Question 1

Which document is called the charter of the company?

Accepted Answer

MOA is the charter defining scope and objectives of company.

Question 2

Secrecy is maximum in:

Accepted Answer

Proprietorship has minimal disclosure and maximum secrecy.

Question 3

Greenwashing refers to:

Accepted Answer

Greenwashing is publicity-oriented false eco-friendly image.

Question 4

Which form is most suitable for small business with full control by one person?

Accepted Answer

Sole proprietorship is simplest with single ownership and quick decisions.

Question 5

Registration of a partnership firm is:

Accepted Answer

Registration is generally optional, but non-registration has legal disabilities.

Question 6

Perpetual succession means:

Accepted Answer

Company’s existence is not affected by death/insolvency of members.

Question 7

The principle of democratic control in co-operatives means:

Accepted Answer

Co-operatives follow one member one vote irrespective of shares.

Question 8

Drone entrepreneur refers to:

Accepted Answer

Drone entrepreneur continues old methods and resists change.

Question 9

A co-operative society is primarily formed to:

Accepted Answer

Co-operatives are formed for mutual help and member welfare.

Question 10

A major disadvantage of company form is:

Accepted Answer

Company formation/operation requires more procedures, disclosure and compliance.

Question 11

A key principle of corporate governance is:

Accepted Answer

Transparency requires timely and accurate disclosure.

Question 12

MOA has higher authority than AOA because:

Accepted Answer

AOA is subordinate to MOA and must be consistent with MOA and Companies Act.

Question 13

Continuity of HUF business is better because:

Accepted Answer

HUF continues due to birth-based membership even if a member dies.

Question 14

A key feature of business is:

Accepted Answer

Business is carried on regularly and continuously; occasional transactions are not business.

Question 15

Customers and suppliers belong to:

Accepted Answer

Customers, suppliers, competitors etc. are micro (operating) environment factors.

Question 16

A major advantage of sole proprietorship is:

Accepted Answer

Single ownership enables quick and flexible decisions.

Question 17

Business refers to:

Accepted Answer

Business includes production and distribution of goods and services on a regular basis to earn profit and satisfy needs.

Question 18

Promoters stand in a ______ position towards the company.

Accepted Answer

Promoters owe fiduciary duties of good faith and full disclosure.

Question 19

Dissolution of firm means:

Accepted Answer

Dissolution of firm ends partnership and business is closed.

Question 20

A company is a:

Accepted Answer

Company is an artificial person created by law with separate legal existence.

Question 21

Define corporate governance.

Accepted Answer

Corporate governance is the system of rules, practices and processes by which a company is directed and controlled to ensure transparency and accountability.

Question 22

Expand SWOT.

Accepted Answer

SWOT stands for Strengths, Weaknesses, Opportunities and Threats.

Question 23

What is macro environment?

Accepted Answer

Macro environment consists of broad external forces such as economic, political, social, technological, legal and environmental factors affecting all businesses.

Question 24

State any one factor affecting choice of form of business organisation.

Accepted Answer

Capital requirement is a factor affecting the choice of form of business organisation.

Question 25

Name any one form of business organisation.

Accepted Answer

Sole proprietorship is a form of business organisation.

Question 26

State any one characteristic of business.

Accepted Answer

Risk and uncertainty is a characteristic of business because business outcomes depend on uncertain factors like demand, prices and competition.

Question 27

What is mutual agency?

Accepted Answer

Mutual agency means each partner is an agent and principal—any partner can act on behalf of the firm and bind the other partners.

Question 28

State any one limitation of sole proprietorship.

Accepted Answer

Unlimited liability is a limitation because the proprietor’s personal assets can be used to pay business debts.

Question 29

State any one social objective of business.

Accepted Answer

Supplying quality goods and services at reasonable prices is a social objective of business.

Question 30

What is Articles of Association (AOA)?

Accepted Answer

AOA is a document containing internal rules and regulations for management and administration of the company.

Question 31

Differentiate between business and profession.

Accepted Answer

**Business** involves production/exchange of goods and services mainly to earn profit; it does not necessarily require formal qualifications and involves higher risk and uncertainty. **Profession** requires specialised knowledge and formal qualification (like CA, doctor, lawyer) and follows a professional code of conduct with service motive. In profession, income is in the form of fees and ethical standards are strictly regulated by professional bodies.

Question 32

Explain types of partners (any three).

Accepted Answer

Types of partners include **active/working partner** who participates in management, **sleeping/dormant partner** who invests and shares profit but does not manage daily work, and **nominal partner** who lends name to the firm without capital contribution. Other types are **partner by estoppel/holding out** (liable to outsiders due to representation) and **minor admitted to benefits** of partnership.

Question 33

Explain features of HUF business.

Accepted Answer

HUF business is governed by **Hindu law** and membership is acquired **by birth**. It is managed by the **Karta**, whose decisions are binding. **Coparceners have limited liability** up to their share in family property, while **Karta’s liability is unlimited**. HUF business enjoys better **continuity** because business continues even if a member dies.

Question 34

Differentiate between co-operative society and company.

Accepted Answer

A **co-operative society** is formed mainly for service and welfare of members and follows **one member one vote**. A **company** is formed mainly for profit and voting rights depend on shareholding. Dividend in co-operative is generally limited and surplus may be distributed as patronage bonus, while company dividends depend on profits and policy. Companies have stricter compliance and ownership is through transferable shares.

Question 35

Explain the characteristics/nature of business.

