Chapter-1 Nature and Purpose of Business Economic and Non-Economic Activities All Human beings have different types of needs. So in order to fulfil those needs they have to performs some or the other activity. Human activities are classified into Economic & non economic activities. Basic Meaning Economics Non-Economic Meaning Those activities whose | Those activities whose aim is Objective is to eam money} not to eam money but to land to create Wealth. satisfy social psychological and emotional needs. For example love, sympathy patriotismate. Objective Main aim to generals Good | Main objective is to achieve lorservicestoearn profit. | Mental satisfaction. Examples - Peopleworkinginfactories. |- A house Wife cooking food Cooking food in al forherfamily. restaurant - A teacher training his A teacher teaching in al daughterathome. school. Concept of Business Literal meaning of Business co "BUSY" 1 Business is defined as an economic activity. 1 Involved in the production and sales of goods and seniors. 1 Undertaken with a motive os eaming profit. 1 by Satisfied human needs in Society.Characteristics of business :- 1 2, An economic activity :- Business in considered as an economic activity as itis undertaken with the objective of earning money. Production or procurement of goods and services :- Business includes all the activities concerned with the production of procurement of goods & services for sales. Services include transportation, banking, Insurance ete. Sale or exchange of goods & service 1 :- There should be sale or exchange of goods and service between the seller & the buyer. If goods are produced not for the purpose of sale but say for internal consumption it cannot be called a business activity. Dealing in goods & services an a regular basis :- There should be regularity of dealings or exchange of goods & services. One single transaction of sale or purchase does not constitute business. Profit Earning :- The main purpose of business is to earn profit. A business cannot survive without making profits. So businessman try to maximize profit by increasing the volume of sales or reducing costs. Uncertainly of return : Every business invests money with the objective of earning profit but the amount of profit earned may very also there is always a possibility of losses. Element of Risk :- All business activities carry some elements of risk because future is uncertain and business has no control over several factors like, strikes, fire , theft, change in consumer taste etc. Qt Q2 Q3 Prakash, a farmer went to the market and exchanged his rice with pulses. Itis an economic activity ? Mohan sells his old dressing table on OLX for € 4000. Its a business activity ? Justify. Lalita , a housewife sells old newspaper of two months at @ 300, willyou classify itas business activity ? Why? Comparison of Business Profession and Employment Economic ActivitiesBusiness Profession Employment TtRefers to those economic|it includes those activities |It refers to the occupation in activities which arelwhich require special|which people work for others connected with purchase, |knowledge be skills in the|and get remuneration in production and/or sale fo| occupation. return goods & services with the objective of earning profi. Examples:- Examples : Examples : - Fishing - Medical (Doctor) Worker = ManufacturingGoods |” | egal Lawyer) | Employee = Mining - Accountaney(CA) —|- Salesman - Producing or selling of| electronic goods Banking SIN. Basis of Destruction Business. Profession Employment 7. Mode ofestabishment [Stars after completing] Membership ofa _| Start after getting Jsome legal formalities | professional body | appointment letter. itmeeded ‘and certncate of practical required 2, Nature of Wark Provision of goods and | Personalized services Work allotted by he Jservicestothepublic. | of expertnature. | employer according {0 tho contract 3. Qualification No minimum Professional | ualifation and Qualification is | Qualification and training as necessary training required, | prescribed by the employer Capital needed 4. Capitelinvestment | ae etre Limited capital for | yo capital required & size established & Reward Retin Profits Professional Fee | Salary or wage Itinvolves high risk | The degree of riskis | No risk init 6. Risk ee The terms and Professional code of No code of conduct |" “Conduct is to be conditions of tollowed. services contract are to be followed, 7. Code of conduct @_Transferofinterest | Transfer possible with some formalities Not Possible Not PossibleQ.1 Dr. Hussain is operating his own clinic. Classify his economic activity. 