CBSE Class 11 Business Studies Chapter-2 Important Questions - Free PDF Download
FAQs on Important Questions for CBSE Class 11 Business Studies Chapter 2
1. What are the key differences between a private limited company and a public limited company that are important for the CBSE Class 11 exams?
The primary differences between a private and a public limited company revolve around membership, share transferability, and capital subscription. For the 2025-26 exams, focus on these points:
- Number of Members: A private company needs a minimum of 2 and a maximum of 200 members. A public company requires at least 7 members with no maximum limit.
- Transfer of Shares: In a private company, there are restrictions on the transfer of shares. In a public company, shares are freely transferable, typically through a stock exchange.
- Public Subscription: A private company cannot invite the public to subscribe to its securities. A public company can raise funds from the general public by issuing a prospectus.
- Suffix: The name of a private company must end with the words 'Private Limited', while a public company's name ends with 'Limited'.
2. Explain the concept of 'unlimited liability' in a sole proprietorship and a partnership firm.
Unlimited liability means that the owner(s) of a business are personally responsible for all its debts. If the business assets are insufficient to pay off its liabilities, the personal property of the owner(s) can be used to settle the claims of creditors.
- In a sole proprietorship, the single owner bears this entire risk alone.
- In a partnership firm, all partners (except in a Limited Liability Partnership) have unlimited liability, and they are jointly and severally liable for the firm's debts. This is a critical feature distinguishing these forms from a company.
3. What is a Joint Hindu Family (HUF) business? State its two most important characteristics.
A Joint Hindu Family (HUF) business is a unique form of business organisation found only in India. It is owned and managed by the members of a Hindu Undivided Family. The two most important characteristics are:
- Formation: It is not formed by an agreement but by the operation of Hindu Law. Membership is acquired by birth in the family, requiring at least two members and some ancestral property.
- Management and Liability: The business is managed by the eldest male member, known as the 'Karta', who has unlimited liability. The liability of all other members, called 'co-parceners', is limited to their share in the family's property.
4. Distinguish between a 'sleeping partner' and a 'nominal partner' in a partnership firm.
While both are types of partners, their roles and liabilities differ significantly.
- A sleeping or dormant partner contributes capital and shares in profits and losses but does not take an active part in the management of the firm. However, their liability is unlimited.
- A nominal partner is a partner only in name. They do not contribute capital or share in profits, nor do they participate in management. They only lend their name and reputation to the firm, but they are still held to have unlimited liability to third parties who give credit to the firm on the assumption that they are a partner.
5. What are the main features of a Joint Stock Company that make it a distinct form of business organisation?
A Joint Stock Company is a legally recognised business entity with distinct features that are highly significant for board exams:
- Artificial Legal Person: A company is created by law and exists as a separate legal entity, distinct from its owners (shareholders).
- Perpetual Succession: The existence of a company is not affected by the death, insanity, or insolvency of its members. It can only be wound up through a legal process.
- Limited Liability: The liability of the shareholders is limited to the amount of capital they have contributed or agreed to contribute. Their personal assets are not at risk.
- Common Seal: As an artificial person, a company cannot sign. The common seal acts as its official signature on important documents.
- Transferability of Shares: Shareholders of a public company can freely transfer their shares without the consent of other members.
6. Explain the different types of cooperative societies a student should know for the Class 11 Business Studies exam.
As per the CBSE 2025-26 syllabus, students should be familiar with these types of cooperative societies, formed to protect the economic interests of their members:
- Consumer's Cooperative Societies: Formed to provide consumer goods at reasonable prices by eliminating middlemen.
- Producer's Cooperative Societies: Formed by small producers to procure raw materials and sell their finished goods collectively.
- Marketing Cooperative Societies: Help small producers get a fair price for their output by performing marketing functions like transportation, warehousing, and branding.
- Credit Cooperative Societies: Provide short-term financial assistance and loans to members at low interest rates, protecting them from moneylenders.
- Cooperative Housing Societies: Formed to provide residential houses or plots to members at an affordable cost.
