ch2 BS

Class 11
Business Studies
Chapter - 2
Forms of
Business Organisation
Ajith Kanthi Wayanad

www.hssplustwo.blogspot.com
Forms of Private Sector
Undertakings
Forms of Private Sector
Undertakings
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Non-Corporate Enterprises
Sole Proprietorship Partnership
Joint Hindu Family

Business
Corporate Enterprises
Co-operative Societies Joint Stock Companies

1
Sole Proprietorship

Sole Proprietorship
It is a “one man business” as he invests the
entire capital, bears all the risks, takes all the
advantages and manages the business by
himself
It is also called Individual Proprietorship

Features of Sole Proprietorship
a Formation and closure is easy
Less formalities as it has no separate law

b Unlimited Liability
Even the personal properties are held liable to

meet the liabilities of the firm
c Sole risk bearer and profit recipient
All the risk on his shoulder and the entire profit

enjoyed by him
d Control
Complete control of business is held with the

proprietor himself
No separate entity for the business from
e
the businessman
The owner is held liable for all the activities

of the business
f Lack of continuity
Since the business and owner are one and the

same entity, his death, insanity etc. will affect the
existence of the business
Merits of
Sole Proprietorship
Merits of Sole Proprietorship
a Quick decision making
No need to consult with others

b Confidentiality of information
Secrecy can be maintained

c Direct incentive
All the profit goes to the proprietor

d Sense of accomplishment
Personal satisfaction by working for himself

e Ease of formation and closure
Minimum legal formalities only

Limitations of
Sole Proprietorship
Limitations of Sole Proprietorship
a Limited resources
Capital is limited and the size of business is small

b Limited life
As the business has no separate legal entity

c Unlimited liability
Even the personal properties are attached

d Limited managerial ability
The proprietor may not be efficient in all

managerial functions
2
Joint Hindu Family

Business
Joint Hindu Family Business
Business owned by the members of a
Joint Hindu Family
It is the oldest system of business that can be

seen only in India
It is governed by the provisions of
Hindu Law
The basis of membership in the business is

birth in a particular family and three successive
generations can be members in the business
The business is controlled by the head of the
family who is the eldest member and is called
‘Karta’
All members (male and female) have equal

ownership right over the property of an ancestor
and they are known as ‘co-parceners’
Features of
Joint Hindu Family
Business
a Features of J H F Business
Formation
Minimum two members from the family and their
ancestral property is used for business
It is governed by Hindu Succession Act, 1956

b Features of J H F Business
Liability
Limited Unlimited
Limited liability to the members except Karta

c Features of J H F Business
Control
Management is vested in the hands of Karta

d Features of J H F Business
Continuity
The death of a member or Karta does not

affect the business
e Features of J H F Business
Minor Members
Membership by birth
Both male and female members in
the family have equal right in the
business based on the Hindu
Succession (Amendment) Act 2005
Merits of
Joint Hindu Family
Business
Merits of J H F Business
a Effective control
No conflict among members as the decisions are

taken by Karta
b Continued existence
Even the death of Karta does not affect the existence

of business, as the next eldest member
will take up the position
c Limited liability
Liability of members except Karta is limited

d Increased loyalty and co-operation
The business is treated as a pride to the family

Limitations of
Joint Hindu Family
Business
Limitations of J H F Business
a Limited resources
It depends mainly on ancestral properties

b Unlimited liability of Karta
His/ Her personal properties are also liable to

meet the debts of the firm
c Dominance of Karta
The leadership of Karta may not be acceptable to all

the members in the family, which may results even
the breakdown of family
d Limited managerial skills
The Karta may not be an expert in all

the areas of management
3
Partnership

Partnership
Partnership form of business

organisations emerged to overcome the
difficulties of sole proprietorship business
Partnership
Definition
The relation between persons who have agreed

to share the profits of a business carried on by all
or any of them acting for all
Features of
Partnership
Features of Partnership
a Formation
Formation is based on the agreement among
the partners to run a lawful business and it
may be either oral or written
But two people coming together for charitable

purpose is not a partnership
b Liability
The liability of each partner is unlimited
Even their personal properties are held liable

