NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation

Have you had a dream of starting your own business? Or being part of an emerging venture? For these, you will need to have prior knowledge of what are the basic forms of a business organization. In what forms does one business exist? Is it managed by one person, does it have more than two owners, or is an entire family managing a certain business?

Therefore, in NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation, 5 main types of business organisations will be summarised so you will have a clear set giveaway as to which styles business organisations possess.

By keeping the advantages and disadvantages of all forms, one can easily identify the type of business they want to be a part of or begin with. 

 

NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation Introduction

There are 5 main types of forms of business organisation,

(a) Sole proprietorship,

(b) Joint Hindu family business,

(c) Partnership,

(d) Cooperative societies, and

(e) Joint-stock company.

 

 

NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation Summary

A sole Proprietorship means a business that is fully governed by one single person.

Joint Hindi Family Business is a business that runs in the family by a hierarchy and is taken over as the generations follow

A partnership is a form where the business is taken care of by two or more people as partners

Cooperative societies are a form of business that has the only motive of the welfare of the people

A joint stock company is a proper organisation set up where the entire control is in the hands of the top management or the board of directors.

 

NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation Notes

Let’s discuss and see in brief all five forms of business organisation in NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation.

Sole Proprietorship

As the name tells, a business that is managed, owned, and run by one person is known as a sole proprietorship. This form of business has one sole owner. To understand better, small-scale industries, beauty parlors, salons, repair, and retail shops are generally solely owned.

The owner is fully responsible for the debts, profits, and losses of the company. To repay the debts, the owner might even have to sell of their personal assets like their house, car, etc. They are the ones who provides capital for the business.

Features:

1. Easy formation and closure of the company
2. A sole proprietor has unlimited liability
3. Sole risk bearer and profit receiver
4. All control of the business with the owner
5. Business and owner are not recognized as two different entities
6. Lack of business continuity

 

Merits:

1. Quick decisions are made

2. Information remains safe and secure

3. A direct incentive to the owner

4. Personal satisfaction

5. Ease of formation and closure

 

Drawbacks:

1. Limited resources since the owner can only return to his personal savings or loans

2. The limited life of the business is caused by physical factors like the health of the owner

3. Unlimited liability upon the owner

4. Limited managerial staff or ability

 

Joint Hindu Family Business

The type of business form only found in India, supervised by the Hindu law (Hindu Succession Act, 1956), the Joint Hindu Family Business is just as its name explains. A business that is carried down from generation and carried forward by members of the Hindu Undivided Family.

Members of the same family are shareholders in the business, they are called co-parceners. The main head or the owner of the business is usually the eldest member of the family, who is called the Karta.

Features:

1. In a family, at least 2 members are required to form a Joint Hindu Family Business
2. Co-parceners have limited liability whereas the Karta has unlimited liability
3. Control over the business is with the Karta
4. Even after the death of Karta, the business has continuity
5. Minor members can also be a part of the business

 

Merits:

1. Flexible decision making
2. Business continuation
3. Limited liability of the members
4. Since from the same family and blood, there is increased loyalty and co-operation

 

Drawbacks:

1. Resources are limited since the business can only trace back to ancestral property
2. Unlimited liability upon the Karta
3. Authority of the Karta
4. Limited managerial skills

 

Partnership

As allotted a part in the law, The Indian Partnership Act, of 1932, says, a partnership is a relation between two or more people who have agreed to share the profit of the business carried on by all or any one of them acting for all.

Simply, two or more people running a company, investing in providing the capital, and together being the profit, loss, and debt bearer, this type of business organisation is referred to as a Partnership.

Features:

1. Two or more people are required for the formation
2. Unlimited liability for partners of the firm
3. All partners are equal risk bearers
4. Decision-making and control lie with all the active partners
5. Continuity
6. The minimum number of partners required to form is 2, maximum can be 50 (according to The Companies Rules 2014)
7. Every partner is an agent of other partners, therefore mutual agency exists

 

Merits:

1. Ease of formation and closure
2. Balanced decision making
3. Added funds
4. Risk sharing
5. Maintained secrecy

 

Drawbacks:

1. Unlimited liability
2. Reduced resources
3. Possibility of conflicts
4. Lack of continuity/heir
5. Lack of public confidence

 

Types of Partners:

1. Active Partner: One who actively participates in the businesses of the organisation
2. Sleeping or dormant partner: One who gives in to capital but does not involve in the business of the firm
3. Secret partner: One who is not announced to the general public as a partner
4. Nominal partner: One who sanctions the use of their name as a partner but does not contribute to the capital
5. Partner by estoppel: One who is considered a partner by their own initiative, behavior, or impression that they are a partner in the firm.
6. Partner by holding out: One who consciously allows the use of their name to be represented as a partner but is not a partner in reality.

