NCERT Solutions Class 11 Business Studies Chapter 2 Forms of Business Organisation

NCERT Solutions Class 11 Business Studies Chapter 2 Forms of Business Organisation

NCERT Solutions Class 11 Business Studies Chapter 2 Forms of Business Organisation: National Council of Educational Research and Training (NCERT) Class 11 Business Studies Chapter 2 Solutions – Forms of Business Organisation.





Business Studies


Chapter Name

Forms of Business Organisation

Exercise Solutions

Short answer questions:

(1) Compare the status of a minor in a joint Hindu family business with that in a partnership firm.  

Ans: The minor has the right to become a member in a joint Hindu family business whereas a minor cannot become a partner in a partnership firm except the situation that he/she can be admitted with some benefit for the firm after the mutual consent of all partners.

(2) If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.

Ans: Though it is not compulsory for a partnership firm to get itself registered, but registering a firm provides the following facilities:

(a) A partner of a registered firm can file a suit against the firm or other partner.

(b) A registered firm can file a suit against third parties.

(c) The firm (registered) can file a case against the partners.

(3) State the important privileges available to a private company.

Ans: The important privileges available to a private company are as follow:

(a) A private company can be formed by only two members whereas it requires seven members to form a public company.

(b) There is no need to issue prospectus incase of private company.

(c) Allotment of shares can be done without receiving the minimum subscription.

(4) How does a co-operative society exemplify democracy and secularism?

Ans: A co-operative society is based on democratic formation as provides the feature of equality in voting status which states the principle of “One man one vote” irrespective of capital contribution, assets of the members etc. It also has the feature of ‘voluntary membership’ which states that a person is free to join a managing committee and leave on his/her terms or choice.

(5) What is meant by “Partner by estoppel? Explain. 

Ans: A person is considered as a partner by estoppel” if, through his/her own initiative, conduct or behaviour, he/she gives an impression to others that he/she is a partner of the firm. Such partners do not contribute capital to the firm but they can be considered as partners for the third parties and can be held liable for the debts of the firms.

(6) Briefly explain the following terms:

(a) Perpetual succession

(b) Common Seal

(c) Karta

(d) Artificial Person

Ans: (a) Perpetual Succession: It means a company being a creation of the law, can be brought to an end only by law. It can only stop to exist when a specific procedure for its closure called winding up completed.

(b) Common Seal: the Company being an artificial person cannot sign its name by itself and hence every company is required to have its own seal that acts as official signature of the company.

(c) Karta: The joint Hindu family business is controlled and managed by the head of the family who is eldest member and is called Karta.

(d) Artificial Person: A company is a creation of law and exist independent of its members and can own property, incur debuts, borrow money, enter into contract etc and is called an artificial person.

Long answer Questions:

(1) What do you understand by sole proprietorship refers firm? Explain its merit’s and Limitations?

Ans: Sole proprietorship refers to a form of business organisation which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks.

Merits of sole proprietorship business are as follows:

(a) Direct incentive: A sole proprietor directly reaps the benefits of his/her efforts as he/she is the only recipient of profit.

(b) Quick decision making: A sole propreitor enjoys considerable degree of freedom in making business decision and decisions can be taken promptly as there is no need to consult others.

Demerits/Limitations of sole proprietorship firm are as follows:

(a) Limited Resources: Resources of a sole proprietor is limited to his/her own personal savings and borrowings from other. Due to lack of resources the size of business rarely groups.

(b) Unlimited liability: Incase of sole proprietorship business, the owner has unlimited liability which means incase the business fails, the creditors can recover their dues not only from business asset, but also from the personal assets of the owner.

Forms of Business Organisation Solutions

NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation Solutions

(2) Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership.

Ans: Partnership is considered as a relatively unpopular form of business ownership due to the constraint of the business growth as there is a restriction on the number of partners and contribution in terms of capital investment is insufficient to support large scale.

The merits of partnership firm are as follows:

(a) Sharing of risk: The risk involved in running a partnership firm is shared by all partners.

(b) Ease of formation and closure: A partnership firm can be formed easily by putting an agreement between the prospective partners whereby they agree to carry out the business and closure of the business is also easy task.

The limitations of a partnership firm are as follows:

(a) Unlimited Liability: Partners are liable to repay debts even from their personal resources incase the business assets are not sufficient to meet its debts.

