Answer the Following
1) Explain the features of Sole Trading Concern.
Ans: A sole trading concern is one of the oldest and simplest form of organisation. An individual owns the entire business. The individual is the owner, controller and manager of the firm. Such an individual is called a Sole Trader or Sole Proprietor. This type of business is a one-man show.
According to Prof. J. Hanse, “Sometimes known as one man business, it is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk of the enterprise and for the risk of ownership”.
According to Prof. James Lundy, “The sole proprietorship is an informal type of business owned by one person.”
The features of Sale Trading Concern are as follows:
(I) Suitable for some Special Business: Sole trading concern is suitable for business where personal attention and individual skill is needed e.g., Beauty parlour, groceries, fashion designing, sweet Shops, tailoring, restaurants etc.
(II) Unlimited Liability: Liability of the sole trader is unlimited. In case business assets are not sufficient to meet business expenses, private property of the sole trader will be used. There is no difference made between private property and business property of sole trader.
(Ill) No Sharing of Profits and Risks: A sole trader enjoys all the profits of business. As he is the single owner of business he assumes full responsibility in business. He alone bears all the losses or risks involved in business.
(IV) Business Secrecy: Maximum business secrecy can be maintained in a sole trading concern. A sole trader is responsible only to himself. He need not discuss any matter of business with outsiders. Moreover, there is no legal compulsion for sole trader to publish books of accounts of business.
(V) Local Market Operations: A sore trader has limited capital and limited managerial skills, which forces him to operates in local are market only.
(VI) Individual Ownership: A sole trader is the single owner of business. He owns all the property and assets of the concern. He brings in the required capital for business. A sole trading concern is a `One man show”.
(VII) No separate legal status: Sole trader and his business are considered one and the same in the eyes of law. Thus, it does not enjoy separate legal status.
(VIII) Direct Contacts with Customers and Employees: A sole trader directly deals with customers and employees. A sole trader can pay personal attention to his customers. This helps him to maintain good relations with his customers. He can serve customers according to their likes and dislikes. As there are less number of employees, he can build good relations with them. He can listen to their grievances and try to solve them.
(IX) Self-employment: Such business form is best suitable for self-employment. Instead of being remaining unemployed one can start such business as it requires low capital and has less legal formalities.
(X) Freedom in Selection of Business: A sole trader has freedom to select any type of business. Business selected must be allowed legally. A sole trader can use any method of maintaining books of accounts.
(XI) Minimum Government Regulations: Sole trading concern need not follow any special Act. There are not much legal formalities needed for forming and closing a sole trading concern. Only the general law of the country has to be followed.
2) Explain different types of Partnership Firms.
Ans: TYPES OF PARTNERSHIP FIRM General Partnership Firms (Under Indian Partnership Act, 1932) (a) Partnership at will (b) Partnership for particular period (c) Partnership a particular venture — Limited Liability Partnership (Under Limited Liability Partnership Act, 2008)
(I) General Partnership: These partnership can be formed under the Indian Partnership Act, 1932, where the liability of all partners are unlimited, joint and several. General Partnership can be divided into three Kinds:
(a) Partnership at will: Such partnership are formed and continued as per the Will of the partners. They are formed for an indefinite period. Any partner can terminate the partnership by giving a notice to the firm. Such firms exists so long as there is mutual trust and co-operation among the partners.
(b) Partnership for a particular period: Such partnerships are formed for a particular period of time. On the completion of the duration, the partnership firm automatically dissolves irrespective of the venture being complete.
(c) Partnership for a venture or particular partnership: Such partnerships are formed for a particular venture or job. It comes to an end on the completion of the venture. For e.g. construction of roads, dams, bridges, buildings, etc.
(II) Limited Liability Partnership: This kind of partnership is formed under the Limited Liability Partnership Act 2008. There are 2 kinds of partners.
(a) Designated Partner: Limited liability partnership is one where there are at least two partners of which One must be a resident of India.
(b) General Partner: In limited liability partnership a apart from the designated partners all other partners have limited liability. They are called general partners.
3) Explain different types of Partners.
