Business Studies Class 11 Chapter 2 Important Questions and Answers

Business Studies is a subject taught in a Commerce student’s syllabus beginning in Class 11 and continuing through Class 12. Students will master an understanding of the area of management and other business disciplines if they study this subject. Forms of Business Organisation is the second chapter of the Class 11 syllabus, and it teaches about different forms of Business. This chapter covers concepts such as various forms of business organisation, features, merits, and demerits, and factors determining the appropriate form of business organisation. It carries significant weightage in the Business Studies syllabus. Students can easily access all this and more on the Extramarks website.

Students must read through all the chapters to score well in Business Studies. Extramarks understands the importance of solving questions. As a result, we’ve gathered them from various sources, such as the NCERT Textbook, NCERT Exemplar, other reference books, past exam papers, and so on. Our Business Studies experts have curated step-by-step solutions to help students better comprehend the topics. Students can register with Extramarks and access Important Questions Class 11 Business Studies Chapter 2. 

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Business Studies Class 11 Chapter 2 Important Questions and Answers

A team of Extramarks specialists have developed an entire list of Business Studies Class 11 Chapter 2 Important Questions taking cues from numerous sources. The questions comprise a wide variety of topics, including the different forms of business organisation, features, merits, and demerits of business organisation, factors determining the appropriate form of business organisation, and so on. These questions and their solutions help students better comprehend Forms of Business Organisations.

Mentioned below are a few Important Questions from Class 11 Business Studies Chapter 2 and their solutions:

Q1. What are the important privileges available to a private company?

Answer: When a business is formed as a private corporation, it has several advantages and exemptions that are not accessible to public companies. Some of the main benefits that a private corporation has are as follows:

• A private business can be formed with as few as two members, but a public corporation requires seven.
• In private business the public is not asked to subscribe to company’s shares and hence a prospectus is unnecessary.
• Shares can be distributed without a minimum subscription requirement.
• A private company can start operating as soon as it receives its establishment certificate. On the other hand, the public company must wait until it gets the starting certificate before it may begin operations.
• A private company only needs two directors, but a public company requires at least three.
• A member index is not necessary for a private organisation but is required for a public corporation.

Q2. With a notable example, explain mutual agency in partnership.

Answer: Mutual agency refers to the legal connection between participants in a partnership who have authorization powers and the authority to engage the collaboration in business contracts. In another way, each partnership member has the authority to make business choices that commit or bind the entire partnership to a commercial contract with a third party or entity. For example, even if the partnership agreement prohibits it, a grocery store partner who acquires a delivery truck in the partnership’s name enters a legally enforceable transaction. On the other hand, such behaviour would be unlawful if a law firm partner purchased a snowmobile for the firm.

Q3. What is meant by “partner by estoppel”? Explain.

Answer: A person who shows others that they are a company partner via their actions, behaviour, or statements, is referred to as Partner by estoppel. Such a person is not a partner, and they are not responsible for providing any cash to the company, nor are they accountable for any  portion of the company’s profit or loss. The same individual, however, may be held accountable for the firm’s debts. Hence, as a result, if the Business has adequate assets or finances, debt repayment can be obtained by selling off the partner’s private assets via estoppel.

Q4. What exactly is HUF?

Answer: Although the Income Tax Act does not define the Hindu Undivided Family (HUF), it is recognised under Hindu law. Unmarried daughters are included in the HUF, as are all those who are lineally settled from the same ancestor. A person does not create HUF but by a family’s standing, i.e., it is created automatically in any Hindu household.

Q5. Why do some consider partnership a relatively unpopular form of business ownership? Explain the merits and limitations of partnership.

Answer: A partnership is viewed as a relatively unattractive sort of company ownership due to the inherent limitations that come with it. These limits include infinite responsibility, limited resources, the possibility of conflict, and a lack of consistency.

• Ease of closure and creation: A partnership business can be established rapidly by agreement amongst potential partners. A company doesn’t need to be registered.
• Balance decision-making: The partners might manage various responsibilities depending on their expertise. As a result, the decision-making process in a partnership business is more balanced than in any other kind of corporate ownership.
• A large amount of funds: Each partner in a partnership provides a certain amount of money. Consequently, compared to a single owner, it is feasible to collect a more considerable sum of cash and carry out additional activities as needed.
• Confidentiality: There is no legal requirement for a partnership business to publish its financial accounts or submit reports. As a result, it may maintain secrecy regarding its operations.
• Sharing the risk: The risks that come with running a partnership business are shared by all partners. As a result, individual partners experience less worry, tension, and stress.