for the debts of the partnership firm
c Risk bearing
All the risk of loss is shared by the partners
as they are sharing profits of the firm
d Decision making and control
Decisions are generally taken with
mutual consent
e Continuity
A partnership is purely a personal
organization and it has no separate legal
existence apart from its members, hence it
lacks continuity
Death, insanity etc. of a partner bring an end to the business

f Membership (2 to 50)
Minimum number of members is 2

According to Section 464 of Companies Act 2013
maximum number of partners can be 100, subject the
number prescribed by the government
At present it is limited to 50 by Govt. of India
g Mutual agency
Each partner is an agent of the other partners as
well as the firm
Merits of
Partnership
Merits of Partnership
a Easy formation and closure
Less formalities only

b Balanced decision making
Because of the involvement of more than one person

c More funds
Large capital can be accumulated

d Sharing of risk
Reduces the anxiety, burden and stress on

individual partners
e Secrecy can be maintained
No legal requirements to publish its

accounts and reports
Limitations of
Partnership
Limitations of Partnership
a Unlimited liability
liab
ility
Attaches even the personal properties

b Limited resources
Unable to run large scale business organizations

c Conflicts
Disagreement between partners leads to

dissolution of firms
c Lack of continuity
As it has no separate legal entity

d Lack of public confidence
As it is free from government control

Types of
Partners

Types of Partners
1
Active or Working Partner
Contributes capital & take part in the day to

day affairs of the business
Types of Partners
2
Sleeping or Dormant Partner
No active role in the business

contributes capital
shares profit or loss
Types of Partners
3
Secret Partner
His connection with the firm is unknown
to the public
Contributes capital
Participates in management
Unlimited liability
Types of Partners
4 Nominal Partner
Lends his name and reputation for the
benefit of the firm
Also known as Ostensible Partner or Quasi Partner
Does not contributes capital

No participation in management
No share in profit
But liable to outsiders
Types of Partners
5 Partner by Estoppel
If a person acts as a partner of a firm by his
words and conduct, he can be called as
partner by estoppel.
Even though he is not an actual partner, he is liable for the

debts of the firm as he makes himself as a partner
in front of the public
Types of Partners
6 Partner by holding out
A person may be declared as a partner in a
firm by the outsiders and does not deny this
even after becoming aware of it
He is also liable for the debts of the firm

he is not an actual partner
Types of Partners
Share in
Type Capital Management Liability
Profits/Losses
Active Contributes Participates in

Shares Profits/Losses Unlimited
Partner Capital Management
Sleeping Contributes Does not Participate in

Secret Contributes Participates in

Does not
Nominal Does not Participate in Generally does not
Contributes Unlimited
Partner Management Share Profits/Losses
Capital
Does not
Partner by Does not Participate in Does not Share
Estoppel Management Profits/Losses
Capital
Does not
Partner by Does not Participate in Does not Share
Holding out Management Profits/Losses
Capital
Minor as a
Partner
Minor as a Partner
A minor is a person who has not completed 18
years of age
A minor cannot become a partner as he is not capable to

enter into a contract, but he may be admitted as a partner to
the benefits of the firm, with the consent of all the partners
Eg: If a celebrity is admitted, it may be beneficial to the firm
Minor as a Partner
He cannot take active part in management
His liability is limited to the extent of his share in the

capital and profits of the firm
Minor as a Partner
After becoming major, he will be eligible to
enjoy all the rights of a partner and his liability
becomes unlimited
A partnership cannot be formed with a minor partner

Rights of a
Minor Partner
Rights of a Minor Partner
Right to share the profits and
1 properties of the firm
Minor as a Partner
He can inspect and copy the accounts
2 of the firm
But he has no access to all the books of the firm.

