GSEB Class 11 Organization of Commerce and Management Solutions Chapter 6 Forms of Business Organization - II

1. Select the correct alternative and write answer to the following questions:

 

Question 1. In a co-operative society member
(a) Can vote per share
(b) Can vote per member
(c) Can vote in proportion of capital
(d) Can vote as per efficiency
Answer: (b) Can vote per member
In simple words: In a co-operative group, each person gets one vote, no matter how much money they have invested. This makes sure everyone has an equal say.

Exam Tip: Remember the core principle of co-operative societies is "one member, one vote" regardless of capital contribution.

 

Question 2. A co-operative society is often considered a training school for which of the following?
(a) Service
(b) Splendor
(c) Autocracy
(d) Democracy
Answer: (d) Democracy
In simple words: Co-operative groups teach people how to work together and make decisions fairly, just like in a democracy. Everyone gets a chance to participate and learn about equal rights.

Exam Tip: Co-operative societies operate on democratic principles, where members have equal voting rights, making them ideal models for learning democratic practices.

 

Question 3. Co-operative society
(a) Is the institution of capitalists
(b) Has the motive of service to member
(c) Has the motive of profit
(d) Encourages speculation
Answer: (b) Has the motive of service to member
In simple words: The main purpose of a co-operative group is to help its members, not just to make money. It focuses on offering useful services and support.

Exam Tip: Always remember that the primary goal of co-operative societies is mutual help and service to members, with profit being a secondary consideration.

 

Question 4. How many persons are required for the formation of co-operative society?
(a) 10
(b) 20
(c) 30
(d) 50
Answer: (a) 10
In simple words: You need at least 10 people to come together to start a co-operative group. This is the minimum number for its official creation.

Exam Tip: Be precise with the minimum number of members required for different business forms, as these are often tested factual points.

 

Question 5. In which type of organization does the upliftment of the members predominate?
(a) Sole proprietorship
(b) Private company
(c) Public company
(d) Co-operative society
Answer: (d) Co-operative society
In simple words: In a co-operative society, the main focus is always on improving the lives and economic well-being of its members. Their benefit comes first.

Exam Tip: Recognize that co-operative societies uniquely prioritize member welfare and collective upliftment over individual profit or external shareholder returns.

 

Question 6. Co-operative society
(a) Cannot pay dividend
(b) Can pay dividend in any proportion
(c) Can pay dividend subject to the law
(d) Can pay dividend subject in the permission of state and central government
Answer: (c) Can pay dividend subject to the law
In simple words: Co-operative groups can give out a share of profits, called a dividend, but they must follow specific rules and regulations set by the law for this process.

Exam Tip: Understand that even service-oriented organizations like co-operative societies must adhere to legal frameworks for financial distributions, including dividends.

 

Question 7. What is considered as the engine of economic growth?
(a) Sole proprietorship
(b) Partnership
(c) Co-operative society
(d) Company
Answer: (d) Company
In simple words: Large companies are often seen as the driving force for a country's economic development because they create many jobs and produce a lot of goods and services.

Exam Tip: Be aware of the broader economic impact of different business structures; companies are generally associated with larger-scale economic contributions.

 

Question 8. Which Companies Act is in force in India at present?
(a) 1912
(b) 1932
(c) 1956
(d) 2013
Answer: (d) 2013
In simple words: India currently uses the Companies Act of 2013 as the main law for forming and running businesses. This law replaced older versions to suit modern business needs.

Exam Tip: Knowing the current legislation governing business forms is crucial for understanding their legal framework and operational requirements.

 

Question 9. How does a company express its consent?
(a) By name
(b) By common seal
(c) By memorandum
(d) By artificial personality
Answer: (b) By common seal
In simple words: Since a company is not a real person, it uses a special stamp, called a common seal, to agree to documents or contracts, just like a person signs their name.

Exam Tip: The common seal acts as the official signature of a company, signifying its approval on legal documents and agreements.

 

Question 10. In which document does a company state the liability of its members?
(a) Memorandum of Association
(b) Articles of Association
(c) Prospectus
(d) Statutory Declaration
Answer: (a) Memorandum of Association
In simple words: The Memorandum of Association is the key document where a company clearly states how much its members are responsible for its debts, usually a limited amount.

Exam Tip: Distinguish between the Memorandum of Association (defining external objectives and member liability) and Articles of Association (governing internal management rules).

 

Question 11. What is the most important feature of the company form?
(a) Large scale capital
(b) Legal personality
(c) Perpetual entity
(d) Easy transfer of share
Answer: (d) Easy transfer of share
In simple words: A key advantage of companies is that owners can simply sell their shares to others without affecting the company's existence. This makes investing and exiting very flexible.

Exam Tip: The liquidity provided by easy transferability of shares is a significant draw for investors in company structures.

