II t0RMs • •

SINESS ORGANISATiON ... 43

tr@ ·
CAsElET 1: Rani is a friend of Seema wh .
~••:m,umm
.
·1
eema s request Raru· ac 0 18
On S . a partner m a software firm Simplex Solutions.
' comparues her t0 b ·
·vely particip ates in then ti . a USiness meeting with Mohan Softwares and
ac ti ego ation process f b · ·
that she is also a partner in Sim lex . or a usmess deal and gives the impression
tions on the basis of th p .S~lutions. 1bree months credit is extended to Simplex
So1u ese negotiations.
On the basis of the given informa ti b •
on a out Raru, answer the following questions:
(a) Will Rani be liable to the 1 d 'f S
date? en er 1 eema does not make paymen t to him by the due

(b) Specify and explain Rani's role in the aforesaid situation.

(3 Marks)
U@MJI
(a) Yes, Rani would also be liable for repayment of such debt, because she has become
Partner by Estoppel.
(b) Partner by Estoppe l: A person is considered a partner by estoppel if, through his own
initiative, conduct or behaviour, he gives an impression to others that he is a partner of
the firm. Such partners are held liable for the debts of the firm because in the eyes of the
third party they are considered partners, even though they do not contribute capital or
take part in its manage ment.

CAsElET 2: A group of eight people decided to make a company and hence approac hed
Foresight Busines s Consult ants, a professional unit for seeking appropr iate advice. This
company helped them in identifying the different business opportunities and suggested to
set up a mobile manufa cturing compan y. Before converting this business opportu nity into a
real project, Foresig ht Busines s Consult ants made certain arrange ments for conduct ing
technical and financial and economical surveys. For this they took the help of specialists like
professional account ants, lawyers and engineers. ._
On the basis of the given informa tion about, answer the following questions:
(a) What are these group of eight people called as?
(b) Identify and explain the functions perform ed by them in aforesaid situation for
the
formation of company. (3 Marks)

Jti@t•#I
(a) The group of eight people are called as Promoters.
(b) The functions perform ed by promoters in the aforesaid situation for the formation of
compan y are:
(i) Identifi cation of Busines s Opportu nity: The first and foremost activity of a
promote r is to identify a business opportu nity. The opportu nity may be in respect
of produci ng a new product or service or making some product available through
a different channel or any other opportu nity having an inv~stment potential.
 (ii) Feasibility Studies: It may not be feasible
or profitable to convert all idenlifie
bus ines s opp ortu nitie s into real projects. The
deta iled feasibility stud ies to investigate all aspe
prom oter s, t~erefore, undertak~
I
cts of the busm ess they intend to
start. Dep end ing upo n the natu re of the proj
ect, the follo win g feasibility studies
may be und erta ken , with the help of the specialis
ts:
• Technical feasibility.
• Financial feasibility.
• Economic feasibility.

Anu j and Ahm ed are part ners in a firm. They

adm it John as a new partner, who
is phy sica lly challenged. Anuj aske d Ahm ed and
John to get the firm registered. But Ahmed
and John didn 't agre e and said that the registrat
ion proc edu re will invo lve lot of formalities.
If you are Anu j, how will you convince them to get
the firm registered? (3 Marks)
SolutioN: . I will con vinc e them to get the firm regi ster
ed by exp lain ing to them the
cons eque nces of non -reg istra tion of a firm whi
ch are as follows:
(i) A part ner of an unre gist ered firm cann
ot file a suit against the firm or othe r partners.
(ii) An unre gist ered firm cann ot file a suit
against third parties.
(iii) An unre gist ered firm cann ot file a case
against the partners.
i CAsElri 4: Lali tha Dev i did her post-graduation from Man
ipur University, Imphal. She had
offers to join som e repu ted firms in metropolitan
cities like Delhi and Mumbai. Instead of
join ing any of these firms she decided to do som
e creative wor k in Imphal. She observed that
a special type of chilli is grow n by the farmers in
most of the villages in Imphal. This chilli has
a distinct flavour and pickle mad e from this chill
i has a taste which may be liked by people
from the rest of the country. But the farmers wer
e neither trained for this kind of farming of
this kind of chilli on a large scale nor was there
a secured market for their produce. Lalitha
Dev i met 18 like-minded wom en of the area and
formed an organisation for doing the business
of pickle man ufac turin g. Each of them contribu
ted t 20,000 each tow ards its capital and
wer e equ ally resp onsi ble for its management.
On one han d they assu red the farmers to
purc hase thei r chilli and on the other hand, the orga
nisation with the help of local agriculture
dep artm ent arra nge d for the training of the farm
ers. They also employed 10 local unemployed
grad uate girls for doin g the various operations
of pickle making.
On the basis of the given information, answer the
following questions:
(a) Iden tify the kind of organisation that
was formed by Lalitha Devi.
(b) Explain the type of the kind of organisa
tion that was formed by Lalitha Devi.

