Chapter-2

Forms of Business Organization

Meaning :- A business enterprises is an institutional arrangement to

form any business activity. On the basis of ownership business enterprises
can be divided into following 3 categories.
Forms of Business Enterprise
v
Joint to
( Private Enterprises ) C Public Enterprises ) ( sl )

Owned, Managed and Owned, managed Owned managed

controlled by and controlled and controlled
Private person by Government by Private &
Govt. Enterprises

Types of Private Enterprises Types of Public Enterprises

1. Sole proprietorship : 1. Departmental under taking.
2. Partnership + Non Cees 2. Statutory corporation
3. Hindu (Joint)family business 3. Govt. Company
4. Co-operative society
-—— te F
5. Joint stock Company yee

Sole Proprietorship :-
Meaning:
4 {
Only Owner
Sole proprietor means a form organization in which there is only
owner of business. He himself manages and is the only receipt of all
profits and losses (risks).
Features of Sole-Proprietorship :-
1) Single ownership :- He is sole owner of all the assets and
resources of business. ae
2) No separate Legal Entity :- The Business has no separate =
existance or entity that of the business. All the assets and 3
liabilities of the business are that of the business man. 4
3) NoLegal Formalities :- No Legal Formalities are required to ‘
start, manage and dissolv2e such business organization.
 4) Control and management :- Sole proprietor has full power
to control and manage such organizations.
5) Unlimited liability :- The liability of owner is unlimited. In
case, the assets of business are not sufficient to meet its
debts, the personal property of owner can be used for paying
debts.
6) Undivided Risk :- Means the owner bears all the losses and
enjoys all the gains.
7) Suitable for some special form
f business :- It is suitable in
Unilmited Liability
It refers that if the business gets
oO : ; : into difficulty and can't pay its
areas of personalized services | debts, the owner of the business is
and small scale activities like |°!d personally liable for those
riculturbeauty
agbakery, job of stitching,
e, the parlour etc.
8) Secrecy :- All the important informations concerning the
business rests only with the owner so that no outside party
can take any under advantage of it.
Merits :-
1) Easy Formation :- It can be easily started and closed as
there is no need to observe any legal formalities.
2) Quick Decision :- A Sole trader takes the decision quickly
as he is not required to consult anybody about his decisions.
3) Secrecy :- All the secrets are confined with the owner. They
are not shared with any body.
4) Direct motivation :- Direct relationship between efforts and
reward provide incentive to the sole trader to work hard.
5) Personal touch :- The side trader can maintain personal
contacts with his customers and employees. In this way,
good work is possible at less cost and time.
Limitations :-
1) Limited financial resources :- Funds are limited to the
owner's personal savings (i.e. his capital) and his borrowing
ALOAARUOA Bes, , 4

capacity.
2) Limited managerial ability :- Sole trader can't be good in all
aspects of business and he can't afford to employ experts
also.
3) Unlimited liability :- As the sole trader has to face the entire
risk of business, so he compels him to avoid risky and bold
decisions.
 4) Uncertainty :- Death, insolvency, lunacy or illness of a
proprietor may leads to its closure.
5) Limited scape for expansion :- Due to limited capital and
managerial skills, it can't expand to a large scale.

SUITABILITY:
Sole Trader-ship is suitable.
° Where the personal attention to customer is required as in
tailoring beauty parlour.
° Where goods are unstandardized like artistic jewelery.
° Where modest capital & limited managerial skills are required as
in case or retail store.
° Business where risk is not extensive i.e., lesser fluctuation in
price and demandi.e. stationary shop.

Joint Hindu Family Business

It is owned by the members of undivided joint Hindu Family and
managed by the eldest member or manager of teh family Known as
KARTA. It is governed by the provisions of Hindu Law. The basis of
membership is birth in a particular family. The common properties
include-
a) There should be atleast two member in a family.
b) Ancestral property to be inherited by them.
There are two systems which govern membership:-
Dayabhaga System Mitakshara System
sei i) It prevails all over India except
i) Itprevails in West Bengal. West Bengal.
ii) It allows both male and female
member to co-parceners. ii) It allows only male members to
be co-parceners

Features:-
,4
ues,

1) Formation :- There should be at best two members in a

family and some ancestral property to be inherited by them
toform this type of Business.
ALOAABVOA

