Chapter 2 Flashcards
Types of business organisations
- sole propreitorship
- partnership
- joint stock company
- joint hindu family
- cooperative stores
Define sole propreitorship
A sole propreitor ship is a form of business organisation which
- owned, managed and controlled by an individual
- who is the receipient of all profits and bearer of risks
Features of sole propreitorship - control in the hands of an individual
Since there is only one person working and controlling the business he gets to take all the decisions
Features of sole propreitorship - the sole risk bearer and profit receipient
the propreitor bears all the risks of a certain decision when he takes the decision and bears the outcome wheather it is a loss or profit.
Features of sole propreitorship (6)
- control in the hands of an individual
- the sole risk bearer and profit receipient
- no seperate entity
- lack of business continuity
- easy formation and closure
- unlimitted liability
Features of sole propreitorship - no seperate entity
Business and owner are the same and are not treated as different , so the business debts and profits are also the owners
Features of sole propreitorship - lack of business continuity
There is no law regulating sole propreitorships so a sole propreitorship can be opened anytime and closed anytime and also if the owner goes insane or dies and if there is no one to continue the business then the business will be closed down
Features of sole propreitorship - easy formation and closure
There is no law regulating sole propreitorships so a sole propreitorship can be opened anytime and closed anytime
Features of sole propreitorship - unlimitted liability
Since the owner and the business are treated as one the liabilities of the business is expected to be repaid by the owner if the businesses assets sold off are not enough
Merits of sole propreitorship (5)
- Quick decision making
- confidential information
- Direct incentive
- sense of accomplishment
- ease of formation and closure
Merits of sole propreitorship - Quick decision making
Since the propreitor is the only owner he does not need to consult anyone to take the decisions and thus can make the decisions earlier and faster
Merits of sole propreitorship - confidential information
Like in joint stock company sole propreitors do not need to publish their yearly profit and loss statement and others to the public so they can keep their information confidential to the owner and the accountant
Merits of sole propreitorship - Direct incentive
The owner will get all the profits to himself since he is the only owner
Merits of sole propreitorship - sense of accomplishment
Since the owner takes the decisions while bearing the risks he gets a sense of accomplishment when he gets all the profits to himself
Merits of sole propreitorship - ease of formation and closure
There isnt a law or act to regulate the sole propreitorship firms so anyone can open and close a sole propreitorship firm with ease and minimum requirements
- some cases might require license in case of food shops
Limitations of sole propreitorship (4)
- Limitted resources
- limitted manegerial skill
- limitted life of business concern
- unlimitted liability
Limitations of sole propreitorship - Limitted resources
A sole propreitorship might not have as many resources as a partnership or joint stock company as it is only one person contributing capital and the borrowing capabilities are also limitted
Limitations of sole propreitorship - limitted manegerial skill
since there is only one person taking all the decisions he might not have all the skills like marketing advertising finance and all other aspects
Limitations of sole propreitorship - limitted life of business concern
If something happens to the owner like death or insanity and no one willing to take over his business the business will be closed down
Limitations of sole propreitorship - unlimitted liability
The owner and business are considered same so the owner might have to cover for the losses of the business with his own personal assets
Number of features , merits and de merits of sole propreitorship
Features (6)
Merits (5)
De merits (4)
Define joint hindu family
Joint hindu family is a form of organisation which is governed by the hindu law where in the business is owned and carried on by the members of the hindu undivided family
Points about joint hindu family (7)
- Joint hindu family only exists in india
- It is governed by the hindu law
- basis of membership in the business is by birth into the family
- Three successive generations can be members in the business
- Managaed and controlled and all decisions taken by the oldest member of the family the karta
- kartas liability is unlimitted and the rest have limitted liability
- Members who have equal rights over the ancesstral properties are called the co parseners
Features of joint hindu family (5)
- Formation
- Liability
- control
- continuity
- minor members
Features of joint hindu family - Formation
- minimum 2 members needed
- governed by the hindu succession act 1956
- no need of agreement
Features of joint hindu family - Liability
- The karta has unilimitted liability
- The co parseners have limitted liability
Features of joint hindu family - control
- Management and control is mainly done by the karta
- The co parceners listen to the decision of the karta
Features of joint hindu family - continuity
- Stable form of organisation as if the karts passes away the next oldest member becomes the next karta
- can be dissolved through consent of all the members
Features of joint hindu family - minor members
