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Key Notes: Forms of Business Organisation | Business Studies (BST) Class 11 - Commerce PDF Download

Forms of Business Organisation

Sole Proprietorship:


Features:

  • Formation and closure: Easy to establish and close without legal formalities.
  • Liability: Unlimited liability of the owner.
  • Sole risk bearer and profit recipient: Owner bears all risks and enjoys all profits.
  • Control: Owner makes all decisions and manages the business.
  • No separate entity: Owner and business are considered one legally.
  • Lack of business continuity: Business continues as long as the owner desires.

Merits:

  • Quick decision-making.
  • Confidentiality of information.
  • Direct incentive for the owner.
  • Sense of accomplishment.
  • Ease of formation and closure.

Limitations:

  • Limited resources.
  • Limited business continuity.
  • Unlimited liability.
  • Limited managerial ability.

Joint Hindu Family Business:

Features:

  • Formation: Requires at least two members with ancestral property.
  • Liability: Limited liability for family members except Karta.
  • Control: Karta manages all activities.
  • Continuity: Can be discontinued with family consensus.
  • Minor members: Membership by birth.

Merits:

  • Effective control.
  • Continued business existence.
  • Limited liability of members.
  • Increased loyalty and cooperation.

Limitations:

  • Limited resources.
  • Unlimited liability of Karta.
  • Dominance of Karta.
  • Limited managerial skills.

Partnership:

Features:

  • Formation: Governed by the Partnership Act 1932.
  • Liability: Partners have unlimited liability.
  • Risk bearing: All partners share business risks.
  • Decision making and control: Decisions require partner consensus.
  • Continuity: Depends on the partnership deed.
  • Number of partners: 2 to 50 members.
  • Mutual agency: Each partner is an owner and agent of the firm.

Merits:

  • Ease of formation and closure.
  • Balanced decision making.
  • More funds available.
  • Sharing of risks.
  • Secrecy.

Limitations:

  • Unlimited liability.
  • Limited resources.
  • Possibility of conflicts.
  • Lack of continuity.
  • Lack of public confidence.

Cooperative Societies:

Features:

  • Voluntary membership: Open to individuals with common interests.
  • Legal status: Separate legal identity, registration is mandatory.
  • Limited liability: Members' liability limited to their capital contribution.
  • Control: Elected managing committee.
  • Service motive: Focus on mutual help.

Merits:

  • Equality in voting status.
  • Limited liability.
  • Stable existence.
  • Economy in operations.
  • Government support.
  • Ease of formation.

Limitations:

  • Limited resources.
  • Inefficiency in management.
  • Lack of secrecy.
  • Government control.
  • Differences of opinion.

Joint Stock Company:

Features:

  • Artificial person: Separate legal entity.
  • Formation: Governed by Companies Act.
  • Perpetual succession: Continues regardless of members.
  • Control: Managed by Board of Directors.
  • Liability: Limited liability for shareholders.
  • Common seal: Acts as official signature.
  • Risk sharing: Shareholders bear risks.

Merits:

  • Limited liability.
  • Transferability of shares.
  • Perpetual existence.
  • Scope for expansion.
  • Professional management.

Limitations:

  • Complexity in formation.
  • Lack of secrecy.
  • Impersonal work environment.
  • Numerous regulations.
  • Delay in decision making.
  • Oligarchic management.
  • Conflict in interests.

Types of Companies:

Private Company:

  • 2 to 200 members.
  • Restricted share transfer.
  • Cannot raise funds from the public.
  • Uses "Private Limited" in the name.

Public Company:

  • Minimum 7 members, no maximum limit.
  • Free share transfer.
  • Can issue shares to the public.
  • Uses "Public Limited" in the name.

Choice of Form of Business Organisation:

  • Cost and ease in setting up: Sole proprietorship is easy and cost-effective, while a company is complex and costly.
  • Liability: Sole proprietorship and partnership have unlimited liability, while companies have limited liability.
  • Continuity: Companies and HUF enjoy perpetual existence.
  • Management ability: Companies allow division of work among professionals.
  • Capital consideration: Companies are suitable for large-scale operations.
  • Degree of control: Sole proprietorship allows complete control, while other forms may involve shared control.
  • Nature of business: Sole proprietorship and partnership are suitable for trading and services, while manufacturing may opt for a company.
The document Key Notes: Forms of Business Organisation | Business Studies (BST) Class 11 - Commerce is a part of the Commerce Course Business Studies (BST) Class 11.
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