Test: Forms Of Business Organisations - 4 - Commerce MCQ

The general assembly of shareholders of a joint stock company appoints the directors that receive the most votes in a shareholders' meeting for a maximum of three years. Both real persons and legal entities can be elected as directors.

Mutual agency is the right of all partners to represent the company's normal business operations and the authority to bind it to mutual contracts and agreements. In leman's terms, it is the authority given to a person doing business on behalf of the company, usually a business owner or partner.

Sole Proprietorship:
- A sole proprietorship is a business organization owned, managed, and controlled by a single individual.
- The individual is the sole recipient of all profits generated by the business.
- The individual also bears all the risks and liabilities associated with the business.
- It is the simplest and most common form of business ownership.
- The owner has complete control over the operations and decision-making of the business.
- The owner is personally liable for all debts and obligations of the business.
- The business and the owner are considered as one legal entity.
- It is easy to set up and requires minimal legal formalities.
- The owner has unlimited liability, which means their personal assets can be used to satisfy business debts.
- The business ceases to exist upon the death or retirement of the owner.
Key Points:
- Sole proprietorship is a form of business organization owned and controlled by a single individual.
- The owner receives all profits and bears all risks.
- The owner has unlimited liability and personal assets can be used to cover business debts.
- It is easy to set up and has minimal legal formalities.
- The business and the owner are considered as one legal entity.

Which of the following forms of business enterprises suffer from lack of public confidence because they are not required to publish its accounts legally?

Answer: a. Partnership

Explanation:

Among the given options, the form of business enterprise that suffers from lack of public confidence because they are not required to publish their accounts legally is a Partnership.

Reason:

• Partnership: In a partnership, the business is owned and operated by multiple individuals who share the profits and losses. Partnerships are not required by law to publish their accounts.


• Due to this lack of legal requirement, partnerships may be perceived as less transparent and accountable by the public.


• The absence of published accounts can lead to a lack of confidence from the public, as they may not have access to crucial financial information about the partnership.

Therefore, partnerships suffer from a lack of public confidence because they are not legally obligated to publish their accounts.

According to me, The sole proprietor is personally liable for all the debts. ln case of heavy losses the proprietor will not only loss all his business assets but he may have to sell his personal property to pay back his debts.

Because a sole proprietorship is a type of business operated by one individual. the business is not considered a separate legal entity from its owner. its is profits and losses are included on the individual's personal tax return, and the owner has personal liability for business debts and lawsuits.

Unlimited Liability:
Unlimited liability refers to the legal obligation of a business owner to be personally liable for all debts and liabilities of the business. This means that if the assets of the business are not sufficient to cover its obligations, the owner's personal assets can be used to settle the remaining debts.

Key Points:
- Personal assets of the owner can be sold to cover the debts of the business when the business assets are not enough.
- Unlimited liability applies to sole proprietorships and partnerships, where the owners have direct control over the business.
- It does not apply to limited liability companies (LLCs) or corporations, where the owners' personal assets are protected.
- Creditors have the right to pursue the owner's personal assets to satisfy the business debts.
- The owner's personal assets can be seized and sold to repay the creditors in case of business failure or bankruptcy.
- This type of liability can pose a significant risk to the owner's personal financial well-being.

Example:
- If a sole proprietorship incurs substantial debts that cannot be repaid using business assets, the owner may have to sell their house, car, or other personal belongings to satisfy the creditors' claims.
- Similarly, in a partnership, all partners are individually liable for the partnership's debts, and their personal assets can be used to settle those obligations.
Unlimited liability is an important consideration for business owners, as it exposes them to significant financial risk. It is crucial to understand the implications of unlimited liability and weigh them against the advantages and disadvantages of different business structures before starting a business.

The Indian Partnership Act, 1932 defines partnership as "the relation between persons who have agreed to share the profit of the business carried on by all or anyone of them acting for all." Some people consider partnership to be relatively unpopular because the inherent features of partnership such as joint risk bearing and profit sharing, collective decision making, unlimited liability of partners, etc. Sometimes lead to conflicts among partners and undue burden on some of the partners. 

Specific Form of Business Organization where Membership is by Birth: Hindu Undivided Family (HUF)

• Hindu Undivided Family (HUF) is a specific form of business organization in India where membership is determined by birth.


• In an HUF, the business is owned and operated by a joint Hindu family, consisting of a common ancestor and his lineal descendants.


• Membership in an HUF is acquired by birth into the family and cannot be acquired or transferred by any other means.


• The eldest male member, known as the "Karta," manages the affairs of the HUF and takes decisions on behalf of the family.


• An HUF can carry out various business activities, including trading, investing, and owning assets.


• The income generated by the HUF is taxed separately from the individual incomes of its members.


• Members of the HUF have a share in the assets and profits of the family business, as determined by Hindu law.


• Upon the death of a member, their share in the HUF passes on to their legal heirs, who become members of the HUF.


• HUFs are governed by the Hindu Succession Act and other relevant laws and regulations in India.

Therefore, the specific form of business organization where membership is by birth is the Hindu Undivided Family (HUF).

Principle followed in a cooperative society:
In a cooperative society, the principle followed is "One man one vote." This means that each member of the cooperative society has an equal right to participate in the decision-making process and exercise their voting rights.
Explanation:
- Cooperative society: A cooperative society is a voluntary association of individuals who come together to meet their common economic, social, and cultural needs.
- Principle of "One man one vote": This principle ensures that every member of the cooperative society has an equal say in the decision-making process, regardless of their shareholding or financial contribution.
- Equal participation: Each member has the right to participate in general meetings, discussions, and voting on various matters of the cooperative society.
- Democratic decision-making: The principle of "One man one vote" ensures that decisions are made democratically, taking into account the opinions and preferences of all members.
- Equality: This principle promotes equality among the members, as no one member can dominate the decision-making process based on their financial contribution or shareholding.
- Transparency: The "One man one vote" principle promotes transparency in the cooperative society, as all members have the right to be informed about the decisions and actions of the society.
- Collective benefit: The cooperative society aims to work for the collective benefit of its members, and the principle of "One man one vote" ensures that the decisions made reflect the interests and aspirations of the entire community.
In conclusion, the principle followed in a cooperative society is "One man one vote," which allows every member to have an equal say in the decision-making process and promotes democratic participation and collective benefit.