 

2. Answer the following questions in one sentence each:

 

Question 1. State the meaning of Co-operative society?
Answer: A co-operative society is a voluntary business structure where people who want to start a business join together for shared financial benefits, ensuring everyone gets equal rights and opportunities.
In simple words: It's a group business where people join freely to help each other financially, and everyone has an equal say.

Exam Tip: Define "co-operative society" by highlighting its voluntary nature, focus on economic interests, and principle of equality among members.

 

Question 2. Why do persons join a Co-operative society?
Answer: People who want to improve their financial standing, based on fairness and equal treatment, decide to become part of a co-operative society.
In simple words: People join co-operative groups to improve their money situation equally with others.

Exam Tip: Focus on the members' shared goal of economic betterment and the democratic principle of equality as key reasons for joining.

 

Question 3. What is the main objective of Co-operative society?
Answer: The primary goal of a co-operative society is to economically assist the less fortunate parts of society by encouraging teamwork among its members.
In simple words: Its main aim is to help poor people in society get richer by working together.

Exam Tip: Emphasize the twin goals of economic upliftment and mutual cooperation for the benefit of disadvantaged members.

 

Question 4. When does a Co-operative society get separate legal identity?
Answer: A co-operative society achieves its own distinct legal identity once it is officially registered.
In simple words: A co-op becomes a legal body when it registers.

Exam Tip: Remember that legal recognition for a co-operative society, granting it a separate identity, comes with formal registration.

 

Question 5. Which type of Co-operative society provides day to day consumable goods to its members at fair price?
Answer: Consumer Co-operative Societies offer daily consumable items to their members at reasonable prices.
In simple words: Consumer co-ops sell everyday things to their members at good prices.

Exam Tip: Clearly identify "Consumer Co-operative Societies" when asked about fair-priced daily goods provision to members.

 

Question 6. What is meant by 'vote per member' in Co-operative society?
Answer: 'Vote per member' in a co-operative society means that every individual member gets just one vote, regardless of how many shares they own. This system ensures equal participation.
In simple words: Each person in a co-op gets only one vote, no matter how many shares they have, making everyone equal.

Exam Tip: Emphasize the democratic principle of "one member, one vote" as a distinguishing characteristic of co-operative societies, setting them apart from companies.

 

Question 7. Why is a Company called engine of economic growth?
Answer: Companies are considered an engine of economic growth because they engage in extensive production, offer numerous job opportunities, establish significant industries, and purchase large amounts of property and equipment. Additionally, they contribute substantial taxes to the government, thereby fueling economic expansion.
In simple words: Companies drive the economy by making many things, creating jobs, building big factories, buying land and machines, and paying huge taxes.

Exam Tip: When explaining why companies are economic engines, highlight their roles in large-scale production, employment generation, industrial development, and tax contributions.

 

Question 8. What is the minimum number of members in Public company and Private company?
Answer: The minimum number of members required for a Public company is 7, and for a Private company, it is 2.
In simple words: A public company needs at least 7 members, while a private company needs at least 2.

Exam Tip: Clearly state the minimum member requirements for both public and private companies, ensuring to match the correct number with each type.

 

Question 9. What does limited liability of the members of a company mean?
Answer: Limited liability for company members or shareholders means their financial responsibility is restricted to the nominal value of the shares they own in the company.
In simple words: If the company loses money, owners only lose the money they paid for their shares, not their personal wealth.

Exam Tip: Explain limited liability by clearly stating that a member's loss is capped at their investment (face value of shares), protecting personal assets.

 

Question 10. What is meant by one person company?
Answer: A One Person Company (OPC) is a new type of private company, introduced by the Companies Act, 2013, that has only one individual as its sole member.
In simple words: An OPC is a company run by just one person, a special kind of private company under the 2013 law.

Exam Tip: Define One Person Company (OPC) by its single-member structure and mention its introduction under the Companies Act, 2013.

 

Exam Tip: For acronyms, ensure you provide the complete and accurate expanded form as the full mark answer.

 

3. Answer the following questions in short:

 

Question 1. Why is a Co-operative society called training school of democracy?
Answer: A co-operative society operates in a truly democratic manner, placing importance on people rather than wealth or authority. It is considered a training school for democracy because the core principles of democratic functioning, like equal voting rights and collective decision-making, are extensively practiced and learned within it.
In simple words: Co-ops teach democracy because they value people over money and power, letting members practice equal voting and group decisions.

Exam Tip: To explain why a co-operative society is a "training school for democracy," focus on its democratic management, "one member, one vote" principle, and the emphasis on human values over capital.

 

Question 2. Under what circumstances can non Co-operation be created in co-operative society?
Answer: Non-co-operation can arise in a co-operative society when members do not show qualities like honesty, loyalty, and a collaborative attitude. A lack of these essential values often leads to disagreements, disputes, the formation of different factions, self-interest, hostility, and eventually a breakdown of teamwork. These issues can ultimately stop the co-operative society from achieving its main goals.
In simple words: If members aren't honest, loyal, or willing to work together, it causes arguments, groups splitting up, selfishness, and stops the co-op from reaching its goals.

