NCERT Solutions for Class 11 Business Studies Chapter 2

NCERT Solutions for Class 11 Business Studies Chapter 2 by Extramarks are a compilation of detailed answers to the questions given at the end of Chapter 2 of Class 11 Business Studies textbook. The solutions are prepared by subject matter experts and written in a simple and easy to understand language. To get the most out of these resources, students should ideally first go through the chapter, attempt the questions on their own and then refer to the solutions provided here for guidance.

Class 11 NCERT Solutions Business Studies – Chapter 2 

Access NCERT Solutions for Class 11 Business Studies Chapter 2 – Forms of Business Organisation

NCERT Solutions for Class 11 Business Studies – Chapter 2 – Forms of Business Organisation 

One of the most important decisions when starting a business or expanding an existing one is the type of organisation to use. The different forms of business organisations are defined by their ownership and management structures. In Chapter 2 of Class 11 Business Studies, students will learn the different forms of business organisations, factors influencing the selection of an appropriate business structure, the merits and demerits of each type, and much more.

Business Organisation 

A business organisation is an entity formed to carry on commercial enterprise. This kind of organisation is predicated on law systems governing property rights, contract and exchange, and incorporation.  

The four primary forms of organisation are sole proprietorship, partnerships, corporations, and limited liability companies. 

Sole proprietorship  

Most small businesses start as sole proprietorships. The owner of such firms is mainly one person who controls the day-to-day responsibilities of running the firm. Sole proprietorships own all the profits and assets generated by the business. They also assume total responsibility for all their debts. 

Partnerships 

For a single business in partnership, two or more people share ownership of the business. Just like in proprietorship, the law does not differentiate between business and its owners. There should be a legal document made by the partners which will depict how issues between partners will be resolved and how decisions for the business will be made. The legal document should also explain how future associates will be added to the partnership, how partners can be bought out or how the partnership can be dissolved. It is hard to imagine a new-made partnership splitting up, but some partnerships do split up when they find themselves in a crisis. In such cases, if there are no defined steps on how to dissolve the partnership, there will be more significant problems. The partners should also decide at the start about how much time and capital each partner will contribute. 

Corporations

A corporation hired by the state where it is headquartered is considered to be a unique entity, separate from those who own it. A corporation can be taxed, can be appealed, and can also enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to carry out policy decisions and other crucial decisions. The corporation does not dissolve when the ownership changes; it has its own life. 

Limited Liability Company 

The Limited Liability Company is a relatively new type of hybrid business structure that is now legal in the majority of states. It is designed to provide the tax advantages and operational flexibility of a partnership as well as the limited liability features of a corporation. The formation process is more difficult than that of a general partnership. 

Decisions You Will Need to Make While Choosing a Business Type 

Debt and Liability: The personal liability or responsibility of a sole partnership is accepted as a necessary risk of doing business by the majority of startups or small businesses. The disadvantage is that it may necessitate more paperwork, cost more to register, and have more stringent reporting or upkeep requirements than most other types of businesses.

Filing Taxes: When it comes to filing business taxes, you have two options. Most small business owners prefer to file taxes on their returns. However, filing business taxes separately can help you keep your personal and business finances separate.

Partners and Investors: You will not be able to form a sole proprietorship if you start your business with a partner or private investor. You have the option of forming a Partnership (where all responsibilities are shared equally), a Limited Partnership (LP) (where you can dictate responsibilities and liabilities to individual people), or a Limited Liability Company (LLC) (to protect all members from personal liability).

Hiring Employees: Businesses that start off as sole proprietorships may face difficulties in hiring employees later. If you already have employees or plan to hire new ones, an LLC or corporation might be a better choice.  

Solved Examples

Question: The capital of a company is divided into several parts, each of which is called________.

  1. Dividend
  2. Profit
  3. Interest
  4. Share

Answer: 4. Share

Question: If a business defaults on its loans, under which of the following types of business organisations, the owner’s personal assets can be used to pay off those loans?

  1. Corporation
  2. Limited Liability Company
  3. Sole proprietorship
  4.  None of the above

Answer: 3. Sole proprietorship

FAQs (Frequently Asked Questions)

The more questions you practise, the better you get at any subject. As the saying goes, practice makes one perfect. When it comes to Class 11 Business Studies, topics like debts and liabilities, sole proprietorships, and partnerships should be understood clearly by the students. Chapter 2 of NCERT Business Studies Forms of Business Organisation is a very important topic. Students can access all the answers from NCERT Solutions for Class 11 Business Studies Chapter 2 from Extramarks to help them with their preparations further.

There are four primary forms of organisation, which are sole proprietorship, partnerships, corporations, and limited liability companies. Each of these types of organisations has the right to carry on commercial enterprise and abide by the rules set by the government. 

There is a general notion that there is a lack of motivation in joint-stock companies or corporations. This is because in this type of organisation, the management does not get a share in the profits earned by the business. There is an absence of a direct link between effort and reward and this causes a lack of motivation. However, corporations do realize this problem now and in order to bridge this gap, many companies have employee stock option plans wherein employees also get part ownership in the company to align their incentives. 

A non-profit organisation is a business organisation that is intended to promote educational or charitable purposes. The non-profit aspect comes into play when the company uses its profits to pay for its expenses and other needs. There are several types of non-profit organisations available, and most of them could get “tax-exempt” status. This process requires filling out paperwork with the government for them to recognise your company as a non–profit organisation. Depending on the parameters of your new business, they would tell you which category your business falls upon. 

One of the primary reasons businesses incorporate is to protect the personal assets of the owners. When you combine your business, a legal entity is formed. This means the business can get assets and debt apart from personal assets and debts. 

Besides, incorporating your business will help in reducing the liability. For example, suppose your business gets sued by a third party or creditor. In that case, the risk of losing your house or personal assets is considerably reduced compared to a sole proprietor. In most cases, the extent to which creditors go to get payment is limited to the interest of ownership in the business. 

Partnership is viewed as a relatively unpopular form of corporate ownership due to the risks that come with it. These limitations include unlimited liability, limited resources, the possibility of conflict, and a lack of consistency.

However, there are certain advantages that partnership offers. They include: 

    • Ease of creation and closure: A partnership can be formed by putting an agreement in place between two prospective partners. There is no need to register a company. 
    • Balanced decision making: Depending on their areas of competence, partners can manage different functions of the business. As a result, a partnership firm’s decision-making is more balanced than any other type of corporate ownership. 
  • More funds: In a partnership, each partner invests a sum of money. Hence compared to a sole proprietor, a larger sum of money can be collected in a partnership and can be used for various operations.
  • Risk Sharing: In a partnership, the risk is shared equally by all the partners. As a result, individual partners have less stress, strain, and anxiety.
  • Confidentiality: A partnership is not compelled by law to publish its financial statements. Hence it can keep the secrets about its operations discreet 

The other limitations of partnership include:  

  • Unlimited liability: If the business’s assets don’t meet the debts, the partners have to repay debts from their personal assets.
  • Limited resources: Since there are only a few partners, the capital investment is less, and hence large-scale commercial operations cannot be done. As a result of this, partnership firms have difficulty growing. 
  • Conflicts of Interests: In a partnership firm, decision-making is divided among partners. This is also contingent on their levels of ability, capability, and foresight.  
  • Lack of Continuity: A partnership comes to an end when one of the partners dies or withdraws due to any reason. The surviving partners can forge a new agreement and run the company