Limitations of business partnership:

• Restricted Resources: Capital investment contributions are frequently insufficient to sustain large-scale commercial activity due to the limited number of partners. As a result, partnership firms struggle to expand beyond a particular scale.
• Conflicts of Interest: The decision-making authority in a partnership business is distributed among the partners. This is also dependent on their level of competence, foresight, and ability.
• Unlimited liability: Partners are accountable for repaying debts from their assets if the Business’s assets are insufficient to fulfil its obligations.
• Lack of continuity: When one of the partners dies, retires, becomes bankrupt, or becomes mad, the partnership comes to an end. On the other side, the surviving partners might enter into a new agreement and continue to run the business.

Q6. In what form of Business do individuals associate freely for profit, with capital dividends into transferable shares, and ownership of which is a requirement of membership? Explain in terms of characteristics.

Answer. A joint-stock company is a non-profit organisation formed by a group of people to do profitable economic activities. It has a legal status distinct from its members and a capital structure separated into transferable shares. A corporation is an independent legal entity with its legal identity, perpetual succession, and a common seal. In a corporation, the shareholders are the company’s owners, and the Board of Directors, which the shareholders elect, is the company’s central management body.

The company’s capital is divided into smaller components known as “shares,” which can be freely transferred from one shareholder to the next (except in a private company). A joint-stock firm has the following characteristics:

• A corporation is a made-up entity. It is a legal entity that exists without the participation of its members.
•  The legal personality of a corporation is established. The law does not regard the Business and its owners as the same.
• Starting a business is a time-consuming, costly, and challenging endeavour. Therefore, incorporation is required for all enterprises.
• It will only be deactivated after completing a specialised operation known as winding up. Members may come and go, but the firm does not cease to exist.
• A company’s common seal may or may not exist.
• All shareholders share the risk of a company’s losses.

Q7. Even though there are limitations of size and resources, several people continue to prefer sole proprietorship compared to other forms of organisation? Why?

Answer: Due to the numerous sheer benefits, it provides despite the size and resource limits. The sole proprietorship is the company’s form of choice. The following are some of the advantages:

• A single proprietorship firm is simple to set up since there are few legal requirements. Similarly, closing a firm is a painless process.
• The sole owner controls the firm as the only decision-maker, allowing for swift choices.
• The sole proprietor enjoys all the Business’s gains while bearing all its misfortunes.
• Because the lone proprietor is the only person in charge of the business, it is highly flexible.

Q8. Which business model is best for the following businesses, and why?

1. Coaching centre for the students of science subject
2. A beauty salon
3. A shopping centre
4. Hotel
5. Little repair shops
6. Restaurant

Answer. The suitable business model for the businesses as mentioned earlier would be:

1. Coaching center for the students of science subject: Collaboration with a science coaching facility. It’s simple to set up and run, and it’s inexpensive. Partners report their share of profit or loss on their tax returns.
2. A beauty salon: A salon can be run as a sole proprietorship. Created and ran straightforwardly and cost-effectively. The owner declares profit or loss on their tax return.
3. A shopping center: shopping malls are JSCs (joint-stock corporations). Personal responsibility for commercial debts is restricted for business owners.
4. Hotel: In the hotel industry, there are joint-stock companies. Small businesses are drawn to LLCs and corporations because they minimize their owners’ liability for corporate debts and court judgments against the company. Another factor to consider is income taxes: you may set up a limited liability company (LLC) or a corporation to benefit from reduced tax rates. Furthermore, an LLC or company may be able to deduct the cost of a range of fringe benefits passed on to its employees (including the owners) as a business expense.
5. A little repair shop: A sole proprietorship is appropriate for a small repair shop. Created and ran straightforwardly and cost-effectively. The owner declares profit or loss on their tax return.
6. Restaurant: Ownership of a restaurant as a sole proprietor. Created and ran straightforwardly and cost-effectively. The owner declares profit or loss on their tax return.

Q9. How does a cooperative society exemplify democracy and secularism? Explain.

Answer: A cooperative society is run by persons chosen by all members through a democratic process. Each member has an equal right to vote, regardless of the amount of money they have invested. As a result, it functions as a democracy in which all members are treated equally and have similar rights. Members are not discriminated against because of their caste, religion, or gender. People of the management committee can select the members they believe best represent them. As a result, it denotes secularism.

