ABU DHABI INDIAN SCHOOL - BRANCH 1, AL WATHBA (2024-25)

Grade 11 DM Revision Notes (Unit - 2)

Subject : Business Studies Forms of Business Organization

Sole proprietorship:-
• Sole proprietorship means a business owned,
financed, controlled and managed by a single
person who is recipient of all profit and
bearer of all risks.
• It is SUITABLE IN AREAS OF PERSONALISED SERVICE like beauty parlour, hair cutting
saloons& small scale activities like retail shops.
Merits
1. Easy to start and close: It can be easily started and closed without any legal
formalities.
2. Quick decision making: As sole trader is not required to consult or inform anybody
about his decisions.
3. Sense of accomplishment: There is a sense of personal satisfaction as he is the one
responsible for the success of the business.
4. No legal formalities: are required to start, manage and dissolve such business
organization.
5. Sole risk bearer and profit recipient: He bears the complete risk and there is no body
to share profit/loss with him.
LIMITATIONS
1. Limited financial resources: Funds are limited to the owner's personal savings and his
borrowing capacity.
2. Limited Managerial ability: Sole trader can’t be good in all aspects of business and he
can’t afford to employ experts also.
3. Unlimited liability: If the business fails, the creditors can recover their dues not merely
from the personal assets, but also from the personal assets of the proprietor.
4. Uncertain life: Death, insolvency, lunacy or illness of a proprietor affects the business
and can lead to its closure.
5. Limited scope for expansion:-Due to limited capital and managerial skills, it cannot
expand to a large scale.

JOINT HINDU FAMILY BUSINESS

• It is one of the oldest forms of business organisation

found only in India.
• It refers to a form of organisation wherein the
business is owned and carried on by the members
of Hindu Undivided Family (HUF).
• The business is controlled by the head of the family, KARTA, who is the eldest
member.
• All the members have equal ownership right over the property of an ancestor and they
are known as co-parceners.
FEATURES
1. Formation - For a joint Hindu family business there should be at least two members in
the family and some ancestral property to be inherited by them.
2. Membership by birth – The inclusion of an individual into the business occurs due to
birth in Hindu Undivided Family.
3. Liability - Liability of Karta is unlimited but of all other members is limited to the
extent of their share in property.
4. Continuity - The business is not affected by death or incapacity of Karta in such cases
the next senior male member becomes the Karta.
5. Minor members - A minor can also become full fledged member of Family business.
PARTNERSHIP
Meaning: Partnership is a voluntary
association of two or more persons who
agree to carry on some business jointly and
share its profits and losses.
Partnership firms are governed by Indian
Partnership Act 1932 which is revised as
Indian Partnership Act 2013.
MERITS
1. Ease of formation & closure - It can be easily
formed. Only an agreement among the
partners is required.
2. Larger financial resources - There are more
funds as capital is contributed by number of
partners.
3. Balanced Decisions - As decisions are taken
jointly by partners after consulting each
Other, decisions are likely to be more balanced.
4. Sharing of Risks - In it, risk get distributed among partners which reduces anxiety,
burden and stress on individual partner.
5. Secrecy - Secrecy can be easily maintained about business affairs as they are not
required to publish their accounts or to file any report to the govt.
LIMITATIONS
1. Limited resources - There is a restriction on the
number of partners and hence capital
contributed by them is also limited.
2. Unlimited liability- The liability of partners is
unlimited and they are liable individually
as well as jointly. It may prove to be a big drawback
for those partners who have greater
personal wealth. They will have to repay the entire debt in case the other partners are
unable to do so.
3. Lack of continuity - Partnership comes to an end with the death, retirement,
insolvency or lunacy of any of its partner.
4. Lack of public confidence - Partnership firms are not required to publish their reports
and accounts. Thus they lack public confidence.
5. Possibility of Conflicts – Difference in opinion among the partners may lead to
disputes between them.
TYPES OF PARTNERS
1. General / Active Partner - Such a partner
takes active part in the management of the
Firm, shares its profits and losses, contributes
capital to the firm and has unlimited liability.
2. Sleeping or Dormant Partner - He does not
take active part in the management of the
firm. Though he invests money, shares profit &
Loss and has unlimited liability.
3. Secret Partner - He participates in
business secretly without disclosing his association
with the firm to general public. He contributes capital to the firm , takes part in the
management , shares profits and losses and has unlimited liability.
4. Nominal Partner - Such a partner only gives his name and goodwill to the firm. He
neither invests money nor takes profit. But his liability is unlimited.
5. Partner by Estoppels - He is the one who by
his words or conduct gives impression to the
outside world that he is a partners of the firm
whereas actually he is not. His liability is
unlimited towards the third party who has
entered into dealing with firm on the basis of
his pretensions.
6. Partner by holding out - He is the one who is
falsely declared partner of the firm whereas
actually he is not. And even after becoming
aware of it, he-does not deny it. His liability is
unlimited towards the party who has deal with
firm on the basis of this declaration.

