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Forms of Business Organisation – Class 11 Business Studies notes, important questions and MCQs

NCERT Class 11 Business Studies, chapter 2. Notes, key terms, important questions with answers and MCQs.

Chapter overview

A business can be organised as a sole proprietorship, a Joint Hindu Family business, a partnership, a cooperative society or a company. Each form differs in ownership, liability, control, capital, continuity and legal formalities. The choice depends on the nature and size of business, capital required, risk, control desired and legal requirements.

Sole proprietorship and Joint Hindu Family business

A sole proprietorship is owned, managed and controlled by one person who bears unlimited liability and takes all profit.
It is easy to form, decisions are quick and secrecy is maintained, but capital and managerial ability are limited and continuity is uncertain.
A Joint Hindu Family business is owned by members of a Hindu undivided family and managed by the karta, the eldest member; only the karta has unlimited liability.

Partnership and cooperative

A partnership is governed by the Indian Partnership Act, 1932; it needs at least 2 partners, and the maximum is 50 under the Companies (Miscellaneous) Rules, 2014.
Partners have unlimited and joint liability, and each partner is an agent of the firm; registration is optional but advisable.
A cooperative society is a voluntary association of at least 10 members working for mutual welfare on the principle of 'one member, one vote'; types include consumer, producer, marketing, farmers', credit and housing cooperatives.

Joint stock company

A company is an artificial person created by law, with a separate legal entity, limited liability of members and perpetual succession; it is governed by the Companies Act, 2013.
A private company needs at least 2 members and can have up to 200, and restricts transfer of shares; a public company needs at least 7 members with no maximum, and can invite the public to buy shares.
A One Person Company can be formed by a single person; a company needs documents such as the memorandum and articles of association and a certificate of incorporation.

Key terms

Unlimited liability: the owner's personal assets can be used to pay business debts
Karta: the eldest member who manages a Joint Hindu Family business
Partnership deed: the written agreement among partners stating the terms of partnership
Separate legal entity: a company has an identity distinct from its members in the eyes of law
Perpetual succession: a company's existence continues regardless of changes in its members

Important questions with answers

What is meant by unlimited liability of a sole proprietor?2 marks

Unlimited liability means that if the business assets are not enough to pay business debts, the personal property of the sole proprietor, such as his house or savings, can be used to pay them, because the law does not treat the owner and the business as separate.

State the main features of a cooperative society.3 marks

A cooperative society is a voluntary association with open membership of at least 10 members; it must be registered and has a separate legal entity; the liability of members is generally limited to their capital contribution; it is managed democratically on the principle of 'one member, one vote'; and its main aim is service to members rather than profit.

Explain the features of a joint stock company and distinguish between a private and a public company.5 marks

A joint stock company is an artificial person created by law, governed in India by the Companies Act, 2013. It is formed through a legal process and receives a certificate of incorporation. It has a separate legal entity, so it can own property, enter contracts and sue or be sued in its own name. The liability of members is limited to the unpaid amount on their shares. It has perpetual succession, so its existence is not affected by the death or exit of members. Ownership is separate from control, as the company is managed by an elected board of directors. Shares are generally transferable, and it uses a common seal or authorised signatures. A private company needs at least 2 members and can have up to 200; it restricts the transfer of shares and cannot invite the public to subscribe to its shares; it needs at least 2 directors. A public company needs at least 7 members with no maximum limit; its shares are freely transferable and it can invite the public to subscribe; it needs at least 3 directors and has more legal formalities. A One Person Company can be formed by a single person.

Quick revision

Sole proprietor: unlimited liability, quick decisions.
JHF business: karta, membership by birth.
Partnership Act 1932; cooperative: one member, one vote.
Company: separate entity, limited liability, perpetual succession; Companies Act 2013.

Exam tips

Make a comparison table across forms: formation, liability, continuity, management, capital.
Remember key numbers: partnership 2 to 50; cooperative at least 10; private company 2 to 200; public company at least 7.

Practice MCQs

A business owned and controlled by one person is a
1. partnership
2. cooperative
3. company
4. sole proprietorship
Show answer
Answer: (d) sole proprietorship. The owner takes all profit.
The person who manages a Joint Hindu Family business is the
1. director
2. secretary
3. partner
4. karta
Show answer
Answer: (d) karta. He is usually the eldest member.
Partnership in India is governed by the
1. Companies Act, 2013
2. Indian Partnership Act, 1932
3. Cooperative Societies Act, 1912
4. Contract Act only
Show answer
Answer: (b) Indian Partnership Act, 1932. It was passed in 1932.
The minimum number of members needed to form a cooperative society is
1. 2
2. 7
3. 10
4. 50
Show answer
Answer: (c) 10. It is a voluntary association.
The maximum number of members in a private company is
1. 50
2. 100
3. 200
4. no limit
Show answer
Answer: (c) 200. Public companies have no maximum.
The principle 'one member, one vote' applies to
1. cooperative societies
2. companies
3. sole proprietorships
4. partnerships only
Show answer
Answer: (a) cooperative societies. It ensures democratic control.
Which feature means a company continues even if all its members die
1. perpetual succession
2. limited liability
3. unlimited liability
4. mutual agency
Show answer
Answer: (a) perpetual succession. The company's life is not affected.
In a Joint Hindu Family business, the liability of members other than the karta is
1. unlimited
2. zero
3. limited to their share in the family property
4. joint and several
Show answer
Answer: (c) limited to their share in the family property. Only the karta has unlimited liability.

All chapters of Class 11 Business Studies

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.