding beyond a certain limit makes it unmanageable for proprietor.
Lack of Continuity: Business continuity is uncertain as it depends – upon the life of the proprietor.

It is suitable for following:

Small size business
Small amount of capital is required
Small and local markets
Personal attention towards customers is required
Relatively small risks is involved
Simple nature of business
Manual skill is required
Production of goods of artistic nature

Hindu Undivided Family:

It is found only in India.
It is a most peculiar form of business organisation in which the family possesses some inherited property and the head of the family, known as Karta manages its affairs.
It is created by the operation of Hindu law and does not arises out of contract between co-parceners.
Its membership is limited upto 3 successive generations.
Members are known as Co-parceners.
Only coparcener can become a Karta.
Karta is the eldest male member of the family.
Karta’s position is sui generis (peculiar to himself).
The person becomes a member by taking birth in the HUF and not by a contract.
No stranger can be a karta.
Co-parceners can demand partition.

HUF possess the following characteristics :

Legal status: HUF is governed by Hindu law, thus can enter into partnership agreements.
Membership: Only male members who are coparceners by birth can be its member.
Management: All the affairs of HUF are managed by Karta.
Liability: Liability of all coparcener is limited except Karta.
Fluctuating share: Share of each member keeps on fluctuating by birth and death of male members.
Continuity: Death of any coparcener or even Karta does not effects its continuity.
Profit Sharing: All coparcener have equal share in the profits.

Advantages of HUF:

Assurance of share in profits : Interest of every member is safeguarded as he is assured of his share in profits
Freedom of action : Karta manages the affairs of HUF with full freedom, thus ensuring quick decisions. thus, enabling more efficient management.
Sharing of knowledge and experience : Young members get the benefit of elder people’s knowledge arid experience and inclusion of finer values of life.
Continued existence : Death of any coparcener or even Karta does not effect its continuity.

Disadvantages of HUF :

Lack of Motivation : Members lack of motivation to work hard as profit is shared by all equally.
Scope for misuse of power : Kara has full freedom to manage the affairs of HUF, which leaves scope for him to misuse his powers for personal gain.
Limited Resources : Risk cannot be undertaken due to limited financial and managerial resources.
Family Conflicts : Conflicts and quarrels may arise among three generations involved.
Instability : It can be dissolved any time through mutual agreement among members.

Partnership:

Haney, “Partnership is the relation between persons competing to make contract who agree to carry on a lawful business in common with a view of private gain.”
It refers to the voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses. They combine their funds and skills to carry on business together. (Not more than 20 members in non- banking business and not more than 10 members in case of banking business)
The Partnership Act does not lay down any maximum number of partners. But according to Section 464, Rule 10 of companies miscellaneous Rules, 2014, maximum number of partner is 100.
It is governed by Indian Partnership Act, 1932.
Every member is known as partner and collectively members are known as partnership firm.
It is suitable for small business of retail and wholesale, small manufacturing units, professional firms, etc.

It possess the following essential characteristics:
(i) Profit motive and sharing of profits and loss: It is formed with an objective of earning profit. Profit is distributed as per the agreed ratio. In absence of any agreement, it is equal.

(ii) Contractual Relationship: Relationship between partners arises out of contract in writing called ‘Partnership Deed’ and not out of status. Agreement may be verbal, written or implied.

(iii) Principal – agent relationship: Every partner is a principal when acting on his own behalf and is an agent of the firm when acting on behalf of others. His activities bind the firm.

(iv) Unlimited liability: Liability of all partners is unlimited. They are jointly and severally liable for all the debts and obligations of firm.

(v) Competence of partners: Only competent people are allowed to enter into partnership. Minors can only be admitted to benefits of partnership.

(vi) Legal Status: Law doesn’t recognize the firm as a separate entity distinct from the partners. The firm means the partners and the partners means the firm.

(vii) Voluntary Registration: Registration of a partnership firm is not compulsory but since it is considered desirable.

(viii) Transfer of interest: No partner can sell or transfer his interest in the firm to anyone without the consent of other partners (unless or otherwise agreed).

(ix) Dissolution: Dissolution refers to not only a complete closure but to change in existing agreement among the partners due to a change in the numbers of partners too.

Advantages of Partnership firm:

Easy Formation: It can be formed without much expense and legal formalities. Only an agreement among partners is required
Combination of business ability and skill: It enables the firm’s activities to be expanded by enabling several persons to pool their resources, capital, skill etc.
Collection of greater capital: Under partnership, all partners contribute their capital which places it in a better position than sole proprietor.
Advantage of Secrecy: It is not required to publish its financial accounts to public due to which secrets can be maintained.
No hasty and reckless decisions: Due to unlimited liability of partners, they tend to adopt sound business practices.
Protection to minor partner: Minor has limited liability and is admitted only to the benefits of the firm.
Favorable Credit Standing
Profit Incentive
Retention of a Skilled Worker
Increase in Spirit of Co-operation.
Tax Advantage
Easy Dissolution.

Disadvantages of Partnership Firm:

Disagreement Among Partners : Mutual conflicts and lack of team spirit among partners may cause loss of reputation and even firm’s dissolution.
Uncertain Life : It has uncertain continuity as death, insolvency etc of any of the partner may cause firm’s dissolution.
Unlimited Liability : Any one or all the partners can be held liable by creditors and their dues can be recovered from private property of such partners.
Reduced Public Confidence : Its accounts are kept secret, publicity is absent and moreover, doesn’t have any legal control due to which it lacks public confidence.
Loss of Business Opportunity : Due to differences in opinions among partners, delay in decision making occurs which causes loss of opportunity.
Risk of Implied Authority : Every partner acts on behalf of firm and all other partners. Thus, partner may have to pay for the dishonest partner even.
Frozen Investment
Possibility of Misuse of Resources.
Divided Control

Suitability:

For small business (i.e. retail and wholesale trade)
For Professional services
For Medium sized mercantile houses
For small manufacturing units

Company

“A company is an artificial person created by law, having a perpetual succession and common seal.” L.H. Haney.
“A company is an artificial entity which is formed and registered under this Act or an existing company.” Indian Companies Act, 2013
It refers to a voluntary association of persons who contribute money for some common purpose.
Money contributed is called capital or share capital.
People contributing capital are known as members or shareholders.
Share is the proportion of capital to which each member is entitled.
A company form of business organisation is a voluntary association of person to carry on business.
It is an association of person who generally contribute money for some common purpose.
The companies are governed by the Indian Companies Act, 2013.
As per Companies Act, 2013 “a company is formed and registered under the Companies Act or an existing company registered under any other Act”. Share Capital refers to the capital raised by the company by the issue of shares.
Share is the smallest unit into which the share capital of the company is divided.

Characteristics of company are as follows –

Incorporated Association: It comes into existence only after registration under the Companies Act. A company in India is Governed by the Indian Companies Act, 2013.
Artificial Legal Person: It is a legal personality created by law. It can acquire and dispose of the property, can enter into contracts, can sue and be sued in its own name.
Perpetual Succession: It is a legal entity separate from its members. Death or insolvency of any member does not effects its continuity.
Transferability of Shares: Shares in company are freely transferable which ensures safety of investment.
Limited Liability: Liability of all members is limited to the extent of face value of shares held by them.
The capital of the company is divided into shares of small part.
Representative Management: The shareholders elect the directors to manage the affairs of the company.