2) Membership :- Membership automatically starts by birth in

the family.
3) Control :-In this, Business is managed wholly by Karta only.
The others members can suggest him only.
4) Liability :- Liability of Karta is unlimited but of all other
members in limited to the extent of their share in property.
5) Permanent Existence :- The existence is permanentlike the
existence of the company. There is no effect of the death,
insolvency or luncy of the members on the business.
6) Minor Members :- A minor can also become full-fledged
member of the family business.
7) Registration :- There is no need of any registration.
Merits
1) Effective Control :- The Karta can prompty take decisions
as he has the absolute decision making power.
=) Continued business Existance :- The death, Lunacy of
Karta will not affect the business as next eldest member will
then take up the position.
3) Limited Liability :- The ilabilty of all members except Karta
is limited. It gives them a relief.
4) Secrecy :- Complete secrecy regarding business decisions
can be maintained by Karta.
5) Loyalty and Co-operation :- It helps in securing better co-
operation and greater loyalty from all the members who run
the business.
LIMITATION
1) Limited capital :- There is shortage of capital as it is limited
to ht ancestral property.
2) Limited Managerial Skill :-|n this, all the decision have to be
taken by the Karta but he is not intelligent in all fields of
business. Therefore, sometimes the decisions taken are not
fevourbale to the business.
3) Unlimited Liabilities :- In this, the responsibility of the Karta
is unlimited so, he hesitates in taking new and risky
ALOAAAVOA Bves, , 4

decisions.
4) Unbalances decision :- As Karta is overburdened, with
work, he may take hart and unbalances decisions.
Note :- The joint Hindu Family business is an decline
because of the diminishing number of joint Hindu families in
the country.
 Abdul is the sole owner of a shoe manufacturing factory, It
expands and grows, but now it faces the problem of limited
financial and managerial resources.
i) Name the form of organization on which is being carried out
by Abdul.
ii) Give two alternatives to solve the problem.
[Hint : (i) Employ a paid assistant (ii) Admit one or more partners
PARTNERSHIP
Q.1 What is the maximum number of partners in a partnership firm
with :-
i) Banking Business
ii) Non-Banking Business

Definition : - According to Indian Partnership Act 1932. "Partnership is the

relation between persons who have agreed to share profits of a business
carried on by all or any of them acting for all."
Characteristic of Partnership :-
More than one person :- Partnership needs a minimum
number of two persons and maximum 20.
Agreement :- It is an outcome of an ord or written
agreement.
Profit motive and sharing of profit :- Main characteristic
of partnership into earn profit in business and divide it
among the partners.
Decision making and control :- Every partner has a right
to participate in management and decision making.
v) Unlimited Liability :- Partners have unlimited liability.
vi) Lock of continuity :- Firms existance comes to end by the
death, Lunacy and insolvency of any of its partner.
ALOAARUOA Bes, , 4

vii) Principal Agent Relationship :- Every partner plays double

role of an owner and an agent.
Merits of Partnership :-
i) Ease of Formation and closure :- It can be easily formed and
closed without any legal formalities.
ii) Large financial Resources :- There are more funds as
 capital in contributed by number of partners.
iii) Balanced Decisions :- As all important decisions are taken
jointly by partners, they are good and balanced.
iv) Sharing of Risks :- Risks get distributes among partners.
Which reduces burden and stress on individual partner.
v) Secrecy :- The accounts of partnership firms are not
presented before public and are not required to publish. So,
business affairs are kept secret.
Limitations :-
i) Limited Resources :- As there is a restriction on the number of
partners so capital contributed by them is also limited.
ii) Unlimited liability :- The liability of all partners is unlimited.
iii) Lock of continuity :- Partnership comes to an end with the
death, retirement, insolvency or lunacy on any of its partner.
iv) Lack of public confidence :- Partnership firms are not
required to publish their reports and accounts. Thus, they lack
public confidence.
v) Lack of Harmony :- Because of more people, there can be
difference of opinions which leads to discard and lack of co-
ordination.
Note: When the business happens to be of medium size and te partners
have mutual understanding and goodwill, then partnership form of
business organisation is the best eg. C.A. firms, hotels and
factories of middle level etc.
Types of Partners
i) Classification on the Basis of Duration
Partnership at Will Particular Partnership
This type of partnership exits at the will of This type of partnership is formed by
partners and continue for unlimited time. specified objective and come to end after
accomplishment of objective.

ii) Classification on the basis of Liability :-

General Partnership Limited Partnership

i) Liability of partnership is limited and ) Liability of at best one partner is
joint. unlimited where as the others may
,4

ii) Each partner participates actively in have limited.

