Chapter forms-of-business-organisation: Forms of Business Organisation Short Questions | business studies Class 11 CBSE

Chapter forms-of-business-organisation: Forms of Business Organisation Short Questions | business studies Class 11 CBSE | ByteNotes.in

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Question 1

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What is meant by sole proprietorship? State any two of its key features.

Sole proprietorship is a form of business organisation owned, managed, and controlled by a single individual who bears all risks and receives all profits.
It has no separate legal entity — the law does not distinguish between the owner and the business, making the owner personally responsible for all business activities.
The sole proprietor has unlimited liability, meaning personal assets like a car or house can be used to repay business debts if the business assets are insufficient.

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Question 2

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Explain the concept of unlimited liability with an example from sole proprietorship.

Unlimited liability means that if business assets are insufficient to repay debts, the owner's personal assets can be attached to settle the outstanding dues.
For example, if XYZ dry cleaner has outside liabilities of Rs. 80,000 but assets of only Rs. 60,000, the proprietor must bring Rs. 20,000 from personal sources.
This is a major disadvantage as it discourages the sole proprietor from taking risks or expanding the business, fearing the loss of personal property.

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Question 3

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Why does a sole proprietorship lack business continuity?

The sole proprietorship business is owned and controlled by only one person, so any personal setback — death, insanity, imprisonment, physical ailment, or bankruptcy — directly affects the business.
Unlike a company, there is no separate legal entity to sustain operations independently of the owner's personal status.
Such an event may even cause permanent closure of the business since no succession mechanism exists within the form of organisation itself.

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Question 4

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State any two merits of sole proprietorship that make it popular despite its limitations.

Quick decision-making is a major merit — since there is no need to consult others, the proprietor can respond to market opportunities swiftly and capitalise on them in time.
The proprietor is the sole recipient of all profits, which acts as a direct incentive to work hard and maximise the efficiency of operations.
Ease of formation and closure is another merit — minimal legal formalities are needed, and since it is the least regulated form, starting or closing the business is straightforward.

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Question 5

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What is a Joint Hindu Family Business? Who controls it?

Joint Hindu family business is a form of organisation found only in India wherein the business is owned and carried on by members of the Hindu Undivided Family (HUF), governed by Hindu Law.
Membership is based on birth in the family, and up to three successive generations can be members simultaneously.
The business is controlled by the Karta — the eldest member of the family — whose decisions are binding on all other co-parceners.

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Question 6

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What is the liability of the Karta in a Joint Hindu Family Business? How does it differ from other co-parceners?

The Karta has unlimited liability, meaning his personal assets can be seized to repay business debts if the business assets are insufficient.
All other co-parceners have limited liability, restricted only to their share in the co-parcenary property, so their personal assets are protected.
This distinction means the Karta alone bears the maximum financial risk while managing and controlling the entire business on behalf of the family.

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Question 7

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Can a minor be a member of a Joint Hindu Family Business? How does this differ from partnership?

Yes, a minor can be a member of a Joint Hindu Family Business because membership is by birth, not by contract.
In a partnership firm, a minor cannot be a full partner as partnership requires a valid legal contract, and minors are incompetent to enter into contracts.
A minor may be admitted to the benefits of a partnership firm with mutual consent of all partners, sharing only in profits with limited liability, but cannot take part in management.

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Question 8

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Define partnership as per the Indian Partnership Act, 1932. State its key elements.

The Indian Partnership Act 1932 defines partnership as the relation between persons who have agreed to share the profit of a business carried on by all or any one of them acting for all.
The essential elements are: a lawful business carried on with the motive of profit, a valid agreement among the partners, and the business must be carried on by all or any one acting for all.
Two people joining together for charitable purposes do not form a partnership as the profit motive is absent.

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Question 9

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What is mutual agency in a partnership firm? Why is it important?

Mutual agency means that every partner is simultaneously an agent and a principal — he can bind other partners through his own acts and can himself be bound by the acts of other partners.
It is the foundation of the partnership relationship; a partner acting on behalf of the firm makes it binding on all other partners even if they did not consent to that specific action.
This principle makes it critical to choose partners carefully, as the unwise act of one partner can create financial obligations for all others.

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Question 10

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Distinguish between a sleeping partner and a nominal partner.

A sleeping or dormant partner contributes capital to the firm and shares in its profits and losses, but does not take part in the day-to-day management of the business.
A nominal partner neither contributes capital nor takes an active part in management or shares profits or losses; he merely lends his name to the firm.
However, both types of partners have unlimited liability towards third party creditors and can be held responsible for repayment of the firm's debts.

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Question 11

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What is a partner by estoppel? Give an example.

A partner by estoppel is a person who, through his own conduct or behaviour, gives others the impression that he is a partner of a firm, even though he is not actually one.
Such a person is held liable for the debts of the firm to third parties who extended credit based on the belief that he was a partner.
For example, if Rani attends a business meeting of Simplex Solutions alongside partner Seema and actively participates in negotiations, giving the impression she is a partner, she becomes liable for any credit extended on that basis.

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Question 12

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What is a partnership deed? What does it generally include?

A partnership deed is a written agreement that specifies the terms and conditions governing the relationship among partners, including profit sharing, duties, and dissolution procedures.
It generally includes details such as the name and nature of the business, duration of the partnership, capital invested by each partner, and distribution of profits and losses.
Though an oral agreement is legally valid, a written deed is advisable as it serves as evidence of the agreed conditions and helps avoid future disputes among partners.

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Question 13

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What are the consequences of non-registration of a partnership firm?

A partner of an unregistered firm cannot file a suit in a court against the firm or other partners to enforce any right arising from the contract.
The firm itself cannot file a suit against third parties to recover dues or enforce any right arising out of a contract.
The firm also cannot file a case against its own partners. These legal disabilities make registration advisable even though it is technically optional.

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Chapter forms-of-business-organisation: Forms of Business Organisation | Short Questions

What is meant by sole proprietorship? State any two of its key features.

Explain the concept of unlimited liability with an example from sole proprietorship.

Why does a sole proprietorship lack business continuity?

State any two merits of sole proprietorship that make it popular despite its limitations.

What is a Joint Hindu Family Business? Who controls it?

What is the liability of the Karta in a Joint Hindu Family Business? How does it differ from other co-parceners?

Can a minor be a member of a Joint Hindu Family Business? How does this differ from partnership?

Define partnership as per the Indian Partnership Act, 1932. State its key elements.

What is mutual agency in a partnership firm? Why is it important?

Distinguish between a sleeping partner and a nominal partner.

What is a partner by estoppel? Give an example.

What is a partnership deed? What does it generally include?

What are the consequences of non-registration of a partnership firm?

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