Comparison on different types of Partners

Type Capital Participates in Share Liability
Contribution Decision making profits/losses
Active Partners Yes Yes Yes Unlimited
Liability
Sleeping or Yes No Yes Unlimited
Liability
Dormant Partners
Secret Partners Yes Yes Yes Unlimited
Liability
Nominal Partners No No No Unlimited
Liability
Partner by No No No Unlimited
Liability
Estoppel
Partner by No No No Unlimited
Liability
Holding out

Minor as a Partner
A minor is a person who has not attained
the age of 18 years. Since a minor is not
capable of entering into a valid agreement
, he cannot become partner of firm.
However, a minor can be admitted to the
benefits of an existing partnership firm
with the mutual consent of all other
partners. He cannot be asked to bear the
losses. His liability will be limited to the extent of the capital contributed by him. He will
not be eligible to take an active part in the management of the firm.
Types of Partnership
A. Classification on the Basics of Duration
Partnership at will- This type of partnership
exists at the will of partners.
Particular Partnership-This type of
partnership is formed for a specific time to
accomplish a particular project
(Construction of a building). It dissolves
automatically when the purpose for which it
is formed is fulfilled.
B. Classification on the basis of Liability
General partnership-This liability of partners
is unlimited and joint. Registration of firm is
optional. The partners enjoy the right to
participate in the management of the firm and their acts are binding on each other as
well as on the firm.
Limited Partnership-The liability of at least one partner is unlimited whereas the other
partners may have limited liability. Such a partnership does not get terminated with the
death , lunacy or insolvency of the limited partners. Registration ofsuch partnership is
compulsory.
PARTNERSHIP DEED
The written agreement on a stamped paper
which specifies the terms and conditions of
partnership is called the partnership deed.
It generally includes the following aspects –
• Name of the firm
• Location / Address of the firm
• Duration of business.
• Investment made by each partner.
• Profit sharing ratio of the partners
• Terms relating to salaries, drawing, interest on capital and interest on drawing of
partners.
• Duties & obligations of partners.
• Preparation of accounts and their auditing.
• Terms governing admission, retirement & expulsion of a partner, preparation on of
accounts& their auditing.
• Method of solving disputes.
REGISTRATION OF PARTNERSHIP
Registration of Partnership is not compulsory it is optional. But it is always beneficial to
get the firm registered. The consequences of non-registration of a firm are as follows:
• A partner of an unregistered firm cannot file suit against the firm or the partner.
• The firm cannot file a suit against third party.
• The firm cannot file a case against its partner.
Co-operative Society
A co-operative society is a voluntary association of persons
of moderate means who unite together to protect &
promote their common economic interests.
MERITS
1. Ease of formation: It can be started with minimum of 10 members. Registration is also
easy as it requires very few legal formalities.
2. Limited Liability: The liability of members is limited to the extent of their capital
contribution.
3. Stable existence: Due to registration it is a separate legal entity and is not affected by
the death, luxury or insolvency of any of its member.
4. Economy in operations: Due to elimination of middlemen and voluntary services
provided by its members the society can reduce its cost.
5. Government Support: Govt. provides support by giving loans at lower interest rates,
subsidies& by charging less taxes.
6. Equality in Voting status: The principle of”One man One vote“governs the
cooperative society. Irrespective of the amount of capital contributed by a member, each
member is entitled to equal voting rights.
LIMITATIONS
1. Shortage of capital - It suffers from shortage of capital as it is usually formed by
people with limited means.
2. Inefficient management - Co-operative society is managed by elected members who
may not be competent and experienced. Moreover, it can’t afford to employ expert and
experienced people at high salaries.
3. Lack of motivation - Members are not inclined to put their best efforts as there is no
direct link between efforts and reward.
4. Lack of Secrecy - Its affairs are openly discussed in its meeting which makes it difficult
to maintain secrecy.
5. Excessive govt. control –It suffers from excessive rules and regulations of the govt. It
has to get its accounts audited by the auditor and has to submit a copy of its accounts to
the Registrar.
6. Conflict among members - The members are from different sections of society with
different viewpoints. Sometimes when some members become rigid, the result is
conflict.
How does a cooperative society exemplify democracy and secularism.
The word co-operative means working together with others for a common purpose.
The co-operative society is a voluntary association of persons, who join together
with the motive of welfare of the members.
• The membership of a co-operative society is voluntary. A person is free to
join a co-operative society and can also leave anytime without any
compulsion. The membership of a co-operative society is open to all,
irrespective of their religion, caste and gender. These features prove the
secular nature of co-operative societies.
• The decision-making power in a co-operative society lies in the hands of an
elected managing committee. Every member has one vote and this right to
vote gives the members a chance to elect the members of the managing
committee. All these features lend the co-operative society a democratic
character.
TYPES OF CO-OPERATIVE SOCIETIES
1. Consumers co-operative Society –It’s formed to
protect the interest of consumers.It seeks to
eliminate middleman by establishing a direct link with
the producers. It purchases goodsof daily
 consumption directly from manufacturer or wholesalers and sells them to the
members at reasonable prices.
Eg:- Super Bazaar in India
2. Producer's Co-operative Society - The main aim is to help small producers who cannot
easily collect various items of production and face some
problem in marketing. These societies purchase raw
materials, tools, equipment and other items in large
quantity and provide these things to their members at
reasonable price.
Eg:-Amul (Anand Milk Union Ltd) , National Federation of Cooperative Sugar Factories