Exam Tip: When discussing non-cooperation, focus on the absence of key member values like honesty, loyalty, and a cooperative spirit, and their negative impacts on unity and objective achievement.

 

Question 3. How is profit distributed in Co-operative society?
Answer: In a co-operative society, while the main aim is service, any extra income or surplus profit is shared among the members as dividends, following legal rules. The rest of the profit is then used for improving the well-being of the members and the community as a whole.
In simple words: Co-ops share extra money as dividends to members, following laws, and use the rest to help members and society.

Exam Tip: Highlight that profit distribution in co-operative societies balances statutory dividends for members with broader welfare initiatives for both members and the community.

 

Question 4. How do ownership and management differ in Company form?
Answer: In a company structure, ownership and management are distinct. The owners, who are the shareholders or investors, choose representatives from among themselves to form a Board of Directors. This Board then takes care of running the company, following the guidelines set in the Memorandum of Association and Articles of Association. Therefore, shareholders possess ownership, while the Board of Directors performs the management duties, which is different from sole proprietorships or partnerships where owners usually manage directly.
In simple words: Owners (shareholders) elect a Board of Directors to run the company, separating who owns it from who manages it, unlike smaller businesses.

Exam Tip: Emphasize the separation of ownership (shareholders) and management (Board of Directors) as a fundamental characteristic distinguishing a company from other business forms.

 

Question 5. Explain any three characteristics of a Company.
Answer: Here are three important features of a company:
1. Legal entity:

• A company is an artificial person that possesses its own distinct legal identity, separate from its owners or investors.
• This allows the company to hold assets, sign agreements, and engage in legal actions independently.

2. Perpetual existence:

• Under the law, a company's existence is distinct from its investors, meaning it continues to operate even if members pass away or become bankrupt.
• A company can only cease to exist through a formal liquidation process.

3. Division of capital in small fractions:

• For a public company, the money required to begin operations is gathered from the public by issuing shares.
• The company invites the public to purchase its shares.
• Individuals acquire company shares from the stock market and become shareholders, providing the company with capital from selling those shares.

In simple words: Companies are separate legal entities that live forever, and their money is divided into small parts called shares that many people can buy.

Exam Tip: When describing company characteristics, ensure you clearly articulate concepts like separate legal entity, perpetual succession, and divisible capital, as these are foundational.

 

4. Answer the following questions in brief:

 

Question 1. State the advantages of co-operative society?
Answer: A co-operative society offers several advantages:
1. Easy establishment:
A co-operative society does not need a long legal process to be set up. Just ten people can willingly gather and establish one. They can also easily register it if they choose to.
2. Perpetual existence:
Once registered, a co-operative society gains a distinct legal identity. Its existence is not affected if a member leaves, dies, or becomes unable to pay debts. Consequently, a co-operative society typically enjoys a very long life.
3. Open Membership:
Membership is available to anyone sharing a common goal, regardless of their religious beliefs, social group, gender, or financial situation.
4. Limited liability of the members:
Each member's financial responsibility is restricted to the amount of shares they purchase.
5. Government aid:
The government provides financial help to these societies, such as loans, grants, or subsidies, to support their activities and help uplift members and serve the community.
6. Democratic management:

• A committee chosen by the members runs the co-operative society's business. Each member has only one vote, regardless of their shareholding.
• Decisions are made based on the majority vote.
• Every member can stand for election, vote, and participate in meetings to choose their representatives.

7. Lesser administrative expenses:

• Co-operative societies operate on the principle of saving money and carefully using resources.
• Members often offer their services for free to manage the society. Additionally, management is carried out cost-effectively, with minimal spending on advertising and marketing.
• These combined efforts help to lower the society's overall running costs.

8. A specific class of customers:
Most members are also customers. Goods and services are sold specifically to them.
9. Strong competitor against trading firms:
Co-operative societies can effectively compete with businesses that engage in unfair practices like adulteration or excessive profit-making. This is because co-ops avoid unfair trade and offer goods at fair prices, providing good competition.
10. Welfare activities for the society (public):

• Co-operative societies use their profits and reserves to carry out various public welfare activities.
• They organize events such as free medical camps, provide services at low costs, and establish schools, clinics, and parks. These efforts benefit the general public of the country.

11. Training school for democracy:

• A co-operative society operates purely democratically, prioritizing people over money or power.
• In this way, a co-operative society serves as a training ground for democracy, where its principles can be fully learned.

12. Economic upliftment and growth of members:

• Co-operative societies play a vital role in helping their members prosper. For instance, consumer co-operative societies offer daily necessities like milk and grains at fair prices, preventing exploitation by intermediaries.
• Similarly, producer co-operative societies supply raw materials, tools, and equipment to members at fair prices.
• Small producers can easily sell their goods through these societies and achieve financial progress.
• Co-operative societies have made considerable advancements in various sectors such as sugar, milk, leather, and cotton industries.