2 Rajana is managing her own bakery. What type of economic activity is she doing ? Q.3 John is working is Ranjana's bakery for a Salary of 210,000 per month, Whatis the nature of activity performed by him ? Objectives of Business :- The objectives of business means the purpose for which a business is established and carried on. Proper selection of objectives is essential for the success of a business. The Businessman always have multiple objectives. All objective may be classified into two broad categories. These are (1) Economics objectives and (2) Social objectives. Business Objectives — 7 Economic Objectives: Social Objectives Quality goods & Earning Profit services at fair price Market Standing Avoidance of antisocial & unfair fords practices Innovation Generation of employment Optimum Utilization of resources Employee welfare Improving Productivity community sewice 1. Economic Objectives Business is an economic activity and therefore, its purpose is to show economic results. The economic objectives of business are follows:- (i) Eaming profit : Profit means excess of income over the expenditure. The foremost and prime objective of every businessman is to earn profit. A business cannot service without eaming profit. Not only for survival but it is also required for growth and expansion of business. (i) Market standing/creation of customer : Business can survive for a longer period only if is able to capture a bigii share in the market & has market standing. It is possible only when business provides goods and services to satisfy the needs & wants of customers. Therefore. creation and satisfaction of customers (market) is an important objective ofbusiness. )) Innovations : Innovation means making new products or adding new features of old products for making it more useful. improving methods of production & distribution exploring new markets, etc. In these days of competition, a business can he successful only when it creates new designs. better machines, improved techniques. new varieties etc. (iv) Optimum utilisation of resources : Itrefers to the best use of Ww men. material, money and machinery employed in business. The resources of business are scarce so these must be utilised in the best possible manner so that the business can get maximum benefit, from their resources. ) Improving productivity : itis used as a measure of efficiency. Every business enterprise must aim at greater productivity - to ensure continous survival and growth, This objective can be achieved by reducing wastage and making efficient use of machines and equipments, human resources, money ete. 2. Social Objectives Business is an integral part of society. It makes use of resources of society. It earns profit by selling its products or services to members of society. So it becomes obligatory on the part of the businessman to do something for the society. The important social objective of business are as foll (i) lows : Quality goods and services at Fair Price The first social objective of business is to provide better quality product at reasonable rice and in proper quantity on continuous basis toconsumers examples. Example :- Consumers look for ISI mark on electrical goods. FPO mark on food products. Hallmark on Jewellery. rR GG A(ii) (i) (iv) Avoidance of Anti-Social and Unfair trade practices : Anti- Social practices include hoarding. black marketing and adulteration. Making false claims in advertisements to mislead and exploit people is an example of unfair trade practice. Business should not indulge in such practices. Generation of Employment : Nowa days. employmentis the biggest problem of society. Business should provide employment to more and more people living in the country, Handicapped and disabled people should be given extra care. Employee Welfare : Employees are a valuable asset and they make significant contributions towards the success of business. Another social objective of business, therefore, is to ensure welfare of employees by providing good working conditions. fair wages and facilites such as housing, medical and entertainment etc. such welfare facilities help toimprove physical and mental health of employees. (v) Community service : Business should contribute something to the society where it is established and operated Library, dispensary, educational institutions etc. are certain contributions which a business can make and help in the development of community. Role of Profit in Business Business is established for the purpose of earning profit. Profit plays a very important role in business. The role of profit in business can be brought out by the following facts :- (1) (2) (3) For Long Survival :Profit alone help a business to continue to exist for a long period. In the absence of profit the establishment of a particular business loses its justification. For growth & Expansion All businessmen want their business to expand and to grow. For development of business additional capital is needed. Retained earings is avery good source of capital For increasing efficiency : Profit is that power which motivates both the parties - owner and workers to do their best. As they know that in case of good profits they will get good compensation for their efforts so. it finally helps in increasing the efficiency of business.