Question : Mr. Sumit owns an ancestral house in Chennai. On the advise of his friend he converts it into a lodge after renovation. The revenue from the lodge helps to supplement his income considerably.
On his death the property (lodge) is inherited by his three sons in order of their age namely, Mr. Sham, Mr. Anil and Mr. Satish who carry on with the business under the form of Joint Hindu Family Business.
(i) Which law governs Joint Hindu Family Business.
(ii) Who amongst the three brothers has the right to exercise control over the family business?
(iii) Comment upon the liability of the three brothers.
Answer : (i) Hindu Succession Act, 1956
(ii) The eldest son, Mr. Sham has the right to exercise control over the family business of the Karta.
(iii) The liability of Mr. Sham (Karta) is unlimited. The liability of Mr. Anil and Mr. Satish as coparceners is limited to the extent of their share in the family business,.
Question : Sanchit, Hemant and Akshay have mutually decided to establish a new small scale handicraft factory in a remote rural area in Jharkhand. As it will not only help to meet the growing demand for their products but also generate different kinds of employment opportunities in the village and foster its economic development. They have decided to promote their business in the form of partnership. Sanchit’s association with the firm will be hidden from the general public. Akshay will not take part in the day to day activities of the business due to health issues. However, Hemant will take actual part in carrying out business of the firm on behalf of other partners.
(i) Identify and state any three types of partners highlighted in the above case.
(ii) Write any two values which are being fulfilled by the firm.
Answer : (i) (a) Sanchit — Secret partner
(b) Hemant — Active partner
(c) Akshay — Sleeping partner
(ii) The two values which are being fulfilled by the firm are :
(a) Generating employment opportunities
(b) Raising standard of living.
Question : Aseem is doing an export business. Every time he would obtain an export order, he felt stressed and had an anxiety about completing it on time. Few years later, his younger sister Aalia, after completing a course in fashion designing, joined him in business as a partner. Consequently,
Aseem realised that his level of stress and anxiety related to business operations had reduced substantially and he had started feeling more relaxed. However, at the same time he noticed that since both of them differ in their choice of colours for making garments lot of time is being wasted in reaching a mutual consent.
(i) Identify and state the related advantage of partnership being highlighted in the above case.
(ii) Identify and state the related disadvantage of partnership being discussed in the above case.
Answer : (i) Sharing of risks.
(ii) Possibility of conflicts.
Question : Nikita wanted to pitch in to reduce the financial crisis prevailing in her house and thought of working as a cook. She started working in three different households, one Punjabi, One Gujarati and one South Indian family. She soon realised that 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 ‘Hum Sabi Ki Rasoi’. They decided to share profits 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.
(a) Identify and define the kind of business organisation which was set up by Nitika and her friends.
(b) Quoting the lines from the paragraph, identify the features of this form of business organisation highlighted above.
Answer : (a) Partnership.
(b) (i) Risk Bearing and sharing of profits.
‘They decided to share profits equally...’
(ii) Mutual Agency.
‘... and that ... by the other two.’
‘After working ... by the name ‘Hum Sab Ki Rasoi.’
Question : After doing her M.Com from ‘Himachal Pradesh University of Shimla’, Payal went back to her village in Kinnaur district of Himachal Pradesh. She wanted to contribute for the development of women of her village, so she formed an organisation, the membership of which was open for all the women villagers on a voluntary basis by paying Rs. 500 only which will be treated as their capital. Payal knew that the land of her village was suitable 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 Payal from the surplus of the profits.
(a) Identify the kind of organisation that was formed by Payal.
(b) State its any three merits.
Answer : (a) Cooperative Societies.
Question : Lakshay has set up a cement company on 10th January, 2017. He has got has company registered under Companies Act, 2013. From the day of its incorporation, it acquires an identity separate from its members. Like natural persons, it can own property, incur debts, borrow money and enter into contracts. The Board of Directors of the company will appoint top officials for running the business.
Identify the four features of company form of organisation highlighted above by quoting the lines.
Answer : (a) Formation
‘He has got his company registered under Companies Act, 2013.’
(b) Separate Legal Entity
‘From the day of its incorporation it acquires an identity separate from its members.’
(c) Artificial Person
‘Like natural persons, it can own property, incur debts, borrow money and enter into contracts.’
‘The Board of Directors of the company will appoint top officials for running the business.’
Question : Nitin is a friend of Rohan, who is the partner of a firm, ‘Badshah Builders’. Nitin accompanies Rohan for a business meeting with another firm Virat Constructions. During this business meeting, Nitin actively participates and Virat Constructions enter into a contract with Badshah Builders, thinking that Nitin is a partner of the firm. What type of a partner is Nitin? Explain .
Answer : Niting is partner by estoppel.
Question : Mayank a gorcery store owner, has won a lottery of Rs. 1,00,000. His friend, Yash suggested him to invest this money in the shares of Progressive Ltd. as he too is the shareholder of this company. But Mayank wants to invest this money for expansion of his business after a period
of 2 years. Yash tries to convince Mayank by saying that he can easily sell his shares in the market and convert them into cash when need arises.