Bues,

business management. ii) They do not have right to manage

business management.
iii) Registration in optional. ili) Registration is compulsory.
iv) The continuity of business is affected iv) Continuity of limited partnership
ALOAABVOA

by the death, lunacy, insolvency or doesn't get affected by the death,

retirement of the partners. lunacy or in solvency of the partner
with limited liability.
2)
1)
Type Capital Contribution Managing business Profit Sharing Liability
Active Participated in Share its profits & Unlimited Liability
Partner Contribution capital management of firm. losses.

Sleeping/ Doesn't take part in Share its profits & Unlimited Liability
Dormant Contributes capital day to day activities of losses.
Partner business.

Secret Contributes capital Participates in Share its profits & Unlimited Liability
Partner and is unknown to management of firm. losses.
general public.

Partnership Deed.
Do not contribute
Partner by capital but by his Do not participate in Do not share its
Estoppel words or conduct, management of firm. profits & losses.
Unlimited Liability
impress other to be a
partner.

Name and address of the firm.

Names and Address of Partners.
Do not contribute
Partner by capital. He doesn't Do not participate in Do not share it's
Holding out deny others to management of firm. profits & losses.

It generally includes the following aspects :—

represent him as Unlimited Liability
partner.

Nominal Do not contribute Do not participate in Generally do not

Partner capital. He allows the managerial activities. share its profits & Unlimited Liability
use of his name. losses.

Minor Do not participate in

Partner Do not contribute management of firm. Share its profits & not
Partner of capital. the losses. Unlimited Liability
age
below 18
year

Partnership Deed - The Written agreement on a stamped paper which

specifies the terms and conditions of partnership is called the
ALOAARUOA Bes, , 4
3) Duration of Partnership.
4) Scope of Business.
5) Contribution of Capital by Partners.
6) Profit and loss Ratio.
g interest on capital and
7) Terms relating or salaries, drawin
interest on drawing of partners.
8) Duties & obligations of partners.
t & expulsion of a power.
9) Terms governing admission, retiremen
10) Method for solving disputes.
11) Valuation of goodwill.
ion of Par tne rsh ip :- Reg ist rat ion is not compulsory but it is
Registrat consequences of non-
l to get the firm reg ist ere d. The
always beneficia
:-
registration of a firm are as follows
rtn er of an unr egi ste red fir m can 't file suit against the firm
i) Apa
or the partner.
d party.
ii) The firm can'tfile a suit against thir
's partner.
iii) The firm can't file a case againstit

Co-operative Society
Co-operative
oat
es
—

together Operate for the motive

of welfare.

tiv e’ me an s wor kin g tog eth er and with others for a common
‘Co-opera
ans a voluntary organization which
purpose. A Co-operative society me
abl ish ed by som e per son s On the basis of co-operative and
is est
economic interests.
equality to safeguard their common
ALoamUOA Bves, . A