 

Types of Partnerships:

It is divided into two parts: on the basis of duration and liability,

• On the basis of Duration

1. Partnership at will: this type exists at the will of the partners
2. Particular partnership: this type is formed for achieving a certain project or goal

 

• On the basis of Liability

1. General partnership: liability here is unlimited and joint
2. Limited partnership: in this type, at least one partner has unlimited liability

 

Partnership Deed: An agreement that is duly signed, acknowledged, and contains all conditions, terms, and rules that are agreed upon by all the partners. This agreement can be oral or written. It may not be mandatory to have a partnership deed but quite often it is advised to have one.

 

Cooperative Society

A voluntary association of two or more people who have come together to work towards a specific aim is called a cooperative society. The motive is the welfare of the members. It is registered under the Cooperative Societies Act, of 1912.

Features:

1. Voluntary membership, people are free to join and become a member
2. Legal status, the society is seen as a different entity from its members
3. Limited and shared liability
4. Control is with the elected managing committee of the society
5. Purely driven by service motive

 

Merits:

1. Equal voting status
2. Limited liability till the extent of their capital contribution
3. Stable existence
4. The risk of bad debts is low, hence there is an economy in operations
5. Receives support from the government
6. Easily formable

 

Drawbacks:

1. With limited resources, members generally are with limited means
2. Since the membership is voluntary, not many members are efficient in management
3. Due to open discussions, there is a lack of secrecy
4. Government control exists
5. Since people from different backgrounds are together, opinions are differentiated

 

Types of cooperative societies:

1. Consumer’s cooperative societies: these are formed to protect the consumer’s interests

2. Producer’s cooperative societies: these are set up for the small producers and protect their interests

3. Marketing cooperative societies: these are founded to assist small producers in selling off their products

4. Farmer’s cooperative societies: these societies provide better input at a pocket-friendly cost to the farmers to protect their interests

5. Credit cooperative societies: for providing easy credit on money-saving terms, these societies were established

6. Cooperative housing societies: people with limited income are given help my providing houses at a reasonable cost

 

Joint Stock Company

The formation of a company wherein people come together to engage in business activities and the company has a legal status that separates its entity from its members is called a Joint Stock Company.

It is supervised and governed by the Companies Act, of 2013. It is identified as a separate legal entity, has a common seal, and has perpetual succession. The shareholders of the company share the title as the owners of the company.

The company’s capital is divided into smaller parts called shares.

Features:

1. Identified as an artificial person
2. Owns a separate legal entity
3. Formation of the company is time-consuming
4. Perpetual succession
5. The top management has control of the firm
6. Limited liability of members
7. Has a common seal
8. All members are risk-bearing

 

Merits:

1. Limited liability on members
2. Ease of transfer of interest
3. The company’s existence is not affected by the members' external factors (death, sanity, etc.)
4. Huge scope for expansion
5. Professional management

 

Drawbacks:

1. Formation is complex
2. Lack of secrecy
3. The work environment can be impersonal
4. Several regulations
5. Decision-making can be delayed
6. Oligarchic or autocratic management
7. Conflicted interest

 

Choice of Form of Organisation 

How should one select or choose their form of organization? By looking at the following factors:

1. Cost and ease of setting up
2. Liability
3. Continuity of company
4. Management ability
5. Capital considerations
6. Degree of control
7. Nature of business

 

 

NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation Conclusion

There are five main forms of business organisations in NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation,

1. Sole Proprietorship
2. Joint Hindu Family Business
3. Partnership
4. Cooperative Societies
5. Joint Stock Company

 

One should make a choice for their form of business organisation by looking at a few factors like Initial costs, liability, continuity, capital considerations, managerial ability, degree of control, and nature of business.

 

NCERT Class 11 Business Studies Chapter 2 Forms of Business Organisation FAQs