Name and state the merit of joint stock company highlighted in the above para. Explain other two mertis of the same.
Answer : Transfer of Interests.
Question : Kapoor brothers formed a Joint Hindu Family business.There were three brothers and the eldest of them Ramesh Kapoor became the Karta. The business took a loan of Rs. 40 lakhs for three years but were unable to repay it due to poor financial condition of the business. They sold an ancestral property worth Rs. 25 lakhs and paid to bank. The bank filed a case of recovery for the balance amount. Ramesh Kapoor pleaded to the court that the loan was taken for the business purpose, so all member are liable to repay it. The court rejected the plea of Ramesh Kapoor.
(a) Why did court rejected the plea of Ramesh Kapoor?
(b) In this case who has unlimited and limited liability?
(c) Was the decision of court to claim only from Ramesh Kapoor justified?
Answer : (a) Because Ramesh Kapoor being karta has unlimited liability.
(b) Ramesh Kapoor-unlimited and all other members have limited liability.
(c) Yes as Ramesh Kapoor has unlimited liability.
Question : After passing his 12th class Shenoy started his own business. He invested Rs. 2,00,000 as capital which was given to him by his father. He obtained a loan of Rs. 1,00,000 from his elder brother Gurpreet, who was working as an assistant manager in ICICI Bank. In the first year he incurred a loss of Rs. 50,000 and had to pay to his suppliers their outstanding bills. This created a financial problem for him and he had to take loan of Rs. 1,00,000 from the ICICI Bank on the personal guarantee of his brother. 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 Rs. 75,000 in the second year.
(a) Identify the form of business organisation started by Shenoy.
(b) What type of liability Shenoy has?
(c) Will his father & brother will be responsible to pay back the amount to outsiders.
(d) State any two features of such form of business organisation.
Answer : (a) Sole Proprietorship. (b) Unlimited liability.
(c) No. (d) Features.
Question : Mr. Deepak Wadhwa and his brothers inherited some ancestral property. They had a joint family. They decided to start a business in which, only the family members will be participating. They took a loan of Rs. 50,00,000 from Axis Bank. But they were unable to repay the loan. And they also invested their ancestral property into business. Mr. Deepak being eldest, is entrusted with the job of taking decisions for the business.
(a) What is the form of business Wadhwa family has started?
(b) By what name is the senior most member of the family known as?
(c) What is the nature of liability of the senior most member and other members?
(d) By what name the other members are known in this particular form of business?
(e) After the death of senior member, will the business comes to an end?
Answer : (a) Hindu Undivided Family Business.
(c) Senior-unlimited liability. Others-limited liability.
(e) No. After the death of Karta, next senior member becomes Karta.
Question : Batra Pvt. Ltd., the known group of promoters submitted an application to the registrar of companies for the approval of the name for cosmetic manufacturing company. They selected “Avon Ltd.” as the name of the company so as to increase the sales of the newly opened company, as it will be benefited by the name of already existing company.
(a) Which function of promoter is being referred here?
(b) Who selects the name for the company?
(c) Would the proposed name be accepted by the Registrar of Companies?
(d) Identify the value being violated by Batra Pvt. Ltd.
Answer : (a) Name approval.
(c) No, the proposed name should not be identical with the existing company.
(i) Respect of Law.
Question : Ketan, Piyush and Sakshi were partners. Piyush died in a car accident. Both Ketan and Sakshi decided to admit their son Sahil who was 16 years old as a partner. Can they do so? Give reason.
Answer : Yes, he can be admitted as a partner under ‘Minor Partner’.
Question : Varun, Akshit and Prachi were friends who started a partnership business. They did not get their firm registered as it was optional. Soon, Akshit and Prachi started having conflicts. Akshit wanted to approach a lawyer. If you were a lawyer than how would you guide him?
Answer : I would guide him by saying that you cannot file a complaint because a partner of an unregistered firm cannot file a case against the firm or any other past or present partner.
Question : “Everyday Amul collects milk from 2.12 million farmers (many illiterate) and converts the milk into branded packaged products and delivers goods all over the country. The story of Amul started in Dec, 1946 with a group of farmers been to free themselves from intermediaries, gain access to the market and thereby ensure maximum returns for their efforts.”
(a) From the above description, identify and state the form of business organisation used by Amul.
(b) State any two features of this form of business organisation.
(c) Identify and state Amul is a part of which type of industry.
Answer : (a) Cooperative Societies.
(b) For its features.
(c) Secondary Industry-Processing Industry.
Question : 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 cafe. (f) Chartered accountancy firm.
Answer : a, b, d, and e.
(a) These businesses are carried out on small scale.
(b) These businesses require limited capital and limited managerial talent.
(c) In these businesses customers demand personalised services.
(d) In these businesses, risk is less.
Question : “One man control is the best in the world if that man is big enough to manage everything.”
Explain the statement by giving any five reasons.
Answer : Explain the merits of Sole Proprietorship.