Features :-
ary Me mb er sh ip :- Eve ry one having a common interest
1) Volunt
is free to join a co-operative society.
al Sta tus :- Its reg ist rat ion is compulsory and it gives ita
2) Leg
separate legal identify.
3) Limited Liability :- The liability of the members is limited to the
extent of their capital contribution in the society.
4) Control :- Management and control lies with the managing
committee elected by the members by giving vote.
5) Service motive :- The main aim is to serve it's members and not
to maximize the profit.
6) Cash trading :- They give preference to cash trading.
7) Government control :- They have to sent their annual report
and accounts to the register so that the government exercise it's
control from time to time by checking their accounts.
8) Arrangement of Finance :- They arrange finance from sale of
shares to members, loans obtained from the government etc.
Merits of Co-operative Societies :-
1) Ease of Formation :- Any ten adults having common objective
can establish co-opetative society by getting registered with
register.
2) Stable existance :- Due to registration it is a separate legal
entity and is not affected by the death, lunacy or in solvency of
any of its member.
3) Limited liability :- The liability of members is limited to the
extent of their capital contribution.
4) Supply of Goods ay Cheaper Role :- These societies benefit
their members by supplying them goods at cheaper rates than
the market.
5) Government Support :- Govt. provides support by giving loans
at lower interest rates, subsidies and by charging less taxes.
Limitations :-
1) Shortage of Capital :- It suffers from shortage of capital as it is
usually formed by people with limited means.
2) Inefficient Management :- These are managed by elected ¥
members who may not be competent and experienced. Due to
lack of managerial knowledge. They can't run the society g
effectively.
3) Lack of Secrecy :- These have to send their annual reports and
accounts to the registrar of co-oprative societies. In this way, the
secrets of business become public.
4) Excessive Govt. Control :- It suffers from excessive rules and
regulations of Good.
5) Conflict among members :- The members are from different
sections of society with different view point. Sometime as when
some members become rigid the result is conflict.
6) Lack of motivation :- Members are not in dined to put their best
efforts as there is no direct link between efforts and rewards.
TYPES OF CO-OPERATIVE SOCIETIES
Consumers co-operative Society :- It seeks to eliminate
middleman by establishing a direct link with the producers. It
purchases goods of daily consumption directly from
manufacturer or wholesalers and sells them to the members at
reasonable prices.
Producer s Co-operative Society :- The main aim is to help
small producers who cannot easily collect various items of
production and face some problem in marketing. These societies
purchase raw materials, tools, equipments and other items in
large quantity and provide these things to their members at
reasonable price.
Marketing Co-operative Society :- It performs various
marketing function such as _ transportation, warehousing,
packing, grading, marketing research etc. for the benefit of its
members. The production of different members is pooled
together and sold by society at good price.
Farmer's Co-operative Society :- In such societies, small
farmers join together and pool their resources for cultivating their
land collectively. Such societies provide better quality seeds,
fertilizers, machinery and other modern techniques for use in the
cultivation of crops. It provides them opportunity of cultivation on
large scale.
Credit co-opearative Society :- Such societies protect the
members from exploitation by money lenders. They provide
loans to their members at easy terms and reasonably low rate of
AOAAKUOA BES, ,

interest.
Co-operative Housing Society :- The main aim is to provide
houses to people with limited means/income at reasonable
price.
JOINT STOCK COMPANY
Meaning - Joint stock company is a voluntary association of persons
having a separate legal existence, perpetual succession and common
seal. Its capital is divided into transferable shares.
FEATURES
1. Incorporated association :- The company must be
incorporated or registered tender the companies Act 1956.
without registration no companies Act. 1956. Without
registration no company can come into existence.
Seperate Legal Existence :- It is created by law and it is a
distinct legal entity independent of its members. It can own
property, enter into contracts, can file suits in its own name.
Perpetual Existence :- Death, insolvency and insanity or
change of members as no effect on the life of a company It can
come to an end only through the prescribed legal procedure.
Limited Liability :- The liability of every member is limited to the
nominal value of the shares bought by him or to the amt.
guaranteed by him.
Transferability of shares :- Shares of public Co. are easily
transferable. But there are certain restrictions on transfer of
share of private Co.
Common Seal :- It is the official signature of the company and it
is affixed on all important documents of company.
Separation of ownership and control :- Management of
company is in the hands of elected representatives of
shareholders known individually as c.,*rector and collectively as
board of directors.
MERITS
le Limited Liability :- Limited liability of shareholder reduces the
degree of risk borne by him.
2. Transfer of Interest :- Easy transferability of shares increases
the attractiveness of shares for investment.
ALOAARUOA Bues, , 4

Perpetual Existence :- Existence of a company is not affected

by the death, insanity. Insolvency of member or change of
membership. Company can be liquidated only as per the
provisions of companies Act.
Scope for expansion :- Acompany can collect huge amount of
capital from unlimited no. of members who are ready to invest
 because of limited liability, easy transferability and chances of high
return.
5. Professional management :- A company can afford to employ
highly qualified experts in different areas of business
management.

LIMITATIONS
1. Legal formalities :- The procedure of formation of Co. is very
long, time consuming, expensive and requires lot of legal
formalities to be fulfilled.
2. Lack of secrecy :- It is very difficult to maintain secrecy in case
of public company, as company is required to publish and file its
annual accounts and reports.
3. Lack of Motivation :- Divorce between ownership and control
and absence of a direct link between efforts and reward lead to
lack of personal interest and incentive.
4. Delay in decision making :- Red papism and bureaucracy do
not permit quick decisions and prompt actions. There is little
scope for personal initiative.
5. Oligarchic management :- Co. is said to be democratically
managed but actually managed by few people i.e. board of
directors. Sometimes they take decisions keeping in mind their
personal interests and benefit, ignoring the interests of
shareholders and Co.

