question_answer

Ananya wants to start a business. She shares with her friend Tanvi that she is willing to start a business but she does not want to take too much risk. It should not happen that in case business fails, creditors start creating problems in her personal life by attacking on her personal property that she had even before starting this business. If her standard does not improve due to business, at least it should not get degraded.

(a) Which form of business is most suitable for Ananya and why?

(b) Are there any limitations of this form of business? Explain any two.

Answer:

Ans.     (a) Joint stock form of organization is most suitable for Ananya because it has limited liability. The liability of members of a joint stock company is limited to the extent of their capital contribution.

(b) Any two:

(i) Legal formalities - The procedure of formation of company is very long, time consuming, expensive and requires lot of legal formalities to be fulfilled.

(ii) Lack of secrecy - It is very difficult to maintain secrecy in case of public co, as company is required to publish and file its annual accounts and reports.

(iii) Lack of Motivation - Divorce between ownership and control and absence of a direct link between efforts and reward lead to lack of personal interest and incentive.

(iv) Delay in decision making - Red tapism and bureaucracy do not permit quick decisions and prompt actions. There is little scope for personal initiative.

(v) Oligarchic management - Company is said to be democratically managed but actually managed by few people i.e. board of directors. Sometimes they take decisions keeping in mind their personal interests and benefit, ignoring the