Advantages of Company:
(i) Accumulation of huge financial resources: It facilitates mobilisation of large amount of capital for investment. It can raise huge capital required for large scale operations.

(ii) Continuity of existence: Its enjoys perpetual succession, thus is more stable as compared to partnership.

(iii) Transferability of shares: Ownership in a company can be easily transferred by simply transferring the shares. This ensures liquidity and safety of investment.

(iv) Diffusion of risk: Due to large membership, risk is spread which encourages small investors.

(v) Economies of large scale production: Large size of business enables the company to enjoy all economies of large scale production which ensures increased production and enhanced efficiency.

(vi) Democratic Organisation: Company is managed by Board of Directors elected by the shareholders thus, directors are accountable and responsible to them.

(vii) Management Functions: The company employees professionals and experts which help in better management of the company.

(viii) Recognised Legal Entity: A company is incorporated under the law and hence enjoys a legal status. Hence, it can borrow money, deal in property, sue others etc.

(ix) Higher Profits: A company has economies of large scale production and thus, earns higher profits.

(x) Bold Management: As the companies have huge funds, they, can take big risks which the other forms of business cannot take.

(xi) Full Legal Cover: A company is recognised by law and enjoys full legal cover and thus people have more confidence in them

(xii) Social Benefits: A company also has many social benefits and helps in the growth of people of low income groups.

Disadvantages of Company:
(i) Fraudulent management: The directors and investors may present a rosy picture of the company in its annual report due to which innocent investors are duped.

(ii) Complicated formation: Its formation requires adherence to too many legal formalities and is also expensive.

(iii) Lack of secrecy: It has to disclose all its strong and weak points in its annual reports due to which nothing remains secret.

(iv) High nepotism: Due to involvement of top heavy management, employees are selected on basis of personal interest rather than ability.

(v) Social abuses: It brings out the evils of factory system like pollution, insanitation etc. It is also a source of encouraging monopolies.

(vi) Undue speculation: Directors may indulge in speculation by misusing the inner information of the company for speculative purpose. This is harmful for shareholder’s interest.

(vii) Double taxation: Tax is to be paid on the earnings as well as on the distribution of dividends.

(viii) Separation of ownership from management: The company is managed by the directors who are not the real owners of the company and can thus exploit the shareholders.

(ix) Exploitation of shareholders: The concentration of powers in a few hands leads to the exploitation of shareholders.

(x) Impersonal relationship: Due to the wide gap between the employer and the employee, there is lack of personal relationship.

(xi) Grouping of powers: There is tussle of grouping for power between groups.

It is suitable where:

Volume of business is large
widespread area of operation
heavy risk is involved
need for huge financial resources and manpower
need for professional management
flexibility in operations is required

Forms of Company: A company, as an organisation may be a public company or private company. An One Person Company is a special form of private company.

Private Company: A private company has –

limit on maximum to two hundred members other than present and past employees;
restrict the right to transfer its shares; and
prohibits any invitation to the public to subscribe for any securities of the company.
Private company (or a private limited company) may have two members normally or single member in case such private company is a One Person Company (OPC).

Public Company:
A public company is a company which is not a private company.
A public company do not have restriction like private company, but it needs minimum seven members. A private company (or a private limited company) may have two members normally or single member in case such private company is a One Person Company (OPC).

One Person Company:
One Person Company is a company with only one person as its member. All restrictions applicable to a private company shall apply to one person company as it is essentially a private company.

As these three form of companies has different organisational setup and scale of operations, government usually give some relaxation to private companies in respect of various compliances. There are some additional relaxation for one person company in respect to general meetings and board meetings.

Statutory Bodies and Corporations:

It refers to an autonomous corporate body created under an Act of Parliament or an Act of State legislature.
It is set up by Statute
It is a combination of public ownership, public accountability and business management.
It is an organisation that is clothed with the power of the government, but is possessed with the flexibility and initiative of private enterprise.
Example : RBI, SBI, LIC, ID8I etc.

It possess the following characteristics:

Legal Entity : It has a separate legal entity. It can enter into contracts, can sue and be sued in its own name. It has a perpetual succession and common seal.
Financial independence : Government provides it with initial capital and borrowings. Thereafter, it has all freedom to use its financial resources.
Corporate Body : It is an incorporated body established under a Special Act of Parliament.
Government Ownership : It is wholly owned by CG, SG or both.
Management and Personnel : It is managed by Board of Directors appointed by Government.
Accounting System : Budgetary, accounting and audit regulations applicable to Government departments are not applicable to them.
Service Motive : Its objective is public welfare and service rather than private profits.

It offers the following advantages:

Flexible Operations : Unlike other government departments, it is free from bureaucratic control. Thus, decisions can be taken without any delay.
Operational Autonomy : It does not involve interference of the Government.
Special Privilege : It is often granted special Privilege
Continuity : Due to a separate legal entity it has stable continuity.
Availability of Managerial Talent : More talented people can be employed by offering them better terms and conditions.

It suffers from following disadvantages:

Difficult Formation : A special law needs to be passed by Parliament for its formation.
Excessive Accountability : Ministerial and political interference effects its operational autonomy.
Inflexibility : Special law passed by Parliament has to be amended for changing the objects or powers.
Clash of Divergent Interests : Conflicts arises when Board of Directors is constituted to give representation to divergent interests.

It is suitable:

For undertakings that require Monopoly powers.
Undertakings exercising powers conferred by legislature and enterprises.
For undertakings that need to be financed by the state.

Co-operative, Societies and Trusts:

Co-operation is derived from Latin word ‘Co-operari’ ‘Co’ means ‘with’ and ‘operari’ means ‘to work’.
It is a voluntary association of persons who join together to safeguard their own interests. It is a business activity without having any profit.
“Co-operative society is a voluntary association of individuals which has its objectives in the promotion of economic interests of its members in accordance with co-operative principles.”
It works on principles of self help as well as mutual help.

Co-operative Societies Act, 1912

Any ten members can form co-operative society.
It is governed by Co-operative Societies Act, 1912.

Its objectives are:

Rendering service rather than earning profit.
Mutual help rather than competition.
Self-help rather than dependence.

Types of Co-operative Societies –
(i) Consumer’s Co-operative Societies: They provide goods to consumers at a reasonable price by eliminating the middlemen. They work for protection of consumer’s interest.
Example → Kendriya Bhandar, Apna Bazar and Sahkari Bhandar etc.

(ii) Producer’s Co-operative Society: These are formed for the protection of small producer’s interests by removing difficulty in collection of various factors of production and facing market problems.
Example → Handloom societies like APPCO, Bayanika Haryana Handlooms etc.

