Justify the following statements
1) The Liability of a ‘Sole trader’ is Unlimited.
Ans:
(I) One Of the main features of a sole traders is unlimited liability.
(II) if the sole trader becomes Insolvent and if his business assets are insufficient to pay off his business debts, he will have to use his private property in order to pay off his creditors.
(III) There Is no distinction between business property and private property in case of a sole trading concern. Thus, liability of a sole trader is unlimited.
2) Karta is the sole manager of ‘Joint Hindu Family Business’.
Ans:
(I) The Karta is the eldest or senior most person in the family business.
(II) A Karta has unlimited liability.
(III) He has the entire decision making power and he is not binding on the views of the co-parceners.
(IV) Thus, the Karta is the sole manager of Joint Hindu Family business.
3) The main objective of Co-operative society is to provide services to its members.
Ans:
(I) The Co-operative Society is a voluntary association of persons formed for the purpose of promoting the Interest of Its members. It is different from all other organizations.
(II) The main objective of a co-operative organization Is not to make profit but to give service to Its members.
(III) The co-operative society is formed for the welfare of the people.
(IV) Co-operative societies are rightly called as service oriented organization. Maximisation of profit is not the aim.
(V) Thus, the main objective of Co-operative society is to provide services to its members.
4) A Joint Stock Company can raise huge capital.
Ans:
(I) A Joint Stock Company Is an Incorporated association.
(II) It has a legal status Independent of Its members.
(III) A Joint Stock Company has large membership. There is no maximum limit.
(IV) Shares are available In the open market.
(V) Large number of investors are Interested in buying shares.
(VI) Shares are freely transferable and members have limited liability.
(VII) Thus, a Joint Stock Company can raise huge capital. Capital can also be raised by company from financial institutions.
5) The liability of Co-parceners is limited in ‘Joint Hindu Family Business’.
Ans:
(I) In a Joint Hindu Family Business, there are two types of members Karta and Co-parceners.
(II) The karta has unlimited liability and he Is the only decision making authority. The Co-parcerns have limited liability and therefore cannot take part in the management of the firm. They can only share the profit but cannot challenge decisions taken by the Karta.
(III) The liability of coparceners is limited upto the extent of their share in the Joint Hindu Family Business.
(IV) The personal property of co-parceners is not used for payment of the liability of the Joint Hindu Family business.
(V) Thus, the liability of Co-parceners is limited in ‘Joint Hindu Family Business’.
6) Sole proprietorship is useful for small business.
Ans:
(I) Sole trading concern is owned by only one person.
(II) He uses his own skill and intelligence for his business.
(III) Sole trader brings capital from his own savings. He may borrow from friends and relatives. However, capital collected is limited.
(IV) He alone takes decisions of business. Therefore, managerial ability is also limited.
(V) Because of limited capital and limited managerial ability, it is not possible to expand business beyond a certain limit.
(VI) Thus, sole proprietorship is useful for small business where limited capital and less managerial ability is needed.
7) Co-operative society follows democratic principles.
Ans:
(I) The members of a Co-operative organisation form the general body which manages the co-operatives. This body exercises the power through annual general meetings. They elect their representatives who look after the day to day management which is collectively known as Managing Committee.
(II) ‘One member One vote’ is the principle followed by Co-operative Societies.
(III) All these denote that it follows democratic principles.
(IV)Thus, Co-operative society follows democratic principles.
8) There is separation of ownership and management in Joint Stock Company.
Ans:
(I) The shareholders are the owners of the company. The company is managed by the Board of Directors who are elected representatives of the shareholders.
(II) There is separation of ownership and management because of the following reasons: (a) Scattered membership (b) Large membership (c) Disinterested shareholder (d) Heterogeneous members (e) Separate legal entity.
(III) Thus, ownership is in the hands of shareholders and the management is with the Board of Directors who are paid employees of the company.
9) Shares of Private Limited Company are not freely transferable.
Ans:
(I) According to the Companies Act, the right to transfer shares is restricted by Its articles.
(II) Only a public limited company has right to transfer shares freely.
(III) Thus, shares of Private Limited company are not freely transferable.
10) All partners are joint owners of Partnership firm.
Ans :
(I) According to the Indian Partnership Act, 1932, all the partners are joint owners of the property of the partnership firm.
(II) No partner can use the property of the firm for his personal interest.
(III) No partner Is allowed to take any decision without the consent of all the partners.
(IV) No partners can make any secret profit in the business.
(V) Profits and losses are shared among the partners In the profit sharing ratio mentioned In the deed.
(VI) Thus all partners are joint owners of Partnership firm.
11) Active partners take active part in day to day management of partnership firm.
Ans:
(I) Active partner Is also called a working partner. He brings in capital and also takes active part in the business of the firm.
(II) He has unlimited liability and shares the profits and losses of the firm.
(III) He is also called a managing partner.
(VI) Thus, active partners take active part In day to day management of partnership firm.