(4) For Building prestige and Recognition : For gaining prestige in the Society Business had to satisfy all the parties concerned. It has to supply good quality product/service at reasonable price to customers. adequate remuneration to employees. to pay sufficient dividend to the shareholders etc. and all these are possible only ifthe business is earning good profit. Classification of Business Activities Business Activities Industry Commerce (Deals with production (Deals with distribution ‘of goods services) of goods & services) Prit Trade rimary ‘Secondary Tertiary or Aids/Auxiliaries Industries Industries Service to Trade 4. Extractve 1. Manufacturing Internal Trade External 4. Transportation [Link] 2. Construction [Link] Input atm, Trade [Link] 2. Banking & [Link] Trade 3. Enirepot Finance 2. nsurance 4, Warehousing 5. Advertising 4. Primary Industry - The primary industry includes those activities through which the natural resources are used to provide raw material for other industries. Primary Industry ao Extractive Genetic Industry under which something | Industries under which the breed is extracted out of earth, water or | of animals and vegetables are air eg. Coal, Iron, gas improved and made more useful. - Mining, Lumbering, Hunting &|- Poultry Farms, dairy Farming, Fishing Fish Hatching, cattle breeding etc.Secondary Industry - Under this industry new products are manufacturing by using the previously produced things e.g. producing cotton is a primary industry and manufacturing cloth out of cotton is a secondary industry. Itis of two types. i) Manufacturing - These industries convert raw materials or semi-finished products e.g. paper from bamboo, sugar from Sugar cane. Itis further divided into four parts. Manufacturing Analytic Processing ‘Synthetic Assembling Different things arelindustries wherein|Many raw materials|Where in the parts manufactured out offuseful things arelare mixed to produce| manufactured by Jone material [Link] by|more useful products| diferent industries are| petrol, diesel, gasoline| making raw materialto|eg. paints, cosmetics|assembled to produce Joutof crude cil pass through different|cement. new and useful product production process }eg. computers, watches e.g, steel from iron or, cars, television ete Sugar and paper| industries, ii) Construction Industries - Industries that are involved in the construction of building, dams, bridge, roads as well as tunnels and canals. Tertiary or Service Industry - Includes those services which help business to move smoothly e.g. transport, bank, insurance, storage and Advertising. Classify the industry under which the following come under =: i) Mining project undertaken in Chota Nagpur Plateau region. ii) Oilrefineriesin Gujrat. ili) Cementindustry based in Mangalore (Karnatka) iv) In Uttar Pradesh there are many factories where Sugar is created from Sugarcane. Commerce :- Meaning - Commerce refers to all those activities which are concerned with the transfer of goods and services from the producers to the consumers. It embraces all those activities which are necessary for maintaining a free flow of goods and services.The functions of commerce are as follows. Hindrance of person |-_Through _J Trade Hindrance place | [Through _f Transaction Hindranee of time Through __J Warehousing Removal—s|_raancectiek | Though [rsrance Hindrance offinance | Through _J Banking & Finance Hindrance of information | Through _J Advertising 1. Removing the hindrance of person by making goods available to consumers from the producers. through trade. 2. Transportation removes hindrance of place by moving goods from the place of production to the markets for sale. 3. Storage and warehousing activities remove the hindrance of time by facilitating holding of stock of goods to be sold as and when required. 4. Insurance removes hindrance of risk of loss or damage of goods due to theft. fire. accidents etc. 5. Banking removes hindrance of finance - by providing funds to a businessman for acquiring assets. purchasing raw materials and meeting other expenses. 6. Advertising removes hindrance of information by informing consumers about the goods and services available in the market. Commerce includes two types of activities ~ Trade :- Refers to buying and selling of goods and services with the objective of earning profit. tis classified into two categories :- 4. Internal Trade:- Takes place within a country. Internal Trade is classified into two categories :- (i) Wholesale Trade :- Refers to buying and selling 0 goods in large quantities. A wholesaler buys goods in large quantities from the producers and sell them to other dealers. He serves asa connecting link between the producer and retailer. (ji) Retail Trade :- Refers to buying of goods and services in relatively small quantities & selling them to the ultimate consumers.External Trade :- Trade between two or more countries. External trade can he classified into three categories: (i) Import trade -- If goods are purchased from another country, ifis called importtrade. (i) Export Trade :- If goods are sold to other countries itis called export trade. (iii) Enterpot :- Where goods are imported for export to other countries eg. Indian firms may import some goods from America and export the service to Nepal External Trade Buying electronic items from Japan and selling them in Thailand, Buying soft toys from China and selling its here