(3 Marks)
'.~ SolurioN:'. ·
(a) The kind of organisation formed by Lali
tha Devi is Cooperative Society.
(b) Pro duc er's Cooperative Societies: Thes
e societies are set up to protect the interest of
sma ll prod ucer s. The members comprise of prod
ucer s desirous of procuring inputs for
- liiiillEil:!!!
pro~uction ~f goods to meet the demands of consumers. The society aims to fight
agam~t the big capitalists and enhance the bargaining power of the small producers. It
supplies raw materials, equipment and other inputs to the members and also buys their
output for sale. Profits among the members are generally distributed on the basis of
. contr·b
therr ·
1 utions to the total pool of goods produced or sold by the society.
CAsElET j:Deepak and Gaurav joined the prestigious law university in Ahmedabad in the
year 2010. During the course of study they became good friends and they both realized that
their common interest lies in the field of corporate law. After completion of their degree they
decided to start a firm of their own, namely 'Corpo Law Firm' wherein both of them will be
co-owners dividing the profit and loss. After successfully running the firm for a year, they
realized that there are certain rights which are denied to their firm as it is not registered.
Explain the consequences of non-registration of their firm. (3 Marks)

Solu1ioN: Consequences of non-registration of a partnership firm:

(i) A partner cannot file a suit in any court against the firm or other partners for the
enforcement of any right arising from a contract or right conferred by the Partnership
Act.
(ii) A right arising from a contract cannot be enforced in any court by or on behalf of the
firm against the third party.
(iii) The firm or any of its partners cannot claim a set off or other proceedings in a dispute
with a third party.
CAsdn _6: Akshay is a shareholder in a company holding 2,000 shares of t 10 each on
which he has already paid t 7 per share.
What will be his liability in the event of company's failure to pay debts? Give reason in
support of your answer. (3 Marks)

Solu1ioN: Akshay has already paid t 7 per share. His liability in the event company's failure
to pay debts can be only up to t 6,000 that is the unpaid amount of t 3 per share on 2,000
shares held in the company. Beyond this, he is not liable to pay anything towards the debts or
losses of the company. The liability of the members is limited to the extent of the capital contributed
by them in a company. The members can be asked to contribute to the loss only to the extent of
the unpaid amount of share held by them.

CAsElET 7: Mohan and Radha want to start a shop to sell Rajasthani Sweets. They did not
know how to develop the agreement for this purpose. So, they approached a Chartered
Accountant who advised them to prepare a document which may stipulate the terms and
conditions of the agreement.
On the basis of given information, answer the following questions:
(a) Name the document about which the chartered accountant advised Mohan and
Radha.
(b) State any four important items they should include in the agreement besides the
name, nature and place of business. (3 Marks)
 · - - - - - - --- -,

(a) The chartered accountant advised Mohan and Radha about

the Partnership Deed.

(b) The Contents of the agreement besides the name, nature and place of business are:
(i) Amount of capital to be contributed by each partner.
(i i) Profit sharing ratio between the partners.
(i i i ) Duties, powers and obligations of partners.
(iv) Maintenance of accounts and arrangement for their audit.

;;, CAsEler 8: Ajay is the sole owner of a shoe manufacturing factory. He took loan of t 20 lakhs
from Ace finance company for the expansion of his business. Because of continuous losses
however, he was not able to repay the loan on time. Assets of the business were not enough
for repaying liabilities in full. As a result, the finance company asked him to repay their loan.
He refused to do so on the ground that the loan was taken by his business and not by him for
his personal use. The company filed a case against him. The court gave decision in favour of
the company on the ground that Ajay was operating as the sole proprietor and a sole proprietor
did not have a separate entity distinct of his own. The court further stated that Ajay had
unlimited liability and held him liable to repay the loan even by selling his personal property,
if need be.
Identify and explain two features of the form of business organisation formed by Ajay by
quoting the lines from the case. (3 M arks)

Feature Identified Explanation Line Quoted

(i) Liability Sole proprietor have unlimited liability. This The court further stated that Ajay
implies that the owner is personally respon- had unlimited liability and held
sible for payment of debts in case the assets him liable to repay the loan even
of the business are not sufficient to meet all by selling his personal property if
the debts. As such the owner's personal need be.
possessions such as his/her personal car
.
the and other assets could be sold for '
repaying debt.
(ii) No separate entity In the eyes of the law, no distinction is made Sole proprietor did not have a
between the sole trader and his business, as separate entity distinct from his
business does not have an identity separate own.
from the owner. The owner is, therefore, held
responsible for all the activities of the
j business.
-

~-c,isELETr9;-t · Harsh,
Dinesh and Kunal were partners in a financing firm. Harsh and Kunal
had gone for a meeting in London for analyzing business prospects in that country. In the
meanwhile, Dinesh invested a huge amount in buying shares of a new company by borrowing
money from Rajesh. This turned out to be a bad deal as the share prices soon fell down.
When Harsh and Kunal came back th .
not take the money. ey said they were not liable to pay to Rajesh as they did
On the basis of the given info ti
rma on, answer the following questions:
(a) Were Harsh and Kunal right in doing so?