Minors can also me members as long as they come under the 3 generations
Define partnership
According to the indian partnership act 1932 partnership id defined as the relation between persons who have agreed to share the profit of the business, carried on by all or by one acting for all
Features of partnership (7)
- formation
- risk bearing
- liability of partners
- decision making and control
- continuity
- membership
- mutual agency
number of points and features of joint hindu family
points (7)
features (5)
Features of partnership - formation
- minimum 2 members and maximum 50 members under indian partnership act 1932
Features of partnership - risk bearing
- risks are borne by all the partners equally or in a ratio and the loss is also shared in that ratio
Features of partnership - liability of partners
- liability of the partners are unlimitted partners are individually and jointly liable to settle the claims of the firm
Features of partnership - decision making and control
decision making and control are in the hands of all the partners
Features of partnership - continuity
partnership is not that much of a stable form of existence as if one partner is dead of insane the entire partnership is to be dissolved and created again
Features of partnership - membership
minimum 2 members and maximum 50 members, partners must be eligible to legally enter the contact
Merits of partnership (5)
- ease of formation and closure
- balanced decision making
- More funds
- sharing of risks
- secreacy
Merits of partnership - ease of formation and closure
formation is easy as registration is not compulsory and closure can also be done with mutual consent without much formalities
Merits of partnership - balanced decision making
decision must be taken jointly by all partners this way each partner can contribute different pros and cons and skills sets helpful in making decisions
Merits of partnership - more funds
Each member contributes capital which means more capital and more partners mean more borrowing capacity too
Merits of partnership - sharing of risks
the risks are shared by all partners so even if the partnership incurrs a loss it is shared so the burden on each partner reduces
Merits of partnership - secrecy
Like sole proprietorship the final accounts need not be shared pulbicly so only the partners will see it and improve their business the next year
Demerits of partnership (5)
- unlimitted liability
- limitted resources
- lack of continuity
- lack of public confidence
- possibility of conflicts
Demerits of partnership - unlimitted liability
The partners have to personally bear the losses of the partnership in a diluted manner
Demerits of partnership - limitted resources
it has more resources than sole propreitorship but less resources than a joint stock company
Demerits of partnership - lack of continuity
if anything happens to one of the partners the entire partnership needs to be dissolved and started again which can be troublesome
Demerits of partnership - lack of public confidence
since they do not publish their accounts publicly they are not that well known in public and do not hold that much confidence amongst public
Demerits of partnership - possibility of conflicts
since one decision is to be made with everyones consent and not everyone will agree to what the other person says so there are possibilities of conflict
Number of features, merits and demerits of partnership
features (7)
merits (5)
de merits (5)
Capital contributed - active partner
contributes
Capital contributed - sleeping or dormat partners
contributes
Capital contributed - secret partner
contributes
Capital contributed - nominal partner
doesnt contributes
Capital contributed - estopel partners
doesnt contributes
Management - active partner
participates
Management - sleeping or dormat partners
doesnt participate
Management - secret partner
participates
Management - nominal partner
doesnt participate
Management - estopel partners
doesnt participate
Profit and loss sharing -active partner
shares
Profit and loss sharing -sleeping or dormat partners
shares
Profit and loss sharing -secret partner
shares
Profit and loss sharing -nominal partner
generally doesnt
Profit and loss sharing -estopel partners
generally doesnt
liability -active partner
unlimitted
liability - sleeping or dormat partners
unlimitted
liability - secret partner
unlimitted
liability -nominal partner
unlimitted
liability - estopel partners
unlimitted
Types of partnership
- on duration
- basis of liability
Types of on duration partnership
- partnership at will
- particular partnership
Types of on basis of liability partnership
- general partnership
- limitted partnership
Explain partnership at will
It comes to existence at the will of the partners and closes at the will of partners
Explain particular partnership
individuals or firms get into a partnership agreement for pursuing a specific project and it is generally formed for a fixed period of time
Explain general partnership
-the liability of the members is unlimitted
-all partners have the right to participate in the management
- registration is not compulsory and it comes to an end when one partner is dead or insane
Explain limitted liability partnership
- when some partners have limitted liability
- registration of this firm is compulsory
- limitted liability partners do not get their rights in management
- if limitted liability partner dies the partnership still continues but is not the same for unlimitted liability partners
Partnership deed (7 examples)
A partnership deed is a written agreement which specifies the terms and conditions that govern the partnership.