In simple words: Co-ops are easy to start, last forever, let anyone join, limit financial risk, get government help, are run democratically, have low costs, serve their members, can compete strongly with other businesses, do good for the public, teach democratic values, and help members grow financially.

Exam Tip: When listing advantages, group similar points and provide a concise explanation for each, demonstrating a comprehensive understanding of the co-operative model's benefits.

 

Question 2. Clarify the limitations of co-operative society.
Answer: Co-operative societies face several limitations:
1. Limited capital:
It is challenging to gather enough money in a co-operative society. This often occurs because the share prices for members are quite low, and members are usually from less wealthy backgrounds. Also, members are often not very keen on purchasing more shares, which makes the capital shortage worse.
2. Lack of efficient management:
The directors of co-operative societies typically work without pay. Because of this voluntary arrangement, they sometimes do not take a personal or serious interest in managing and running the organization. This lack of personal dedication can result in the formation of opposing groups within the society, leading to inefficient management.
3. Political interference:
Various political groups often try to influence co-operative societies, either directly or indirectly. If a society operates according to political agendas, its business independence is reduced, which negatively impacts its primary goals and democratic nature.
4. Non Co-operation among members:

• A co-operative society's success relies heavily on the honesty, loyalty, and teamwork of its members.
• When members do not have these qualities, it can lead to disagreements, conflicts, members splitting into different groups, selfishness, hostility, and ultimately a lack of cooperation.
• Because of these problems, the co-operative society might struggle to achieve its aims.

In simple words: Co-ops struggle with limited money, often lack good management because directors work for free, can be influenced by politics, and may suffer if members don't cooperate, preventing them from reaching their goals.

Exam Tip: When discussing limitations, focus on practical challenges such as capital constraints, volunteer management issues, external political pressures, and internal member disharmony.

 

Question 3. Explain the types of company.
Answer: The various types of companies are described below:
(A) Statutory company:

• A statutory company is a public business entity created by a specific law passed by the parliament or state legislative assembly.
• Examples include the Reserve Bank of India (RBI) and the Life Insurance Corporation (LIC) of India.

(B) Companies based on the number of members:
(I) Public company:

• As defined by the Companies Act, a company that is not a private company is known as a public company.
• A public company must have at least 7 members, with no upper limit on the maximum number of members.
• These companies can invite the public to purchase their shares and debentures, and shares can be easily transferred.

From the perspective of member liability, a public limited company can be divided into three categories:
1. Company limited by share capital:
In these companies, the financial responsibility of members is restricted to the face value of the shares they possess. These companies add the word 'Limited' to their name, for example, National Insurance Company Limited.
2. Company limited by guarantee:

• A company limited by guarantee generally does not have share capital or shareholders but instead has members who act as guarantors.
• The guarantors promise to contribute a specified amount if the company undergoes liquidation.

3. Company with unlimited liability:
A company where the members' financial responsibility is not limited is called a company with unlimited liability.

• If the company's debts surpass its assets or if it faces liquidation, members might have to use their personal belongings to cover their contributions.

(II) Private company:

• A private company requires a minimum of 2 members and can have a maximum of 200 members.
• Unlike public companies, there are restrictions on transferring shares in a private company.
• The financial responsibility of its members is limited to the face value of the shares they own.
• Such private companies must include 'Private Limited' at the end of their name, for instance, ABC Private Limited.

(III) One person company:

• The One Person Company (OPC) is a newer form of private company, introduced by the Companies Act, 2013, comprising a single member.
• An OPC can enter into agreements with its director, who is also its sole member, with that person's written approval.
• The OPC needs to submit its Memorandum and Articles to the Registrar of Companies during the incorporation process.

(C) Companies from the viewpoint of domination:
1. Government company:

• A company where at least 51% of the capital is owned by either the Central government, a State government, multiple state governments, or the Central government combined with one or more state governments, is termed a government company.

In simple words: Companies come in many forms: statutory (created by law), public (many members, transferable shares), private (fewer members, restricted shares), and one-person (single owner). They can also be classified by how liability works (limited or unlimited) or by who controls them (like government companies).

Exam Tip: When explaining company types, clearly differentiate them based on their legal origin (statutory), member count (public/private), liability structure (share capital/guarantee/unlimited), and ownership control (government), providing examples for clarity.

 

Question 4. Explain the procedure for getting the Certifacate of Incorporation
Answer: To obtain the certificate of incorporation, the following documents must be prepared and submitted to the Registrar of Companies:
1. Memorandum of Association (MOA):

• The MOA is a crucial legal document drafted during a company's formation and registration. It outlines the company's relationship with its shareholders.