(b) Under which aspect of partners hip are they bound? Explain.
(3 Marks)
Solu1ioN:

(a) No, Harsh and Kunal

are not rig
•h . .
t m doing because of the implied authority of the
partner.
(b) In partners hip business can be carried on by all or any one of the partners acting for all.
In other words, every partner is both an agent and a principal. He is an agent of other
partners as he represen ts them and thereby binds them through his acts. He is a principal
as he too can be bound by the acts of other partners.
CAsElu 10: Saurabh and Gaurav felt that there
was an opportu nity of business in providing
a service of online grocery stores to working people residing in Mumbai. They analysed the
idea in terms of technical, financial and economic feasibility. Once they found all the aspects
to be satisfac tory they decided to start a company called 'Grocery At Home Private Ltd'.
They got the name registere d with the registrar of companies.
On the basis of the given informa tion about Saurabh and Gaurav, answer the following
questions:
(a) Identify the step in the formation of compan y highlighted in above case?
(b) Enumer ate the next three stages to be followed after the conclusion of aforesaid stage
in the step identifie d in part (a). (4 Marks)

Solu1ioN:
(a) The step in formatio n of a compan y is Promotion.
(b) The next three stages to be followed after the conclusion of aforesaid stage of promoti on
are:
(i) Fixing up Signatories to the Memorandum of Association: Promoters have to
decide about the member s who will be signing the Memora ndum of Association of
the propose d company. Usually the people signing memora ndum are also the first
Director s of the Company. Their written consent to act as Directors and to take up
the qualification shares in the compan y is necessary.
(ii) Appoin tment of Professionals: Certain professionals such as mercantile bankers,
auditors etc., are appoint ed by the promote rs to assist them in the preparat ion of
necessa ry docume nts which are required to be with the Registrar of Companies.
(iii) Preparation of Necessary Documents: The promote r takes up steps to prepare
certain legal docume nts, which have to be submitt ed under the law, to the
Registra r of the Compan ies for getting the compan y registered. These do~uments
are Memora ndum of Association, Articles of Association and Consent of Directors.
CAsElET 11: Mahesh Chandra Sharma operates a iron and steel business for last 25
His family is joint and has a lot of ancestral property. All the twenty family membersYears.
'ij
part of this business. He is the eldest male member in the family so he heads the busines: ~:
is liable to all the creditors of the business as he is the decision maker. Sharma's grandson
was born a few days ago and he is also a member of the business.
On the basis of the given information about Mahesh Chandra Sharma, answer the followin
. g
ques tions:
(a) Which form of business is being undertake n by Mahesh Chandra Sharma?

(b) Identify the features of the form of business identified in part (a). (4 Marks)

SolurioN:

(a) The form of business undertake n by Mahesh Chandra Sharma is Joint Hindu Family
Business .
(b) The features of Joint Hindu Family Business are:

(i) Formation: For a Joint Hindu Family Business, there should be at least two
members in the family and ancestral property to be inherited by them. The
business does not require any agreement as membership is by birth. It is governed
by the Hindu Succession Act, 1956.
(ii) Control: The control of the family business lies with the karta. He takes all the
decisions and is authorised to manage the business. His decisions are binding on
the other members.
(iii) Minor Members: The inclusion of an individual into the business occurs due to
birth in a Hindu Undivide d Family. Hence, minors can also be members of the
business.

CAsElET 12: Two years ago Gopal started manufacturing low fat, sugar free icecream on a
small scale basis in his home town, Vishakhapatnam. After some time his icecream became
popular among health conscious ·young customers and old persons specially those having
diabetes or some heart ailment. Because of the popularity of the icecream the demand has
increased manifold. Gopal is unable to meet the same, because of his limited managerial
ability and limited capital. Gopal also felt that wheneve r he fell sick his business was
temporar ily closed. To overcome this problem he decided to admit in the business his friend
Mohan who has recently completed his MBA and is ready to invest money for the expansio
of the business. Mohan advised Gopal to get their firm registered.
On the basis of the given information about Gopal, answer the following questions:
(a) Enlist three limitations indicated in the above case from which Gopal's business
suffered.
(b) Why did Mohan advise Gopal to get the firm registered? (4 Marks)
 dmit•#I
(a) The limitation from which Gopal's business suffered are:
(i) Limited capital.

(ii) Limited managerial ability.

(iii) Lack of continuity.
(b) Mohan advise Gopal to get the firm registered so that his firm does not face consequences
for non-registration of a partnership firm:
(i) A partner cannot file a suit in any court against the firm or other partners for the
enforcement of any right arising from a contract or right conferred by the
Partnership Act.
(ii) A right arising from a contract cannot be enforced in any Court by or on behalf of
the firm against any third party.
(iii) Further, the firm or any of its partners cannot claim a set off or other proceedings
in a dispute with a third party.
CAsElET 1 J: Gopaldas, in order to promote local craftsmen of Gujarat, formed an organisation
where in the persons voluntarily associate themselves to promote common economic interest.
The basic purpose of this organisation was to help these craftsmen to find market for their
products. It had a managing committee that was elected on the basis of 'one member one
vote'.
On the basis of the given information, answer the following questions:
(a) Identify the form of business organisation set up by Gopaldas.

