Class 11th Business Studies Forms of Business Organizations Notes

1. Business Enterprises & Types

• Business Enterprise: An economic unit formed to produce and distribute goods/services for profit or welfare.

Types of Enterprises

1. Private Sector Enterprises: Owned, managed, and controlled by individuals or private groups. Example – Reliance Industries.
2. Public Sector Enterprises: Owned, managed, and financed by Government. Example – Indian Railways.
3. Joint Sector Enterprises: Owned and managed jointly by Government and private individuals. Example – Maruti Suzuki (initially).

2. Forms of Private Sector Enterprises

A. Sole Proprietorship

Definition: Business owned, financed, and managed by one individual.

Features (5)

1. Single Ownership: Complete control lies with one person.
2. Direct Control: Owner makes all decisions independently.
3. Unlimited Liability: Owner’s personal assets may be used to pay debts.
4. Easy Formation & Closure: No legal formalities required.
5. Lack of Continuity: Ends with owner’s death or insolvency.

Advantages (5)

1. Simple Start & Closure: Easy to establish with minimal cost.
2. Full Profit: Entire earnings belong to the owner.
3. Quick Decisions: No interference in decision-making.
4. Customer Relations: Direct contact builds trust and loyalty.
5. Flexibility: Business can easily adapt to changes.

Disadvantages (5)

1. Limited Capital: Financial resources restricted to personal funds.
2. Unlimited Liability: Owner personally bears all risks.
3. No Continuity: Business dissolves if owner dies or becomes insolvent.
4. Limited Skills: Difficult to handle all functions alone.
5. Small Scale: Cannot expand much beyond local level.

B. Joint Hindu Family (JHF) Business

Definition: A business owned by Hindu Undivided Family and managed by Karta.

Features (5)

1. Membership by Birth: Only family members are co-parceners.
2. Karta’s Control: Karta alone manages business affairs.
3. Limited Liability of Members: Only Karta has unlimited liability.
4. Continuity: Business continues even after death of Karta.
5. Formation by Law: Exists by virtue of Hindu law, no formalities.

Advantages (5)

1. Easy Formation: No registration or legal procedure needed.
2. Quick Decisions: Karta has complete control.
3. Continuity: Business is stable and long-lasting.
4. Limited Liability of Members: Ordinary members’ liability is limited.
5. Family Loyalty: Members usually support each other.

Disadvantages (5)

1. Limited Resources: Capital depends only on family’s funds.
2. Overburden on Karta: Heavy responsibility on one person.
3. Risk of Inefficiency: If Karta is unskilled, business suffers.
4. Lack of Initiative: Other members have no role in management.
5. Restricted Membership: Only Hindus can form it.

C. Partnership

Definition: Agreement between two or more persons to share profits of a jointly carried business.

Features (5)

1. Agreement-Based: Formed through Partnership Deed.
2. Number of Members: Minimum 2, maximum 20 (10 in banking).
3. Unlimited Liability: Partners jointly and severally liable.
4. Profit Sharing: As per deed or equally if not specified.
5. No Separate Entity: Partners and firm are same in law.

Advantages (5)

1. More Capital: Pooled resources of partners.
2. Shared Risk: Loss divided among partners.
3. Specialisation: Partners bring varied skills.
4. Flexibility: Easy to adapt without much law.
5. Quick Decisions: Fewer legal formalities.

Disadvantages (5)

1. Unlimited Liability: Personal assets of partners are at risk.
2. Possibility of Conflicts: Disagreements may affect business.
3. Limited Capital: Still smaller than companies.
4. Uncertain Life: Dissolves on partner’s death/retirement.
5. No Legal Status: Not separate from its owners.

D. Cooperative Society

Definition: Voluntary association of persons formed for mutual benefit on the principle of “one man, one vote.”

Features (5)

1. Voluntary Membership: Open to all.
2. Democratic Control: Equal voting rights.
3. Service Motive: Focus on welfare over profit.
4. Legal Status: Registered under Cooperative Societies Act.
5. Limited Liability: Members liable only up to their capital.

Advantages (5)

1. Equality: All members have equal rights.
2. Limited Liability: Personal risk is low.
3. Continuity: Stable existence unaffected by member changes.
4. Eliminates Middlemen: Directly benefits members/consumers.
5. Government Support: Eligible for subsidies/loans.