3. Marketing Co-operative Society - It performs various marketing function such as

transportation, warehousing, packing, grading, marketing research etc. for the benefit of
itsmembers. The production of different members is pooled together and sold by society
at good price.
Eg:-The Unati Co-operative Society ,Amul

4. Farmer’s Co-operative Society - In such societies,

small farmers join together and pool
their resources for cultivating their land collectively.
Such societies provide better quality
seeds, fertilizers, machinery and other modern
techniques for use in the cultivation of crops. It provides them opportunity of cultivation
on large scale.
Eg:-NationalCo-operative Dairy Federation
5. Credit co-operative Society - Such societies protect the members from exploitation by
money lenders. They provide loans to their members at easy terms and reasonably low
rate of interest.
Eg:-Adarsh Credit Co-operative Society Ltd
6. Co-operative Housing Society –It is established to provide houses to people with
limited means/income at reasonable cost. The main aim is to solve the housing problems
of members by constructing houses and giving option of paying in instalments.
Eg :- The Kerala State Co-operative Housing Federation Ltd.
JOINT STOCK COMPANY
Meaning - Joint Stock Company is a voluntary association of
persons for profit, having a capital divided into transferable
shares, the ownership of which is the condition of
membership.
A company can be described as an artificial person having a
separate legal entity, perpetual succession and a common
seal.
MERITS
1. Limited Liability - Limited liability of shareholder reduces
the degree of risk borne by him.
2. Transfer of Interest - Easy transferability of shares increases the attractiveness of
shares for investment.
3. Perpetual Existence - Existence of a company is not affected by the death, insanity,
Insolvency of member or change of membership. Company can be liquidated only as per
the provisions of companies Act.
4. Scope for expansion - A company can collect huge amount of capital from unlimited
number of members who are ready to invest because of limited liability, easy
transferability and chances of high return.
5. Professional management - A company can afford to employ highly qualified experts
in different areas of business management.
LIMITATIONS
1. Legal formalities - The procedure of formation of Co. is very long, time consuming,
expensive and requires lot of legal formalities to be fulfilled.
2. Lack of secrecy - It is very difficult to maintain secrecy in case of public company, as
company is required to publish and file its annual accounts and reports.
3. Lack of Motivation - Divorce between ownership and control and absence of a direct
link between efforts and reward lead to lack of personal interest and incentive.
4. Delay in decision making – Companies are democratically managed through the Board
of Directors which is followed by the top, middle and lower management.
Communication as well as approval of various proposals may cause delays.
5. Oligarchic management - Company is said to be democratically managed but actually
managed by few people i.e. the Board of Directors. Sometimes they take decisions
keeping in mind their personal interests and benefit, ignoring the interests of
shareholders and Company.
TYPES OF COMPANIES
On the basis of ownership, companies can be
divided into two categories – Private & Public.
Private Company:
A private company means a company which:
• Restricts the right of members to transfer its shares.
• Has a minimum of 2 and maximum of 200 members,
• Does not invite public to subscribe to its securities.
It is necessary for a private company to use the word Private Limited or its abbreviation
Pvt .Ltd after its name.
Public Company:
A public company means a company which is not a private company. It is one which:
• Has a minimum of 7 members and no limit on maximum members.
• Has no restriction on transfer of securities.
• Is not prohibited from inviting the public to subscribe its securities.
One Person Company :
The Indian Companies Act 2013, defines a one-person company as a company that has only
one person as to its member. A sole proprietorship form of business might seem very similar
to one-person companies because they both involve a single person owning the business.
The main difference between the two is the nature of the liabilities they carry. Since an OPC
is a separate legal entity distinguished from its member, it has its own assets and liabilities.
The member is not personally liable to repay the debts of the company.
Only natural persons who are Indian citizens and residents are eligible to form a one-person
company in India. No perpetual Succession as there is only one member in the company.