(iii) Marketing Co-operative Society: These are formed to enable the producers to sell their products at reasonable prices by eliminating middlemen.
Example → Gujarat Co-operative Milk Marketing Federation etc.

(iv) Credit Co-operative Society: These are formed to provide credit to its members for productive purposes at a very low rate of interests.
Example → Village Service Co-operative Society and Urban Co-operative Banks etc.

(v) Housing Co-operative Society: These undertake the function of purchasing land, constructing houses or flats and making them available to its members on ownership basis or at fair rents. They also provide loan at lower interest rates to its members for constructing houses.
Example → Employees Housing Society, Metropolitan Housing Co¬operative Society etc.

(vi) Farming Co-operative Society: These are formed by small farmers to enjoy the benefit of large scale farming.
Example → Lift – irrigation Co-operative society, Pari – panchayats etc.

Definitions of Co-operative Organisation:
“Cooperative is an association of person usually of limited means, who have voluntarily jointed together to achieve a common economic and through the formation of a democratically controlled business organisation, make equitable contribution to the capital required and accepting a fair share of risks and benefits of the undertaking.”

“Cooperative is a form of organisation wherein persons voluntary associates together as human beings on the basis of equality for the promotion of the economic interests of themselves.”

“As a society which has its objectives the promotion of economic interest, its members in accordance with cooperative principles. Cooperative society is that society which has been registered under the, Cooperative Societies, Act, 1912, or under any other law for the time being in force in any state registration of cooperative society.”

“Cooperative society is an association of the weak who gather together for a common economic need and try to lift themselves from weakness into strength through business enterprise.”

Characteristics of Co-operative Society:
(1) Voluntary association :Any association of persons having a common interest is free to join and can also leave by a mere notice to society. There should be minimum 10 members to form a cooperative society.

(2) Separate Legal entity : After registration cooperative society is recognized as separate entity by law. The income of cooperative societies is legally taxable under Income Tax Act, 1961.

(3) Democratic Management : Equality is the assence of cooperative enterprises. No member detects the terms and conditions of the functioning because “One man One vote” is thumb rule.

(4) Service Motive : Sole purpose of cooperative society is mutual benefit through self help and collective effort.

(5) Utilization of Surplus : According to the Indian Cooperative Societies Act, 1912 each society must transfer atleast one-forth (1/4) of its profits to general reserve. It may distribute the profit for dividend and welfare in the ratio of 90:10.

(6) Cash Trading: Except the members of the society it sells the goods on the basis of cash only. Rule of “Cash & Carry” is fallowed.

(7) Fixed Rate of Return: In the return to the capital invested, the members are assured of a fixed rate of return maximum to the extent of 9% per annum on the sum deployed by tnem.

(8) Government Control: All the cooperative societies are regulated by the government through its different rules and regulation.

(9) Capital: The capital of the society is raised by the way of share capital, major part is financed through taking loan from the Government or from the apex cooperative institutions.

It possess the following advantages:

Voluntary Association: Members come together on their own accord and even leave as per their own desires.
Easy Formation: It does not need to follow long and complicated legal formalities for its for on.
Limited Liability: Liability of members is limited to the extent of capital contributed by them.
Open Membership: Any person can become its member.
Democratic Management: Every member have equal voting rights, thus have equal voice in the management. (One man one vote is the thumb rule)
Perpetual Succession: Its life is not effected in any way by the way of death, insolvency or conviction of any of its members.
Low Prices: It make the goods and services available to its members at reasonable prices by eliminating the middlemen.
Mutual Help
Social Advantages
Remove defects of capitalism
Government support
Mobilisation of saving.

It suffers from following disadvantages:

Limited Resources: They have limited financial resources as it is limited to the member’s contribution.
Inefficient Management: It is managed by its members who lack managerial and professional skills.
Lack of Secrecy: It becomes difficult to maintain secrecy as all its affairs are exposed to its members.
Excessive Government Interference: Excessive State regulations effects its functioning thereby adversely effecting its operations.
Cash Trading: All its transactions are done in cash. Thus, non¬availability of credit facilities sometimes disables the members to buy.
Lack of unity among members.
Lack of motivation.
Political interference

It is suitable:

Where service is to be provided
Where economic interests in promoted
For small and medium size firms.

The large sized IFFCO (Indian farmers & fertilizers co- operative) and the Kaira Co-operating processing milk under the brand name ‘AMUL’ are illustrious examples.

Limited Liability Partnership (LLP):

It combines the advantages of company and partnership.
Under it, all partners have a form of limited liability for each individual’s protection within the partnership.
Partners also have a right to manage the business affairs.
It is managed as per LLP Agreement.
It is governed by Limited Liability Partnership Act, 2008.
Limited Liability Partnership Act, 2008 came into effect by way of notification dated 31st March, 2009.

It possess the following characteristics :

Body corporate
Separate legal entity
Perpetual succession
Mutual rights and duties of partners are governed by an LLP agreement subject to provisions of LLP Act, 2008
In absence of any agreement, it would be governed by the framework provided in Schedule 1 of LLP Act, 2008
Liability of partners is limited to the extent of capital contributed by them
No partner is liable for the independent or unauthorized actions of other partners or their misconduct
Every partner is a equal member
Every partner have a equal share in profit and loss
Each partner is protected against the other partner’s action
The contribution of the partners can be tangible, intangible or both
There is no limit for the maximum number of members in LLP

LLP Process:

Acquire DPIN and DSC
Register DPIN, DSC with LLP
Check name availability
Download UP forms
File Electronically
Track Status
Receive Certificate

DPIN – Designated Partners Identification Number

DSC – Digital Signature Certificate

It offers the following advantages:

Separate legal entity
Easy formation
Flexible operations
Perpetual existence
No minimum capital contribution
Easy dissolution
Low cost of formation
No partner liable for other partner’s act
No restriction on maximum number of partners
No need to maintain statutory records except Books of Accounts

It suffers from following disadvantages:

Funds from public cannot be raised
Owners are the managers
Act of every partner binds LLP
Under certain cases, partner’s liability may be extended to their personal property

Associates of Persons : AOP is an informal form of business. According to CIT v Indira Balkrishna (39 ITR 546) “where two or more persons join in a common purpose or common action, with object to produce, income profits or gains, it is called an “associates of persons”.

Characteristics of AOP :

Two or more persons join
Voluntarily
Common purpose or common action
Object to produce profit or gains
Creates some kind of scheme for common management

“AOP is not created but formed” Body of Individuals” : BOI is a formation of individuals who carry some activity with object to earn income, having common purpose is not essential for BOI.

BOI is Sub- domain of AOI – AOI and BOI, whether incorporated or not treated as a ‘person’ under Income Tax 1961.

Self Help Groups : Self help groups are essentialy BOI, which are form to promote entrepreneurship and financial helps in rural areas usually “Ten or more” persons shares different skills and indulge in mainly production activities.
Example : pickles production, Spices, handicraft+etc.

