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NCERT Solutions for Class 11 Business Chapter 2 - Forms Of Business Organisation

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Last updated date: 28th Mar 2024
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MVSAT 2024

Class 11 NCERT Solutions Business Studies - Chapter 2 - Free PDF Download

This study consists of the Class 11 Business Studies Chapter 2 NCERT solutions in a PDF format and students can download the PDF file for free from Vedantu. These NCERT Solutions for Business Studies Class 11 Chapter 2 will help students to learn the concepts covered in this chapter properly.


Class:

NCERT Solutions for Class 11

Subject:

Class 11 Business studies

Chapter Name:

Chapter 2 - Forms of Business Organisation

Content-Type:

Text, Videos, Images and PDF Format

Academic Year:

2023-24

Medium:

English and Hindi

Available Materials:

Chapter Wise

Other Materials

  • Important Questions

  • Revision Notes


By referring to these NCERT questions and solutions, students can prepare well and secure maximum marks in their examinations. Also, they can solve the exercise questions on their own and compare them with the NCERT Solutions to identify and rectify their mistakes.

Competitive Exams after 12th Science

NCERT Solutions for Class 11 Business Studies Chapter 2 Forms of Business Organisation

1. The structure in which there is separation of ownership and management is called (a) Sole proprietorship (b) Partnership (c) Company (d) All business organisations

Ans: (c) Company


2. The karta in Joint Hindu family business has (a) Limited liability (b) Unlimited liability (c) No liability for debts (d) Joint liability

Ans: (b) Unlimited liability


3. In a cooperative society the principle followed is

(a) One share one vote (b) One man one vote (c) No vote (d) Multiple votes

Ans: (b) One man one vote


4. The board of directors of a joint stock company is elected by

(a) General public (b) Government bodies (c) Shareholders (d) Employees

Ans: (c) Shareholders


5. Profits do not have to be shared. This statement refers to

(a) Partnership (b) Joint Hindu family business (c) Sole proprietorship (d) Company

Ans: (c) Sole proprietorship


6. The capital of a company is divided into number of parts each one of which are called

(a) Dividend (b) Profit (c) Interest (d) Share

Ans: (d) Share


7. The Head of the joint Hindu family business is called

(a) Proprietor (b) Director (c) Karta (d) Manager

Ans: (c) Karta


8. Provision of residential accommodation to the members at reasonable rate is the objective of

(a) Producer's cooperative (b) Consumer's cooperative (c) Housing cooperative (d) Credit cooperative

Ans: (c) Housing cooperative


9. A partner whose association with the firm is unknown to the general public is called (a) Active partner (b) Sleeping partner (c) Nominal partner (d) Secret partner

Ans: (d) Secret partner


10. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership firm.

Ans: A male minor child becomes a member of a Joint Hindu Family Business as soon as he is born into the family. The minor has the same ownership rights as the rest of the family over the inherited property.

His liability, on the other hand, is limited to his portion of the joint property.

In the case of a partnership, a minor can be admitted as a member-only when all other partners have given their consent, and only for advantages; he cannot be required to contribute capital or pay the business's losses. Because a minor lacks the legal capacity to enter into legal contracts, he or she cannot be called a partner.


11. If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.

Ans: Although registration for a partnership firm is optional, many firms choose to do so. This is due to the numerous legal ramifications that come with not registering. Here are a few examples:

  1. A non-registered firm's partners cannot sue a third party; but, a partnership firm's non-registration does not restrict other firms from employing it.

  2. The firm is prohibited from bringing a lawsuit against any of its partners.

A partner in a non-registered firm, likewise, cannot sue his or her co-partners or the firm.

  1. A non-registered partnership firm's claims against a third party cannot be enforced in court. As a result, to avoid these drawbacks, partnerships are formed.