Q10. What does it mean to have unlimited liability?

Answer: General partners and sole proprietors with unlimited liability are jointly and severally liable for the company’s debts and obligations. However, this obligation is not limited and can be paid off by seizing the owners’ assets, distinguishing it from limited liability partnerships.

Q11. Compare the status of a minor in a Hindu joint family business with that in a partnership firm.

Answer: A person under 18 is considered a minor in Indian law. By being born into a Joint Hindu household, a minor becomes a member of the family company. Like other family members, the minor has equal ownership and rights to the property and company. However, his obligation is limited to his part of the property.

As per the Indian Partnership Act of 1932, a minor cannot become a partner in a partnership business. However, if all partners agree, a minor can be initiated and partake in a firm’s profits. Still, a minor does not need to contribute capital or carry any obligation if the Business supports the firm. Therefore, minors aren’t regarded as partners. However, once they reach the age of 18, they have the option of continuing the relationship or terminating it.

Q12. Who has equal ownership rights to an ancestor’s property? Emphasise its most important aspects

Answer: A Joint Hindu Family is a form of business owned and operated by members of the Hindu Undivided Family (HUF). The company’s membership is based on birth in a specific family, and three generations of the same family can be members. The family’s business is run by the eldest member of the family, known as Karta. Joint Hindu Family Business members with equal ownership rights over an ancestor’s property are known as coparceners.

A combined Hindu family company has the following characteristics:

• Because membership is by birth, there is no requirement for an agreement.
• Except for the Karta, all members are only responsible for their portion of the Business’s co-coparcenary property. The Karta’s responsibility is boundless.
• Karta oversees the family company, and his choices bind everyone.
• After Karta’s death, the business is carried on by the next eldest son, Karta.

Q13. Why is it important to choose an appropriate form of organisation? Discuss the factors that determine the choice of form of organisation.

Answer: Choosing an appropriate business organisation is necessary since it is one of the most important decisions to make when beginning a business or expanding an existing one. A business can be owned and run in several ways. It’s challenging to modify a company model after it’s been decided. As a result, the type of business company chosen should be done with care and consideration.

The following factors influence organisational structure selection:

• Control: With a sole proprietorship, you have complete control over your operations and decision-making authority. If the owners, on the other hand, want to share ownership to make better judgments, they can form a partnership or a corporation.
• Nature of Business: Businesses that involve direct personal connection with customers, such as beauty salons or grocery stores, are better suited to a single proprietorship. The corporate kind of structure benefits large manufacturing units. The partnership structure is significantly more served in the case of professional services.
• Management Skills: Being informed in all firm parts is difficult for a sole owner. Members split their labour in other organisations, such as partnerships and businesses, allowing management to specialise in specific areas and make better judgments.
• Capital Requirements: The corporation form is suitable for large-scale activity since it may generate a large amount of money by issuing shares. There are two options for medium and small firms: partnership or sole proprietorship. In the framework of a company, expansion capital requirements may be managed more easily.
• Continuity: The continuity of sole proprietorship and partnership enterprises can be disrupted by events such as the owners’ death, insolvency, or insanity. In organisations like joint Hindu family companies, cooperative societies, and corporations, such factors, on the other hand, have minimal influence on the business’s survival.
• Liability: The liability of the owners/partners of a sole proprietorship or partnership is unlimited. This might lead to the owners’ assets being used to repay the debt.
• Cost and Convenience of Starting a Company: A sole proprietorship is straightforward to start in terms of initial business costs and legal procedures, but because of its more minor activities, a partnership has the advantage of less legal formalities and lower prices. Registration is necessary in the case of cooperative societies and companies. The process of founding a company takes time and money.

Q14. What are the reasons for the formation of cooperative forms of organisation? Describe the different sorts of cooperative societies.

Answer. A cooperative society is a collection of individuals who get together voluntarily for the common welfare of its members. They are motivated by a desire to defend their economic interests from potential exploitation by intermediaries looking to increase their profits. The process of founding a cooperative organisation is simple, and all that is necessary is the agreement of at least ten adults. A society’s capital is raised by selling shares to its members. An organisation acquires a distinct legal character when it is registered.

One sort of cooperative society is the consumer cooperative society.

• It was designed to protect consumers’ interests.
• To improve operational savings, society strives to eliminate intermediaries. Instead, it purchases things in bulk from wholesalers and resells them to its members.
• Profits are dispersed depending on capital contributions to the organisation or purchases made by individual members.