The public can view the company's MOA, which includes details like the company's name, the physical address of its registered office, and the names of its shareholders. The MOA, along with the Articles of Association, acts as the company's constitution, detailing its structure and operations.
An MOA must include these clauses:
(A) Name clause:
According to this clause, a public company with share-based liability must incorporate the word 'Limited' at the end of its name, while a private company must add 'Private Limited'. A company cannot select a name similar to another registered company in India or one that could harm national interests.
(B) Address of Registered office clause:
The company must specify the physical location of its registered office, allowing the Registrar of Companies and the public to communicate with it. This address also determines the court's jurisdiction for the company.
(C) Object clause:

• The object clause is the most significant part of the memorandum.
• This clause requires the company to explicitly state its goals and the specific kind of business it plans to conduct. It cannot engage in activities not listed here.

(D) Liability clause:

• This clause indicates whether the members' liability is limited or based on a guarantee.

(E) Capital clause:
The capital clause states the amount of share capital the company intends to register with and how this capital is divided into shares of a set value.
(F) Association clause:
This clause requires a minimum of 7 members for a public company and 2 for a private company to sign a statement expressing their intention to establish the company.
2. Articles of Association:

• The Articles of Association is a document that describes the company's purpose, along with the duties and responsibilities of its members.
• It also includes the rules and regulations by which the company will be managed.
• This document covers members' rights, share installments, share forfeiture, and the powers of the Board of Directors.
• Both the Memorandum of Association and the Articles of Association become public documents once they are registered.

3. List of directors:

• The company must provide and register a list of individuals who intend to serve as directors with the Registrar of Companies.
• This list must include names, addresses, ages, genders, occupations, and nationalities.
• The company is legally required to have at least one female director on its Board of Directors.

4. Written consent of directors:
Individuals named as directors must provide written consent, confirming their willingness to work with the company voluntarily.
5. Declaration of interest in other companies:
If any directors, managers, secretaries, or subscribers have interests in other companies or firms, they must declare this by submitting a statement.
6. Statement of fulfillment of provisions of law:

• After meeting all the legal requirements, the company must prepare and submit a statement in the specified format to the Registrar of Companies, confirming that all legal provisions for incorporation have been satisfied.
• Upon completing all procedures and documentation, the Registrar of Companies verifies everything and issues a certificate of incorporation, along with a Corporate Identification Number (CIN), to the company. The date on this certificate marks the company's official establishment.

In simple words: To get a Certificate of Incorporation, you need to prepare and submit documents like the Memorandum of Association (which covers name, address, objectives, and liability) and the Articles of Association (which covers internal rules) to the Registrar of Companies. You also need to provide a list of directors, their consent, and declare any other business interests, after which the Registrar will issue the certificate.

Exam Tip: When detailing the incorporation procedure, systematically list each required document and clause (MOA, AOA, etc.) along with their key contents and purpose in the registration process.

 

Question 1. Explain the meaning of Co-operative society and describe its characteristics.
Answer:

Co-operative society:
A co-operative society represents a voluntary form of business where individuals intending to establish a business come together for shared economic interests. This association operates on the principle of equality, giving equal rights and opportunities to all its members. People with common goals thus voluntarily join to fulfill the economic needs of members through cooperation, specifically aiming to uplift the economically weaker sections of society. These societies are formed by the less privileged segments of society to protect their members from exploitative profit-driven business people.

Characteristics of co-operative society:
1. Voluntary association:
Individuals with common interests join voluntarily. Their participation is based on the idea of equality.

2. Easy formation process:
Compared to a company, it is quite simple to form a co-operative society. To create a society, a minimum of 10 members need to unite and establish a co-operative society. They must register it with the Registrar of Co-operative Societies as per the Co-operative Society Act. Once registered, it gains its own separate legal identity.

3. Equality of members:
All society members have equal rights and opportunities within the co-operative society. Members are not discriminated against based on capital investment, caste, or any other reason.

4. Separate identity:
While registering a co-operative society is not mandatory, getting it registered gives it a distinct legal identity. Furthermore, anyone can become a member of the society when they wish and can also leave it at their discretion. The arrival or departure of members does not impact the legal standing of the co-operative society.

5. Democratic management:
The co-operative society's business is managed by a committee chosen by the members. The key principle of co-operative democracy is 'One man, one vote'. Here, even if one member holds 10,000 shares and another holds just 1 share, both have the right to cast only one vote, ensuring equal voting rights. In this context, we can say that in a co-operative society, the 'person' matters, not the amount of money they own or hold in the society. Any member can contest elections for the executive committee, participate in management, and so on. Therefore, we can affirm that the management of a co-operative society is truly democratic, and the society serves as a training ground for democracy where ideal principles of democracy can be thoroughly learned.

6. Motive of service:
The main goal of a co-operative society is to serve its members; profit is a secondary aim. The society intends to improve the economic conditions and living standards of its members, helping them become self-sufficient. For instance, Amul aims to offer milk at a desired quality and fair price. It achieves this by gathering milk from villagers, paying them fairly, and selling it in the market. This process helps enhance the economic status of villagers who supply milk, making them self-reliant.