12. State the important privileges available to a private company.

Ans: When a company is formed as a private company, it receives various benefits and exemptions not available to public companies. The following are some of the significant advantages that a private company has:

  1. A private company can be created with only two members, but a public company requires seven.

  2. A prospectus is not required because the public is not asked to subscribe to a private company's shares.

  3. Shares can be distributed without the requirement of a minimum subscription.

  4. A private firm can begin operations as soon as the certificate of incorporation is received. The public corporation, on the other hand, must wait for the certificate of commencement to be received before it may begin operations.

  5. A private business requires only two directors, whereas a public firm requires a minimum of three directors.

  6. A private corporation is not required to maintain a member index, whereas a public firm is required to do so.


13. How does a cooperative society exemplify democracy and secularism? Explain.

Ans: In a cooperative society, each member has one vote, regardless of the number of shares they own. This means that all members have equal voting rights, resulting in a fully democratic management structure in which all decisions are made by a majority of the society's members. The company's membership is open and not restricted, and no one is discriminated against because of their religion, caste, or gender. As a result, a cooperative society is representative of a secularist system.


14. What is meant by 'partner by estoppel'? Explain.

Ans: A person is deemed a partner by estoppel if he or she provides the impression to others that he or she is a partner of the firm through his or her initiative, conduct, or behavior. Even though they do not provide cash or participate in management, such partners are held liable for the firm's debts since they are deemed partners in the perspective of a third party.


15. Briefly explain the following terms in brief.

  1. Perpetual succession

Ans: Perpetual succession: Because a business is a legal creation, it can only be ended by legislation. It will only be decommissioned after a precise procedure known as winding-up is finished. Members may come and go, but the company does not cease to exist.

  1. Common seal

Ans: Common seal: Because a company cannot sign any documents because it is an artificial person, it utilizes a common seal in place of signatures. Any agreement that isn't stamped with the business seal isn't legally binding on the company.

  1. Karta

Ans: Karta is the family's eldest member, with infinite obligations and complete decision-making authority. A Joint Hindu family's Karta is in charge of running the family company and exercising complete control over it.

  1. Artificial person

Ans: Artificial person: Company is an artificial person, yet it has the same rights, liabilities, and functions as a natural person.

It can own property, incur debts, borrow money, enter into contracts, sue, and be sued, yet it cannot breathe, eat, run, talk, or do any of the other things that humans can. As a result, it is referred to as an artificial human.


16. What do you understand by a sole proprietorship firm? Explain its merits and limitation?

Ans: A sole proprietorship is a type of business entity that is owned, managed, and controlled by a single person who receives all profits and bears all risks. The word "sole" means "only," while "proprietor" means "owner." As a result, a sole proprietor is the business's owner. The following are some of the advantages of a sole proprietorship business:

  1. Quick Decision-Making: A solo owner has a lot of leeways when it comes to making business decisions.

  2. Ease of Formation and Closure: There are very few legal requirements for forming a sole proprietorship business.

  3. Personal Satisfaction: Working for oneself provides a sense of development. This also gives the person a sense of success and self-assurance in their talents.

  4. Direct Incentive: A sole proprietor receives all of the revenues and benefits generated by the business. This encourages the solo proprietor to run his or her company efficiently and effectively.

The Following Are Some of the Limitations of a Sole Proprietorship Firm: 

  1. Limited Resources: Alone proprietor's resources are limited to his or her savings and borrowings from others. Banks and other lending institutions may be hesitant to give a solo proprietor a long-term loan. As a result, business does not grow rapidly and often remains modest.

  2. Limited Life of a Business Concern: The proprietorship and the owner are deemed the same in the eyes of the law. A proprietor's death, insolvency, or illness has an impact on the firm and can lead to its closure.

  3. Unlimited Liability: If a firm fails, creditors can collect their debts not just from the company's assets, but also from the proprietor's assets.

  4. Limited Managerial Skills: A sole proprietor is responsible for all of the company's essential tasks, such as purchasing, selling, and financing. A solo entrepreneur may also be unable to hire and retain talented and ambitious personnel due to a lack of resources.


17. Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership.

Ans: Because of the inherent limits that come with partnership, it is seen as a rather unpopular type of corporate ownership. These constraints include infinite liability, limited resources, conflict potential, and a lack of consistency.

  1. Ease of Creation and Closure: A partnership firm can be formed quickly by putting an agreement in place between prospective partners. There is no requirement for a company to be registered.

  2. Balanced Decision-Making: Depending on their areas of competence, the partners can manage different functions.

As a result, a partnership firm's decision-making process is more balanced than any other type of corporate ownership.

  1. More Funds: In a partnership, each partner contributes a portion of the money. As a result, compared to a sole proprietor, it is possible to obtain a larger quantity of money and perform extra operations as needed.

  2. Risk Sharing: All partners share the risks that come with running a partnership firm. Individual partners have less anxiety, strain, and stress as a result of this.

  3. Confidentiality: A partnership firm is not compelled by law to publish its financial statements or submit reports. As a result, it can keep information about its operations discreet.

The Partnership has the Following Limitations:

  1. Unlimited Liability: If the business's assets are insufficient to meet its debts, partners are responsible to repay debts from their assets.

  2. Limited Resources: Because the number of partners is limited, capital investment contributions are usually insufficient to support large-scale commercial activities. As a result, partnership businesses have difficulty growing beyond a particular size.

  3. Conflicts of Interest: In a partnership firm, decision-making authority is divided among the partners.

This is also contingent on their levels of ability, capability, and foresight.

  1. Lack of Continuity: A partnership comes to an end when one of the partners dies, retires, becomes bankrupt, or becomes insane.

The surviving partners, on the other hand, can engage in a new agreement and continue to operate the company.


18. Why is it important to choose an appropriate form of organization? Discuss the factors that determine the choice of form of organization.

Ans: It is critical to select an appropriate form of company organization since one of the most crucial decisions to make when starting a business or growing an existing one is the form of organization. A company can be owned and operated in a variety of ways. It is tough to change a business model after it has been chosen. As a result, the type of commercial enterprise should be chosen with caution and deliberation.

The Following Considerations Influence the Choice of Organizational Structure:

  1. Cost and Convenience of Beginning a Business: A sole proprietorship is simple to start in terms of initial business costs and legal requirements; a partnership, on the other hand, has the advantage of fewer legal formalities and lower costs due to its smaller scale of operations. In the case of cooperative societies and businesses, registration is required. The process of forming a business is time-consuming and costly.

  2. Liability: In the case of a sole proprietorship or a partnership, the owners/partners' liability is unlimited. This could lead to debt repayment using the owners' assets.

  3. Continuity: Events such as the death, insolvency, or insanity of the owners can disrupt the continuity of sole proprietorship and partnership businesses. Such elements, on the other hand, have little bearing on the longevity of the business in organizations such as joint Hindu family businesses, cooperative societies, and corporations.

  4. Management Skills: It is tough for a sole proprietor to be knowledgeable in all aspects of the business. In other types of organizations, such as partnerships and corporations, members divide their labor, allowing management to specialize in specialized areas and make better decisions.

  5. Capital Requirements: For big-scale activities, the corporate form is best since it can raise a huge quantity of money by issuing shares. Partnership or single proprietorship are two options for medium and small businesses. Expansion capital requirements can also be handled more simply in the form of a corporation.

  6. Degree of Control: A sole proprietorship allows for complete control over operations and decision-making authority. However, if the owners desire to share ownership to make better decisions, they can join a partnership or a company.

  7. Nature of Business: A sole proprietorship is better suited to enterprises that require direct human interaction with consumers, such as a beauty salon or a grocery shop. Large production units benefit from the company type of organization.

In the case of professional services, the partnership form is far more appropriate.


19. Discuss the characteristics, merits, and limitations of a cooperative form of organization. Also, describe briefly different types of cooperative societies.