Advantages of AOP / BOI :

Suitable for Short term business plan
No formality required for formation
Object to can profit is enough to form such organisation
Easy to wind – up
Suitable for Special Purpose Vehicle (SPV) and international commercial buildings

Disadvantages of AOP / BOI:

Non formal Set-up
Income is more important than business
Not a purpose of wealth creation

Joint Venture : It is also an informal form organisation “when two or more business organisation center into a commercial enterprise undertaken jointly it is called a Joint Venture.”

Elements of a Joint Venture, are :

Number of parties
The geographic, Product, technology & value chain
Contributions of parties
Split ownership
Economic arrangements
Governance & control
Contractual agreements with parent companies

Selection of an Appropriate form of Business: This depends upon following factors:
(i) Nature of business activity: Businesses providing direct services should be set up as sole proprietor, business requiring pooling of skills and funds should be set up as partnership, while manufacturing concerns of large size should set up as companies.

(ii) Business control: Sole proprietorship is preferred if direct control over business is required else company should be formed.

(iii) Liability of owner: A company who can bear the burden of unlimited liability can go for sole proprietorship business.

(iv) Finance: Business requiring huge capital should opt for company form.

(v) Business volume: Large scale enterprises should be set up as company form.

(vi) Independence: Person requiring freedom from government interference, should select partnership or sole proprietorship.

(vii) Area of operation: In case of wide spread area of operation i.e. national or international, company form is suitable. .

Other Types of Corporations:

Domestic corporation is a company that conducts its affairs in its home country. It is able to conduct business in other states or other parts of the country where it has filed its articles.
Foreign corporation/alien corporation/out-of-state corporation is incorporated under the laws of foreign country. It does its business in a state other than the one is which it is incorporated.
Public corporation is formed by government to meet some governmental or political purposes.
Private corporations are formed for benefits of public purposes. They are not privately owned.
Non-profit corporation/not for profit organisation exists for educational or charitable reasons, and from it the shareholders or trustees do not benefit financially.
Money earned is retained by the corporation and used for its own expenses, operations and programs.
Professional corporations includes the professional practitioners by profession. It provides certain tax benefits.

Multiple Choice Questions

Question 1.
Which of the following is a form of business organisation?
(a) Temple
(b) Church
(c) Partnership
(d) Mosque
Answer:
(c) Partnership

Question 2.
Following is not a characteristic of business organisation:
(a) Discontinuity of operations
(b) Distinct ownership
(c) Lawful business
(d) Risk involvement
Answer:
(a) Discontinuity of operations

Question 3.
________ is a form of business that is owned, managed and controlled by an individual.
(a) Partnership
(b) Company
(c) HUF
(d) Sole Proprietorship
Answer:
(d) Sole Proprietorship

Question 4.
Individual owing and running the business is known as ________.
(a) Single owner
(b) Sole Trader
(c) Single Trader
(d) Businessman
Answer:
(b) Sole Trader

Question 5.
Which is the oldest business form?
(a) Partnership
(b) HUE
(c) Sole Proprietorship
(d) Co-operative Society
Answer:
(c) Sole Proprietorship

Question 6.
Which of the following would have unlimited liability?
(a) Co-operative Society
(b) Company
(c) Sole Proprietorship
(d) Shareholders
Answer:
(c) Sole Proprietorship

Question 7.
Which of the following is an advantage of sole proprietorship?
(a) Easy formation
(b) Maintenance of business secrecy
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)

Question 8.
Which of the following has most stable existence?
(a) Sole proprietorship
(b) Partnership
(c) Company
(d) HUF
Answer:
(c) Company

Question 9.
Which form of organisation is only found in India?
(a) HUF
(b) Co-Operative Society
(c) Joint Stock Company
(d) Governmental Undertaking
Answer:
(a) HUF

Question 10.
What is the maximum strength of HUF ________.
(a) 10
(b) 20
(c) 100
(d) No limit
Answer:
(d) No limit

Question 11.
The business affairs are managed by the head of the family, known as ________.
(a) Co-parcener
(b) Owner
(c) Shareholder
(d) Karta
Answer:
(d) Karta

Question 12.
Only coparcener can become a Karta, This statement is ________.
(a) True
(b) False
(c) Partly true
(d) Partly false
Answer:
(a) True

Question 13.
Karta’s liability is ________.
(a) Limited
(b) Unlimited
(c) Limited by guarantee
(d) None of the above
Answer:
(b) Unlimited

Question 14.
Mutual agency is an important feature of ________.
(a) HUF
(b) Joint Stock Company
(c) Partnership
(d) Co-operative Society
Answer:
(c) Partnership

Question 15.
Company have a perpetual succession and work under a common seal. This statement is ________.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(a) True

Question 16.
Company is managed by shareholders.
(a) True
(b) False
(c) Can’t say
(d) None of the above
Answer:
(b) False

Question 17.
Statutory body is a body that is created under an Act enacted by ________.
(a) Association of people
(b) Association of ministers
(c) Both (a) and (b)
(d) Judiciary
Answer:
(b) Association of ministers

Question 18.
RBI is an example of ________.
(a) Departmental undertaking
(b) Statutory corporation
(c) Governmental undertaking
(d) None of these
Answer:
(b) Statutory corporation

Question 19.
In which of the following, the ownership of venture is reflected by ownership of shares or stock?
(a) HUF
(b) Partnership
(c) Corporations
(d) Trusts
Answer:
(c) Corporations

Question 20.
Statutory Body is a combination of ________.
(a) Public ownership and accountability
(b) Public ownership and business management
(c) Public and private ownership
(d) Public ownership, public accountability and business management
Answer:
(d) Public ownership, public accountability and business management

Question 21.
Following is not a type of co-operative society ________.
(a) Producer’s cooperative society
(b) Wholesaler’s cooperative society
(c) Marketing co-operative society
(d) Consumer’s co-operative society
Answer:
(b) Wholesaler’s cooperative society

Question 22.
LLP Act, 2008 came into effect on ________.
(a) 31/4/2009
(b) 31/3/2008
(c) 31/3/2009
(d) 31/4/2008
Answer:
(c) 31/3/2009

Question 23.
For having direct control over the business activities, which form is preferred ________.
(a) Partnership
(b) Sole proprietorship
(c) HUF
(d) Company
Answer:
(b) Sole proprietorship

Question 24.
Which is not a characteristic of sole proprietorship?
(a) No sharing of profit and loss
(b) One-man’s capital
(c) Less legal formalities
(d) Association of persons
Answer:
(d) Association of persons

Question 25.
What are the characteristics of HUF?
(a) Governed by Hindu Law
(b) Continuity
(c) Fluctuating share of each member
(d) All of these
Answer:
(d) All of these

Question 26.
Which is not an advantage of Joint Hindu Family business.
(a) Limited resources
(b) Continued existence
(c) Freedom in managing
(d) Assured share in profit
Answer:
(a) Limited resources

Question 27.
The companies are governed by which Act?
(a) Indian Contract Act, 1872
(b) Partnership Act, 1932
(c) Companies Act, 2013
(d) None of these
Answer:
(c) Companies Act, 2013

Question 28.
What are the advantages of company?
(a) Great stability
(b) Limited liability
(c) Both (a) and (b)
(d) None of these
Answer:
(c) Both (a) and (b)