Disadvantages (5)

1. Limited Capital: Low financial strength.
2. Inefficient Management: Often lacks professionals.
3. Low Motivation: Profit is not the main motive.
4. Government Interference: Excessive regulation.
5. Slow Decisions: Democratic process delays actions.

E. Company

Definition: Artificial person created by law, with separate legal entity and perpetual succession.

Features (5)

1. Separate Legal Entity: Distinct from members.
2. Limited Liability: Liability only up to shareholding.
3. Transfer of Shares: Possible in public companies.
4. Perpetual Succession: Existence independent of members.
5. Legal Formalities: Strict compliance under Companies Act.

Advantages (5)

1. Large Capital: Can raise funds through shares/debentures.
2. Limited Liability: Shareholders’ risk is limited.
3. Continuity: Exists beyond life of members.
4. Professional Management: Run by experts.
5. Growth Potential: Suitable for expansion.

Disadvantages (5)

1. Complicated Formation: Lengthy and costly process.
2. Lack of Secrecy: Must publish accounts.
3. Conflict of Interests: Separation of ownership & management.
4. Government Control: Excessive compliance needed.
5. Delay in Decisions: Slow due to legal formalities.

3. Types of Partnership Firms

1. Partnership at Will: No fixed duration; dissolved anytime by mutual consent.
2. Fixed Period Partnership: Formed for a specific time duration.
3. Particular Partnership: Formed for a specific project/venture.

4. Types of Partners

1. Active Partner: Takes part in daily management.
2. Sleeping Partner: Contributes capital but does not manage.
3. Secret Partner: Invests but keeps identity hidden.
4. Nominal Partner: Only lends name without investment.
   • By Estoppel: Liable because he allows others to assume he is a partner.
   • By Holding Out: Accepts representation as a partner and becomes liable.

5. Formation of Partnership Firm

• Partnership Deed: Written agreement mentioning terms – capital, duties, profit sharing, etc.
• Registration (Optional): Gives legal benefits.

Procedure for Registration

1. Submit application to Registrar of Firms.
2. Pay registration fees.
3. Registrar enters details in Register of Firms.
4. Firm gets Certificate of Registration.

6. Types of Cooperative Organisations

1. Consumer Cooperative Society: Protects consumers from exploitation.
2. Producer Cooperative Society: Helps small producers by providing resources.
3. Marketing Cooperative Society: Ensures fair price to farmers/producers.
4. Credit Cooperative Society: Provides easy loans to members.
5. Farming Cooperative Society: Members pool land/resources for joint farming.
6. Housing Cooperative Society: Provides affordable houses to members.

7. Types of Companies

1. Private Ltd. Company: Minimum 2 members, maximum 200, cannot issue shares to public.
2. Public Ltd. Company: Minimum 7 members, no upper limit, can raise capital from public.
3. One Person Company (OPC): Single member company with limited liability and separate legal entity.

8. Benefits of Private Company over Public

• Easier to form and operate.
• More secrecy in business affairs.
• Greater flexibility in decision-making.
• Lesser legal restrictions and compliance.
• Better control in hands of few owners.

9. Formation of Joint Stock Company

Stages:

1. Promotion: Idea generation, feasibility study, name approval, and preparation of documents.
2. Incorporation: Registration with Registrar of Companies → Certificate of Incorporation.
3. Capital Subscription Stage: Public issue of shares (only for public companies).
4. Commencement of Business: Public company needs Certificate of Commencement; private can start after incorporation.

10. Important Documents

1. MoA (Memorandum of Association): Charter of company; defines objectives.
2. AoA (Articles of Association): Rules for internal management.
3. Prospectus: Invitation to public to subscribe shares/debentures.

11. Choice of Form of Business Enterprise

Depends on:

• Nature of Business: Size and scope of activities.
• Scale of Operations: Small or large.
• Capital Requirement: Low (sole prop.), medium (partnership), large (company).
• Risk Involved: Low → prop.; high → company.
• Legal Formalities: Simple → prop.; complex → company.
• Liability of Owners: Limited or unlimited.
• Managerial Capacity: Individual vs. group/professional management.

Comparison of Forms of Business Organisation

Comparison: Private Company vs Public Company vs One Person Company