Ans: "A cooperative organization is a society whose objectives are for the development of economic interests of its members under cooperative principles," according to the Indian Cooperative Societies Act, 1912. The following are characteristics of a cooperative organization:

  1. Voluntary Membership: A cooperative society's membership is entirely voluntary. An individual has the freedom to join a cooperative organization and to leave at any moment.

  2. Legal Status: Cooperative society registration is required. Society gains a distinct identity from its members as a result of this. Society has the authority to enter into contracts and hold property in its name, as well as to sue and be sued by others.

  3. Limited Liability: The members of a cooperative society's liability is limited to the amount of capital they have contributed.

  4. Control: Decisions are made by an elected managing committee, which is elected by all members of society using the "one man, one vote" system.

  5. Service Motive: Society's primary goal is to emphasize the virtues of mutual aid and wellbeing. As a result, the motive of service guides its operations.

The Following are Some of the Advantages of a Cooperative Organization:

  1. Voting Equality: The cooperative society is governed by the idea of "one man, one vote," regardless of the amount of capital invested.

  2. Restricted Responsibility: A cooperative society's members' liability is limited to the amount of their capital contribution.

  3. Stable Existence: A cooperative society's continuance is unaffected by the death, bankruptcy, or insanity of its members.

  4. Cost-Effectiveness of Operations: Members typically provide honorary services to society. Because the focus is on eliminating middlemen, costs are reduced.

The following are some of the limitations of the cooperative type of organization: 

  1. Limited Resources: A cooperative society's resources are comprised of capital contributions from members with limited means.

  2. Management Inefficiency: Due to their unwillingness to pay high salaries, cooperative organizations are unable to attract and retain experienced managers.

  3. Lack of Confidentiality: It is difficult to preserve secrecy regarding a cooperative society's operations due to open discussions at member meetings and disclosure duties under the Societies Act (7).

  4. Government Control: In exchange for the benefits provided by the government, cooperative societies must follow a set of laws and regulations relating to account auditing, filing of accounts, and so on.

  5. Differences of Opinion: Internal quarrels coming from opposing ideas can make decision-making harder.

  1. Consumer Cooperative Societies are one type of cooperative organization. They are founded to provide consumer goods at reasonable costs to their members.

  2. Producer Cooperative Societies: The goal of producer cooperative societies is to obtain low-cost raw materials and other inputs for small producers.

  3. Marketing Cooperative Societies: These organizations pool members' outputs and provide marketing services such as transportation, labeling, packaging, and warehousing.

  4. Farmers' Cooperative Societies: These organizations are made up of small farmers who pool their resources to gain access to the benefits of large-scale operations. These organizations ensure that farmers have access to higher-quality, more modern inputs at affordable prices.

  5. Credit Cooperative Societies: These organizations ensure that funds are available to their members at a low-interest rate and on appropriate terms.


20. Distinguish between a Joint Hindu family business and partnership.

Ans: 

Basis of Difference

Joint Hindu Family Business

Partnership

Governance

Hindu law governs the area.

The Partnership Act of 1932 governs this relationship.

Liability

The liability of the head is unlimited, whereas that of the other members is limited to their portion of the business.

All of the partners are liable indefinitely.

Decision making and control

The Karta is in charge of the business's management and control.

The firm is managed and controlled by all of the partners jointly.

Number of Members

2 is the bare minimum

Maximum: There is no limit.

2 is the bare minimum

Maximum: ten for banks and twenty for other enterprises.


21. Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organization? Why?

Ans: A sole proprietorship is a type of business that is owned, managed, and controlled by a single person who bears all risks and reaps all profits. There are numerous advantages to operating as a sole proprietorship over other business structures. As a result, many individuals still prefer it. Here are a few examples:

  1. Ease of Formation and Closure: There are very few legal requirements for forming a sole proprietorship business. Because a sole proprietorship is the least regulated type of business, it is simple to open and close the business according to the owner's wishes.

