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1. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership firm.

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

3. What do you understand by a sole proprietorship firm? Explain its merits and limitation?

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

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1. A minor becomes a member of Joint Hindu Family Business by virtue of his birth. On the other hand, in partnership, minor can be a partner only in profits. Or we can say that The inclusion of an individual into the business occurs due to birth in a Hindu Undivided Family. Hence, minors can also be members of the business. On the other hand, in a partnership firm, the minor cannot be a partner of a business. In the partnership firm, the age of the partners should be above 18 years.

2. 

Although registration in case of a partnership firm is optional yet many firms voluntarily opt for it. This is because of the various legal disadvantages associated with non-registration. Some of them are:

  • The partners of a non-registered firm cannot file a suit against a third party; however, non-registration of a partnership firm does not prevent other firms from suing it
  • The firm cannot file a case against any of its partners. Similarly, a partner of a non-registered firm cannot file a case against his or her co-partners or the firm.
  • A non-registered partnership firm cannot enforce its claims against a third party in a court.

3. Sole Proprietorship refers to a form of business organisation that is owned managed and controlled by an individual's who is the recipient of all profits and bearer of all risk.

Merits:

i. A sole proprietorship can quickly decide as it enjoys a considerable degree of freedom.

ii. There is hardly any legal formality for setting up a sole proprietorship firm.

iii. There is a sense of accomplishment in working.

iv. A sole proprietorship is the recipient of all profits earned from business and this motivates others to carry out their business efficiently.

Limitation :

i. Resources of a sole proprietor are limited because of the lending institutions that hesitate to extend long term loan

ii. There is a limited expectancy of business as a sole proprietor is responsible for everything including death and it may lead to the closure of the business.

iii. The creditors might recover its dues from the personal assets of the sole proprietor if possible.

4. It is important to choose an appropriate form of business organization because if one is planning to start a business or is interested in expanding an existing one, one important decision relates to the choice of the form of organization A business firm can be owned & managed in several forms. Once a form of business is chosen it is difficult to change it. Therefore, the form of business enterprise should be selected with due care & thought The factors that determine the choice of form of organisation are :-

a)- Cost and Ease of Starting Business: Sole proprietorship is started easily as far as initial business setting-up costs and legal requirements are concerned, in case of partnership also, the advantage of less legal formalities and lower cost is there because of limited scale of operations. Registration is compulsory in case of co-operative societies and companies. Formation of a company involves a lengthy and expensive legal procedure.

b)- Liability. In case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. This may result in the payment of debt from personal assets of the owners. In joint Hindu family business, only the karta has unlimited liability. In co-operative societies and companies, however, liability is limited and creditors can force payment of their claims only to the extent of the company's assets.

c)-Continuity: The continuity of sole proprietorship and partnership firms is affected By EVEHS such as death, insolvency or insanity of the owners. However, such factors do not affect the continuity of business in the case of organizations like joint Hindu family business, co-operative societies and companies. 

d)- Managerial Ability: It is difficult for a sole proprietor to have expertise in all functional areas of business. In other forms of organizations like partnership and company, there is division of work among the members which allows the managers to specialize in specific areas, leading to better decision making. But this may sometimes lead to conflicts due to differences of opinion. Company form of organization is a better alternative if the operations are complex in nature and require professional management.

e)-Capital Requirements: For large-scale operations, company form are the most suitable as a large amount of funds can be arranged by issuing shares in this form.. For medium and small sized business, one can opt for partnership or sole proprietorship. Capital requirements for expansion can also be met more easily in company form.

f)- Degree of Control: Sole proprietorship provides direct control over operations and absolute decision making power But if the owners want to share control for more effective decision-making partnership or company form of organization can be adopted. In company form of organization professionals are appointed to manage the affairs of a company as there is complete separation of ownership and management.

g)- Nature of Business Sole proprietorship is more suitable for businesses in which direct personal contact is needed with the customers such as in the case of a beauty parlor or grocery store The company form of organization is suited for large manufacturing units. Partnership form is much more suitable in case of professional services The factors stated above are inter-related and therefore, all the relevant factors must be taken into consideration while making a decision with respect to the form of organization.

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