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Questions and Answers
It is _______ (not necessary, necessary) to get the partnership firm registered.
It is _______ (not necessary, necessary) to get the partnership firm registered.
not necessary
The partnership firm is a ________________(flexible, rigid) form of business organization.
The partnership firm is a ________________(flexible, rigid) form of business organization.
flexible
In partnership, business risk is ______ (shared, not shared) by all the partners.
In partnership, business risk is ______ (shared, not shared) by all the partners.
shared
Partnership is a/an ________ (group, individual) effort.
Partnership is a/an ________ (group, individual) effort.
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LLP Act was framed in the year________.(2008, 2010)
LLP Act was framed in the year________.(2008, 2010)
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How much will the creditors get at the time of winding up Himanshi's business where assets are worth Rs. 5 lakhs and liabilities are worth Rs. 10 lakhs?
How much will the creditors get at the time of winding up Himanshi's business where assets are worth Rs. 5 lakhs and liabilities are worth Rs. 10 lakhs?
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Limitations of Sole Proprietorship do not include.
Limitations of Sole Proprietorship do not include.
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Indian Partnership Firms are governed by the Indian Partnership act.
Indian Partnership Firms are governed by the Indian Partnership act.
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Characteristics of JHF do not include.
Characteristics of JHF do not include.
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Members of Joint Hindu Family are known as:
Members of Joint Hindu Family are known as:
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What is sole proprietorship?
What is sole proprietorship?
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Which of the following is a characteristic of sole proprietorship?
Which of the following is a characteristic of sole proprietorship?
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In a sole proprietorship, the owner shares the profits with others.
In a sole proprietorship, the owner shares the profits with others.
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What does 'unlimited liability' mean in the context of sole proprietorship?
What does 'unlimited liability' mean in the context of sole proprietorship?
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The sole proprietor may not be able to raise adequate __________ for the expansion of business.
The sole proprietor may not be able to raise adequate __________ for the expansion of business.
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The life of the business depends on the life of the ______________.
The life of the business depends on the life of the ______________.
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Due to limited financial resources and limitation of the expertise of the owner, the business may lack professional _____________.
Due to limited financial resources and limitation of the expertise of the owner, the business may lack professional _____________.
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What is a partnership?
What is a partnership?
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How many members are required to start a partnership business?
How many members are required to start a partnership business?
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What defines the relationship between partners in a partnership?
What defines the relationship between partners in a partnership?
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Define ‘Sole Proprietorship’.
Define ‘Sole Proprietorship’.
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What is meant by Sole Proprietorship form of business organisation?
What is meant by Sole Proprietorship form of business organisation?
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In a partnership, liability is unlimited.
In a partnership, liability is unlimited.
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Can a sole proprietorship business exist forever? Justify your answer.
Can a sole proprietorship business exist forever? Justify your answer.
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Describe how sole proprietorship facilitates employment generation.
Describe how sole proprietorship facilitates employment generation.
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State the maximum number of partners in case of banking and other business.
State the maximum number of partners in case of banking and other business.
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Define Partnership.
Define Partnership.
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State any four features of a partnership form of business organization.
State any four features of a partnership form of business organization.
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Define Joint Hindu Family.
Define Joint Hindu Family.
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State characteristics of Joint Hindu Family.
State characteristics of Joint Hindu Family.
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Write down the silent features of LLP.
Write down the silent features of LLP.
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Study Notes
Forms of Business Organisation
- Business enterprises can be classified into various forms of organization based on their size, ownership, and management requirements.
Sole Proprietorship
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Sole proprietorship, characterized by a single individual owning, managing, and controlling all business activities.
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This individual is known as a sole proprietor or sole trader.
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Features of Sole Proprietorship:
- Ease of formation: Minimal legal and other formalities.
- Single ownership: One person owns all assets and properties, and bears all risk of the business.
- No sharing of profit and loss: The proprietor keeps all profits and bears all losses.
- One-man capital: Capital is provided solely by the proprietor from personal resources or borrowing.
- One-man control: The proprietor alone takes all decisions.
- Unlimited liability: The proprietor's personal assets may be used to pay business liabilities.
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Advantages of Sole Proprietorship:
- Easy to form and wind up: Minimal legal requirements.
- Direct motivation: Direct link between effort and reward.
- Quick decision and prompt action: Faster decisions.