(b) Quoting the lines from the above para, Enlist any three features of this form of
organisation. (4 Marks)

(a) Co-operative organisation.

(b) The features of cooperative society are:

(i) Voluntary Association:

Lines: "Gopaldas, formed an organisation where in the persons voluntarily associate

themselves to promote common economic interest."
(ii) Democratic Management:

Lines: "It had a managing committee that was elected on the basis of one member
one vote."
(iii) Service Motive:

Lines: "The basic purpose of this organisation was to help these craftsmen to find
market for their products."
 form a Bind ~
CAsd u· 14: Gupt a Broth ers inher ited some ances tral prope rty. They decid ed to
ted th~ ances tral prope r u.
Undi vided Famil y (HUF ) consi sting of four male memb ers and inves
busm ess took a loan ty
into the busin ess. The famil y is heade d by Shyam Sund er Gupta . Thefin . 1 positi on of thOf
Bank for a term of three years. Due to poor ancia
t 10 lakh from Syndi cate
bank filed a suit for the
busin ess, the famil y memb ers were unabl e to repay the loan. The
entire loan was take;
recov ery of loan. Shyam Sund er Gupt a plead ed the court that as the
for the repay ment of the
for the purpo se of busin ess, all memb ers of the busin ess were liable
t Shyam Sund er Gupta,
loan. The court gave a decisi on and stated that all the memb ers excep
of co-pa rcena ry prope rty
are liable for repay ment of the loan only to the exten t of their share
nt from his persona}
of busin ess. Howe ver, Shyam Sund er Gupta had to pay the balan ce amou
prope rty.
On the basis of the given inform ation, answe r the follow ing quest ions:
(a) Why did the Cour t hold Shyam Sund er Gupta respo
nsible for payin g the business
liabil ities out of his perso nal assets ?
(b) Expla in any three disad vanta ge of a Hind u Undiv ided
Famil y Busin ess (HUF ) not
(4 Marks)
discu ssed above .

Solu,ioN: ·

(a) The Cour t held Shyam Sunde r Gupta respo nsible for payin
g his busin ess liabilities out
ty.
of his perso nal assets becau se he is the Karta and has unlim ited liabili
(b) The disad vanta ges of a Hindu Undiv ided Famil y busin ess
(HUF ) are:

(i) Limit ed Resou rces: The Joint Hind u Famil y Busin ess
faces the probl em of limited
scope for
capita l as it depen ds mainl y on ances tral prope rty. This limits the
expan sion of busin ess.
(ii) Domi nance of Karta: The karta indivi dually mana ges the
busin ess which may at
gst them
times not be accep table to other memb ers. This may cause confli ct amon
and may even lead to break down of the famil y unit.
(iii) Limit ed Mana gerial Skills : Since the karta canno t be
an exper t in all areas of
ons. His
mana geme nt, the busin ess may suffer as a result of his unwis e decisi
for the
inabil ity to decid e effect ively may result into poor profit s or even losses
organ isatio n.
d by law
CAsdET 1 ~: Rohan , Sohan and Moha n decid e to start a busin ess which is create
that his busine ss
and only law can bring it to an end. Roha n has four sons so he wants
when ever he wants.
shoul d be such in which he can easily shift the owne rship to his sons
entati ves. Moha n
Soha n believ es that its functi ons shoul d be perfo rmed by electe d repres
ess only to a limited
sugge sts the owne rs shoul d be respo nsible for the losses of the busin
exten t.
On the basis of the given inform ation, answe r the follow ing questi ons:
above case indica te?
(a) Whic h form of busin ~ss does the
(a) Ident ify and expla
in three featur es of this form of busin ess highli ghted above by
(4 Marks )
nuoti ng lines from the parag raph.
Solu,ioN:

(a) Joint Stock Company.

(b)

Feature and explanation Line Quoted

(i) Perpetual Succession: A company being a creation "Rohan, Sohan and Mohan decide to start a
of the law, can be brought to an end only by law. It business which is created by law andonly law
will only cease to exist when a specific procedure can bring it to an end."
for its closure, called winding up, is completed.
Members may comeand members may go, but the
company continues to exist.

(ii) Control: The management and control of the affairs "Sohan believes that its functions should be
of the company is undertaken by the Board of performed by elected representatives."
Directors, which appoints the top management
officials for running the business. The directors
hold a position of immense significance as they
are directly accountable to the shareholders for
the working of the company. The shareholders,
however, do not have the right to be involved in the
day-to-day running of the business.
(iii) Liability: The liability of the members is limited to "Mohan suggests the owners should be res-
the extent of the capital contributed by them in a ponsible for the losses of the business only to a
company. The creditors can use only the assets of limited extent."
the company to settle their claims since it is the
company and not the members that owes the debt.
The members can be asked to contribute to the loss
only to the extent of the unpaid amount of share
held by them.