Minor as a Partner
He can sue the partners
3 for payment of his share of
profits or properties in the firm
Types of
Partnership

Types of Partnership
Partnership
General Limited
Partnership Partnership
General
Partnership
General Partnership
Also known as ordinary partnership

Unlimited liability to partners
Usually found in India
Types of Partnership
General
Partnership
Particular Partnership
Partnership at will
Particular
Partnership
Particular Partnership
a Formed for a particular purpose
or for a particular period
Dissolved after the expiry of the time
or the completion of the project
E.g. If a partnership is formed for two years, or

for the construction of a house
Partnership
at will
Partnership at Will
b Duration of partnership is not
specified in the agreement
It will be continued for an indefinite period
It can be dissolved at any time as it is decided by all

or any of the partners
Limited
Partnership
Limited / Special Partnership
Two types of partners in Limited
Partnership
Unlimited Limited
Liability Liability
General Special
Partners Partners
Limited / Special Partnership
Minimum one general partner is a must
It is not allowed in India but prevails in England

Partnership
Deed
Partnership Deed
Page 1 Page 2
e e d
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e rs h
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Pa
s hip
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Pa r
s o f
ti c le
A r
Partnership Deed
Partnership is established by an agreement which

may be oral or in writing
It is always better to have the agreement in writing to
avoid any dispute
The document, containing the agreement in writing
among the partners is called
Partnership Deed
Contents of
Partnership
Deed
Contents of Partnership Deed
1. Name of the firm
ABC ASSOCIATES
2. Names and addresses of all partners

3. Nature and place of business

4. Date of Commencement of partnership

5. Duration of partnership, if any

6. Capital contribution by the partners

7. The amount that can be withdrawn by each

partner
Rs. 20,000
8. Rules regarding operation of bank

accounts
9. Division of profits or losses

10. Interest on capital or drawings, if any

11. Interest on partner’s loan to the firm

12. Salaries, commission, etc. if payable to

any partner
13. Details of division of work among the

partners
Purchase Manager Production Manager Sales Manager

14. Ascertainment of goodwill
On admission, retirement and death of a partner

15. Settlement of accounts
t i r ed
Re
In the event of retirement or death of partners

16. Settlement of accounts
On dissolution of the firm

17. Provisions relating to the maintenance

and audit of accounts
18. Provisions for arbitration in the event of

disputes
19. Provisions regarding borrowings of the firm

20. Rights, duties and liabilities of partners
Rights Duties Liabilities

Registration of
Partnership
Registration of Partnership
Registration of partnership is not compulsory
But it can be registered with the Registrar of

Firms as per the Partnership Act 932
Procedure for Registration
a Submit an application in prescribed
form with the following details:
a) Name of the firm.
b) Location of the firm.
c) Names of other places where the firm carries
on business.
d) The date of joining of each partner.
e) Names and addresses of partners.
f) Duration of partnership.
g) This application should be signed by all the
partners.
b Remitting the fees for registration
c Issue of Registration Certificate
After approval, the Registrar should enter the name

of the firm in his register and issues
a certificate of registration
Effects of
NonRegistration
Effects of Non-Registration
1 Cannot sue against third parties
An unregistered firm cannot sue against a third

party for the recovery of claims
2 Cannot sue against its partners
An unregistered firm cannot sue against its partners

3 A partner cannot enforce his claims
A partner of an unregistered firm cannot enforce his

claims against outsiders or against his
co-partners or the firm
4
Co-operative
Societies

Co-operative Societies
Voluntary associations of persons constituted

for the purpose of protecting their
economic and social interest
Co-operative Societies
Basic Principles of Co-operative Societies
Self help through mutual help

or
Each for all and all for each
Features of
Cooperative Organisations
Features of Co-operative Organisations
1
Voluntary Membership
Anybody can become a member in a co-

operative society at his own wish and there is
not compulsion at all
2
Legal Status
As the registration of a cooperative society is

compulsory, it gets separate legal entity and
continuous existence
3
Limited Liability
The liability of members is limited

4
Control
Board
Meeting
Control is vested in the hands of board of

directors who are elected by the members
under the principle of one man one vote
5
Service Motive
The main objective is to render services to its

members rather than profit
Formation of a
Cooperative Society
Formation of a Co-operative Society
As per Kerala co-operative societies Act, there

should be at least 10 members who are bound
together by a common bond belonging to the
same locality, class, occupation or having a
common economic need
These members are called promoters
They should present a joint application to the

Registrar of Co-operative Societies
This application should contain the following:
● Proposed name of the society.