Ans: The different types of partners are:
(I) Active or Working Partners: In practice one or two partners take active part in the Management such partners are called active or working partners. They contribute capital, shares profits or losses, and has unlimited, joint and several liability. They take an active interest in the day to day working of the firm. These partners are also known as ordinary / general / actual partners.
(II) Dormant or Sleeping Partners: A dormant or sleeping partner is one who contributes capital to the firm. He does not take any active part in the management of the firm. He shares the profits and losses of the firm like any other partner. He voluntarily surrenders the right of management. However, he is liable for the debts of the firm.
(Ill) Nominal Partners: A nominal partner is one who does not contribute any capital to the firm. He lends his name to the firm. He is simply obliging his friends by allowing the firm to use his name as a partner. He may or may not be given any share in the profits of the firm. His goodwill is used to attract business. However, he is liable for the debts of the firm.
(IV) Minor as Partner: According to the Indian Contract Act 1872, a person below 18 years is called a minor. But according to the Indian Partnership Act 1932, a minor can be admitted for the benefit of the firm with the consent of all other partners. He has a right to inspect the books of accounts. Minor partner has limited liability and is not liable for losses. He has the option to continue as a full-fledged partner or discontinue as a partner on attaining the age of majority. If he Wishes to discontinue, he must give a public notice within 6 months from the age of majority.
(V) Partner in Profits only: A partner may clearly state that he Will have a share only in the profits of the firm and that he will not share losses. Such a partner is known as “Partner in Profits Only”. He has no rights of management. He may not take active participation in the management of the firm.
(VI) Partner with Limited Liability: A limited partner has limited liability. A partner whose liability depends upon the extent of investment is called a limited partner. He has no right to take part in the day to day work. But such a partnership must have at least one partner having unlimited liability.
(VII) Secret Partner: A person is a partner of the firm and not known to general public is a secret partner. Secret partners have all the features like other partners. He brings capital to the firm and also gets a share in profit. He has unlimited liability. He can take part in the working of the business.
(VIII) Sub-Partner: A partner when agrees to share his own profit derived from the firm with third person, it is known as sub-partner. A sub-partner cannot call himself as a partner in the firm.
(IX) Quasi Partner: A retired partner leaving his capital with the firm is called as Quasi Partner. He does not participate in the working of the firm, but share profit of the firm. He is also liable for the debts of the firm.
4) Explain the five features of Joint Stock Company.
Ans: The features of Joint Stock Company are as follows:
(I) Common Seal: A company being an artificial person cannot sign on its own. The law requires every company to have a seal and have its name engraved on it. Common seal is a symbol of company’s incorporated existence. As common seal 1s the signature of the company, it has to be affixed on all important documents of the company. When the seal is used it has to be witnessed by two Directors of the Company. The common seal is under the custody of Company Secretary.
(II) Artificial Person: A company is an artificial person created by law. It has an independent legal status. It has a separate name. It can enter into contracts, buy and sell property in its name. The company is distinct from its members.
(Ill) Registration: The Registration of Joint Stock Company is compulsory. All companies have to be registered under Indian Companies Act, 2013.
(IV) Membership: A company is an association of persons. A private limited company must have atleast two persons and a public limited company must have atleast seven persons. The maximum limit of members for private company is 200. A public company can have unlimited members.
(V) Ownership and Management: Persons investing in the shares of the company are called as shareholders. They are the owners of the company. They receive a share in the profits of the company called “dividend”. The large number of shareholders cannot manage business. They elect representatives who are collectively called as Board of Directors. They manage business of the Company.
(VI) Limited Liability : The liability of all shareholders is limited upto the extent of unpaid face value of shares held by them. Therefore, private property of shareholders is not used for the payment of company’s liabilities.
5) Explain the merits of a Co-operative Society.
Ans: The merits of a Co-operative Society are as follow:
(I) Easy Formation: It is easy to form a Co-operative organisation. Minimum ten members are needed to form the organisation. It does not involve much legal formalities. It is compulsory to register the organisation However, the procedure for registration is simple and the fees are nominal.