CAsEln 16: Samarth Malhotra was born in Delhi and is a fashion designer. He runs his hi-
fashion garments business from the posh Greater Kailash market of Delhi. After running the
business for five years Samarth feels that he should get his business registered in a way that
he can save himself from the threat of unlimited liability. But at the same time, he doesn't
want anyone else to be a part of decision making or to interfere in his business.
On the basis of the given information, answer the following questions:
(a) State the form of business organisation to be formed by Samarth to get it registered.
(b) Enlist any three features of the form of business organisation stated in part (a) .
(4 Marks)

Solu,ioN:

(a) The form of business organisation to be formed by Samarth to get it registered is Or

Person Company.
(b) The features of the One Person Company (OPC) are as follows:
(i) An One Person Company has only one person as a member/shareholder.
§ii -- ...
(ii) Only a nahrral person who is an Indian citizen and a resident of India can fonn an ~
One Person Company.
th
(ii i) An One Person Company is a Private Company wi a minimum paid up share
capital of one lakh rupees ~ 1,00,000).

CAsEIET 17: Vamika wanted to

pitch in to reduce the financial crisi~ prevailing in her house
and thought of working as a cook. She started working in three different households , one
th
Punjabi, one Gujrati and one South Indian family. She soon realized at all the three
households had different cuisine. It was indeed a challenge for her to learn the techniques of
the cuisine. All the families greatly appreciated the timeframe within which she had mastered
the local cuisine. After working for them for a year, she decides to open a small eating joint of
her own along with two of her friends by the name 'Apna Bhoj' · They decided to share
profits and losses equally and that each of them will be liable for acts performed by the other
two. Soon the eatery became a hot spot because of the fusion platter which was being offered.
On the basis of the given information , answer the following questions:
(a) Identify the kind of business organisation which was set up by Varnika . and her
friends.
(b) Quoting the lines from the paragraph, state the features of this form of business
organisatio n. (4 Marks)

SolurioN: ,

(a) The kind of business organisatio n which was set up by Vamika and her friends is
Partnership.
(b)

Feature Line Quoted

(i) Membership After working for them for a year, she decides to open a small eating joint of her own
along with two of her friends by the name 'Apna Bhoj' ._
- -

(ii) Mutual agency Each of them will be liable for acts performed by the other two.

(iii) Risk bearing They decided to share profits and losses equally.

CAsEIET 18: Tripal Ltd. issued prospectus inviting public to subscribe for its shares. It came
up with the public issue of~ 10 crores for 10 lakh shares worth t 100 each. But the company
wants to be sure on certain issues.
You are required to suggest the company about the following aspects:
(a) Prior approval from which organisatio n is required before going ahead with raising
funds from public.
(b) What is the minimum number of shares for which company should receive applications
before going ahead with the allotment of shares and what is it called?
(c) Why does the company need to appoint underwrite rs?
(d) Identify the value which according to you motivated the company in issuing
prospectus . (4 Marks)
 tttiMU-NM
(a) Prior approval from SEBI . .
publiC. is required before going ahead with raising funds from

(b) Company should receiv Ii ·

. e app cations for the shares amounting to not less than 90
per cent of the issue size This is called :nurum·
. b . ti"
· um su scnp on.
( c) Underwriters undertak tO b th .
. . e uy e shares if these are not subscribed by the public up
to m.numum subscription.
(d) Value: Concern for investors/honesty.

CAsElET 19:. ~aha:a India Pariwar owns many companies. Sahara India Life Insurance
Company L1ID1ted IS the first wholly Indian owned private life insurance company. It offers
an exhaustive
. range of competitive pro d ucts ; p lans that caters to everyone from all segments
along with prompt and quality customer services and support. Sahara Asset Management
Company Pvt. Ltd. is a professional mutual fund house which manages many mutual fund
schemes.

On the basis of tlfe given information about Sahara India Pariwar, answer the following
questions:

(a) Sahara India Pariwar owns both public and private companies. How is a public
company different from a private company?
(b) Give two similarities · between company and cooperative society form of business
organisations. (4 Marks)

SolurioN:

(a)

Basis Public Company Private Company

(i) Members Minimum 7, M~um unlimited. .
_J...-_.___, -~- .... ~
Minimum 2, Maximum-200.
~

(ii) Invitation to public It can invite the public to purchase its It cannot invite the public to purchase
shares and debentures. its shares and debentures.

(b)

Basis Company Cooperative Society

(i) Liability Liability of membe.~s is limited. Liability of members is limited. '
. ~- -
(ii) Continuity Life of company is not dependent on life of Life of cooperative ·society is not
members ,,.
dependent on life of members.
~ -; ' -· -•· .,:
"· .

CAsEIET 20: After passing his 12th class with entrepreneurship as an elective subject'Aryaman'
started his own business. He invested ~ 2,00,000 as the seed capital which was gifted to him
by his father. He obtained a loan of ~ 1,00,000 from his friend ~adhya, who was working as
an assistant manager in Bank of Baroda. In the first year he incurred a loss of~ 50,000 and
 had to pay to his suppliers, their outstanding bills. This created a financial problem for him
and he had to take a loan off 1,00,000 from the Bank of Baroda on the personal guarantee
of his father. He started doing hard work, lowered the prices and informed his customers
about the qualities of goods sold by him. Because of this the sales increased four times and he
earned a net profit of f 1,75,000 in the second year.
On the basis of the given information about Aryaman, answer the following questions:
(a) Identify the form of business organisation started by 'Aryaman'.
(b) Explain any four advantages of such a form of business organisation . (S Marks)

SolurioN:

(a) Sole proprietorsh ip.