● Aim and objective.
● Area of operation.
● Nature of members’ liability
● Particulars of share capital to be raised.
● Copy of bye-laws of the society
After scrutiny, the Registrar issues a Certificate

of Registration and thereafter the society can
admit new members
Merits of
Cooperative Societies
Merits of Cooperative Societies
1
Equal Voting Rights
Each member is having equal voting rights

irrespective of their capital contribution, as it
follows the principle of ‘one man one vote’
2
Limited Liability
Liability of members is limited to the extent of

their capital contribution
3
Stable Existence
The existence of a society is not affected by the

death, insanity, insolvency etc. of members
4
Economy in Operations
To eliminate middlemen, the members offer

honorary services to the society, which will in
turn reduces cost of operation
5
Support from Government
As it is a democratic organization, government

provides various supports such as low taxes,
subsidies, grants, low interest rates for loans etc.
6
Easy Formation
No complex legal formalities are required to

form a co-operative society
Limitations of
Limitations of Cooperative Societies
1
Limited Resources
Low rate of dividend and one man one vote principle

reverts the members to invest more capital
2
Inefficient Management
Office bearers are elected from members and they

may not be competent
3
Lack of Business Secrecy
The general body openly discusses all facts and

figures of the society without any secrecy
4
Excessive Government Control
It will affect the smooth functioning

5
Difference of Opinion
Conflict among the members adversely

affect the organization
Types of

Types of Cooperative Societies
1 Consumers' Co-operative Societies

● Formed by consumers
● To ensure supply of consumer goods in a fair price
● Purchases directly from wholesalers
● Distributes to members and outsiders
● Takes only a little margin of profit
2 Producers Co-operative Societies

● Also called industrial co-operative societies
● Promoted by small producers and craftsmen
● Help them to start small scale and cottage
industries
● Supplies raw-materials, tools and equipments
● Sells their products in market
3 Marketing Co-operative Societies
● Formed by farmers, artisans and small producers
● Collect the products from members
● Grade and process the products
● Provide storage facilities
● Sell in the market only on favourable conditions
● Provide finance and raw-materials
● Help to promote bargaining capacity of members
4 Farmers' Co-operative Societies
● An association of small farmers in a village
● Large scale production through joint cultivation
● Increase in yield per acre of land
● To introduce modern method of
cultivation
● To inculcate the spirit of
co-operation among farmers
Credit Co-operative Societies
5
● To provide short term finance

● Charging only a reasonable rate of interest
● To protect the members from money lenders
Types of Credit Societies

a) Rural banks to supports farmers
b) Urban Banks to help small traders and artisans.
c) Employees’ credit societies formed by the
employees in govt. or non-govt organizations.
d) Wage earner’ societies formed by workers to meet
their credit needs.
6 Co-operative Housing Societies

● To provide housing facilities to the members
● Either ownership or rental basis
● Help to purchase houses at a less cost
● Help to purchase houses on easy instalments
Types of Cooperative
Housing Societies
Types of Cooperative Housing Societies
a Land Societies
Acquire land and distribute among members as small

plots at reasonable price, to be paid in
lump sum or instalments
b Housing Finance Societies
Selling plots to the members and advance money for

the construction of houses
House Building Societies
c
● Acquiring land
● Constructing large number of houses
● Construction cost is lower (many houses at a time)
● Sells them to its members on a reasonable price
d Tenancy Co-operative Societies
These societies own houses and allot them to

members on rental basis
5
Joint Stock
Companies
Joint Stock Companies
are emerged to
overcome the difficulties
of sole proprietorship
and partnership business
organisations and to run
large scale business
enterprises
Definition
A company is a voluntary association of persons
having separate legal existence, perpetual
succession and a common seal
As per Companies Act 2013, a company means
company incorporated under this Act or any other
previous company law
Previous Company Laws:
● Act relating to companies in force before the Indian
Companies Act 1866
● The Indian Companies Act 1866
● The Registration of Transferred Companies Ordinance 1942
Features of
Features of Joint Stock Companies
1 Artificial Person
A company is created by law and exists

independent of its members and it can own
properties, borrow funds, enter into contracts in its
own name, but it is not a natural person
2 Separate Legal Entity
As the company is a registered body, it is treated as

a legal person and its assets and liabilities are
separate from those of its owners
3 Formation
Formation of a company is a time consuming and

expensive process as it involves the preparation of
several documents and the registration is
compulsory under Companies Act 2013 or any
other previous company laws
4 Perpetual Succession
A company is created by law and hence only

the law can bring an end to its existence
Death, insanity, insolvency or lunacy of members
does not affect the life of the company
5 Control
Director Board
The owners of a company are the members or

shareholders, whereas the management and
control is vested in the hands of directors
elected by the members
6 Liability
The liability of members is limited to the extent of
their capital contribution only.
The members can be asked to contribute to the loss

only if any unpaid amount on shares held by them
7 Common Seal
A company may or may not have a common seal