- Better control: The proprietor has full control over all aspects of the business.
- Maintenance of business secrets: No need to disclose information to others.
- Close personal relation: Easier to maintain relationships with customers and employees.
- Provides self-employment: Creates self-employment opportunities for individuals.
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Limitations of Sole Proprietorship:
- Limited capital: A single individual may struggle to raise enough capital for growth.
- Lack of continuity: The business ends at the death or will of the proprietor.
- Limited size: Expansion can be difficult with limited resources and management expertise.
- Lack of managerial expertise: The proprietor may not have expertise in all areas of business management.
Partnership
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A partnership is a legal and contractual relationship where two or more individuals agree to share in the profits and losses of a business.
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Features of Partnership:
- Two or more members: Minimum of two partners, with legal limits for certain sectors.
- Agreement: A formal agreement, often in writing, outlines terms such as capital contribution, profit-sharing, salaries, duration, and responsibilities.
- Lawful business: The business must be legal.
- Sharing of profit: Profits are shared among partners in an agreed-upon ratio.
- Unlimited liability: Partners’ personal assets are at risk if the business cannot meet its liabilities.
- Voluntary registration: Registration is not mandatory but offers benefits like legal protection.
- Principal-agent relationship: Each partner acts as both an agent of the firm and a principal.
- Continuity of business: The partnership ends if a partner dies, becomes bankrupt, or goes insane; it can also dissolve by mutual consent.
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Advantages of Partnership:
- Easy to form: Simple agreement, minimal legal requirements.
- Availability of large resources: More capital available compared to sole proprietorships.
Joint Hindu Family Business
- Owned and managed by members of a joint Hindu family who share inherited property.
- Also known as "HUF" or "kartha".
- A key member, known as "kartha", manages the business, and other members share in the profits and losses.
- Features of a Joint Hindu Family Business:
- Inherited property: The business often originates from inherited property or assets.
- Family ownership: Owned and managed by members of a joint Hindu family.
- Unlimited liability: All family members are jointly liable for business debts.
- Kartha's control: Management and decisions often rest with the 'kartha'.
- Limited size and expansion: Expansion is typically limited by family resources.
Partnership Business
- Partners can contribute more capital, effort, and time to the business.
- Partners are owners and have equal rights in business management.
- Partners can resolve conflicts through joint problem-solving.
- Shared decision-making reduces the risk of reckless actions.
- Partners share business risks and losses proportionally.
Limitations of Partnership Business
- Partners have unlimited liability for business debts, meaning personal assets can be used to cover debt.
- The partnership firm is dissolved upon the death, insolvency, incapacity, or retirement of any partner.
- There is a maximum of 20 partners, limiting capital raising potential.
- Partners cannot transfer their shares without the consent of other partners.
Limited Liability Partnership (LLP)
- LLP is a business structure offering limited liability while maintaining the flexibility of a partnership.
- LLP aims to combine entrepreneurship, expertise, and risk capital for efficient operations.
- LLP is a legal entity separate from its partners, with liability limited to agreed contributions.
- LLP requires at least two partners and two designated partners (at least one residing in India).
Joint Hindu Family Business
- This business form is owned by members of a joint Hindu family.
- Inheritance is among male members, with three generations inheriting ancestral property.
- Male members are coparceners, with the eldest being the Karta.
Features of Joint Hindu Family Business
- Membership is automatic for male children at birth.
- Management rests with the Karta.
- The Karta has unlimited liability, while coparceners have limited liability proportional to their share.
- No restriction on the number of coparceners, except for the three-generation limit.
- Minors are eligible to be coparceners.
- The business continues after the death of members, with the next eligible male member becoming the Karta.
Merits of Joint Hindu Family Business
- The business provides financial stability and a sense of belonging for members.
- Continuity ensures the business exists regardless of death or incapacity.
- Working for the family name inspires dedication and loyalty.
Limitations of Joint Hindu Family Business
- The Karta's unlimited liability exposes personal assets to business risk.
- Limited capital due to the Karta's limited resources hinders expansion.
- An incompetent Karta can damage the business due to centralized control.
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Description
This quiz explores the various forms of business organization, focusing on sole proprietorship. Learn about the characteristics, advantages, and challenges that come with being a sole proprietor. Test your understanding of how sole proprietorships operate within the business landscape.