7. A minor cannot enter into a valid contract. How, then, can a minor be admitted as a partner in a firm? Explain their status and liability.
This is a critical exception in partnership law. While a minor cannot become a full-fledged partner because they lack contractual capacity, they can be admitted to the benefits of an existing partnership with the mutual consent of all other partners. The minor's status is unique:
- Liability: The minor's liability is limited to the extent of their capital contribution in the firm. Their personal assets cannot be used to pay the firm's debts.
- Profit Sharing: They are entitled to share in the profits of the firm but are not liable for any losses beyond their capital share.
- Rights: A minor has the right to inspect the accounts of the firm but does not have the right to participate in its management.
8. If the registration of a partnership firm is optional, why is it considered highly desirable? Explain the consequences of non-registration.
Although registration is not legally compulsory, it is highly advisable because non-registration leads to several serious disabilities. An unregistered firm faces the following major consequences:
- A partner cannot sue the firm or other partners: If there is a dispute regarding the partnership agreement, a partner of an unregistered firm cannot take legal action against the firm or their fellow partners.
- The firm cannot sue third parties: The firm is barred from filing a lawsuit against any third party to enforce its rights arising from a contract.
- The firm cannot claim a set-off: If a third party sues the firm for a certain amount, the firm cannot claim a reduction in that amount based on any money the third party owes it.
These limitations make it very difficult for an unregistered firm to conduct business smoothly, making registration practically necessary.
9. What is the concept of 'mutual agency' in a partnership, and why is it often called the 'true test of partnership'?
Mutual agency is the legal relationship where every partner is both an agent and a principal. As an agent, a partner can bind all other partners and the firm through their actions done in the ordinary course of business. As a principal, each partner is bound by the actions of all other partners. This means the business can be carried on by all partners or any one of them acting for all.
It is called the 'true test of partnership' because the mere sharing of profits is not enough to prove a partnership. For a partnership to exist, it is essential that there is a state of mutual agency among the partners. This principle distinguishes a partnership from other forms of association like co-ownership.
10. An entrepreneur wants to start a chain of high-end salons across multiple cities. Which form of business organisation would be most suitable and why? Justify your choice over a sole proprietorship.
For a chain of high-end salons across multiple cities, a Private Limited Company would be the most suitable form of business organisation. The justification is as follows:
- Scope for Expansion: A company form allows for raising substantial capital from shareholders and financial institutions, which is essential for expansion across cities. A sole proprietorship has limited access to capital.
- Limited Liability: This is a major advantage. The entrepreneur's personal assets would be protected from business debts, which is crucial when operating on a large scale with high operational costs. A sole proprietor has unlimited liability.
- Perpetual Existence: The business will continue to exist irrespective of the owner's status. This ensures stability and continuity, which is important for a large brand. A sole proprietorship's existence is tied to its owner.
- Professional Management: A company can hire professional managers to run the salons efficiently, separating ownership from management. In a sole proprietorship, the owner often has to manage everything, which is not feasible for a large chain.
11. Mr. Arun, a well-known businessman, told his friend Mr. Bala that he is a partner in 'Star Enterprises'. Relying on this, a supplier, 'Zain Traders', supplied goods worth ₹5 lakhs on credit to Star Enterprises. If Star Enterprises fails to pay, can Zain Traders hold Mr. Arun liable? Identify and explain the principle involved.
Yes, Zain Traders can hold Mr. Arun liable for the payment of ₹5 lakhs. The principle involved here is Partner by Estoppel.
Explanation: A person is considered a partner by estoppel if they, by their words or conduct, represent themselves as a partner in a firm, or allow themselves to be represented as one. Even though Mr. Arun is not an actual partner, he is 'estopped' (prevented) from denying his liability. Since Zain Traders extended credit to Star Enterprises based on the representation that Mr. Arun was a partner, Mr. Arun becomes liable to Zain Traders for the debt, just as if he were an actual partner. His liability will be unlimited in this specific case.