in India, Selling Basmati Rice to USA from India. Import Trade Export Trade Entrepot Trade Auxiliaries to Trade: - All those activities which help in removing various hindrances which arise in connection with the production and distribution of goods are called auxiliaries to trade. An overview of these activities is given below. (i) Transportation and Communication - The production of goods takes place at one place where as these are demanded in different parts of the country The obstacle of place is removed by the transport. Along with transport communication is also an important service. It helps in exchange of information between producers. consumers and traders. The common communication services are postal service, telephone, fax, Intemetetc (ii) Banking and Finance - Business needs funds for acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained froma bank. (ii) Insurance - It provides a cover against the loss of goods, in the process of transit, storage, theft, fire and other natural calamities. (iv)Warehousing - There is generally a time lag between the production and consumption of goods. This problem can besolved by storing the goods in warehouses from the time of production tll the time they are demanded by customers. (v) Advertising - Advertising brings goods and services to the knowledge of prospective buyers. It is through advertising that the customers come to know about the new products and their utility. Business Risk Business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example demand for a particular prod-uct may decline due to change in tastes, preferences of consumers, or increase in competition etc. There are two types of business risks - Nature of Business Risks 1 Business risks arise due to uncertainties Lack of knowledge of what is going to happen in future create uncertainties in business. It may be due to natural calamities, change in demand and prices. strikes etc Risk is an essential part of every business : No business can avoid risk although the amount of risk may vary from business to business. Risk can he minimised but cannot be eliminated. Degree of risk depends mainly upon the nature and size of business : Level of risk is lower for small scale business while itis higher for large scale organization Profit is the reward for risk taking : A business gets profit as, return for undertaking risk. Greater the risk involved in a business higheris the chance of profit. Causes of Business Risks 1 Natural Causes - Human beings have little control over natural calamities like flood, earthquake, famine etc. They result in heavy losses of life. property & income in business. + Human Causes - Human causes include such unexpected events like dishonesty. carelessness or negligence of employees. strikes. riots, managementinefficiency etc.3. Economic causes - They are related tc a chance of loss due to change in market condition e.g... fluctuations in demand and prices, competition. change in technology ete 4. Physical causes - Mechanical defects or failures may also lead to losses e g., bursting of boiler or machine may cause death or destruction 5. Other causes - These include unforeseen events like Political disturbances. fluctuation in exchange rates etc. Starting a Business :- Basic Factors 1. Selecting the line of business :- The first thing to be decided by the entrepreneur is the line and type of business tobe undertaken 2. Scale or size of business :- After deciding the line of business the businessman must decide whether he wants to setup large scale or small scale business. 3. Choice of form of Business organization :- The next decision must be taken is to finalize the form of business i.e. to set up sole proprietorship.. partnership or joint stock company. 4. Location of Business Enterprise :- The entrepreneur has to decide the place where the enterprise will be located Before taking this decision he must find out availability of raw materials, power, labour, banking, transportation ete. 5. Financial Requirement :- The businessman must analyze the amount of capital he might require to buy fixed assets and for working capital (Day to day expenses) Proper financial planning must be done to determine the amount of funds needed 6. Physical facilities :- include machinery equipment building etc. This decision depends upon the size, scale and type of business activities he wants to carry on. 7. Plant layout :- Showing the physical arrangement of machines and equipment needed to manufacture a product. 8. Competent and committed Workforce :-The entrepreneur must find out the requirement of skilled and unskilled workers and managerial staff to perform various activities.Qi Q2 Q3. aa. Qs. 6. Q7. Q8. Ans. Q9. 9. Tax planning :- The entrepreneur must try to analyze the types of taxes because there are a number of tax laws in the country which affect the functioning of business. 