Question 29.
Cooperative society is that society which has been registered under the Cooperative Society Act _____.
(a) 1920
(b) 1932
(c) 1912
(d) 1872
Answer:
(c) 1912

Question 30.
LLP, this forms of organisation has been introduced in India by way of?
(a) LLP Act, 2009
(b) LLP Act,2008
(c) LLP Act, 1932
(d) None of these
Answer:
(b) LLP Act,2008

Question 31.
Which is the first step to start LLP?
(a) Acquire DPIN. Acquire DSC
(b) Register OPIN
(c) Download LLP forms
(d) Track status
Answer:
(b) Register OPIN

Question 32.
Which ¡s the last step to end LLP?
(a) Receive certificate
(b) Signature
(c) File electronically
(d) Track status
Answer:
(a) Receive certificate

Question 33.
“Co-operative” is derived from which word?
(a) Greek word, co-operan
(b) French word, co-operan
(c) Latin word, co-operan
(d) Indian word, co-operan
Answer:
(c) Latin word, co-operan

Question 34.
Find the odd one out?
(a) RBI
(b) SBI
(c) PNB (Punjab National Bank)
(d) HDFC
Answer:
(a) RBI

Question 35.
Direct motivation, maintenance of business secrets, close personal relations etc are the advantages of ________.
(a) Partnership
(b) Limited liability partnership
(c) HUF
(d) Sole Proprietorship
Answer:
(d) Sole Proprietorship

Question 36.
The profit share of Co-parceners in a HUF ________.
(a) Depends on the Capital Contributed
(b) Depends on the decision of Karta
(c) Is equal
(d) None of the above
Answer:
(c) Is equal

Question 37.
In case of death of a Co-parceners ________.
(a) The wife of the deceased Co-parcener can demand partition
(b) Wife can become the Co-parcener
(c) The wife can claim share of profit
(d) All of the above
Answer:
(c) The wife can claim share of profit

Question 38.
Which of the following statement is true in respect of a HUF?
(a) The liability of Co-parceners is limited
(b) The liability of Karta is unlimited
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer:
(c) Both (a) and (b)

Question 39.
Which of the following statements is true ________.
(a) The creditors can claim the entire debt from any of the partner
(b) The partners can share profits in any ratio as agreed
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer:
(c) Both (a) and (b)

Question 40.
Registration of Partnership is not compulsory but beneficiary.
(a) True
(b) Partly True
(c) False
(d) Partly False
Answer:
(a) True

Question 41.
In case of death of a partner ________.
(a) The partnership dissolves
(b) The partnership firm dissolves
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer:
(a) The partnership dissolves

Question 42.
Greater Permanency, limited liability, case of transfer of ownership are the advantages of ________.
(a) HUF
(b) LLP
(c) Sole Proprietorship
(d) Company
Answer:
(d) Company

Question 43.
Lack cf secrecy, promotion of frauds, separation of ownership from management are the disadvantages ________.
(a) Partnership
(b) LLP.
(c) Company
(d) All of the above
Answer:
(c) Company

Question 44.
The minimum number of members to form a Co-operative Society is ________.
(a) Ten
(b) Fifty
(c) Hundred
(d) Twenty
Answer:
(a) Ten

Question 45.
The main objectives of a Co-operative Society are ________.
(a) Rendering service rather than earning profits
(b) Self help in place of dependence ‘
(c) Mutual help instead of competition ‘
(d) All of the above
Answer:
(d) All of the above

Question 46.
AMUL milk products is an example of ________.
(a) Co-operative Farming Society
(b) Consumer Co-operative Society
(c) Co-operative Credit Society
(d) Co-operative Market Society
Answer:
(d) Co-operative Market Society

Question 47.
APPCO, Bayanika, Haryana Handloom are examples of ________.
(a) Co-operative Marketing Society
(b) Co-operative Farming Society
(c) Producers Co-operative Society
(d) None of the above
Answer:
(c) Producers Co-operative Society

Question 48.
The.societies formed to provide financial support to the members are called ________.
(a) Co-operative Credit Society
(b) Housing Co-operative Society
(c) Co-operative Finance Society
(d) None of the above
Answer:
(a) Co-operative Credit Society

Question 49.
Voluntary association, utilization of surplus, cash trading etc. are the characteristics of ________.
(a) Co-operative society
(b) Company
(c) Statutory body
(d) All of the above
Answer:
(a) Co-operative society

Question 50.
Registration of co-operative society is compulsory.
(a) True
(b) False
(c) Partly True
(d) Partly False
Answer:
(a) True

Question 51.
The maximum rate of return that a co-operative society can give to its members is ________.
(a) 9%
(b) 10%
(c) 5%
(d) 12%
Answer:
(a) 9%

Question 52.
The maximum rate of dividend that a Co-operative Society can distribute is _________
(a) 90% of Surplus
(b) 50% of Surplus
(c) 100% of surplus
(d) 10% of Surplus
Answer:
(a) 90% of Surplus

Question 53.
The minimum amount to be transferred to the general reserve is ________.
(a) One-fourth of profits
(b) One-half of profit
(c) One-fifth of profit
(d) None of the above
Answer:
(a) One-fourth of profits

Question 54.
Which of the following statement is True?
(a) Co-operative Societies sell the goods on cash basis only
(b) Members can purchase goods on credit
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer:
(c) Both (a) and (b)

Question 55.
Which of the following statement is true in respect of the voting rights of a member in a Co-operative Society?
(a) Each member has one vote
(b) Voting rights are proportionate to the capital contributed
(c) Voting rights is not exercised by the members
(d) None of the above
Answer:
(a) Each member has one vote

Question 56.
The Co-operative Society is registered under the ________.
(a) Co-operative Societies Act,1932
(b) Indian Co-operative Societies Act, 1944
(c) Co-operative Societies Act, 1912
(d) All of the above
Answer:
(c) Co-operative Societies Act, 1912

Question 57.
The maximum number of partners in a LLP are ________.
(a) No limit
(b) 50
(c) 100
(d) 20
Answer:
(a) No limit

Question 58.
In case of sole proprietorship there is a direct link between:
(a) Profit and Loss
(b) Asset and liabilities
(c) Goods and Services
(d) Effort and reward
Answer:
(d) Effort and reward

Question 59.
In Hindu Undivided Family (HUF) form of business all the members of Hindu Undivided Family own the business ________.
(a) Individually
(b) Separately
(c) Jointly
(d) With Society
Answer:
(d) With Society

Question 60.
If the partnership agreement is in ________ it is known as ‘Partnership Deed.’
(a) Verbal
(b) Written
(c) Implied
(d) Verbal, written or implied
Answer:
(b) Written

Question 61.
A minor can be admitted to the Benefits of partnership which means:
(a) He can have a share in the loss only
(b) He can have a share in the profits only.
(c) He cannot have any share in profit or loss.
(d) He can have a share in the profits only if other partner by majority agrees to give it.
Answer:
(b) He can have a share in the profits only.