(b) Possibility of conflicts: Difference in opinion on some issues may lead to disputes among partners and decision of one partner are binding on other partners.

(3) Why is it important to choose an appropriate from of organisation? Discuss the factors that determine the choice of form of organisation.

Ans: It is important to choose on appropriate form of business organisation because setting up of business involves cost of formation, managerial skills, following rules & regulations, availability of capital etc.

The factors that determine the choice of form of organisation are as follows:

(i) Cost and ease in setting the organisation: As for initial business setting-up cost is concerned, sole proprietorship business is the most in expensive and easy way to start the business. Incase of partnership, joint-stock company, co-operative society the formation process takes long time and a considerable higher amount of investment.

(ii) Continuity: The continuity of sole proprietorship and partnership firms is effected by events like – death, insolvency, insanity of owners whereas such factors do not affect the continuity of joint Hindu family business, cooperative society, company.

(iii) Capital consideration: If the scale of operation is large and requirement of capital is high, then it is feasible to opt for company form of business, or partnership.

(iv) Nature of business: If direct or personal contact is needed with the customers then sole proprietorship business is suitable, whereas for large manufacturing units the company or partnership form is suitable.

(4) Discuss the characteristics, merits and limitations of co-operative form of urbanisation. Also describe briefly different types of co-operative societies.

Ans: Characteristics of co-operative society are as follows:

(i) Voluntary membership: Membership of a co-operative society is voluntary, A person is free to join a managing committee and this lends the co-operative society a democratic character.

(ii) Limited Liability: The liability of the members of a co-operative society is limited to the extent of amount contributed as capital.

The merits of co-operative society are as follows:

(i) Stable existence: Death, bankruptcy or insanity of the members do not affect the continuity of a co-operative society.

(ii) Economy in operation: The member generally offer honorary services to the society and the focus is on elimination of middlemen which helps in reducing the cost.

The demerits of co-operative society are as follows:

(i) Limited resources: Resources of co-operative society consists of capital contribution of the members with limited means.

(ii) Lack of secrecy: It is difficult to maintain secrecy about the operation of a co-operative society which is due to open discussion in the meetings of members.

The different types of co-operative society are as follows:

(i) Consumer’s co-operative society: These society are formed to protect the interest of the consumers.

(ii) Producer’s co-operative society: These society are formed to protect and promote the interest of small producers.

(iii) Marketing co-operative society: These are formed to help small producers in selling their products and members received reasonable price for their product.

(iv) Co-operative credit society: These are formed to provide easy credit on reasonable terms to the borrowers.

(5) Distinguish between a joint Hindu Family business and Partnership.

Basis Joint Hindu family business Partnership
(i) Meaning (i) It means the business carried out by the members of a hindu undivided family on the basis of existence of some anchesteral property (i) It is defined as the relation between the persons who agree to carry on a business with some agreed proportion of sharing profits and loss.
(ii) Liability (ii) Liability of Karta is unlimited whereas all other members have limited liability. (ii) Liability of all the partners is unlimited.
(iii) Minor states (iii) The status of minor in JHF business is that he/she ca become the member of the business. (iii) The status of minor in a partnership firm is that a minor cannot be a partner.
(iv) Act (iv) JHF business is governed by the Hindu succession Act. (iv) Partnership firm is governed by partnership Act 1932.

 (6) Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organisations? Why?

Ans: Inspite of having the limitation of size and resources, sole proprietorship business is a popular choice of forms of organisation due to its following advantages discussed below:

(i) Quick decision making: A sole proprietor enjoys freedom in decision making and the process is very fast because there is no need to consult others.

(ii) Confidentiality of information: Sole decision making authority enables the proprietor to keep all the information related to business confidential and maintain secrecy.

(iii) Direct incentive: A sole propreitor directly reaps the benefit of his/her effort as he/she is the sole recipient of all the profit of the business.

(iv) Ease of information and closure: This form of business involves minimal legal formalities before starting the business and can be closed easily on the choice of the propreitor.

(v) Sense of accomplishment: The knowledge that one is responsible for the success of the business not only contributes to self-satisfaction but also instills the person with confidence.

For more updates follow our net explanations homepage

Updated: May 8, 2023 — 2:36 pm

Leave a Reply

Your email address will not be published. Required fields are marked *