  2. Quick Decision-Making: A solo owner has a lot of leeways when it comes to making business decisions.

  3. Direct Incentive: A sole proprietor receives all of the revenues and gains generated by the business. This encourages the solo proprietor to run his or her company efficiently and effectively.

  4. Operational Flexibility: A sole proprietorship is extremely flexible in its operations. It can adapt to a variety of conditions and incorporate important changes, depending on the dynamism of the business environment.


NCERT Solutions for Class 11 Business Studies - Chapter 2 - Benefits for the Students

Check out the following benefits that are rendered to the students by referring to the NCERT solutions of Class 11 Business Studies:

  1. Students will be benefited as they can practice more questions and answers by studying these NCERT solutions. 

  2. NCERT is a very useful material for the CBSE examination. Questions based on NCERT solutions can appear in the exam. Thus, the students can study from these NCERT notes so that they can get common questions. 

  3. NCERT questions and answers will help the students to know what type of questions can appear in the exam and they will gain insights about how to answer in the exam. 

  4. By referring to the NCERT solutions, one can know the marks distribution and the pattern of the Business Studies question paper. 


NCERT Solutions for Class 11 Business Studies - Chapter 2: Important Topic Coverage 

The important topic coverage of this chapter is as follows:

Business Organisation

The business organisation is an entity formed to carry on commercial enterprise. This kind of organisation is predicated on law systems governing property rights, contract and exchange, and incorporation. The four primary forms of organisation are Sole Proprietorship, Partnerships, Corporations, and Limited Liability companies.

Sole Proprietorship

The majority of small businesses start as sole proprietorships. One person owns these firms, usually the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the profits and the assets of the business generated by it. They also assume complete responsibility for any of their debts. For law and the public, you are the same as the business.

Partnerships

In a partnership, for a single business, two or more people share ownership. Like proprietorships, the law does not differentiate between the business and its owners. The partners should have a legal agreement that sets forth how disputes will be resolved, and decisions will be made. How future associates will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed. Yes, it's hard to think about a "break-up" when the business is just new, but many partnerships split up during crises, and unless there is a defined process, there will be even more significant problems. They should also decide upfront how much time and capital each will contribute, etc.

Corporations

A corporation hired by the state where it is headquartered is considered by law to be a unique entity, separate from those who own it. A corporation can be taxed, can be appealed, and can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the significant policies and decisions. The corporation does not dissolve when ownership changes; it has its own life.

Limited Liability Company

The Limited Liability Company is a relatively new type of hybrid business structure that is now permissible in most states. It is plotted to provide the tax efficiencies and operational flexibility of a partnership and limited liability features of a corporation. The formation is more complicated than that of a general partnership.


Decisions You Will Need to Make When Choosing a Business Type

Debt and Liability: Most small businesses and startups accept the personal liability or responsibility associated with a sole partnership as a necessary risk of doing business. The downside is that this typically takes more paperwork, costs more to register, and may have more significant reporting or upkeep requirements than more specific business types.

Filing Taxes: You have two options when it comes to filing your business taxes. Most owners of small businesses prefer the simplicity of filing taxes on their returns, but filing business taxes one by one can help you keep your personal and business finances separate.

Partners or Investors: If you're beginning your business with a partner or private investor, you won't be able to form a sole proprietorship. You can choose between a partnership (where all responsibilities are shared equally), a limited partnership (where you can dictate responsibilities and liabilities for individual members), or an LLC (to protect all members from personal liability).

Hiring Employees: Some of the easy business types—such as sole proprietorships—can make it difficult to hire employees down the road. If you already have employees or plan to hire employees, it may be better to be future-proof with a more formal business structure like an LLC or corporation.


NCERT Solutions for Class 11 Business Studies - Chapter 2  - Extra Questions and Answers 

Question: The capital of a company is divided into several parts each one of which is called____.

  1. Dividend

  2. Profit

  3. Interest

  4. Share

Answer: (4) Share


Question: Who elects the board of Directors in a Joint Stock Company?