(b) The following are the advantages of sole proprietorsh ip:

(i) Easy Formation: The formation of sole proprietorsh ip business is very easy and
simple. No legal formalities are involved for setting up the business except a license
or permission in certain cases. The entrepreneu r with initiative and certain amount
of capital can set up such form of business.
(ii) Direct Motivation: The entrepreneu r owns all and risks all. The entire profit goes
to his pocket. This motivates thepropriet or to put his heart and soul in the business
to earn more profit. Thus, the direct relationship between effort and reward
motivates the entrepreneu r to manage the business more efficiently and effectively.
(iii) Better Control: The entrepreneu r takes all decisions affecting the business. He
chalks out the plan and executes the same. His eyes are on everything and
everyone. There is no scope for laxity. This results in better control of the business
and ultimately leads to efficiency.
(iv) Promptness in Decision-m aking: When the decision is to be taken by one person,
it is sure to be quick. Thus, the entrepreneu r as sole proprietor can arrive at quick
decisions concerning the business by which he can take the advantage of any
better opportunitie s.

Shil<ha is a sole proprietor. Over the past decade, her business has grown from
operating a neighbourh ood corner shop selling accessories such as artificial jewelleri bags,
hair clips, and nail polish to a retail chain with three branches in thecity. She looks after the
varied functions in all the branches, but now she wants to change her form of business as she
also has plans to open branches countrywid e. She is also planning to collect the funds by
issue of shares.
On the basis of the given information about Shikha, answer the following questions:
(a) Which form of business is suitable for Shikha for the expansion of business? Also
mention any two benefits of that form of business.
(b) Explain two benefits of remaining a sole proprietor. (5 Marks)
 FoRMs of BusiNess 0RGANisAtioN ... 55

t!nflf.NI
(a) The form of business suitable for Shikha for the expansio n of business is Joint
Stock
Compan y•
The benefits of joint stock compan y are:
(i) Limited Liabilit y: The shareho lders are liable to the extent of the amount unpaid
on the shares held by them. Also, only the assets of the compan y can be used to
settle the debts, leaving the owner's persona l property free from any charge. This
reduces the degree of risk borne by an investor.
(ii) Transfe r of Interest: The ease of transfer of ownersh ip adds to the advanta ge of
investin g in a compan y as the share of a public limited compan y can be sold in the
market and as such can be easily converted into cash in case the need arises. This
avoids blockage of investm ent and presents the compan y as a favourable avenue
for investm ent purpose s.

(b) The benefits of being a sole propriet orship are:

(i) Quick Decisio n Making : A sole propriet or enjoys considerable degree of freedom
in making business decisions. Further the decision making is prompt because there
is no need to consult others. This may lead to timely capitalisation of market
opportu nities as and when they arise.
(ii) Direct Incentiv e: A sole propriet or directly reaps the benefits of his/her efforts as
he/ she is the sole recipient of all the profit. The need to share profits does not arise
as he/she is the single owner. This provides maximu m incentive to the sole trader
to work hard.

Mr. Joseph worked as a manage r in 'Highen d Traders' a trading company. He

e to start his own business selling similar products. After preparin g all details he realized
that he does not have sufficient funds to start business on his own. He discusse d the business
plan with his friend Raman and both decided to join hands as partners. They opened a bank
account in the Indian Bank for business transactions and prepare d all docume nts to register
their business. Ranbir, Joseph's colleague in Highend Traders also wanted to be part of busines s
but did not want to leave a secured job. So he decided to invest money in business but not to
take active part in the activities. Ranbir used his position to inform Joseph about the importa nt
decisions and strategie s followed by Highend Traders. The CEO of Highend Traders came to
know about the conspira cy of Ranbir and terminat ed him from his services.
On the basis of the given informa tion about Highend Traders, answer the following questions:
(a) Identify the form of business which Joseph and Raman decided to form. State
any
two benefits of registeri ng this type of business organisation.
(b) Identify what type of member is Ranbir in this organisation? Quote lines to support
your answer.
(c) Which value is being ignored by Ranbir?
(5 Marks)
 SoluTioN:
(a) Partnership.
,
(b) The benefits of registering the firm are:
· t d firm can file a suit against the firm or other partners.
(i) A partner of regts ere
(ii) The registered firm can file a suit against third parties.

(c) Ranbir is a sleeping or dormant partner.

Lines: "So he decided to invest money in business but not to take active part in the
activities."
(d) The value ignored by Ranbir is honesty.