7. Fair distribution of profit:
The purpose of a co-operative society is primarily service. However, if the society generates surplus income, it distributes a portion of the profit among its members as dividends, in accordance with legal provisions. The remaining profit is used for the welfare of the members and the society overall.

8. Low priced shares:
The shares of a co-operative society are priced quite low. This allows economically disadvantaged individuals to easily buy shares and become members of the society. Sometimes, if the share price is high, the society also offers an installment payment option.

9. Voting right per member:
Unlike companies, each member is permitted to have only one vote, regardless of the number of shares they own. The society's representatives are elected based on the 'one member, one vote' principle. To foster equality and camaraderie and to boost member literacy, the society holds various conferences and training sessions.

11. Separate institution from politics and religion:
A co-operative society does not operate based on politics or religion. Anyone, regardless of their religion, caste, or gender, can become a member. Thus, the society maintains its independence from political and religious affiliations.

12. Unrestricted number of members:
There is no maximum limit on the number of individuals who can join a co-operative society. Any person wanting to improve their economic situation can become a member.
In simple words: A co-operative society is a group where people willingly join to help each other economically, especially those who are less fortunate. Its main goal is to serve, not just to make money. It is easy to start, everyone gets one vote no matter how many shares they own, and its existence is stable. It also encourages saving and offers training, staying independent of politics or religion.

Exam Tip: When defining a co-operative society, highlight its voluntary nature, equality principle, and service motive. For characteristics, categorize them logically (e.g., formation, management, financial aspects) to ensure full coverage.

 

Question 2. Give the meaning of Company and state its characteristics.
Answer:

Joint stock company:
As per the Companies Act, 1956, a company is an artificial, invisible, and intangible person created by law, possessing a distinct legal entity. According to the Companies Act, 2013, 'Company' refers to an entity registered under this act or any prior legislation. This signifies that the company is separate from its investors. For example, if a person invests Rs. 1000 in a specific company and that company becomes insolvent, the investor only loses the money they invested, as their liability is limited. Legally, the company and the investor are two distinct entities. The investor is not required to sell their personal assets to cover the company's debts.

Characteristics of a joint stock company:
1. Legal entity:
As an artificial person, a joint stock company has its own separate legal identity, independent of its investors. This implies that a company can possess property, enter into contracts, and can sue or be sued by others.

2. Perpetual existence:
By law, a 'company' is distinct from its investors. Consequently, it remains unaffected by the death or insolvency of its members. A company can only be dissolved through a specific liquidation process.

3. Division of capital in small fractions:
For a public company, the capital required to start the business is raised from the public by issuing shares. The company invites the public to subscribe for its shares, or simply put, to 'purchase a share' in the company. People buy the company's shares from the stock market and become shareholders. The company then begins its operations using this share capital, which is the funds raised from selling the shares. For a private limited company, capital is obtained from members or through borrowing from banks and other sources.

4. Easy transfer of shares:
Shareholders can easily buy and sell the company's shares in the stock market. They can do this easily, subject to the company's regulations and laws. If a company is performing well, one can acquire its shares from the stock market. Conversely, the share holder can sell their shares for profit. This ensures continuous share-trading in the market, making share trading and transfer of ownership a key and ongoing characteristic.

5. Common seal:
A company uses a 'seal' or stamp when dealing with third parties, entering into contracts, issuing share certificates, documents, and handling daily transactions. This seal is known as a 'common seal' because any authorized officer of the company can use it. Stamping a document with this seal indicates that the company agrees to its contents.

Shareholders (investors) choose representatives from among themselves, who are then known as the company's directors. If more than one director is chosen, they collectively form the Board of Directors. The Board of Directors manages the company on behalf of the shareholders, following the Memorandum of Association and Articles of Association. Thus, in a company, the shareholders are the owners, while the managers/directors form the Board of Directors. This means ownership and management are separate, unlike in a proprietorship or partnership.

7. Status of members:
The company and its members are two distinct entities. Consequently, a member cannot enter into a contract on behalf of the company, nor can the company be held accountable for its members' actions.

8. Number of members:
In a private limited company, there must be a minimum of 2 and a maximum of 200 members. In contrast, a public limited company requires a minimum of 7 members, with no upper limit on the maximum number of members.

9. Liability of members:
The members' liability is limited to the face value of the shares they own in that company. This means if a share holder holds 50 shares of Rs. 100 each, their total share in the company is Rs. 5000. If the company goes bankrupt, the share-holder will only lose the Rs. 5000 they invested and will not be responsible for the company's entire loss. It is important to note that the concept of unlimited liability is rarely found in companies. The company's Memorandum of Association specifies whether the share-holder's liability will be limited or unlimited.

10. Fundamental rights:
Although a company is considered a separate legal person, it cannot be regarded as a citizen of the country because it is an invisible entity. Therefore, a company does not enjoy any fundamental rights, unlike the citizens of a nation.

