Forms of Business Organisation Notes Class 11th Business Studies


1. Introduction A business enterprises is an organisation which is engaged in some business or commercial activity. Every business enterprises is a separate and distinct unit of business.

Various forms of business organisation from which one can choose the right one include

  • Sole Proprietorship
  • Joint Hindu Family Business
  • Partnership
  • Co-operative Societies
  • Joint Stock Compan

2. Sole Proprietorship A business owned, managed and controlled by a single individual is known as a sole proprietorship organisation.

(i) Features

  • Formation and closure
  • Liability
  • Sole risk bearer and profit recipient
  • Control
  • No separate entity
  • Lack of business continuity

(ii) Merits

  • Quick decision making
  • Confidentiality of information
  • Direct incentive
  • Sense of accomplishment
  • Ease of formation and closure

(iii) Limitations

  • Limited resources
  • Limited life of a business concern
  • Unlimited liability
  • Limited managerial ability

3. Joint Hindu Family Business The business carried out by the male members of a Hindu undivided family is known as Joint Hindu Family Business.

There are two conditions for existence of Joint Hindu Family Business, These are

  • Minimum two male members must be there in the family
  • Existence of some ancestral property

Under Hindu Law there are two systems of inheritance. These are Dayabhaga and Mitakshara.

(i) Features

  • Formation
  • Liability
  • Control
  • Continuity
  • Minor members

(ii) Merits

  • Effective Control
  • Continued business existence
  • Limited liability of members
  • Increased loyalty and co-operation

(iii) Limitations

  • Limited resources
  • Unlimited liability of karta
  • Dominance of karta
  • Limited managerial skill

4. Partnership Partnership is an association of two or more persons who have agreed to share the profits of the business carried on by all 01′ any of them acting for all.

According to LH Honey, “Partnership may be defined as the relation between the person who agree to carry on a business in common with a view to private gain.

(i) Features

  • Formation
  • Liability
  • Risk bearing
  • Decision making and control
  • Continuity
  • Mutual agency
  • Membership

(ii) Merits

  • Ease of formation an closure
  • Balanced decision making
  • More funds
  • Sharing of risks
  • Secrecy

(iii) Limitations

  • Unlimited liability
  • Limited resource
  • Possibility of conflicts
  • Lack of continuity

5. Types of Partner

  • Active Partner The active partner participates in the management of the firm.
  • Sleeping or Dormant Partner The partner who does not participate in the management of the firm.
  • Secret Partner Secret partner is one whose association or relation With the firm is not known to outsiders.
  • Nominal Partner The nominal partners are not the real partners of the firm. He only lends his name and reputation for the benefit of the firm.
  • Partner by Estoppel A person is considered a partner by estoppel if, through his own initiative, conduct or behaviour, he gives an impression to others that he is a partner of the firm.
  • Partner by Holding Out A partner ‘holding out’ is a person who though is not a partner in a firm but knowingly allows himself to be represented as a partner in a firm.

6. Types of Partnership

Based on the basis of time period, there are three types of partnership firm

  • Partnership at will
  • Fixed period partnership
  • Particular partnership

On the basis of liability of members, there are two types of partnership. These are

  • General partnership
  • Limited partnership

7. Partnership Deed

The common contents of Partnership Deed are

  • Name of the firm
  • Name and address of the partners
  • Nature of business the firm will carry on
  • lace of business
  • Capital contribution by each other
  • Profit sharing ratio of partners
  • The right and duties of the partners
  • The mode of maintaining accounts
  • The rate of interest payable to partners on their capital
  • The rate of interest to be paid by partners on amount withdrawn by them
  • The amount of salary payable to partners
  • Provision regarding retirement and dissolution
  • Methods of solving disputes
  • Whether interest is payable on the loan provided by partners etc.

8. Registration of Partnership Firm The procedure for registration of the partnership firm

(i) Co-operative Society A co-operative form of business enterprise. In this form the main motive is not earning profit but the main motive of co-operative organisation is mutual help. It work with the principle of each for all and all for each.

(a) Features

  • Voluntary membership
  • Legal status
  • Limited liability
  • Control
  • Service motive

(b) Merits

  • Equality in voting status
  • Limited liability
  • Stable existence
  • Economy in operations
  • Support from government
  • Ease of formation

(c) Limitations

  • Limited resources
  • Inefficiency in management
  • Lack of secrecy
  • Government control
  • Difference of opinion

(ii) Types of Co-operative Societies

  • Consumer’s co-operative societies
  • Producers co-operative societies
  • Marketing co-operative societies
  • Former co-operative societies
  • Credit co-operative societies
  • Co-operative housing societies

9. Joint Stock Company

Definition by Prof Honey. “Joint Stock Company is a voluntary association of individual for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership”.

(i) Features

  • Artificial person
  • Separate legal entity
  • Formation
  • Perpetual succession
  • Control
  • Liability
  • Common seal
  • Risk bearing


(ii) Merits

  • Limited liability
  • Transfer of interest
  • Perpetual existence
  • Scope for expansion
  • Professional management

(iii) Limitations

  • Complexity in formation
  • Lack of secrecy
  • Impersonal work environment
  • Numerous regulations
  • Delay in decision making
  • Oligarchic management
  • Conflict in interest

10. Types of Companies On the basis of ownership the companies can be classified in to following categories

(1) Private Company According to the Companies Amendment Act, (2000), a private company is one which

  • Has a minimum of two and maximum of 50 members excluding the employees.
  • Restricts the right of members to transfer their shares.
  • Does not offer its shares to general public.
  • Does not invite general public to invest deposits in the company.
  • Has minimum paid up of~ one lakh.

(ii) Public Company A public company is the one which

  • Has a minimum of seven members and maximum no limit.
  • Permits easy transfer of its shares.
  • Invites general public to subscribes to its public deposits.
  • Invites general public to subscribes to its shares and debentures.
  • Has minimum paid up capital of five lakh.
  • Any private company which is subsidiary of a public company.

11. Choice of Form of Business Organisation

  • Cost and ease in setting up the organisation
  • Liability
  • Continuity
  • Management ability
  • Capital consideration
  • Degree of control
  • Nature of business
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