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Class 11 Forms of Business Organisation: cheat sheet
CBSE Business Studies. The forms of business ownership: sole proprietorship, Joint Hindu Family business, partnership, cooperative society and the joint stock company, and how to choose between them.
Key ideas
- A sole proprietor owns, manages and controls the business alone, takes all the profit and bears unlimited liability.
- A Joint Hindu Family business is governed by Hindu law: members join by birth, the Karta manages it, and only the Karta’s liability is unlimited.
- A partnership is formed by agreement, usually a written partnership deed; partners share profit and risk, liability is unlimited, and each partner is an agent of the others (mutual agency).
- Partners may be active, sleeping, secret or nominal; a partner by estoppel becomes liable by letting outsiders believe he is a partner.
- A cooperative society is a voluntary association for mutual help, registered by law, with limited liability and democratic control: one member, one vote.
- A company is an artificial person with a separate legal entity, perpetual succession, a common seal and limited liability; a board of directors manages it.
- The choice of form depends on the cost and ease of setting up, liability, continuity, capital needed, control and the nature of the business.
Remember
| Partners in a firm | at least 2, at most 50 (present rules) |
| Cooperative society | at least 10 adult members; one member, one vote |
| Private company | 2 to 200 members, at least 2 directors; restricts transfer of shares; cannot invite the public |
| Public company | at least 7 members, at least 3 directors; shares freely transferable; can invite the public |
| Kinds of partner | active: invests and manages; sleeping: invests, does not manage; secret: manages, unknown to outsiders; nominal: only lends his name |
| Shortfall under unlimited liability | debts − business assets, paid from the owner’s personal property |
| Most a shareholder can lose | shares held × (face value − amount paid up per share) |
| Partners’ shares of profit | profit × each partner’s ratio ÷ sum of the ratios |
Watch out
- Saying a sleeping partner has limited liability: in a general partnership every partner’s liability is unlimited.
- Writing “one share, one vote” for a cooperative: it is one member, one vote.
- Mixing up the limits: a private company has at most 200 members, while a public company needs at least 7.
- Thinking a company ends when a member dies: it has perpetual succession.
Worked example
Varun and Sana are partners sharing profits in the ratio 5 : 2. The firm earns a profit of ₹77,000. Find each partner’s share.
Working: 77,000 × 5/7; 77,000 × 2/7
Answer: Varun ₹55,000; Sana ₹22,000
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