Types of Companies :-
On the basis of ownership, companies can be divided into two
,4
Bues,

categories :-
i) Private Company ii) Public Company
AOAAKVOA

Private Company:
Acc to Sec 2(68) of Companies Act, 2013, a Private Company
means a company which :
 1: Restricts the right of members to transfer shares.
2: Restricts the no. of its members between 2 to 200 excluding
present and previous employees of Co. who are members also.
3. Puts a ban on inviting the public to subscribe to its shares.
4 Puts a ban on inviting the public to subscribe to its public
deposits.
5 Must have a min. paid up share capital of1 lakh rupees.

Public Company:
Acc to Sec 2 (71) of Companies At, 2013 a Public Company
means a company which is not a private company. A public
Company is one which:
1. has no restriction on the transfer of its shares.
2. has no max limits of its members
3. has no restriction on inviting the public to subscribe to its shares
and debentures
4. has no restriction on inviting public to subscribe to its Public
deposits.
5; has amin. paid up capital of 5 lakh rupees.

ALOAARUOA Bes, , 4
Difference betweenA Private andA Public Company.

Basis Private Company Public Company

1. Name It has to write private Ltd. after its | It has to write only Ltd. after it'a
name name.
2. No. of Minimum -2 Minimum-7
Members . ‘ pc
Maximum-50 Maximum-No Limit

3. No. of Minimum -2 Directors Minimum - 3 Directors

Directors

4. Minimum 4 Lakh oben

paid-up
share
capital

5. Invitation Public Company can invite public

to public Pvt. Co. can't invite public for for issuing its shares &
issuing shares and debentures. debentures.
6. Transfer of No restriction on transfer of
shares No freedom to transfer shares. shares.

7. Index of ‘ ‘ If no. of members exceeds 50,

members Not essential to prepare an index then it is necessary to prepare
of members.
index of members
8.Commence After obtaining certificate of
After getting certificate of commencement of business
-ment
Incorporation.
business

Questions :-
i) How will you identify whether the company is private or Public?
ii) Give two examples of Private companies?
ili) Give two examples of Public companies ?
One Person Company :
One Person Company refers to a company which has only one peron as
ALOAAAVOA Bes, , 4

a member and which works on the principle of an ordinary company.

Causes of the Formation of OPC
As Making the unorganised sector as organised - Sole traders have
got a good opportunity to move from the unorganised sector and
enter the organised sector without getting other people to join
him and have all benefits of on organised sector.
 2: Perpetual Succession.
Formation of ACompany
Formation of a company means bringing a company into existence and
starting Its business. The steps involved in the formation of a company
are :-

(1) Promotion
(ii) Incorporation
(iii) Capital subscription
(iv) Commencement of business.
A private company has to under go only first two steps but a
public company has to undergo all the four stages.
l. Promotion :-
Promotion means conceiving a business opportunity and taking an
initiative to from a company.
1 Identification of Business Opportunity :- The First and
foremost function of a promoter is to identify a business idea
e.g. production of a new product Or service.
Feasibility Studies :- After identifying a business
opportunity the promoters undertake detailed studies of
technical, Financial, Economic feasibility of a business.
Name Approval :- After selecting the name of company the
promoters submit an application to the Registrar of companies
for its approval.
Fixing up signatories to the Memorandum of Association
:- Promoters have to decide about the director who will be
signing the memorandum ofAssociation.
Appointment of professional :- Promoters appoint merchant
bankers, auditors etc.
Preparation of necessary documents :- The promoters
prepare certain legal documents such as memorandum of
ALOAAUOA Bues, , 4