CAsElET 21: Rishabh, a brilliant student, lives in a remote district of Orissa and has done
mechanical engineering. He has won a lottery of t 10 lakhs. He wants to inveSt this money in
some business opportunity. One of his friends suggested him to form a company. So he decided
to manufacture tube lights and bulbs in his manufacturing unit and give jobs to unemployed
youth in his village area. He has identified the business opportunity but is unaware about the
other functions to be performed by him as a promoter of the company.
Explain the other five steps to be performed by him as a promoter of the company. (5 Marks)

SolurioN~ The steps performed by promoters are:

(a) Feasibility Studies: It may not be feasible or profitable to convert all identified
business opportunities into real projects. The promoters, therefore, undertake detailed
feasibility studies to investigate all aspects of the business they intend to start. Depending
upon the nature of the project, the following feasibility studies may be undertaken,
with the help of the specialists:
• Technical feasibility. • Financial feasibility. • Economic feasibility.
(ii) Name Approval: Having decided to launch a company, the promoters have to select a
name for it and submit, an application to the registrar of companies of the state in
which the registered office of the company is to be situated, for its approval. The
proposed name may be approved if it is not considered undesirable. Three names, in
order of their priority are given in the application to the Registrar of Companies.
(ii i) Fixing up Signatories to the Memorandum of Association : Promoters have to decide
about the members who will be signing the Memorandum of Association of the
proposed company. Usually the people signing memorandum are also the first Directors
of the Company. Their written consent to act as Directors and to take up the qualification
shares in the company is necessary.
(iv) Appointment of Professionals: Certain professionals such as mercantile bankers,
auditors etc., are appointed by the promoters to assist them in the preparation of
necessary documents which are required to be with the Registrar of Companies. The
names and addresses of shareholders and the number of shares allotted to each is
submitted to the Registrar in a statement called return of allotment.
 (v) Preparation of Necessary Documents: The promoter takes up steps to prepare certain
legal documents, which have to be submitted under the law, to the Registrar of the
Companies for getting the company registered. These documents are Memorandum of
Association, Articles of Association and Consent of Directors.
CAsElET 24: Dev runs a successful Coach business in Bengaluru. Private commuters, tourists
and business clients are among his customers. Dev has also operated a daily bus service
between Bengaluru and Mysore for some years, which has proved to be the most popular
service provided by his business to commuters. He is currently operating as sole proprietor.
However, he is considering the option of entering into a partnership with his friend Natasha,
who is physically challenged. Natasha is very good in managing company's accounts but is
unable to find a job.
On the basis of the given information, answer the following questions:
(a) State two disadvantages of form of business organisation which Dev is currently
undertaking.
(b) State any three merits of the form of business in which Dev is planning to enter with
his friend, Natasha.
(c) Identify the values communicated by Dev to the society by forming partnership with
his physically challenged friend. (any two) (5 Marks)

ltinfit·#I
(a) The disadvantages of sole proprietorship are:
(i) Limited Resources: Resources of a sole proprietor are limited to his/her personal
savings and borrowings from others. Banks and other lending institutions may
hesitate to extend a long term loan to a sole proprietor. Lack of resources is one of
the major reasons why the size of the business rarely grows much and generally
remains small.
(ii) Limited Life of a Business Concern: In the eyes of the law the proprietorship and
the owner are considered one and the same. Death, insolvency or illness of a
proprietor affects the business and can lead to its closure.
(b) The merits of partnership are:
(i) Ease of Formation and Closure: A partnership firm can be formed easily by
putting an agreement between the prospective partners into place whereby they
agree to carryout the business of the firm and share risks. There is no compulsion
with respect to registration of the firm. Closure of the firm too is an easy task.
(ii) Balanced Decision-making: The partners can oversee different functions according
to their areas of expertise. Because an individual is not forced to handle different
activities, this not only reduces the burden of work but also leads to fewer errors in
judgements. As a consequence, decisions are likely to be more balanced.
(iii) More Funds: In a partnership, the capital is contributed by a number of partners.
This makes it possible to raise larger amount" of funds as compared to a sole
proprietor and undertake additional operations when needed.
(c) The values communicated by Dev are concern for differently abled and empathy.
 I
After doing her M.Com. from 'Himachal Pradesh University of Shimla', Kotl1al
went back to her village in Kinnaur district of Himachal Pradesh. She wanted to contribu
. . th te
for the development of women of her village, so she formed an orgarusation, e membershi_
of which was open for all the women villagers on a voluntary basis by paying ~ 500 ont
which will be treated as their capital. Kamal knew that the land of her village was suitabl~
for the farming of medicinal plants. So she motivated the members of her organisation for
growing medicinal plants in their fields under the guidance and help of the local agricultural
department. It was also decided that the organisation will purchase the produce of each
member and sell the same to drug manufacturing companies at a very good price which was
not possible for the members individually. The main objective of the organisation is to render
services to its members rather than to earn profit. A computer training center for young boys
and girls of the village was started under the guidance of Kamal from the surplus of the
profits.
On the basis of the given information about Kamal, answer the following questions
(a) Identify the kind of organisation that was formed by Kamal.
(b) How does a the kind of organisation identified in part (a) exemplify democracy and
secularism? Explain.
(c) State any two values which Kamal wanted to communicate to the society. (6 Marks)

SoluTioN:

(a) Co-operative society form of business organisation.