Question 62.
Statutory body is a body that is created under an:
(a) Act of parliament
(b) An act of legislatures
(c) Neither (a) or (b)
(d) Either (a) or (b)
Answer:
(d) Either (a) or (b)

Question 63.
_______ is a feature of partnership form of business.
(a) Separate legal entity from the firm
(b) Limited scope for raising finance
(c) The liability of a partner is limited to his contribution to capital
(d) Registration of partnership s compulsory
Answer:
(b) Following are the essential features of a partnership form of business:

Can be started by minimum 2 persons.
Scope for raising finance is limited.
Formed for earning profit
Liability of all partners is unlimited.
Registration is voluntary.
There exist a principal-agent relationship.

Thus, among the given options “limited scope for raising finance” is a feature’of partnership form of business.

Question 64.
_______ form of business is/are appropriate for retail business.
(a) Sole proprietorship
(b) Partnership
(c) Company
(d) Both (a) and (b)
Answer:
(d) Business providing direct services like retail business should be set up as sole proprietor; businesses requiring pooling of skills and funds should be set up as partnership, while manufacturing concerns of large size should be set up as companies. Thus, both sole proprietorship and partnership form of business are appropriate for retail business.

Question 65.
Which one of the following does not have perpetual succession?
(a) Company
(b) Statutory Corporation
(c) Sole Proprietorship
(d) Co-operative Society
Answer:
(c) Perpetual succession means that the death / insolvency of any member of a concern does not affects its continuity. Thus, its legal entity is separate from its members. All except sole proprietorship are formed like a corporate form of organisation and thus, have perpetual succession.

Question 66.
In a Hindu Undivided Family, liability of is unlimited.
(a) Karta
(b) Co-parceners
(c) Both a and b
(d) Neither a and b
Answer:
(a) In HUF, liability of all the co-partners is limited except Karta, thus, enabling more efficient management. Thus, the liability of Karta is unlimited.

Question 67.
In relation to business organisation structure, which one of the following is easy to form and wind up?
(a) A company
(b) A sole proprietorship
(c) Statutory corporation
(d) Public enterprises.
Answer:
(b) One of the advantages of sole proprietorship form of business is that no legal formalities are required for its formation. It can be started with a small amount of capital. Similarly, its winding up also is completely dependent upon sole proprietor. Thus, sole proprietorship form of business have easy formation and winding up.

Question 68.
Which is not a feature of LLP?
(a) Separate legal entity
(b) All LLP have existence for fixed period.
(c) Partners in an LLP are required to turn into an agreement
(d) In an LLP, partners are not liable for the act of other partners.
Answer:
(b) Following are the features of a limited liability partnership:

Body corporate.
Separate Legal Entity.
Perpetual Succession.
Easy formation.
Flexible operations.
No minimum capital contribution.
Easy dissolution.
Low cost of formation.
No partner liable for other partner’s act.
No restriction on maximum number of partners.
Mutual rights and duties of partners are governed by an LLP agreement.

Thus, among the given options, option B i.e. “All LLP have existence for fixed period” is not a feature of LLP.

Question 69.
Voting right that vests with each member of co-operative society is:
(a) One member one vote
(b) Right to vote in proportion of capital contributed
(c) Right to vote as mentioned in memorandum
(d) None of the above.
Answer:
(a) Co-operative societies have a democratic management i.e. every member have equal voting rights or one member have one vote, thus having equal voice in the management.

Question 70.
Gas Authority of India Limited is an example of:
(a) Limited liability partnership
(b) Private limited company
(c) Public enterprise
(d) None of the above.
Answer:
(c) Public enterprises refers to business organisation owned, managed and controlled by local, central or State Government. Whole or most of the investment is made by government itself.
Example: Gas Authority of India Limited, Hindustan Machine Tools, etc.

Question 71.
Which one of the following is treated as a separate legal entity different from its members?
(a) Sole proprietorship
(b) Hindu undivided family
(c) Partnership
(d) Limited liability partnership
Answer:
(d) Limited Liability Partnership has a separate legal entity, liable to the full extent of its assets. The liability of the partner would be limited to their agreed contribution in the LLP. Thus, Limited Liability Partnership is treated as separate legal entity, different from its members. In all other cases the entity and its members are same persons.

Question 72.
Why co-operative marketing society is formed?
(a) To protect the interest of general consumers
(b) To sell the product of small farmers and producers
(c) To protect the interest of small producers
(d) To provide financial support to the members
Answer:
(b) Co-operative marketing societies are formed by small producers and manufactures who find it difficult to sell their products individually. The society collects the products from the individual members and takes the responsibility of selling the products in market. Thus, co-operative marketing societies are formed to sell products of small farmers and producers.

Question 73.
The choice of an appropriate form of business organisation largely depends upon:
I. Ease of formation
II. Continuity and stability
III. Liability aspects
Correct option is –
(a) I and II (b) II and III
(c) I and III (d) I, II and III
Answer:
(d) Before selecting any form of business organisation, one must consider, the following factors:

Easy formation
Liability of owner
Continuity and stability
Capital Adequacy
Flexibility of operations
Relationship between ownership, control & management.

Thus I, II and III i.e. Ease of formation, continuity and stability and liability aspects, all are considered while making choice of an appropriate form of business organisation.

Question 74.
The minimum number of members required to get a co-operative society registered is _______
(a) 15
(b) 20
(c) 10
(d) 5
Answer:
Co-operative society is a voluntary association of persons who join together to safeguard their own interest. It is a business activity without having any profit. Any 10 members can form co-operative society.

Question 75.
Which of the following entity is created under an Act of the Parliament or an Act of the State legislature?
(a) Statutory corporation
(b) Government companies
(c) Co-operative society
(d) Limited Liability Partnership
Answer:
(a) Statutory corporation refers to an autonomous corporate body created under an Act of Parliament or as Act of state legislature. It is set up by statute.

Question 76.
Which form of business organisation has a separate legal entity?
(a) Hindu Undivided Family (HUF)
(b) Co-operative society
(c) Partnership firm
(d) Sole proprietorship
Answer:
(b) Co-operative society possess the following characteristics-

Voluntary Association
Separate legal entity
Democratic management
Service motive
Utilisation of surplus
Cash Trading
Fixed Rate of Return
Government control
Share Capital.

Question 77.
What is the liability of each partner under LLP?
(a) Limited
(b) Unlimited
(c) Partially Limited
(d) None of the above
Answer:
(a) Under Limited Liability Partnership, as the name represents all the partners have a form of limited liability for each individual’s protection within the partnership.

Question 78.
Which of the following is not a form of organisation?
(a) Partnership
(b) Company
(c) Partners
(d) Sole Proprietorship
Answer:
(c) Partnership, Company, Sole proprietorship are forms of organisation while partners are the members of a partnership firm and not a form of business organisation.

Question 79.
Who can be the head of Joint Hindu Family business?
(a) Karta
(b) Co-parcener
(c) Manager
(d) Director
Answer:
(a) According to the Hindu Law of Society, only Karta i.e. the eldest male member of the Hindu family can be the head of Joint Hindu Family Business. Hence option (a) is correct.