As it is an artificial person it cannot sign documents
Therefore a common seal is used for its signature
8 Risk Bearing
The risk of loss in a company is borne by all the

shareholders, so that it will not become a heavy
burden to them
Merits of
Merits of Joint Stock Companies
1 Limited Liability
The public may be encouraged to invest in the shares

of a company because of limited liability
2 Transfer of Shares
The investors are attracted to purchase the shares of

companies as it can be converted into cash
at any time
3 Perpetual Existence
A company will continue to exist even if

all the members die
It can be liquidated only as per the provisions of
Companies Act
4 Scope for Expansion
Through the issue of shares, a company can

accumulate large amount of capital
Hence it has greater scope for expansion
5 Professional Management
Management of a company constitutes the Board of

Directors and supported by salaried managers
Limitations of
Limitations of Joint Stock Companies
1 Difficulty in formation
Due to complex formalities

2 Lack of secrecy
Each public company should publish their accounts
and reports to the Registrar of Companies and to
the public time-to-time
Hence there is no secrecy in the operations of a joint

stock company
3 Impersonal work environment
The large size of a company makes it difficult to

maintain personal contact with the employees,
customers and creditors
4 Numerous regulations
Compulsory audit, filing of reports, statutory

meeting, obtaining certificates from Registrar,
SEBI etc. leads to complexities
5 Delay in Decision making
Due to get consent from the Directors and

Share holders
6 Oligarchic management
Oligarchy means “rule by a few”
The control is in the hands of a few people who may

ignore the interests of the share holders
7 Conflict of Interest
Conflict between the management and share

holders may adversely affect the
progress of the company
Types of
Companies
Types of Companies
Private Co.
Public Co.
One Person Co.

1
Private Company
Private Company
A private company is defined as a company by
its Articles of Association, restricts the right to
transfer the shares, has a minimum of 2 and
maximum of 200 members excluding the present
and past employees, does not invite public to
subscribe to its securities and it is necessary to
use the word private limited after its name
Privileges of a
Private Company
Privileges of a Pvt. Co.
1
Easy Formation
Only two persons are required to form a

Private Company
2
No need to issue Prospectus
Public is not invited to subscribe to the shares of a

private company
3
Allotment of Shares
It can allot shares and raise capital privately

No need to issue prospectus
No need of minimum subscription
4
Starting of Business
It can start the business as soon as it is

incorporated
5
Board of Directors
Need to have only two directors minimum

(Maximum number of directors is 15 in private and
public companies)
6
Not required to keep an Index of Members
2
Public Company
Public Company
As per Companies Act, 2013, a Public
Company is a company which is not a private
company. In other words it has no restriction
on the right of members to transfer the shares,
has a minimum of 7 members and no limit on
maximum members and permits to make any
invitation to public to subscribe to its shares
and debentures.
Public Company
A private company which is the subsidiary of a
public company is treated as a public company
3
One Person Company

One Person Company
O P C means a company with only
one person as its member
Section 3(1) of Indian Companies Act 2013

Public Company
Vs.
Private Company
Differences: Public Co. & Private Co.
1 Number of Members
Public Co. Private Co.
Minimum - 7 Minimum - 2
Max - Unlimited Max - 200

2 Minimum Number of Directors
Three Two
3 Index of Members
Not
Compulsory Compulsory
4 Transfer of Shares
No Restriction
Restriction on Transfer
5 Invitation to Public
It can invite the It cannot invite

public the public
Basis Public Company Private Company
Minimum – 7 Minimum – 2
Members
Maximum – Unlimited Maximum – 200
Minimum number of directors Three Two
Index of members Compulsory Not Compulsory
Transfer of shares No restriction Restriction on transfer
Invitation to public to
Can invite Cannot invite
subscribe to shares
Choice of Form of
Business Enterprise