Answer: The Shareholders elect the board of Directors in a Joint Stock Company. 


Question: Who is a Secret partner?

Answer: A secret partner is such a partner whose membership in the company is kept secret from the public. 


Studying Business Studies - Tips to Study Better

The following are the tips which will help the students to study in a better manner:

  1. Practice writing the answers after understanding the concepts in your language. 

  2. Pay attention to the important topics discussed in the chapters. 

  3. Practice with the mock test papers and sample questions. 

  4. Revise the subject on a regular basis. 

  5. Study the HOTs and practice MCQs as well. 


Conclusion 

We hope the students have understood the importance of studying the NCERT-based questions and answers. You can also practise extra questions as provided in the article. Take care of the topics covered in this particular chapter and study the important ones among them that need more focus. Download the PDF and prepare well to see the improvement in your performance and scores in exams.

FAQs on NCERT Solutions for Class 11 Business Chapter 2 - Forms Of Business Organisation

1. What do you mean by Nonprofit organizations?

A nonprofit organisation is pretty self-explanatory, in that it's a business organisation that's intended to promote educational or charitable purposes. The "nonprofit" aspect comes into play where the organisation must keep the amount earned by the company to pay for its expenses, programs, and all. It would help if you kept in mind that there are several types of nonprofits available, many of which can receive "tax-exempt" status. This process requires filing paperwork with the government for them to recognize you as a nonprofit organisation. Depending on the parameters of your new business, they will be able to tell you which category you best fall for.

2. What is the most important reason for incorporating?

One of the primary reasons businesses incorporate is to protect the personal assets of the owners. When you combine your business, a separate legal entity is formed. This means your business can gather assets and debts, separate from your personal assets and debts.

Besides, incorporating your business is helpful in terms of reducing your liability. For example, suppose your business gets sued by a creditor or other third party. In that case, your risk of losing your house or personal assets is significantly reduced compared to a sole proprietor. In most cases, the extent that creditors can go to receive payment is limited to the interest of your ownership in the business.

3. Where do I get Class 11 Business Studies 1 Mark Questions?

Vedantu is the top-most pick by every student when it comes to seeking help regarding any academic matter. There are 11 chapters in Business Studies in Class 11, and all of them are extremely important from the examination point of view. To get a broader idea about what kind of 1 mark questions are asked in this subject, refer to this list of Important Questions for CBSE Class 11 Business Studies. 

4. How should I learn Class 11 Business Studies concepts easily?

The more questions you solve, the more well-versed you are bound to be in any subject. As the saying goes, practice makes perfect. When it comes to Class 11 Business Studies, topics like debts and liabilities, sole proprietorships, and partnerships should be crystal clear. Chapter 2 of the NCERT syllabus, like Forms of Business Organisation, is most important. You can check out all its solutions Class 11 NCERT Business Studies Chapter 2. The solutions are free of cost and also available on the Vedantu Mobile app.

5. What are the forms of business organisation Class 11?

As discussed in depth in the Class 11 NCERT Business Studies Chapter 2 of Forms of Business Organisation, we have four primary forms of organisation. These types commonly include Sole Proprietorship, Partnerships, Corporations, and Limited Liability Companies. Each of these types of organisations has the right to carry on commercial enterprise and to abide by the rules set by the government of the country. 

6. Which of the following is the form of a business organisation answer?

We have talked about the four types of business organisations. However, before starting a business, there are some decisions you will need to make about the business model beforehand. You need to consider your debt and liabilities before deciding upon which business pattern you will follow. Most of the businesses start as sole proprietorships and later expand into partnerships or corporations. Depending on the number of employees you want to hire, make an informed decision. 

7. Which form of business organisation lacks motivation?

It is generally noted that there is a lack of motivation in a company organisation form of business set-up. This is primarily because the team responsible for running the company, namely the directors and managers who look into managerial matters, do not get a share in the profits of the business. There is an absence of a direct link between effort and reward and it leads to a lack of motivation.