Question 80.
Members of HUF are known as _______.
(a) Partners
(b) Shareholders
(c) Members
(d) Co-parceners
Answer:
(d) HUF is a most peculiar form of business organisation in which the family possesses some inherited property. Its members are known as Co-parceners.

Question 81.
Which amongst the following is a feature of LLP?
(a) Separate legal entity
(b) Unlimited liability
(c) No perpetual succession
(d) Not a body corporate
Answer:
(a) Following are the features of a LLP :

Body corporate
Separate legal entity
Perpetual succession
Easy formation
Flexible operations
No minimum capital contributions
Easy dissolution
Low cost of formation
No partner liable for other partner’s act
No restriction on maximum number of partners.
Mutual rights and duties of partners are governed by an LLP agreement.

Thus, among the given options, option (a) i.e. Separate legal entity is a feature of LLP.

Question 82.
Head of HUF is known as _______.
(a) Karta
(b) Co-parceners
(c) Manager
(d) Head
Answer:
(a) HUF is the most peculiar form of business organisation in which the family possesses some inherited property and the head of the family, known as Karta, who manages its affairs.

Question 83.
In case of HUF what are liabilities of Co-parcener and Karta _______.
(a) Both have unlimited liability.
(b) Co-parcener’s liability is limited while Karta’s liability is unlimited.
(c) Karta’s liability is limited while Co-parcener’s liability is unlimited.
(d) Both have limited liability.
Answer:
(b) In HUF, liability of all the co-parceners is limited except Karta, thus enabling more efficient management. Thus, liability of Karta is unlimited and co-parceners is unlimited.

Question 84.
To form a partnership, the minimum capital contribution should be:
(a) ₹ 1 Lakh
(b) There is no minimum limit
(c) ₹ 1 Crore
(d) ₹ 5 Lakh
Answer:
(b) In a partnership, there are no complicated legal formalities involved in the establishment of partnership business. The partners entered ‘ into a partnership agreement can start their business, there is no such any minimum capital contribution limit. However, in case of sole proprietorship, the capital is limited to the savings of one owner or his borrowing capacity. Hence, option B is correct.

Question 85.
The Karta in Joint Hindu Family business has:
(a) Unlimited liability
(b) Joint liability
(c) Limited liability
(d) No liability for debts
Answer:
(a) The liability of the Co-parceners is limited, except for that of the Karta. This makes the Karta to manage the business in the most efficient manner. Thus, the Karta in Joint Hindu Family business has unlimited liability.

Question 86.
The objects and powers of a statutory corporation:
(a) May not change
(b) May not be changed easily
(c) May change easily
(d) None applicable
Answer:
(b) The objects and powers of a statutory corporation may not change easily. For this, special law passed by Parliament has to be amended for changing the objects or powers.

Question 87.
Which corporation has both characteristics i.e. of a partnership and of a separate legal entity?
(a) Limited Liability Partnership (LLP)
(b) Company
(c) Partnership
(d) Statutory Body
Answer:
(a) A Limited Liability Partnership, popularly known as LLP combines the advantages of both the company i.e. separate legal entity and partnership into a single form of organization.

Question 88.
Kendriya Bhandar is a:
(a) Co-operative Credit Society
(b) Consumers Co-operative Society
(c) Producers Co-operative Society
(d) Co-operative Marketing Society
Answer:
(b) Kendriya Bhandar, Apna Bazar and Sahakari Bhandar are examples of consumer’s Co-operative society.

Question 89.
What is Karta’s liability in HUF?
(a) Limited
(b) Unlimited
(c) Limited by guarantee
(d) None of these
Answer:
(b) The liability of the co-parceners is limited, except for that of the Karta. This make the Karta to manage the business in the most efficient manner. Thus, the Karta in Joint Hindu family business has unlimited liability.

Question 90.
Which of these is not a statutory corporation?
(a) RBI
(b) SBI
(c) LIC
(d) Bank of Baroda
Answer:
(d) Statutory body is a body that is created under an Act of Parliament or an Act of state legislatures.
Examples : RBI, SBI, LIC. Bank of Baroda is a private institution. Hence, option(d) is correct.

Question 91.
Liability of other Co-parceners are:
(a) Limited upto the extent of share except Karta
(b) Unlimited upto the extent of share except Karta
(c) Unlimited
(d) Limited
Answer:
(a) The liability of each member of the hindu undivided family business is limited to the extent of his share in the business while karta has unlimited liability.

Question 92.
Business undertaking are generally exposed to:
(a) Risk and uncertainty both
(b) Uncertainty only
(c) Risk only
(d) Neither risk nor uncertainty
Answer:
(a) Business undertakings are always exposed to risk and uncertainty. Business is influenced by future conditions which are unpredictable and uncertain. This makes business decisions risky, thereby increasing the chances of loss arising out of business.

Question 93.
A Public Corporation has:
(a) Public ownership
(b) Public accountability
(c) Business management tor public
(d) All are applicable
Answer:
(d) A public corporation is formed by the government- to meet some governmental and political purpose. The very common examples are for the cities and town benefits.

Question 94.
The liability of each member of the Hindu Undivided Family business is:
(a) Limited to a sum as declared by him in general public
(b) Unlimited
(c) Limited to the extent of his share in the business except karta
(d) Limited to the extent of his share in the business including that of karta
Answer:
(c) The liability of each member of the Hindu Undivided Family business is limited to the extent of his share in the business except karta. This makes the Karta to manage the business in the most efficient manner.

Question 95.
The affairs of a company is overseen by:
(a) Shareholders
(b) Employees
(c) Board of Directors
(d) Dividend Holders
Answer:
(c) A company is a voluntary association of people carrying on business, it is a Artificial Legal person whose management is separated from ownership. Ownership lies with shareholders who contribute share capital and management lies with the Board of Directors who oversee the affairs of company.

Question 96.
In case of Hindu Undivided Family, the individual share of each co-parcener:
(a) depends upon his efficiency
(b) keeps changing on the death or birth of co-parcener
(c) is fixed
(d) keeps changing annually
Answer:
(b) The individual share of each co-parcener keeps on fluctuating. This is because, every birth of a male child in the family adds to the number of co-parceners and every death of a co-parcener reduce the number. So, we can say that individual shate of each co-parcener keeps changing on the death or birth of co-parcener.

Question 97.
The size and structure of business depend on many factors which (are):
(a) In the control of enterprises
(b) Arbitrary and random
(c) Range from internal to external factors which are beyond the control of enterprises
(d) Beyond the control of enterprises.
Answer:
(a) The Size and Structure cf Business depend upon factor such as:

District Ownership
Lawful Business
Separate Status
Deals in Goods and Services
Risk involvement

Question 98.
Limited Liability Partnership is constituted under _______.
(a) The Companies Act, 2013
(b) Limited Liability Partnership Act, 2008
(c) Partnership Act, 1932
(d) None is applicable
Answer:
(b) Limited Liability Partnership, the world wide recognized form of business organisation has been introduced in India by the way of Limited Liability Partnership Act, 2008.