-name of the firm
- nature of the business
- location of the business with the location of its branches
- investment made by each partner
-distribution ratio of profit and losses
- salaries and withdrawals of a partner
- interest on capital and drawings
Minor as a partner
- minor can enter the partnership with consent of all members
- the minor cannot be called a partner as his liability is limited
- he can share the profits but must not be asked to bear the losses
- he cannot take part in the management
procedure for registration of partnership firm
the partners may get the firm registered
- submission of application signed by all the partners in the prescribed form to the registrar of firms containing the following particulars
- name of the firm
- location of the firm
- names of other places where the firm carries out business
- the date when each partner joined
- names and adress of partners
- duration of partnership
- deposit of required fees with the registrar of firms
- the registrar will then issue a certificate of registration
Define cooperative society
The cooperative society is a volunteery association of persons who join together with the motive of welfare of the members
Features of cooperative society - volunteery membership
membership in the society is completely volunteery and members regarding of their race religion and gender can join and leave freely
Features of cooperative society (5)
- volunteery membership
- seperate legal status
- limitted liabilities
- control
- service motive
Features of cooperative society - seperate legal status
it is a member on its own it can enter contracts hold assets in its name and all and it requires compulsory registration
Features of cooperative society - limitted liabilities
the liability of the members in limitted
Features of cooperative society - control
managemt and control of the society is democratic and the decision are taken by the comittee selected by the members
Features of cooperative society - service motive
The society is aimed at service of the society and help everyone in the society in one way or another
number of features merits and demerits of partnership
features (7)
merits (5)
de merits (5)
Merits of cooperative society (6)
- equality in voting system
- limitted liability
- stable existence
- economy in operations
- support from government
- ease of formation
Merits of cooperative society -equality of voting system
every member has one person one vote system and not one share one vote system like in joint stock companies which promote fair voting
Merits of cooperative society - limitted liability
the members of the cooperative societies have limitted liability and personal assets need not be used to settle claims of the business
Merits of cooperative society - stable existence
it has a stable existence as the entry exit or death of a member does not change the existence status of the society
Merits of cooperative society -economy in operations
Some members like kids of already members might work for the society on honarary basis without taking any money which further helps improve the society
Merits of cooperative society -support from government
the government too constatanly helps them by giving lower interest rates on loans and others
Merits of cooperative society - ease of formation
the society comes into formation when the members come along together and get registered with the cooperatives society act 1912
Demerits of cooperative society - government control
government can be too involved to the point it controls the society too much and that is not preffered by the society members
Demerits of cooperative society - difference in opinions
different members may have different opinions causing problems and misunderstandings between them
Demerits of cooperative society (5)
- limitted resources
- inefficiency in management
- lack of secrecy
- government control
- differences of opinions
Demerits of cooperative society - limitted resources
cooperative societies have more resources than sole propreitorship but still lesser resources compared to joint stock company
Demerits of cooperative society - inefficiency in managemnt
members might not be professionally eligible to run the business and many of their work s done by people who do their work on honarary basis. they also cannot afford to hire professionals due to their limitted resources
Demerits of cooperative society -lack of secrecy
since it is governed by the cooperatives society act 1912 the informations about the business must be given to the government which ruins the secrecy of the society
Number of merits, demerits and features of cooperative societies
features (5)
merits (6)
de merits (5)
Types of cooperative societies (6)
- consumers cooperative stores
- producers cooperative stores
- marketing cooperative stores
- farmers cooperative stores
- credit cooperative stores
- cooperative cooperative stores
explain credit cooperative stores
- capital is collected from its members and then it is lended to its members in lower interest
- to prevent lenders exploiting the lenders with high interest rates
explain cooperative housing society
construct houses at a cheaper rate and help the members by allowing them to pay in installments
explain marketing cooperative stores
helps small producers sell their products , does functions like packaging etc… aims to eliminate marketing middlemen who ask large sums to market the products
Explain farmers cooperative stores
provides good quality seeds, fertilisers and machines that help in large scale farming to protect the interest of farmers
explain producers cooperative stores
protects the interest of small producers by protecting them from big capitalist and help them sell their outputs and also buy their outputs
explain consumer cooperative store
protects the interest of consumers , people pool their money buy from factories for large scale and distribute amongst themselves
Defien joint stock company
A company can be described as an artificial person having a - seperate legal entity , - perpectual sucession and a - common seal
