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FORMS OF BUSINESS ORGANISATION
If one is planning to start a business or is interested in expanding an existing one, an important decision relates to the choice of the form of organisation. The most appropriate form is determined by weighing the advantages and disadvantages of each type of organisation against one’s own requirements. Various forms of business organisations from which one can choose the right one include: (a) Sole proprietorship, (b) Joint Hindu family business, (c) Partnership, (d) Cooperative societies, and (e) Joint stock company. Let us start our discussion with sole proprietorship—the simplest form of business organisation, and then move on to analysing more complex forms of organisations.
2.2 SOLE PROPRIETORSHIP
Do you often go in the evenings to buy registers, pens, chart papers, etc., from a small neighbourhood stationery store? Well, in all probability in the course of your transactions, you have interacted with a sole proprietor. Sole proprietorship is a popular form of business organisation and is the most suitable form for small businesses, especially in their initial years of operation. Sole proprietorship refers to a form of business organisation which is owned, managed andcontrolled by an individual who is the recipient of all profits and bearer of allrisks. This is evident from the term itself. The word “sole” implies “only”, and “proprietor” refers to “owner”. Hence, a sole proprietor is the one whois the only owner of a business. This form of business is particularly common in areas of personalisedservices such as beauty parlours, hairsaloons and small scale activities like running a retail shop in a locality. payment of debts in case the assets ofthe business are not sufficient to meet all the debts. As such the owner’s personal possessions such as his/her personal car and other assets could be sold for repaying the debt. Suppose the total outside liabilities of XYZ dry cleaner, a sole proprietorship firm, are Rs. 80,000 at the time of dissolution, but its assets are Rs. 60,000 only. In such a situation the proprietor will have to bring in Rs. 20,000 from her personal sources even if she has to sell her personal property to repay the firm’s debts.
Multiple Choice Questions
Tick the appropriate answer
1. The structure in which there is separation of ownership and management is called
(a) Sole proprietorship (b) Partnership
(c) Company (d) All business organisations
2. The karta in Joint Hindu family business has
(a) Limited liability (b) Unlimited liability
(c) No liability for debts (d) Joint liability
3. In a cooperative society the principle followed is
(a) One share one vote (b) One man one vote
(c) No vote (d) Multiple votes
4. The board of directors of a joint stock company is elected by
(a) General public (b) Government bodies
(c) Shareholders (d) Employees
5. The maximum number of partners allowed in the banking business are
(a) Twenty (b) Ten
(c) No limit (d) Two
6. Profits do not have to be shared. This statement refers to
(a) Partnership (b) Joint Hindu family business
(c) Sole proprietorship (d) Company
7. The capital of a company is divided into number of parts each one of which are called
(a) Dividend (b) Profit
(c) Interest (d) Share
8. The Head of the joint Hindu family business is called
(a) Proprietor (b) Director
(c) Karta (d) Manager
9. Provision of residential accommodation to the members at reasonable rates is the objective of
(a) Producer’s cooperative (b) Consumer’s cooperative
(c) Housing cooperative (d) Credit cooperative
10. A partner whose association with the firm is unknown to the general public is called
(a) Active partner (b) Sleeping partner
(c) Nominal partner (d) Secret partner
Short Answer Questions
1. For which of the following types of business do you think a sole proprietorship form of organisation would be more suitable, and why?
(a) Grocery store (b) Medical store
(c) Legal consultancy (d) Craft centre
(e) Internet café (f) Chartered accountancy firm.
2. For which of the following types of business do you think a partnership form of organisation would be more suitable, and why?
(a) Grocery store (b) Medical clinic
(c) Legal consultancy (d) Craft centre
(e) Internet café (f) Chartered accountancy firm
3. Explain the following terms in brief
(a) Perpetual succession (b) Common seal
(c) Karta (d) Artificial person
4. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership firm.
5. If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.
6. State the important privileges available to a private company.
7. How does a cooperative society exemplify democracy and secularism? Explain.
8. What is meant by ‘partner by estoppel’? Explain.
Long Answer Questions
1. What do you understand by a sole proprietorship firm? Explain its merits and limitation?
2. Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership.
3. Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.
4. Discuss the characteristics, merits and limitation of cooperative form of organisation. Also describe briefly different types of cooperative societies.
5. Distinguish between a Joint Hindu family business and partnership.
6. Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisation? Why?
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