Association, Articles of Association which have to be submitted

to the Registrar of the companies.
il. Incorporation
Incorporation means registration of the company as body
corporate under the companies Act 1956 and receiving certificate of
Incorporation.
Steps for Incorporation
1. Application for incorporation :- Promoters make an
application for the incorporation of the company to the
Registrar
of companies.
2. Filing of necessary documents :- Promoters files the
following documents
(i) | Memorandum ofAssociation.
(ii) | Articles ofAssociation.
(iii) Statement of Authorised Capital
(iv) Consent of proposed director
(v) Agreement with proposed managing director.
(vi) Statutory declaration.
3. Payment of fees :- Along with filing of above documents,
registration fees has to be deposited which depends on
amount of the authorised capital.
4. Registration :- The Registrar verifies all the document
submitted. If he is satisfied then he enters the name of the
company in his Register.
5. Certificate of Incorporation :- After entering the name of the
company in the register. The Registrar issues a Certificate of
Incorporation. This is called the birth certificate of the
company.
lil. Capital Subscription:-
A public company can raise funds from the public by issuing shares and
Debentures. For this it has to issue prospectus and undergo various other
formailities:-
Step required for raising funds from public :-
1; SEBI Approval :- SEBI regulates the capital market of India. A
public company is required to take approval from SEBI.
2. Filing of Prospectus :- Prospectus means any documents which
invites offers from the public to purchase share and Debenture of
AOAARUOA Bes, , 4

the company.
3. Appointment of bankers, brokers, underwriters :- Banker of
the company receive the application money. Brokers encourage
the public to apply for the hares, underwriters are the person who
undertake to buy the shares if these are not subscribed by the
public. They receive a commission for underwriting.
 Minimum subscription :- According to the SEBI guide lines
minimum subscription is 90% of the issue amount. If minimum
subscription is not received then the allotment cannot be made
and the application money must be returned to the applicants
within 30 days.
Application to Stock Exchange :- It is necessary for a public
company to list their shares in the stock exchange therefore the
promoters apply in a stock exchange to list company shares.
Allotment of Shares :- Allotment of shares means acceptance of
share applied. Allotment letters are issued to the shareholders.
The name and address of the shareholders submitted to the
Registrar.
IV. COMMENCEMENT OF BUSINESS :-
To commence business a public company has to obtain a
certificate of com-mencement of Business. For this the following
documents have to be filled with the registrar of companies.
1. Adecliaration that 90% of the issued amount has been subscribed.
2: A declaration that all directors have paid in cash in respect of
allotment of shares made to them.
3. A statutory declaration that the above requirements have been
completed and must be signed by the director of company.
important documents used in the formation of company:-
1. Memorandum of Association - It is the principal document of a
company. No company can be registered without a memorandum
of association and that is why it is sometimes called a life giving
document.
Contents of Memorandum of Association :-
LE Name clause - This clause contains the name of the company.
The proposed name should not be identicator similar to the name
of another exiting company.
Situation clause - This clause contains the name of the state in
which the registered office of the company is to be situated.
ALOAARUOA Bues, , 4

Object clause - This clause defines the objective with which the
company is formed. A company is not legally entitled to do any
business other than that specified in the object clause
Liability Clauses - This clause limits the liability of the members
to the amount unpaid on the shares held by them.
Capital clause - This clause specifies the maximum capital which
 the company will be authorized to ranise tough the issue of shares called
authorised capital.
2: Articles of Association :-
The articles of Association are the rules for the internal
management of th( affaires of a company the articles defines the duties,
rights and powers of the officers and the board of directors.
Contents of the Article:-
The amount of share capital and different classes of shares.
r On =

Rights of each class of shareholders.

Genoa

Procedure for making allotment of shares.

Procedure for issuing share certificates.
Procedure for forfeiture and reissue of forfeited shares.
Rules regarding casting of votes and proxy voting
Procedure for selection and removal of directors
Dividend declaration and payment related rules
Procedure for capital readjustment
Procedure regarding winding up of the company.
—

I. Prospectus:
Prospectus means any document which invites deposits form the
public to purchase share or debentures of a company.

Main contents of the Prospectus:-

L Company's name and the address of its registered office.
2. The main object of the company
3. The number and classes of shares.
4. Qualification shares of the directors
5. The name and addresses of the directors, managing director or
manager.
ALOAABUOA Bves, , 4

6. The minimum subscription which is 90% fo the size of the issue.

fi The time of opening and closing of the subscription list.
8. The amt. payable on the application and allotment of each class of
share.
9. Underwriters to the issue.
10. Merchant bankers to the issue.
4. Statement is Lieu of Prospectus:
A public company having a share capital may sometimes decide
not to funds form the public because it may be confident of obtaining the
required capital privately. In such case it will have to submit a statement in
lieu of prospectus with the Registrar of companies.
It Contains information much similar
to that of a prospectus.