Accepted Answer

Business is an **economic activity** concerned with production and distribution of goods and services. It involves **exchange** and is generally carried on with **profit motive** as a reward for risk and initiative. Business is carried out with **regularity and continuity** and operates under **risk and uncertainty** due to changing demand, competition, prices and government policies. Modern business also focuses on customer satisfaction and social responsibility.

Question 36

Define company and explain its features in detail.

Accepted Answer

A company (joint stock company) is a voluntary association of persons formed and registered under company law to carry on business. It is an artificial legal person created by law, having a separate legal existence distinct from its members.

**Features of a company:**
1. **Separate legal entity:** Company is distinct from shareholders; it can own property, sue and be sued and enter contracts in its own name.
2. **Artificial legal person:** It is created by law and acts through its directors and officials.
3. **Perpetual succession:** Existence continues even if members change due to death, insolvency or transfer of shares.
4. **Limited liability:** Members’ liability is limited to unpaid amount on shares or guarantee amount, so personal assets are generally protected.
5. **Transferability of shares:** Especially in public companies, shares are transferable, providing liquidity to investors.
6. **Separation of ownership and management:** Shareholders are owners but management is carried by Board of Directors and professional managers.
7. **Large capital raising capacity:** Company can mobilise large funds through issue of shares and debentures and has better credit.
8. **Regulation and disclosure:** Company is governed by law and must follow statutory compliances and disclosures.

Thus, company form is suitable for large-scale business requiring big capital, continuity and limited liability.

Question 37

Explain types of co-operative societies and discuss merits and limitations of co-operative society.

Accepted Answer

**Types of co-operative societies:** (i) **Consumer co-operative** supplies consumer goods to members at reasonable prices and good quality. (ii) **Producer/industrial co-operative** is formed by producers/artisans to produce and sell collectively. (iii) **Marketing co-operative** helps members sell products at better prices by eliminating middlemen. (iv) **Credit co-operative** provides loans at reasonable interest and encourages savings. (v) **Housing co-operative** provides housing facilities and manages residential colonies. (vi) **Farming co-operative** supports farmers through collective farming and services.

**Merits:** Co-operatives are easy to form and provide democratic control with one member one vote. Limited liability protects members. They reduce exploitation by eliminating middlemen and help provide goods/credit/services at fair terms. Co-operatives encourage thrift, mutual help and social welfare and provide continuity despite change in membership.

**Limitations:** Co-operatives often suffer from limited capital as they mainly depend on members’ funds and limited dividends. Management may be inefficient due to lack of professional skills and political interference. Lack of secrecy, internal conflicts and weak motivation can affect performance. Excessive government regulation may reduce autonomy.

Therefore, co-operative society is useful for welfare-oriented activities but needs honest leadership and professional management for success.

Question 38

Define partnership and explain essential elements/features of partnership in detail.

Accepted Answer

Partnership is the relation between persons who have agreed to share profits of a business carried on by all or any one of them acting for all. It is a popular form of organisation for small and medium businesses.

**Essential elements/features of partnership:**
1. **Two or more persons:** There must be at least two persons to form a partnership.
2. **Agreement:** Partnership arises from a contract (written or oral). It cannot be created by status.
3. **Lawful business:** The agreement must be to carry on a lawful business activity.
4. **Sharing of profits:** Partners agree to share profits of the business. Loss sharing generally follows profit-sharing ratio unless otherwise agreed.
5. **Mutual agency (most important):** The business must be carried on by all partners or by any one acting for all. Each partner is an agent of the firm and can bind the firm and other partners through his acts done in the ordinary course of business.
6. **Relation based on trust and good faith:** Partnership requires mutual confidence, cooperation and honesty among partners.

Thus, partnership is created by agreement, involves profit-sharing and is distinguished by the principle of mutual agency.

Question 39

Explain LLP and compare LLP with company and partnership (any key points).

Accepted Answer

LLP (Limited Liability Partnership) is a modern business form that combines the flexibility of partnership with the advantages of limited liability. It is a separate legal entity and the liability of partners is limited, usually to their agreed contribution.

**LLP vs Partnership:** Traditional partnership usually has no separate legal entity and partners have unlimited liability. In LLP, there is separate legal identity and partners enjoy limited liability. LLP is governed by an LLP agreement, providing flexibility similar to partnership but with better protection.

**LLP vs Company:** Both LLP and company are separate legal entities and provide limited liability. However, a company is governed by stricter corporate governance requirements, board structure, and more detailed statutory compliances and disclosures. LLP generally has comparatively simpler compliance and offers flexible internal management through LLP agreement.

LLP is suitable for professional and service businesses and for enterprises that require limited liability with simpler compliance and flexible management.

Question 40

Explain components of business environment. Distinguish between micro and macro environment with examples.

Accepted Answer

Business environment consists of internal and external components.

**Internal environment** includes factors within the organisation such as management policies, organisational structure, culture, human resources, financial strength, technology and production capacity. These factors create strengths and weaknesses.

**External environment** includes micro and macro forces.

**Micro environment (operating environment):** These are factors that directly affect day-to-day functioning of the firm, such as customers, suppliers, competitors, intermediaries (dealers/distributors) and publics (media, financial institutions). For example, a supplier’s price increase or competitor’s new product immediately affects the firm.

**Macro environment (general environment):** These are broad forces that affect all businesses indirectly, such as economic factors (inflation, income, interest rates), political/legal factors (taxes, regulations), social factors (lifestyle, demographics), technological changes (automation, digitalisation) and environmental factors (pollution control norms). For example, change in GST rates or new technology disrupts industries.

Hence, micro environment is firm-specific and direct, while macro environment is broad and indirect but equally important for strategic decisions.

Business Organization — Question Paper

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