10. Setting up of the Enterprise :- After analyzing the above mentioned points carefully the entrepreneur can start the business which would mean mobilizing various resources and completing legal formalities. EXPECTED QUESTIONS (ONE MARK QUESTION) Give an example of activity which is economic in one side and non economic on other side. Whyis business considered an economic activity? If is a person sells his domestic computer at a profit. will it be considered a business? Also explain the characteristic of business which is being stressed upon in the above said example, Name the economic activity in which specialized knowledge is required. Whyis the insurance known asa tertiary industry? Mr. Rajnesh sold his furniture & bike on OLX as he was shifting base to London. Is this a business activity ? Which element of business is being referred to here ? A lawyer is working in a knowledge process outsourcing (KPO) organization. What type of economic activity is he performing ? ‘A company has decided to donate 1% of its sales to an NGO, serving mentally disabled people. This initiative by the company was highly appreciated by the public and their sales increased by 10% i) Identify the objective depicted in the given example. ii) Highlight the value which the company desires to emphasizes through this activity. i) Social objective _ii) Responsibility towards society 3/4 MARKS ABC Ltd. Is planting a tree on roadside. Which objective it is trying to achieve?Q10, ait. 12. ats. ata. ats. Qt6. ai7. Q18. Q19. All human being fulfill their different needs by performing certain activities. Can you suggest and Explain the activities undertaken by them Write four differences among business. profession and employment. No business is risk free in the light of this statement. Explain the concept of business risk and its any three causes. Explain any four objectives of business. Define commerce. whyis it of great importance in modern life? Distinguish between primary & secondary industry Give examples. Tea is mainly produced in Assam, while cotton in Gujrat & Maharastra but they are required for consumption in different parts of the country. How can this hindrance of place be removed 7 Also under what business activity wit! ite categorized. Itis one of the activities means for assisting trade and help in the promotion of the product by providing information to the consumers. Business does not exits in Isolation , it has to communicate with others and the activity help in making consumers aware and informed about the product of the company and inducing them to buy particular items. i) Which activity is discussed in the above para? ii) Whatare those activities called which are meant for assisting trade ? ili) Name and explain the categories into which communication services can be classified Afactory emits a lot of smoke and pollutants while manufacturing Sugar. It is overlooking the impact of its activities on the environmentand is engaged in profit maximization. i) Which objective is not being fulfilled by the manufacturers? ii) Which type of industry will you classify sugar manufacturing in? ili) What values are being overlooked by the factory owner? Rising Heights Ltd. wants to expand and grow. For this it needs funds to acquire land, building, machinery etc. Also since theseQ20. Qa Q22. Q23. 24. 25. 26. Q27. 28. assets cost a lot they want the risk associated with them to be reduced. Identify the hindrances and explain how they can be removed. [Hint: Hindrance of Finance and Risk] Ramesh sells winter wear in the month of December, January and February but he is not able to sell his complete stock. i) Identify the hindrance ii) How can he resolve this hindrance ? ili) Will this hindrance always occur? Why ? [Hints : Hindrance of time resolved by warehousing, because there is time gap between production and consumption. ] Rajni, a house wife exchanges utensils for old clothes on a regular basis. Isita business and why ? Mr. X and Y are having a discussion. Mr. X fells that business is, based on selfish desire to gain higher and higher profits while Mr. Y thinks that profit is essential for a business. Can you support Mr. Y's case by giving strong points in his favour ? 5/6 MARKS Categories the following into business, profession and employment. (i) farmer (ii) An advocate (iii) Aclerk (iv) Ahawker selling toys for children (v) Adoctor (vi)Aperson repairing scooter on roadside Define business. Explain the characteristics of business, (any four) ‘Commerce is considered as the backbone of indutry and other business activities. Discuss the various functions performed by commerce. Commerce is the sum total of activities that remove hindrances in the free flow of goods from producers to consumers. Explain. Explain any six factors that are important to be considered while starting a business. Write difference among industry, commerce and trade on any five basisQ29. Q30. Qs 32. Profit maximization can not be the sole objective of a business. Explain, Creative Strokes! is an advertisement agency initiated by Rohit Shagun & Pratima They have called a meeting to discuss the below giiven points - (i) Increase the profit margin by 10% in May. (i) Capturing a bigger share in the market. (iii) Making use of better cameras & improved techniques (iv). Making best use of cameras