Q.1 Name the documents :-

i) Which document defines the objectives of joint stock company
?
li) In which document are the rules for attaining the internal
objectives mentioned in the Memorandum of Association.

Difference between Memorandum and

Articles of Association
Basis Memorandum of Association Articles of Association
(M.O.A) (A.0.A.)
It defines the objectives of the It defines the rules for attaining the
1. Objectives
company. objectives mentioned in
memorandum of association.

2. Position Very Important document. Subsidiary document.

ae The activities beyond the power} p44
3. Validity of M.O.A. are not considered to petvides: Dayond the powers of
A.O.A. are also void . Bus their
be performed by the company rectification in possible by the
and even all the members can't members.
rectify them.

4. Relationship Defines the relationship Defines the relationship between

between the company & the members and the company.
outsides.
ALOAAMVOA Bes, , A

5. Necessity It's preparation is necessary to| Necessary for private company

getthe company registered. but not necessary to prepare for
Public company.
It can't be easily altered many ‘
6! ‘Alteration matters require’ approval of It can be easily. altered by a
special resolution.
court.
Choice of Forms of Business Organization :- The following factors
are important for taking decision about form of organization.
i) Cost and ease in setting up the Organization :- Sole
proprietorship is least expensive and can be formed without any
legal formalities to be fulfilled. Formation of a company is
expensive with lot of legal formalities. So, sole proprietorship is
better.
Liability :- The liability of the owners in sole proprietor business
and partnership business is unlimited but the responsibility of the
share holders in a company is limited. So, Company organization
should be selected.
iii) Continuity :- In sole proprietorship and partnership firms death,
lunacy or insolvency of any of its member, business ends but in
Joint Hindu Family Business & Co-oprative Societies company
business is not affected by there above picture. So, company co-
operative society are much better to be chosen.
Managerial Needs :- In sole proprietorship & Joint Hindu Family
Business, experts opinion is not affordable but companies can
afford exports for management. so keeping in view, the nature of
work and managerial needs company is liked.
Capital Considerations :- Business activities requiring huge
financial resources prefer company form while for small &
medium size business, partnership or sole proprietorship is
better.
vi) Control :- For direct control & direct decision. Sole proprietor is
liked while where the control has to be shared, they prefer
company.
vii) Nature of Business :- If the work requires personal attention, it
is generally set up as a sole proprietorship Units engaged in
large seals manufacturing are more likely to be organized in
company form or partnership form.
1 Mark Questions :-
,4

1. Write the name of form of business organization found only in

Bues,

India.
2. Name two types of business in which sole proprietorship is very
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suitable.
Name the person who manages a Joint Hindu Family business.
Write the names of systems which govern membership in Joint
 Hindu Family business.
Enumerate the two conditions necessary for formation of Joint
Hindu Family business.
What is the minimum no. of persons required to form a co-
operative society?
Explain the meaning of unlimited liability.
Name the type of Co. which must have a minimum paid up
capital of 5 lakhs.
Whatis meant by minimum subscription ?
10. Identify a company which has no restriction of on transfer of
shares.
Ts Maruti Suzuki Pvt. Ltd. and Tata Iron and Steel company are
name of two companies. Identify whether they are public
companies or Private companies.
4d: Rohit and Shweta are partners in a partnership business. To
avoid conflicts they want to have a written agreement. Name the
agreement.
13. ABC Ltd. is required to issue a prospectus. Which type of
company is it?
14. Employees of DCM Ltd. formed a society to purchase land and
construct flats for their members. Which is this form of business
organization.
3-4 Marks Questions
15. Explain the concept of mutual agency in partnership with
suitable example.
16. Whatis the rate of Karta in Joint Hindu Family business ?
Tf: Name the types of company which two persons can start.
18. What is meant by partner by estoppel ?
19. Define prospectus. Name any three main contents of
prospectus.
ALOAARUOA Bes, , 4

20. Whatis secret partner

oe Write a short note on producer co-operative society.
22. Explain a co-operative organisation in democratic setup.
23. Shiv, Anandi & John were partners John died in a car accident
Both Shiv & Anandi decided to admit his son Ryan who was 16