Producer Cooperative Societies are a specific sort of producer cooperative society.

• It was established to protect the interests of small farmers.
• Members are producers looking for inputs to create commodities to fulfil customer demands.
• Profits are distributed according to their contributions to the society’s overall pool of products produced or sold.

Cooperative Societies Marketing-this organisation was established to help small manufacturers market their products.

• Producers that demand fair pricing for their commodities are among the group’s members.
• It combines individual members’ production and marketing activities such as shipping, storage, and packaging to sell the commodities for the best feasible price. Profits are dispersed according to the amount of money each member puts in.

Farmers’ Cooperative Societies were formed to protect farmers’ interests by providing high-quality inputs at a reasonable price.

• Members are farmers who want to collaborate on farming projects.
• The idea is to increase productivity while reaping the benefits of large-scale farming. Improving farmer output and returns while addressing challenges associated with farming on fragmented land holdings.

Cooperative Financing Societies were established to give members timely credit at reasonable rates.

• Members are individuals seeking financial assistance in the form of loans.
• The purpose of such groups is to protect members from being taken advantage of by lenders who demand high-interest rates on loans.

A cooperative housing organisation is a sort of Cooperative Housing Societies.

• It was established to assist low-income people in constructing homes at a reasonable cost.
• These societies are people looking for a cheaper location to reside in.
• The purpose is to alleviate members’ housing issues by constructing homes and allowing them to pay in instalments.

Q15. If registration is optional, why do partnership firms willingly go through this legal formality and register themselves? Explain.

Answer: Although partnership business registration is optional, many firms choose to do so. This is owing to the severe legal consequences of failing to register. Listed below are a few examples:

• The partners of a non-registered business cannot sue a third party, but the non-registration of a partnership firm does not prevent other firms from hiring it.
• The company is forbidden from filing a lawsuit against any of its partners. Similarly, a partner in a non-registered firm cannot sue their co-partners or the company.
• Claims against a third party by a non-registered partnership entity cannot be enforced in court. As a result, partnerships are established to overcome these disadvantages.

Forms of Business Organisation Class 11 Important Questions – Key Topics Covered 

Class 11 Business Studies Chapter 2 Important Questions covers the following key topics:

Forms of business organizations

There are several different types of business organizations from which to choose:

• Sole proprietorship 
• Joint Hindu family business
• Partnership 
• Cooperative societies
• Joint-stock company

Sole Proprietorship

It is a type of Business owned, managed, and controlled by a single person who carries all the risks and reaps all the rewards.

Features: 

• It can be formed and disbanded without the need for any legal requirements.
• In this business organisation, the lone proprietor’s responsibility is unrestricted.
• As the single risk carrier and profit recipient, he bears all the risks and reaps all the rewards.
• There is no distinction between the owner and the Business in the eyes of the law.

Merits:

• All choices must be made by the owner, which necessitates prompt decision-making.
• As a lone proprietor, it is simple to keep company secrets.
• Because there is no one to share gains with, the owner enjoys all the profits.
• There are no legal requirements for establishing and closing a business, making creating and completing one simple.

Limitations:

• The owner’s savings or money borrowed from friends and family might be used to support the Business.
• A business’s life expectancy is limited as it is dependent on the owner’s health and mental state.
• His assets are at stake if the firm fails to satisfy its debts.
• A single individual may not be able to oversee all of the functions.

Joint Hindu family business

It is a type of business that is owned and managed by members of an undivided Hindu family, with three generations of family members potentially participating.

Features:

• Hindu Undivided Families are created when at least two family members have ancestral property. The Hindu Succession Act of 1956 governs it.
• Except for the Karta, all family members have limited responsibility for their part of the company property.
• Karta oversees all actions inside the corporate organisation.
• It can be stopped if all members of the family agree to it.
• Organisation membership is based on birth.

Merits:

• With ‘Karta,’ you have complete control over your firm and can make better decisions.
• If ‘Karta’ dies, the Business continues until all members desire to continue, and then control is given to the next eldest member.
• Family members are only liable for their share of the business party.
• Because family members feel connected and loyal, they work together to achieve a common goal of progress.

Limitations:

• Businesses might be supported primarily via inheritance, restricting financial resources.
• Karta’s personal property is at risk due to his unlimited liability.
• Differences of opinion among members and the ‘Karta’ might lead to conflict.
• Karta’s managerial abilities are limited, and he may not be familiar with all of the Business’s functions.