Question 99.
In case of Cooperative Societies minimum number of members are:
(a) 7
(b) 2
(c) 5
(d) 10
Answer:
(d) In case of Co-operative society the minimum number of members required are 10 under the Co-operative Society Act, 1912 but the Act does not specify the maximum number of members for any co-operative society.

Question 100.
Sole proprietary business is suitable when market is:
(a) Non Existent
(b) National
(c) Local
(d) Global
Answer:
(c) The sole proprietorship business is most suitable where the market for the product is small and local, where the capital requirement is small and the risk involvement is not too heavy. Thus, Option C is correct.

Question 101.
Limited liability partnership is constituted under _______.
(a) Companies Act, 2013
(b) Limited Liability Partnership Act, 2008
(c) Partnership Act, 1932
(d) None is applicable
Answer:
(b) Limited Liability Partnership Act, 2008 came into effect by way of notification dated 31^st March, 2009. Thus it is governed by Limited Liability Partnership Act, 2008.

Question 102.
In case of Co-operative Societies, liability of members is:
(a) Unlimited
(b) Limited but unlimited in few cases
(c) Limited to the extent of capital contribution
(d) None is applicable
Answer:
(c) The liability of member is limited to the extent of capital contributed by them. He is not personally liable of co-operative society for any liabilities.

Question 103.
Which of the following is treated as a separate legal entity different from its members?
(a) Sole proprietorship
(b) Hindu undivided family
(c) Partnership
(d) Limited liability partnership
Answer:
(d) There are so many types of organisation like:

Sole proprietorship
Hindu undivided family
Company
Partnership and (a Limited Liability Partnership).

Limited liability partnership is a forms of organisation which is treated as a separate legal entity from its members separate legal entity means members have only limited liability, they do not need to keep their private property at stake. In case of dissolution of partnership firm, only firm’s asset used to pay outsiders or other liability, not need to use private property of members.

Question 104.
Why Co-operative Marketing Society is formed?
(a) To protect the interest of general consumers
(b) To sell the product of small formers and producers
(c) To protect the interest of small producers
(d) To provide financial support to the members.
Answer:
(b) Co-operative Marketing Society: Societies are formed by small producers and manufacturers who find it difficult to sell their products individually. The society collects the products from the individual members and take the responsibility to selling those products in the market.

Example : Gujrat Co-operative Milk Marketing Federation that sells AMUL Milk Products. Thus, To sell the product of small producers and manufacturers.

Question 105.
Last process of formation of a LLP:
(a) Download LLP Form
(b) Check name availability
(c) Acquire DPIN
(d) Register DPIN
Answer:
(a) Formation of LLP:

Obtain DSN/DPIN
Register DPIN
Check name availability
Download LLP form

hence, option (a) is correct answer

Question 106.
Public Corporation is also called ________.
(a) Departmental undertaking
(b) Statutory corporation
(c) Co-operative Society
(d) All of the above.
Answer:
(b) Public Corporations are also called Statutory Corporations.

Question 107.
Registration of partnership is:
(a) Voluntary
(b) Mandatory
(c) Compulsory
(d) None
Answer:
(a) Registration of a partnership firm is voluntary not mandatory.

Question 108.
Minimum requirement of capital to form an LLP is?
(a) ₹ 50,000
(b) ₹ 1 lakh
(c) No such capital required/prescribed
(d) ₹ 25,000
Answer:
(c) Minimum formation capital is not required to form a LLP.

Question 109.
A Multinational Company operates in:
(a) More than one country
(b) less than one country
(c) More than 100 countries
(d) More than 20 countries.
Answer:
(a) A company that operates more the one country is termed as Multinational Company.

Question 110.
OPC must have minimum ________ number of Directors.
(a) One
(b) Three
(c) Five
(d) None
Answer:
(a) One person company must have minimum One Director.

Question 111.
Legacy promotes ________ to business
(a) Start a business
(b) Growth & Development
(c) Maturity
(d) None
Answer:
(b) Legacy means Growth and Development to business.

Question 112.
Oldest form of Organisation:
(a) Partnership
(b) HUF
(c) Sole proprietorship
(d) Company
Answer:
(c) Sole proprietorship is the oldest form of organisation.

Question 113.
The choice of an appropriate from of business organisation largely ________ depends upon:
I. Ease of formation
II. Continuity and Stability
III. Liability aspects
Correct option is:
(a) I and II
(b) II and III
(c) I and III
(d) I, II and III
Answer:
(d) Before selecting any form of business organisation, one must consider the following factors:

Easy formation
Liability of owner
Continuity and stability
Capital Adequacy
Flexibility of operations
Relationship between ownership, control and management.

Thus (i), (ii) & (iii) i.e. case of formation, continuity & stability and liability aspects, all are considered while making choice of an appropriate form of business organisation.

Question 114.
The minimum number of members required to get a Co-operative Society registered is:
(a) 15
(b) 20
(c) 10
(d) 5
Answer:
(c) Co-operative Society is a voluntary association of persons who join together to safeguard their own interest. It is a business activity without having any profit. Any 10 members can form Co-operative Society.

Question 115.
Which of the following entity is created under an Act of the parliament or an Act of the State Legislature?
(a) Statutory Corporation
(b) Government Companies
(c) Co-operative Society
(d) Limited Liability Partnership
Answer:
(a) Statutory Corporation refers to an autonomous corporate body created under an Act of Parliament or as act of State legislature. It is set up by statute.

Question 116.
Which form of business organization has a separate legal entity?
(a) Hindu Undivided Family (HUF)
(b) Co-operative Society
(c) Partnership firm
(d) Sole proprietorship
Answer:
(b) Co-operative Society possess the following characteristics

Voluntary Association
Separate Legal Entity
Democratic management
Service motive
Utilisation of surplus
Cash trading
Fixed Rate of Return
Government control.

Thus, Co-operative Society has separate legal entity.

Question 117.
What is Karta liability in HUF?
(a) Limited by gaurentee
(b) Unlimited
(c) Limited
(d) (b) and (c) both
Answer:
(b) The liability of co – parceners is limited, except for that of Karta. This makes the Karta to manage the business in the most efficient manner. Thus the Karta in HUF has unlimited liability

Question 118.
Liability of ‘KARTA’ is:
(a) Unlimited
(b) Limited to his share
(c) Can’t say
(d) Limited
Answer:
(a) The liability of each member of the Hindu Undivided Family business is limited to the extent of his share in the business. But the liability of ‘Karta’is unlimited as, it extends to his personal property.

Question 119.
Liability of ‘KARTA’ is:
(a) Unlimited
(b) Limited to his share
(c) Can’t say
(d) Limited
Answer:
(d) There is no minimum required capital to start a limited liability partnership, according to Companies Amendment Act, 2015. A LLP hpn even be started with Re. 1/- capital. There is no minimum capital for LLP.

Forms of Business Organization – CS Foundation Business Environment Notes

Forms of Business Organization – CS Foundation Business Environment Notes

CS Foundation Business Environment and Law Notes