11. Voting right per share:
Shareholders can cast votes based on the number of shares they hold. Unlike the single vote right that individuals typically possess, the number of votes a share holder can cast corresponds to the quantity of shares they own. Easy transfer of shares and voting based on share count are specific features of a company.
In simple words: A company is a legal creation, like an artificial person, with its own separate identity. Key features include its stable existence even if members change, limited liability for owners (they only lose what they invested), and the ability to raise a lot of money by selling small parts of ownership called shares. Shares are easy to buy and sell, and the company has an official seal for documents. However, ownership and management are often separate.

Exam Tip: When explaining company characteristics, use clear headings for each point and illustrate with simple examples where possible, especially for legal entity and limited liability.

 

Question 3. Clarify the advantages and limitations of a Company.
Answer:

Advantages of company:
1. Huge capital fund:
To raise the necessary capital, a company divides its entire capital into tiny portions known as shares. This method encourages people to invest by purchasing shares, making them part owners of the company. People also acquire shares with the goal of earning profit by trading them in the stock market. Voting rights are determined per share, which attracts more investors and helps the company raise substantial capital.

2. Easy transfer of shares:
Members, or share-holders, can readily buy and sell shares through the registered stock exchange. This makes share transfer within the company quite simple. However, it's worth noting that in the case of a private company, transferring shares is not as easy.

3. Limited liability of the members:
The liability of members is restricted to the face value of the shares they own. If a company faces bankruptcy, liquidation, or winding up, the share holder only loses the amount they originally invested.

4. Separate identity and perpetual life:
Legally, a company has a distinct identity separate from its members. Thus, the company's existence is not affected by events such as a member's death, insolvency, or mental incapacity. The company continues to exist indefinitely.

5. Advantage of large scale:
Due to its unique features, a public limited company can gather significant capital. This large capital enables the establishment of modern machinery, hiring experts, conducting research and development, acquiring raw materials at reduced prices, and consequently, undertaking large-scale production and sales.

6. Efficient management:
Skilled directors employ expert services and recruit highly capable individuals. The director effectively utilizes company resources and implements a very efficient management system.

7. Democratic management:
A company is managed democratically by elected representatives, known as directors. Decisions concerning the company's operations, policies, and so on are made by the majority vote in the general meetings of the directors.

8. Benefit to society and nation:
People invest in company shares, debentures, and public deposits, which promotes a saving habit. Additionally, they receive dividends and interest on their investments as income. Society benefits from increased employment and large-scale production. Some companies also improve society by developing public gardens, schools, colleges, playgrounds, and art centers. Companies pay substantial taxes to the government, which are then used for the country's welfare. Furthermore, companies offer various facilities to their employees.

Limitations of company:
1. Lengthy and expensive incorporation procedure:
Unlike other business structures, forming a company involves a lengthy, complex, and costly incorporation process. It requires the services of experts who help prepare documents like the Memorandum and Articles of Association and submit them to the Registrar of Companies to obtain the certificate of incorporation. Besides the registration fees, companies also pay fees for these expert services.

2. Legal restrictions:
A company comes into being through law and must adhere to legal provisions throughout its existence. It is required to periodically submit its statements, reports, and accounts to the Registrar of Companies. It also needs to comply with regulations set by SEBI (Securities and Exchange Board of India).

3. Higher administrative expenses:
A company's administrative costs are quite high, due to significant registration fees, expert fees, high salaries for skilled and experienced personnel, and expenses for research, among other things.

4. Autocratic management:
Although shareholders or members are granted certain powers, they often have few. Due to the voting right based on shares, individuals holding a large number of company shares can become involved and dominate its management. They may use company funds, assets, and confidential information to pursue their own personal desires and goals.

5. Difficulty in maintaining secrecy:
A company is required by law to have its accounts audited and to provide the audit report and accounts to its members and the Registrar of Companies. Moreover, according to the law, information regarding the redemption of debentures, bonus shares, etc., must also be publicly disclosed by the company. Consequently, maintaining secrecy is challenging for a company.

6. Delay in deciding policies:
A company must obtain consent from its members before making decisions related to its policies. It needs to inform members several days in advance about meetings held for policy matters. Unless a resolution is approved by the majority of members, the decision cannot be finalized. All these activities consume considerable time, which leads to delays in decision-making.

7. Less flexibility:
Compared to proprietorships and partnerships, a company offers less flexibility. To make significant changes, it must pass a resolution in a general meeting. It may also require approval from the central government in certain situations.

8. Encouragement to speculation:
Company directors are very familiar with company secrets. They can use this confidential information to create market rumors and artificial changes in the stock market. This can promote speculation in shares, which then negatively impacts the economic interests of small investors. For example, to raise additional capital, a company might spread news that it plans to partner with international companies. Small investors, unaware of the actual situation, might start buying shares hoping for high profits, thereby increasing the company's capital.