(II) Tax Concession: Co-operatives always get support of the government. As they play an important role in economic and social development, government gives them concessions in payment of tax.
(Ill) Open Membership: Membership of a Co-operative organisation is open to all. A person can become a member by purchasing shares. No difference is made on the basis of language, religion, caste, etc. A person can become a member whenever he wants and terminate membership at his own Will. Membership is voluntary.
(IV) Stability: A Co-operative organisation 1 enjoys a long and stable life. The life of the organisation is distinct from the life of its members. If any member dies, becomes insolvent or insane, business is not closed. Self
(V) Financing and Charity: After providing 15% dividend to members, surplus amount is used for self. Financing by the Co-operative Societies. Some amount of leftover profit is used for charity, social activities and for the growth of the co-operative society.
(VI) Less Operating Expenses: Cost of operation is low as salary is not paid to members who manage business. Members of Co-Operative organisations work on honorary basis. They are not given any remuneration for their services. There are no expenses on advertising and publicity. This helps to increase profit.
(VII) Limited Liability: The liability of members is limited. It depends upon the value of shares purchased by members. Therefore, people are interested in investing in a Co-operative organisation.
(VIII) Democratic Management: Democracy is followed in the management of co-operative organisation. All members are equal. The principle of “One member One vote” is followed. Members elect representatives who form the managing committee. They work according to by laws. The managing committee looks after day to day administration. Decisions are taken collectively in meetings.
(IX) Supply of Goods at Cheaper Rate: Goods are sold at lesser price through a Co-operative store. This is because the organisation is service oriented. The store does not make use of services of middlemen and there are no expenses on advertising. So goods are sold at cheap rates.
6) Explain the demerits of Partnership firm.
Ans: The demerits of Partnership firm are as follows:
(I) Non-transferability of Interest: In a partnership firm no one partner can transfer his share of interest to another outsider without the consent of all the partners.
(II) Limited Capital: There is a limitation in raising additional capital for business. The business resources are limited to personal funds of the partners. Borrowing capacity of partners is limited. The maximum number of partners is fifty only. So Financial capacity is less.
(III) Absence of Legal Status: The Indian Partnership Act, 1932 does not give a legal status to a partnership firm. There is no independent legal status. The firm and its partners are one and the same.
(IV) Problem of Continuity: The partnership firm is not a separate legal entity. The firm Is dependent on mutual trust between partners. If a partner dies, becomes insolvent or Insane, the firm has to be dissolved compulsorily whether the partners wish or not
(V) Risk of Implied Authority: A partner works in two capacities. He has a dual role Principal and Agent He acts as an agent of the business. He can enter into contract with third party. However, a wrong decision can result in heavy losses, which has to be borne by all partners.
(VI) Limitations on number of Partners: No partnership can go beyond maximum number prescribed (i.e. 50 members) by Indian Partnership Act. This restriction effects the raising of capital for further expansion.
(VII) Disputes: It is difficult to maintain harmony among partners. They may have different opinions and may not agree on certain matters. Partners may have conflicts if some partners work for self-interest This reduces team spirit and may finally lead to dissolution of the firm.
(VIII) Difficulty in Admission of Partner: As consent of all partners is required to take any decision in the partnership firm, it becomes difficult to admit a new partner. This is a disadvantage to the firm as It cannot bring in new talent if the other partners are not agreeing to it.
(IX) Unlimited Liability: The liability of partners is unlimited. There is no difference between business property and personal property of partners. If business assets are not enough to meet business expenses, Personal property can be used.
(X) Problem of Secrecy: Partnership firms lack complete business secrecy as some secrets may be disclosed by some partner to the competitor for personal benefit.
7) Explain the merits of Joint Stock Company.
Ans: The merits of Joint Stock Compmy are as follows:
(I) Transferability of Shares: Shares of a public company can be transferred easily and freely. There is a high degree of liquidity In shares. Permission of directors or members need not be taken for buying and selling shares. This helps to attract investors to public company.