Difference between Private Company and Public Company

Sl Private Co. Public Co.

No

1 It has minimum 2 and maximum 200 It has minimum 7 and maximum unlimited.
members.

2 It cannot invite general public to buy It invites general public to buy its shares
its shares and debentures. and debentures.

3 There are certain restrictions on Its shares are freely transferable.

transfer of its shares.

4 It can commence business after It can commence business after obtaining

receiving the certificate of certificate of commencement of business.
Incorporation.

5 It has to write Private Ltd. After its It has to write only limited after its name.
name Eg- Reliance Industries Ltd., Wipro Ltd. ,
Eg- Tata Sons Pvt Ltd , Citi Bank Pvt Raymond’s Ltd.
Ltd , Hyundai Motor India Pvt Ltd.

Difference between Cooperative Society and Partnership firm

Sl Basis Cooperative Society Partnership

No

1 Act Established under the Under the preview of the Indian

Cooperative Society Act , Partnership Act 1932.
 1912.

2 Registration Its registration is mandatory. Its registration is not compulsory.

3 Mutual Apart from the members non- It’s benefits is confined to the
Profit members are also benefited. partners only.
Non-members can purchase
from the Consumer’s
Cooperative Society.

4 Objective The main purpose is to It’s purpose is to do business

provide mutual help to those activities.
who are incapable of doing
work single handed.

5 Number of Minimum -10 members Minimum -2

Members Maximum 100 in case of Maximum – 50
Cooperative credit society and
no limit for the other types.

Difference betweenPartnership and Sole Proprietorship

Sl Basis Partnership Sole Proprietorship

No

1 Specific Act The partnership is governed There is no separate Act for Sole
by Indian Partnership Act proprietorship.
1932.

2 Number of Minimum No of members -2 There is only one owner.

members Maximum No of members -50
3 Agreement A partnership can only arise as There is no question of
a result of an agreement. agreement.

4 Secrecy Secrets are open to every The business secrets are not
partners. open.

5 Economic Economically more strong as Economically weak .The ability of

Strength partner can raise more capital the sole trader to provide capital
and bring greater skills. and skill is limited.

6 Survival The chances of survival are It comes to an end with the

greater as the partnership death of the sole trader.
firm may be continued even
after the death of a partner.

7 Decision – Decision making may be Decision making is very quick as

making delayed as all the partners the sole trader is not required to
must agree. consult anyone.

8 Registration Registration is not necessary , There is no question of

but it is useful. registration.

9 Profit- Loss Profit – Loss is divided among Sole Trader himself is the
sharing all the partners according to recipient of all the profit –loss.
the agreement and in the
absence of clear agreement it
is divided equally.

Difference between Partnership and Joint Hindu family Business

Sl Basis Partnership Joint Hindu family Business

No

1 Governed Partnership firm is governed Joint Hindu Family business is

by by Partnership Act , 1932. governed by Hindu Succession
Act.
2 Number of Minimum -2 Minimum -2
members Maximum – 50 Maximum – No limit

3 Manageme All the partners manage and Only Karta manages and controls
nt control the partnership firm the Joint Hindu Family Business.

