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________.
- Dividend
- Profit
- Interest
- 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?
- Corporation
- Limited Liability Company
- Sole proprietorship
- None of the above
Answer: 3. Sole proprietorship