(II) Relief in Taxation: The tax burden in the company is less. Provisions of Income Tax Act says that companies have to pay tax at flat rate. This is less than taxes paid by individuals earning very high Income. If company is started In backward areas, the company gets relief in the form of tax holding.
(III) More Scope for Expansion: The capital raising capacity of the company is high. The company has a lot of funds at its disposal. A part of the profit is Aso ploughed back for business. This enables growth and expansion of business.
(IV) Public Confidence: Joint Stock Company has to publish books of accounts. Which is audited by CA. Annual reports of the company have to be published. The activities of the Company are regulated by the provision of Companies Act, 2013. Therefore, the company gets public support.
(V) Limited Liability: The liability of shareholders is limited. It Is to the extent of unpaid value of shares. Shareholders cannot be liable for the debts of the company. Features of limited liability attract more investors to business.
(VI) Expert Services: Joint Stock Company an appoint experts for managing their huge business operations. They appoint experts like Legal advisors, management experts, auditors, consultants, etc.
(VII) Democratic Management: Management of a company is democratic. Shareholders elect representatives called as Board of Directors. They manage business. Directors are accountable to shareholders. Policy decisions are taken by Directors but have to be approved by shareholders. The shareholders can also remove inefficient Directors.
(VIII) Perpetual Succession: Joint Stock Company enjoy long and stable life. Its stability is not affected by death insolvency or retirement, of any of its members.
(IX) Professional Management: Large funds are at the disposal of the companies. Therefore, experts can be appointed in different areas of business. As good salaries can be paid, highly qualified personnel like Cost Accountants, Sales Experts, Market Experts, etc. can be appointed. Even Board of Directors have competent persons who manage business efficiently.
(X) Large Amount of Capital: A company can collect large amount of capital. There is no limit on maximum number of members. Due to features of limited liability, transferability of shares and liquidity, many investors are attracted to become shareholders of the company. Loans are also available to Joint Stock Companies.
8) Explain the features of partnership firm.
Ans: The features of partnership firm are as follows:
(I) Lawful Business: Business undertaken by partnership should be lawful. It cannot undertake business forbidden by state. The definition of partnership also does not permit any association like club or charitable institution. Illegal business like smuggling or gambling is not allowed.
(II) Agreement: Partnership is a result of agreement between partners. There could be a written or oral agreement between partners. A written agreement is preferred so that it can be used as a proof in the court of law if needed.
(III) Number of Partners: Minimum two members are needed to start a partnership firm. The maximum number of members is 50.
(IV) Dissolution: A Partnership Firm can be dissolved through agreement between partners. If a partner wants, he can dissolve the firm by giving 14 days notice to the firm. The firm can be dissolved if a partner dies, becomes insolvent or insane.
(V) Sharing of Profits and Losses: The purpose of partnership is to earn profit. Its object cannot be a charitable one. Partners have to share profits and losses according to the ratio given in the agreement. If the agreement is silent about the proportion then profit and loss sharing will be equal.
(VI) Termination of Partner: A partner may resign by giving proper notice in writing to the other partners. A partner can also be removed if he has been found doing any fraudulent activities
(VII) Joint Ownership: Each partner is the joint owner of the property of the firm. All partners are equal owners of business property. No partner can use property for personal use.
(VIII) Registration: It is not compulsory as per Indian Partnership Act, 1932. However, in the State of Maharashtra, it has been made compulsory to get register with ‘Registrar of Firms’ of the state.
(IX) Joint Management: All partners have equal rights in managing the firm. Some partners take interest in management of IM firm and others voluntarily surrender their management rights. However, all partners are jointly responsible for the management of the firm.
(X) Unlimited Liability: The liability of partners is unlimited joint and several. If assets of business is not sufficient to pay liabilities, personal property of partners can be used. If any one of the partners Is declared Insolvent, his liability will be borne by the solvent partners.
(XI) Principal and Agent: Each partner works in two capacities Principal and Agent. A partner acts as principal when within the firm and acts as an agent while dealing with outsider. The partners play a dual role.
(XII) Restriction on Transfer of Interest: A partner cannot transfer or sell his interests in the firm to outsider without the prior consent of all other partners in the firm.