4 Liability Liability of all the partners are Only Karta’s liability is unlimited.
unlimited. All others have limited liability.

5 Division of Profit is divided among all the Equal share in profit for all the
profit partners in the ratio decided members.
in partnership deed.

6 Minor Normally Minor cannot be a Minor can be a member of Joint

partner partner. Hindu family Business.

Difference between Company and Partnership

Sl Basis Company Partnership

No

1 Act It is controlled under the Partnership firm is governed by

Indian Companies Act , 2013. Partnership Act , 1932.

2 Number of Public - Minimum -7 Minimum -2

members Maximum – No limit Maximum – 50
Private - Minimum -2
Maximum – 200 (As per
Companies Act 2013)

3 Registration Registration of Company is Registration of partnership is

essential. optional.
4 Liability Liability of the shareholders Liability of the partners are
are limited. unlimited.

5 Formation Company is established under The partnership is established by

law. an agreement among the
partners.

6 Separate Company is an artificial person Partnership firm has no separate

Entity whose existence is separate existence from its members.
from its owners.

7 Manageme Managed by the Board of Managed by all the partners.

nt Directors.

8 Continuity Death , insolvency of any Partnership firm gets dissolved

shareholder does not affect on the death , insolvency of any
the existence of the company. partner.

Difference between Company and Cooperative Society

Sl Basis Company Cooperative Society

No

1 Formation It gets formed by registration It gets formed by registration

under Companies Act. under Cooperative Societies Act.

2 No. of Public - Minimum -7 Minimum -10 members

members Maximum – No limit Maximum 100 in case of
Private - Minimum -2 Cooperative credit society and no
Maximum – 200 (As per limit for the other types.
Companies Act 2013)

3 Motive The main motive of a The motive is to provide service

company is to earn profit to its members.
4 Transfer of Free transfer of Shares Transfer of shares not permitted,
Shares shares can be returned.

5 Voting One-share one vote. One member –one vote.

Rights

6 Manageme By the Board of Directors By voluntary and honorary

nt service of the members.

7 Privilege No special privilege granted by Many concessions and

the government. exemptions granted by the
government.

CHOICE OF FORM OF BUSINESS ORGANISATION

C o e o Forms o s ess r a sa o s

. orma on .Capital . Nature of . Degree . Ris y

and Cost Considera on usiness of Control

Sole Proprietorship
asy orma on and Sole Proprietorship Sole Proprietorship
Lower cost Less resources personal
Partnership asy Partnership a en on
orma on and Lower Limited resources Partnership
cost Company uge professional nature
Company expensive resources Company Large
with lot of formali es scale
and expensive
Sole Proprietorship Non ris y ventures
Partnership Non ris y ventures
Company Ris y ventures

It can be said that Sole trade is suitable for a small-scale business, Partnership for a
middle–level business and Company organisation for a large-scale business.
The following factors are important for taking decision about form of organization:
1. Cost and ease in setting up the organization: Sole proprietorship is the least
expensive and can be formed without any legal formalities to be fulfilled. Partnership
firm also has less legal formalities and lower cost . Company is expensive with lot of legal
formalities.
2. Capital consideration: Business requiring less amount of finance prefer Sole
proprietorship&Partnership form, whereas business activities requiring huge financial
resources prefer Company form.
3. Nature of business: If the work requires personal attention such as tailoring unit,
saloon,grocery it is generally setup as a sole proprietorship. Unit engaged in large scale
manufacturing are more likely to be organized in Company form. Similarly, in cases
where services of a professional nature are required ,Partnership form is more suitable.
4. Degree of control desired: A person who desires full and exclusive control over
business prefers Sole proprietorship rather than partnership or company because control
has to be shared in these cases.
5. Liability or Degree of Risk: Projects which are not very risky can be organized in the
form of Sole proprietorship and Partnership whereas the risky ventures should be done
in Company form of organization because the liability of shareholders are limited.
6. Continuity: The continuity of Sole Proprietorship and Partnership is affected by such
events as death , insolvency or insanity of the owners. However such factors do not
affect Joint Hindu Family business, Cooperative Societies and Companies.