Factors to be considered
while choosing a suitable
form of business enterprise
Choice of Form of Business Enterprise
1 Cost and ease in setting up

the organization
Cost Ease
Sole proprietorship and partnership are the

most inexpensive form or organization and
having less legal formalities
2 Liability
From side of investors, company form of

organization is more suitable as the risk
involved is limited
3 Continuity
Sole proprietorship and partnership business
organizations lacks continuity
If the business is intended for a long period of

time, company or cooperative society form of
organizations are more suitable
4 Managerial Ability
A sole proprietor may find it difficult to have

expertise in all functional areas of
management
5 Capital Consideration
If the business requires huge capital, it should

be organized as a company or
co-operative society
6 Degree of control
If direct control over operations and decision

making is required, proprietorship is
more preferred
7 Nature of Business
For large business units, where personal

attention is not much required, company form
of organization is more suitable
Comparative Evaluation
of Forms of Organisation
Comparative Evaluation of Forms of Organisation
Sole Joint Hindu
Partners Cooperativ
Basis Propriet Family Company
hip e Society
orship Business
Compulsory
Easy –
Easy – Less Registratio registration –
Formatio Registrati
Easy legal n is expensive and
n on is
formalities compulsory complex
optional
formalities
Private Co.
Minimum Min: 2
Minimum: Max: 200
2 Minimum 2 10 adults.
Only
Members persons from No
Owner Maximum the family maximum Public Co.
: 50 Limit Min: 7
Max: Unlimited
Ancestral
Capital Limited Limited Limited Large
property
Comparative Evaluation of Forms of Organisation
Sole Joint Hindu
Partnersh Cooperative
Basis Proprieto Family Company
ip Society
rship Business
Unlimited for
Karta and
Liability Unlimited Unlimited Limited for Limited Limited
other
members
Control &
With the All Elected
Managem Karta Elected Board
Owner partners Board
ent
Stable – Stable –
More Stable even if
Continuity Unstable separate separate legal
stable Karta dies
legal status status
Prepared by : Ajith Kanthi @ Ajith P P
SKMJ HSS Kalpetta Wayanad Kerala
Ph: 9446162771, 7907712665 www. hssplustwo.blogspot.com

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Class 11

Ajith Kanthi Wayanad

Sole Proprietorship Partnership

Joint Hindu Family

Co-operative Societies Joint Stock Companies

Ajith Kanthi Wayanad

It is also called Individual Proprietorship

Less formalities as it has no separate law

Even the personal properties are held liable to

All the risk on his shoulder and the entire profit

Complete control of business is held with the

The owner is held liable for all the activities

Since the business and owner are one and the

No need to consult with others

Secrecy can be maintained

All the profit goes to the proprietor

Personal satisfaction by working for himself

Minimum legal formalities only

Capital is limited and the size of business is small

As the business has no separate legal entity

Even the personal properties are attached

The proprietor may not be efficient in all

Joint Hindu Family

It is the oldest system of business that can be

The basis of membership in the business is

All members (male and female) have equal

It is governed by Hindu Succession Act, 1956

Limited liability to the members except Karta

Management is vested in the hands of Karta

The death of a member or Karta does not

No conflict among members as the decisions are

Even the death of Karta does not affect the existence

Liability of members except Karta is limited

The business is treated as a pride to the family

It depends mainly on ancestral properties

His/ Her personal properties are also liable to

The leadership of Karta may not be acceptable to all

The Karta may not be an expert in all

Ajith Kanthi Wayanad

Partnership form of business

The relation between persons who have agreed

But two people coming together for charitable

Even their personal properties are held liable

Death, insanity etc. of a partner bring an end to the business

Minimum number of members is 2

Less formalities only

Because of the involvement of more than one person

Large capital can be accumulated

Reduces the anxiety, burden and stress on

No legal requirements to publish its

Attaches even the personal properties

Unable to run large scale business organizations

Disagreement between partners leads to

As it has no separate legal entity

As it is free from government control

Ajith Kanthi Wayanad

Contributes capital & take part in the day to

No active role in the business

Does not contributes capital

Even though he is not an actual partner, he is liable for the

He is also liable for the debts of the firm

Active Contributes Participates in

Sleeping Contributes Does not Participate in