(b) In a cooperative society, the power to take decisions lies in the hands of an elected
managing committee. The right to vote gives the members a chance to choose the
members who will constitute the managing commihee and this lends the cooperative
society a democratic character. Also, the principle of 'one man, one vote' governs the
cooperative society, irrespective of the amount of capital contributed by a member,
each member is entitled to equal voting rights. The membership of a cooperative society
is voluntary. A pers·o n is free to join a cooperative society, and can also leave anytime as
per his desire. Membership is open to all, irrespective of their religion, caste and gender.
Thus, by keepmg all these points in mind, a cooperative society exemplifies democracy
and secularism.
(c) The values which Kamal wanted to communicate to the society are:
(i ) Sensitivity to environment.
(ii) Good behaviour in human interaction.
CAsElET 26: . Indian Coffee House is a restaurant chain in India. It has strong presence across
India with nearly 400 coffee houses. These are governed by managing committees elected by
employees. These are completely owned and managed by employees only. These have also
received appreciation and support from Government and public. The voting rights in these
are neither tied to investment nor patronage.
On the basis of the given inf ·
. ormation about Indian Coffee House, answer the following
questions:
(a) Which form of business O . . .
rgarusation is highlighted in the above case?
(b) Discuss any three mer't f th b .
i s o e usmess organisation identified above.
(c) Name any two types of b • . . .
usmess orgarusahon identified in part (a) above? (6 Marks)
Solu1ioN:_.

(a) The form of business organisation highligh ted m

· theab ove case is
· Cooperative
· Soc1ety.
·
(b) Merits of cooperative society are:
(i) Equality in Voti·n g Sta t us.. The principle
. . of 'one man one vote' governs the
cooperative society. Irrespective of the amount of capital contribution by a member,
each member is entitled to equal voting rights.
(ii) Limited Liability: The liability of members of a cooperative society is limited to the
extent of their capital contribution. The personal assets of the members are,
therefore, safe from being used to repay business debts.
(iii) Stable Existence: Death, bankruptcy or insanity of the members do not affect
continuity of a cooperative society. A society, therefore, operates unaffected by any
change in the membership.
(c) The types of cooperatives societies are:
(i) Consumer's society.
(ii) Producer's society.

Rahul Aggarwal is working as a CEO in a reputed company having head office

in Mumbai. The company is following a dynamic approach and thus keeps launching
innovative products in the market. He know that the shares of his company are not freely
transferrable. The company is also concerned about its employees and is offering them good
working conditions along with other non-financial benefits. Rahul is concerned about
education of children living in slums of Mumbai and thus he is planning to donate 4% of his
companies profit for their education. As the company was able to earn good profit it has
declared a dividend of 10% for its shareholders and transferred residual profits in reserve.
On the basis of the given information, answer the following questions:
(a) Name the type of company mentioned in the above case.
(b) State any two demerits of company form of business organisation.
(c) Identify any two values which the company is trying to communicate to the society.
(6 Marks)

,SolurioN1~
(a) Private company.
(b) The demerits of company form of business organisation are:
~ OU••• _

(i) Complex ity Informat ion: The formatio ~ of a company requires greate_r time, effort ~
and extensive knowled ge of legal reqwrem ent~ and the proce~ur ~s mvolvect. As
compare d to sole proprieto rship and partnersh ip form of orgarusa tions, fonnatiol\
of a company is more complex.
(ii) Lack of Secrecy: The Compani es Act requires each public company to provid
from time-to-time a lot of informat ion to the office of the registrar of comPanie e
Such informati on is available to the general public also. It is, therefore , difficuJt 1:
maintain complete secrecy about the operation s of company .
(c) The two values which the company is trying to commun icate to the society are:

(i) Concern for employees.

(ii) Concern for society.

A, B, C and D are partners in a firm with unlimite d liability. But after 1991, A, B
CAsEIET 27:
and C decided that they did not want to bear unlimite d risk. With the consent of D, they
made amendm ents in the partnersh ip deed and changed their liability. Now A, Band Care
responsib le for the losses only to the extent of the capital invested by them.
On the basis of the given informati on, answer the followin g question s: l
I
(a) Name the two types of partnersh ip formed before and after 1991. '
(6 M airk§)
(b) State four differenc es between them.

SoluTioN:

(a) ~e. type of partners hip formed before 1991 is General Partners hip and after 1991 is
Llffilted Partnersh ip.
(b)
.
Basis General Partnership Limited Partnership

(i) Lability The liability of partners is unlimited The liability of at least one partner is unlimited
and joint. whereas the rest may have limited liability.
(ii) Registration Registratipn of the firm is optional. Registration of the firm is compulsory.
(iii) · Continuity The existehce of the firm is affected Does not get terminated with the death, lunacy
offinn by the death, lunacy, insolvency or or insolvency of the limited partners.
retirement of the partners.
.(iv) Management The partners enjoy the right to parti- The limited partners do not enjoy the right of
cip.~te in·the management of the firm managem ent and their acts do not bind the
and their acts are binding on each
other as well as on the firm. .
firm or the other partners. .
' ~ -~