number of merits features and demerits of joint stock company
Features (8)
merits ( 5)
de merits (7)
Features of joint stock company (8)
- artificial person
- seperate legal entity
- formation
- perpectual succession
- control
- liabilities
- common seal
- risk bearing
Features of joint stock company - artificial person
- it is a creation of law and exists independant of its members and since it cant breathe eat run like us it is known as an artificial person
Features of joint stock company - seperate legal entity
The business enjoys seperate legal entity and is seperate and individual from its owners
Features of joint stock company - formation
A joint stock company is formed when it is registered under either companies act 2013 or 1956
Features of joint stock company - perpectual succession
A joint stock company is a creation of law and it can be winded through a legal procedure but the death or insanity of its members does not affect it . members may come and go but the company continues to exists
Features of joint stock company - control
The business is controlled by the board of directors chosen by the shareholders and these board of directors appoint the top level management of the company
Features of joint stock company - liabilities
The shareholders have limitted liability and are only expected to pay up to their shares amount and are not expected to use their own personal assets for the company
Features of joint stock company - common seal
Since the company is an artificial person existing on its own and cannot sign due to it being an artificial person , it requres a cmmon seal to autheticate its documents
Features of joint stock company - risk bearing
the ownership is diluted by large number of members in a join stock company and so is the risk of loss
merits of joint stock company (5)
- limitted liability
- transfer of interest
- perpectual existence
- scope for expansion
- professional management
merits of joint stock company - limitted liability
The shareholders have limitted liability and are only expected to pay up to their shares amount and are not expected to use their own personal assets for the company
merits of joint stock company - transfer of interest
the shares of a public limitted company can be transferred to any member of the public and the shares of a private limitted company can be transferred within their 200 members
merits of joint stock company - perpectual existence
A joint stock company is a creation of law and it can be winded through a legal procedure but the death or insanity of its members does not affect it . members may come and go but the company continues to exists
merits of joint stock company - scope for expansion
compared to other types of organisations a company has more financial resources may it be owners funds or borrowed funds so there is always scope for expansion
merits of joint stock company - professional mangement
joint stock company has more resources financially so they can afford to hire professional management to take care of the company
Demerits of joint stock company (7)
- complexity in formation
- lack of secrecy
- impersonal work environment
- numerous regulations
- delay in decision making
- oligarchic mangement
- conflict in interest
Demerits of joint stock company - complexity in formation
more procedures than any other form of business to start run and close the company
Demerits of joint stock company - lack of secrecy
the final accounts of the company must be shared to the public in the newspaper and to the shareholders therefore ruining the secrecy of the companys financial matter
Demerits of joint stock company - impersonal work environment
Small businesses would mean bonding and a personal environment at work with all the other colleagues but when it is a big company with thousands of employees not everyone is close leading to a impersonal work environment
Demerits of joint stock company - numerous regulations
There are many regulations of what happens within the business which takes a lot of money effort and time. All due to various regulations
Demerits of joint stock company - delay in decision making
All the board of directors would need to agree with a decision before a final decision is taken therefore there will be delay in decision making compared to one owner taking all the decisions in sole propreitorship
Demerits of joint stock company - oligarchic management
The board of directors always take the decisions eventhough there are thousands of shareholders and sometimes the decisions taken might be against what the shareholders were hoping for
Demerits of joint stock company - conflict of interests
board of directors and shareholder might face conflicts hen board of directors do not take the decision that the shareholders want
difference between public and private company - members
public company :
min - 7
max - unlimitted
private company :
minimum 2
maximum 20
difference between public and private company - min no of board of directors
public company :3
private company :2
difference between public and private company -index of members
public company : compulsory to maintain
private company : not compulsory to maintain (since it is within the 200 members )
difference between public and private company - transfer of shares
public company :no restrictions
private company : only within their 200 members
difference between public and private company - invite public to subscribe to their shares
public company : yes
private company : no anything is only within the 200 members
What is the maximum no of board of directors
15
important years for partnership
indian partnership act 1932
important years for cooperative societies
cooperatives society act 1912
important years for joint stock company
- companies act 1956
- companies act 2013
important years for joint hindu family
Hindu succession act 1956
What law governs the joint hindu family
The hindu law
Features of partnership - mutual agency
as per the partnership act business can be carried out by all the partners or any one acting for all