9. Disadvantages to the society:
Large companies often hold significant power and can dominate society. Their decisions and actions may lead to employee strikes, removal of workers unless they agree to specific employer conditions, lock-outs, and monopolistic practices. These issues can result in an unequal distribution of income and wealth within society.
In simple words: Companies offer advantages like huge capital, easy share transfer, limited owner risk, and long-term existence, helping with large-scale production and efficient management. However, they also have downsides, such as a complex and costly setup process, strict legal rules, high running expenses, potential for autocratic control by major shareholders, difficulty in keeping secrets, slow decision-making, less flexibility, encouragement of speculative trading, and sometimes negative impacts on society.

Exam Tip: Organize your answer by listing advantages and limitations separately with clear sub-points. Focus on both financial/operational benefits and regulatory/societal drawbacks of the company structure.

 

Question 4. Explain the procedure for getting the Certifacate of Incorporation
Answer:

Procedure for obtaining certificate of incorporation:
To receive the certificate of incorporation, the following documents must be prepared and submitted to the Registrar of Companies:

1. Memorandum of Association (MOA):
A Memorandum of Association (MOA) is a legal document created during the company's formation and registration. The MOA outlines the company's relationship with its shareholders. The public can view the company's MOA, which includes the company's name, registered office address, and shareholder names. The MOA and Articles of Association collectively serve as the company's constitution. Just as a constitution describes a country, the MOA and Articles of Association define the company. An MOA must mandatorily include the following clauses:

(A) Name clause:
According to the name clause, a public company with liability by shares needs to include the word 'Limited' at the end of its name, while a private company needs to add 'Private Limited' at the end of its name. A company cannot select a name that resembles another registered company in India or one that could harm the national interest.

(B) Address of Registered office clause:
The company must specify the physical address of its registered office so that the Registrar of Companies and the public can communicate with it. Furthermore, the court can determine its jurisdiction based on this address.

(C) Object clause:
The object clause is the most crucial part of the memorandum. Under this clause, the company must clearly state its objective and the type of business it intends to conduct. It cannot engage in activities beyond what is specified in this clause.

(D) Liability clause:
In this clause, the company states whether its members' liability is limited or based on a guarantee. For a One Person Company, the company must specify the name of the individual who will replace the original person in case of death, inability to enter contracts, or other similar situations involving the original person.

(E) Capital clause:
Under the capital clause, the company specifies the amount of share capital with which it plans to register and how this capital is divided into shares of a fixed amount.

(F) Association clause:
In this clause, a minimum of 7 members for a public company and 2 members for a private company must submit a statement with their signatures, indicating their desire to establish the company.

2. Articles of Association:
The Articles of Association is a document that outlines the company's purpose, as well as the duties and responsibilities of its members. It also contains the rules and regulations under which the company will operate its administration. These include the rights of members, share installment procedures, share forfeiture rules, and the powers of the Board of Directors. Both the Memorandum of Association and Articles of Association become public documents once they are registered.

3. List of directors:
The company must provide and register a list of individuals who wish to serve as directors to the Registrar of Companies. This list includes the names, addresses, ages, genders, occupations, and nationalities of these individuals. The company must mandatorily include at least one female director on its Board of Directors.

4. Written consent of directors:
Individuals whose names are listed as directors in the company must provide written consent confirming their willingness to work with the company on their own accord.

5. Declaration of interest in other companies:
If the managers, secretary, or subscribers have an interest in any other company or firm, they must disclose it by filing a statement.

6. Statement of fulfillment of provisions of law:
Once the company has met all the discussed legal provisions, it needs to prepare and submit a statement in the specified format to the Registrar of Companies. This statement confirms that the company has fulfilled all legal requirements for its incorporation. After verifying all procedures and documents, the Registrar of Companies conducts a thorough investigation and then issues the certificate of incorporation and a Corporate Identification Number (CIN) to the company. The date on this certificate becomes the official date of the company's establishment.
In simple words: To get a Certificate of Incorporation, you need to prepare and submit several key documents to the Registrar of Companies. First is the Memorandum of Association (MOA), which defines the company's basic information like its name, address, and purpose. Then come the Articles of Association (AOA), which detail the company's internal rules. You also need a list of directors, their written consent, and a declaration if they have interests in other companies. Finally, a statement confirming all legal requirements are met is submitted. After verification, the Registrar issues the certificate, making the company officially established.

Exam Tip: Remember to list the key documents (MOA, AOA) and their essential clauses, as well as the other required submissions like director lists and consents. Emphasize that the process culminates in the issuance of the certificate of incorporation.

 

Question 5. Distinguish :
(a) Co-operative society and Company
Answer:

(b) Private company and Public company.
Answer:

In simple words: This table compares co-operative societies with companies and then private companies with public companies. Key differences include their main goals (service vs. profit), ease of setup, member numbers, share transfer rules, and management structures. Societies prioritize members' welfare, while companies focus on profit, with public companies being more open to the general public than private ones.

Exam Tip: When distinguishing between business forms, use a clear table format to compare key aspects like objective, membership, liability, and transferability of shares. Ensure each point of difference is directly contrasted for both entities.