9) Explain the types of Co-operative Societies.
Ans: Types of Co-Operative Society are as follows;
(I) Consumer Co-operative Societies: A consumer co-operative Is a business owned by its customers. They purchase in large quantities from wholesalers and supply In small quantities to customers. Goods are provided to buyers at reasonable prices and also provide services to them. Members get a share A the profit. The consumer society is formed to eliminate middlemen from distribution process e.g.-Apana Bazar, Sahakari Bhandar.
(II) Credit Co-operative Societies: Members pool their savings together with the aim of obtaining loans from their pooled resources for productive purposes and non-productive purposes. They may be established A rural areas by agriculturist or artisans called as a Rural Credit Society. They may be established by salary earners or industrial areas called as Urban Banks, Salary Earners Society or Workers Society.
(III) Producer’s Co-operatives: Producer’s Co-operatives are voluntary associations of small producers and artisans who come together to face competition and increase production. These societies are of two types:
(a) Industrial Service Co-operatives: This society supply raw materials, tools and machinery to the members. The producers work independently and sell their industrial output to the co-operative society. The output of members is marketed by the society.
(b) Manufacturing Co-operatives: In this type, producer members are treated as employees of the society and are paid wages for their work. The society provides raw material and equipment to every member. The members produce goods at a common place or in their houses. The society sells the output in the market and its profits is distributed among the members.
(IV) Marketing Co-operatives Societies: These co-operatives find better markets for members produce. They also provide credit and other inputs to increase members production levels. They perform marketing functions such as standardising, grading, branding, packing, advertising etc. The proceeds are then distributed among members depending on the quantities sold.
(V) Co-operative Farming Societies: Farmers voluntarily come together and pool their land. The agricultural operations are carried CA jointly. They make use of scientific method of cultivation.
(VI) Housing Co-operative Societies: Housing Co-operatives are owned by residents. The society purchases land and develops it. Houses are constructed for residential purpose on ownership basis. They aim at establishing houses at fair and reasonable rents to members. For construction purposes loans are made available from Governmental or Non-governmental sources. The society also looks after the maintenance of its buildings.
10) Explain the demerits of Joint Stock Company.
Ans: The demerits of Joint Stock Company are as follows:
(I) Rigid Formation: The formation of a joint stock company is lengthy, difficult and time consuming. There are many legal formalities for starting business. Promoters have to prepare documents like Articles of Association, Memorandum of Association, etc. A private company has to go through two stages in formation. A public company has to go through four stages in formation.
(II) Delay in Decision Making Process: In company form of organization no single individual can make a policy decision. All important decisions are taken by Board of Directors. Decision taking process is time consuming. Business mac lose opportunities because of delay in decision making.
(Ill) Lack of Secrecy: The management of companies remain in the hands of many persons. Everything is discussed In the meetings of Board of Directors. All important documents are available at registered office for inspection. Thus, there is no secrecy in business matters.
(IV) Excessive Government Control: A large number of rules are framed for the working of companies. The companies will have to follow rules for internal working. The government Vies to regulate the working of the companies because large public money is involved. In case regulations are not complied with, large penalties are involved.
(V) High Cost of Management: The management of joint stock company form of organization is costly. Services of experts like share brokers, underwriters, solicitors, bankers is needed which is costly. Highly qualified staff is needed. They are paid good salaries. Dissolution of the firm is also costly.
(VI) Reckless Speculation: Directors look after management of the company. They have full information about the progress of the company. They use these details for speculation in shares. This results in fluctuations in share prices. This affects public confidence.
(VII) Na Personal Contact: There are large number of employees in the organization. There is no personal contact of owners and managers with employees. Lack of appreciation demotivates employees. Similarly, managers and directors are not able to maintain personal contacts with their customers. Thus, customers likes and dislikes are ignored.
(VIII) No Direct Effort Reward Relationship: Joint Stock Company is owned by shareholders and managed by Board of Directors. Board of Directors are paid for managing and profit is shared by shareholders. There is no direct relation between efforts and rewards. Directors may not take a lot of interest in the working of the company.