Question : The business assets of an organisation amount to RS. 1,00,000 but the debts that remain unpaid are RS. 1,50,000. What course of action can the creditors take if :
(a) The organisation is a sole proprietorship firm.
(b) The organisation is a partnership firm with Aditya and Nikhil as partners. Which of the two partners can the creditors approach for repayment of debt? Explain giving reasons.
Answer : Business assets = RS. 1,00,000;
Liabilities = RS. 1,50,000,
Therefore, Creditor’s claim = RS. 50,000
(a) If the organisation is a sole proprietorship firm, the creditors can sue the sole proprietor for RS. 50,000, because a sole proprietor has unlimited liability. In the case of business losses, if the business assets are not sufficient to meet all business liabilities, the proprietor may have to sell his personal property to payoff the liabilities.
(b) If the organisation is a partnership firm with Aditya and Nikhil as partners, the creditors can sue both the partners or a single partner for their claims. The reason is that partners have unlimited liability. They are jointly and individually liable for payment of firm’s debts. Jointly, all the partners are responsible for the payment of the firm’s debts in their profit sharing ratio. So, Aditya and Nikhil will have to pay RS. 25,000 each. Individually, a single partner (suppose Aditya) can be held responsible to repay the debts of the business RS. 50,000, if Nikhil becomes insolvent and cannot bring anything from his personal assets.
Question : Identify the type of partner highlighted in the following statements:
(a) This partner takes active part in carrying out business of the firm.
(b) His connection with the firm is not disclosed to the general public.
(c) He allows the use of his goodwill to benefit the firm and can be represented as a partner.
(d) He gives an impression of his being partner to others by his words or conduct.
(e) This partner does not take active part in the day-to-day activities of the business.
Answer : (a) Active partner.
(b) Secret partner.
(c) Nominal partner.
(d) Partner by estoppel.
(e) Sleeping partner.
Question : Name any three forms of business organisation which do not require legal formalities and registration.
Answer : (a) Sole proprietorship. (b) Joint Hindu Family Business. (c) Partnership.
Question : Which forms of business organisation is considered to be the most advantageous on the basis of:
(a) Ease of formation. (b) Continuity.
(c) Availability of capital. (d) Cost of formation.
(e) Transfer of ownership. (f) Flexibility.
Answer : (a) Sole proprietorship.
(d) Sole proprietorship.
(f) Sole proprietorship.
Question : Is it necessary for a public company to get its shares listed on a stock exchange? What happens if a public company going for a public issue fails to apply to a stock exchange for permission to deal in its securities or fails to get such permission.
Answer : Yes, it is necessary for a public company to get its shares listed or quoted on a stock exchange.
If a company going for a public issue fails to apply to a stock exchange for permission to deal in its securities or fails to gets such permission within 10 weeks from the date of closure of subscription list, then the allotment will become void Consequently, all money received from the applicants will have to be returned to them within 8 days.
Question : Money Ltd. issues 1,00,000 shares of RS. 10 each for public subscription. Application (along with money) are received for 80,000 shares. Can the company allot these shares? Explain.
Answer : No, the company cannot allot these shares because the legal formality of ‘minimum subscription’ is not fulfilled. A company must receive the amount of minimum subscription in cash (which is 90% of the issued amount as per SEBI guidelines) within 120 days from the date of issue.
Otherwise allotment cannot be made.
Question : A promoter sells a property to the company at a price higher than he paid for it. What options does the company have?
Answer : The company can cancel the contract and recover the purchase price paid to the promoter. It can also claim damages for the loss suffered.
Reason: A promoter cannot make any secret profit at the expense of the company. He is in fiduciary relation with the company (i.e., relationship of utmost faith).
Question : Distinguish between preliminary contracts and provisional contracts.
Question : Ms. Sheetal is running a beauty parlour in Delhi. She is the owner, manager and labourer of her business. She knows the fashion trend and gives personal attention to all her customers.
Due to this, she attracts more customers and earns high profit.
(a) Which form of business organisation is shown in the above para? Explain it.
(b) Give its any three merits.
Answer : (a) Sole proprietorship. (b) For its merits.
Question : Mrs. Ruchika is a teacher in a well-known school of Delhi. She gets Rs. 40,000 per month as remuneration for her livelihood. Her husband Mr. Sachin runs a factory in which toys are manufactured. All decisions related to the business are taken by him only. Mr. Ravi who is Sachin’s friend is a Chartered Accountant in a reputed company, also teaches some poor children free of cost after his office hours.
(a) Identify the type of human activity being performed by Mrs. Ruchika.
(b) Identify the type of business organisation mentioned above. Also state its any one merit.
(c) Identify any two values which Ravi communicated to the society.
Answer : (a) Economic activity.
(b) Sole proprietorship.
(b) Sole proprietorship.
(i) Quick Decision Making.
(c) Values: (any two)
(i) Responsibility towards underprivileged children.
(ii) Commitment towards increasing literacy in the country.
(iv) Doing your best.