Partnership:

According to the Partnership Act of 1932, a partnership is a relationship between people who have agreed to share the earnings of a firm run by all or by one acting on behalf of all of them.

Features:

• The partnership Act of 1932 governs the establishment of the Business.
• The liability of all company partners is unlimited.
• All the partners share the risk in the Business.
• All decisions are made with the approval of all partners, and each partner bears responsibility for the company’s day-to-day operations.

Merits:

• Because registration is optional, a business can be formed and ended with the approval of all partners.
• As partners take on tasks according to their competence, all choices are made by consensual partners.
• All partners contribute money, broadening the scope of large-scale company operations.
• There is no need to report financial results; therefore, maintaining corporate secrets is simple.

Limitations:

• Their complete responsibility covers each partner’s personal property.
• All parties may have differing viewpoints, which can lead to conflict.
• Any disagreement between partners or the death of a partner might put the company out of operation.
• Due to a lack of financial disclosures, an outsider can’t determine the actual economic situation.

Cooperative society

An organisation of volunteers working for a shared goal to protect members’ economic and social interests. The Cooperative Societies Act of 1912 requires it to be registered.

Features:

• Any individual with a shared interest, regardless of caste, gender, or religion, is free to join or leave a cooperative organisation at any time.
• A cooperative society has a different identity from its members, and the registration of such a group is required.
• The goal of forming a society is to provide mutual assistance to team members.

Merits:

• Each member has the same right to vote and elect managing committee members.
• Cooperative societies maintain their existence in the face of death, bankruptcy, or insanity among their members.
• Members of society work willingly, which helps to save expenses.

Limitations:

• The only funding source is the member’s capital contribution, and the low dividend discourages members from contributing money to the organisation.
• Volunteer members may lack the requisite competence and skills, resulting in inefficient operations and management.
• It’s challenging to preserve secrets since members provide all information about the society’s operations at the meeting.

Joint-stock company

“A corporation is an artificial person with a separate legal existence, eternal succession, and a common seal,” according to the Companies Act of 2013.

Features:

• A corporation is a legal entity with legal standing but does not act as humans do. The board of directors conducts all corporate actions in the corporation’s name.
• Companies are founded following the legal requirements outlined in the Companies Act of 2013.
• A corporation is formed by law and may only be disbanded by legislation. Therefore, the company’s existence is unaffected by the status of its members.

Merits:

• The responsibility of shareholders is limited to their investment in the firm. Therefore, there is no chance of personal assets being lost.
• The firm’s existence is unaffected by its stockholders’ status; it continues to exist.
• Companies can borrow vast sums of money from financial institutions or banks and solicit cash from the public.

Limitations:

• The formation of a corporation necessitates the completion of several documents and legal requirements, making the process lengthy and complicated.
• There is no confidentiality or secrecy because all financial information is given to the general public.
• Decision-making must adhere to a hierarchy, leading to delays in making judgments and implementing actions.

Choice of the Type of Business organisation

• Nature of Business
• Cost of setting up the organisation
• Capital consideration
• Liability
• Continuity
• Degree of control
• Management ability

The briefly described topics in the above sections are covered in the Important Questions Class 11 Business Studies Chapter 2. 

Benefits of Solving Class 11 Business Studies Chapter 2 Important Questions

Business Studies is one subject that requires a lot of reading and revisions. This subject is introduced in Class 11, and it prepares the base for Class 12 board examinations. Therefore, students are advised to access Important Questions of Business Studies Class 11 Chapter 2. Students will get a sense of confidence by solving essential questions from all the chapters and overlooking their solutions. 

Mentioning below are some benefits of solving Important Questions Class 11 Business Studies Chapter 2:

• Students will benefit from practising questions similar to exam questions to do better in their examinations and earn high grades.
• The questions and answers follow CBSE criteria and are based on the most recent CBSE syllabus. As a result, students can rely on them.
• These important questions are prepared by following the exam writing pattern. Therefore, going through these will help students prepare for exams too.

Extramarks provides comprehensive learning solutions for students from Class 1 to Class 12. We have abundant resources available on our website, along with essential questions and answers. Students can click on the links given below to access some of these resources:

• NCERT books
• CBSE Revision Notes
• CBSE syllabus
• CBSE sample papers
• CBSE previous year’s question papers
• Important formulas 
• CBSE extra questions