IGNOU| BUSINESS ORGANISATION (ECO - 01)| SOLVED PAPER – (JUNE - 2023)| (BDP)| ENGLISH MEDIUM
BACHELOR'S DEGREE PROGRAMME
(BDP)
Term-End Examination
June, 2023
ECO-01
BUSINESS ORGANISATION
Time: 2 Hours
Maximum Marks: 50
Note: Attempt any five questions. All questions carry
equal marks.
1. What do you understand by Business Organization? What are the basic forms of Business Organisation? 2+8
Ans:- Business organization is an establishment whose
objective is to conduct commercial business by producing goods or services and
satisfying the needs of customers. Most organizations have a set of standards
such as social structure, objective goals, use of resources, rules and
regulations, etc.
State law governs
the establishment of a business, and IRS law governs the taxes owed on a
business. So, how much tax a business must pay depends on the type of business
it operates.
Forms of
business organizations:-
There are many
forms in the business world, but the most common forms of business organization
are:-
(i) Sole
Proprietorship: This is the traditional and popular form of business
organisation. Its formation is simple, and the owner controls the entire
operation of a business and is liable for all financial burdens and debts. As
long as they are the sole proprietor, they have the right to operate any
category of business. Involved in the operation of these businesses.
(a) shop or
retail business
(b) home-based
company
(c) Individual
consulting firm
(ii)
Partnership: In partnership, two or more persons come together to start a
business. Each person contributes some part of his capital, property,
employment or experience, and expects some profit or loss from his share of the
business. All partners must declare their percentage of share on the tax
return, even if it is not distributed. In a partnership business, partners are
not defined as employees, so tax is not withheld from any distributions.
(iii)
Corporation: This is the most complex business structure as it involves
more laws and tax claims. Corporations are established under the laws of each
state and all are subject to corporate income tax. All profits issued as
dividends to shareholders are taxed according to individual tax rates on their
individual annual tax returns. Under this structure, the corporation is
displayed as an entity that manages the duties of a business. Like an
individual, a corporation is taxed and held liable if the company is liable for
any legal action. In simple terms, if a business is registered under a
corporation, the owner is not personally responsible for its debts (however,
this situation varies depending on state law).
(iv) ‘S’
Corporation: ‘S’ corporation is a type of standard corporation. The 'S'
authorizes the corporation's profits or losses to be transferred to individual
tax returns.
(v) Limited
Liability Company (LLC): This is a new form of business structure and it
gained its popularity in a short period because the personal liability of the
owner for the debts and actions of the LLC is limited. It had features similar
to partnerships such as flexibility of administration and the advantage of
passing through taxation. Owners of an LLC are known as members because they
can include multiple corporations, additional LLCs, and foreign entities.
(vi)
Cooperation: A group of people who come together to benefit each other.
(vii) General
Partnership: Two or more people manage a business.
(viii) Joint
Stock Company: A voluntary association of people which allows limited liability.
The three basic
forms of business organization are sole proprietorship, partnership, and
corporation. They range from simple to complex.
2. What do you understand by Sole Trader Organisation?
State the merits and limitations of Sole Trader Organisation. 2+8
Ans:- A sole trader, also known as a sole
proprietorship, is a business that is owned and managed by a single person.
This is one of the oldest and simplest ways to start a business.
Sole trader:-
(i) Keeps all
the profits after taxes
(ii) is liable
for all losses
(iii) Pays
income tax on taxable business profits
(iv) pays
Category 2 and Category 4 National Insurance contributions
(v) Collects
income tax and national insurance contributions from employees
Sole traders
rely on their own savings, bank loans, or loans from friends and family to
finance their businesses. Some examples of sole traders include hairdressers,
butchers and electricians.
A sole trader
organization, also known as a sole proprietorship, is a business structure
where the owner has complete control over the business.
Some of the merits
of a sole trader organization include:-
(i)
Complete Control: The owner has complete control over business decisions
(ii)
Privacy: The owner has privacy
(iii) Low
overheads: The business has low overheads
(iv) Easy
Registration: It is easy to register a business
(v) Less
Paperwork: The business has less paperwork and tax obligations
Some of the limitations
of sole trader organization include:-
(i) Unlimited
liability: The owner has unlimited legal liability
(ii)
Reliability Problems: There may be reliability problems in business
(iii)
Decrease in customer confidence: Customer confidence in the business may
decrease.
(iv)
Complex business transfer process: The business may have a complex business
transfer process
(v) Not
legally separate: The business is not legally separate from its owner.
Sole trader
organization is the simplest form of business structure. It is ideal for
running small or medium businesses.
3. Compare the relative advantages and disadvantages of
issuing equity shares and preference shares. 10
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