lights. cameramen. finance etc. employed by the business. (v) Improve efficiency in all regards of functioning of business. (a) Which aspects of business objectives are being referred to here? (b) Also develop each point to be discussed in the meeting by classifying the objective. [Hint : (a) Economic objectives] Nathu Lal prepares ‘sonpapri’ for customers during Diwali season every year. He prepared more 'Sonpapari' than he could sell this year. He employed women and children also arid paid them less salary manufacturing on the packages. This way he generated profit for himself. {a) Do you think he is fulfilling all the objectives of business ? (b) Ifnot which aspects of this objective are not being fulfilled 2 (c) Write any two values lacking in Nathu Lal [Hint : No. Social objectives are not being fulfilled] Classify the below given business into different types of industries.- (i) Crude oil business (ii) Producing steel from iron are (iii) Cosmetics manufacturing iv) producing computers (v) construction of dams.33. Q34, 35. Q36. In business activities, there are some activities that are involved in the removal of hindrances in process of exchange i.e. from the producer to the consumer Identify them. Also classify the activities which help in removing the following hindrances:- (i) Hindrance of place i) Hindrance of risk (iii) Hindrance oftime (iv) Hindrance of finance (v) _ Hindrance of information Different situations in different business are being elaborated below:- (i) Raghunath Gorkha had a match stick factory in Nepal which got distructed by the recent earthquake. (ii) MrArya. a senior manager in a telecom company shared confidential information about the company with a competitor which led to huge losses for the company, (iii) Vodafone Cowas charged with evasion of tax and asked to pay fine in cross which would lead to heavy losses for the company. (iv) Typewriters becoming redundant because of laptops (a) Which characteristic of business is being referred to in all the above cases ? (b) How can you classify the different cases based on this characteristic ? [Hint : Business Risks - Causes] Dr. Kumar is an orthopedic surgeon in Jaipur Golden Hospital and Dr Mahajan, his friend is a Pediatrician who has set his own clinic, Dr Mahajan's wife, Ms, Rajni operates her Jewellery store. Compare & differentiate the nature of tasks undertaken by them Zainab, Shelly & Ravina are friends. They have just completed a fashion designing course. They wish to start a business together. They have 710,00,000 savings put together and are planning to take a bank loan of additional 210 lakhs. They have found a prime location in Karol Bagh where they can set their boutique, They decide that they will initially not take very big orders.Q37. Q38. Q39. Based on this information, quote the lines associated with factors affecting the decision to start a business and classify them. Imran, Manpreet. Joseph and Priyanka have been classmates in Class X. After their exams are over. they happen to meet at a common friend Ruchika’s house. Just when they are sharing their experiences of examination days. Ruchika's father. Mr. Raghuraj Chaudhury intervenes and asks about their well- being. He also enquires from each one of them about their career plans. But none of them has a definite reply. Mr. Raghuraj who himself is a businessman. suggests to them that they can opt for business as a promising and challenging career. Joseph gets excited by the idea and says, "Yes. business is really good for making lots of money even more than is possible by becoming an engineer or a doctor." Mr. Raghuraj opines "Let me tell vou. vaunts man. there is a lot more to business than merely money ? Do you agree with Mr. Raghu Raj Chaudahry's statement? What according to you are other objectives of business. Acloth manufacture supplies his clothes to Sri Lanka, Thailand and Bangladesh. While manufacturing, some defective material was set asides the manufacturer believes in providing good quality products only. The defective material was given to Nari Niketan’s women for repairing and later donated to orphanage for free, i) Whatkind of business is the cloth manufactures doing ? ii) Which objectives are being followed by it by donating the defective material. State them, iii) | Whatvalues are being presented by It? Naveli, a Home Science graduate from a reputed collage has recently done a cookery course, She wished to her own venture with a goal to provide ‘health food’ at a reasonable price. After analyzing various option she decides to sell ‘ready-made’ and ‘ready to make' vegetable shakes and milk shakes, She has a saving of 5,00, 000 and will bike a loan of % 10 Lakhs. Based on the above para, identify and quote the factors that she has considered till now for starting the business. Also explain other three factors that need to be considered.Q40. Classify the following into business, profession and employment. a4 Ans. i) ii) ii) iv) v) vi) Hari sells mobile phones on behalf on his employer. Itrequires minimum academic qualifications Ahawker sells toys for children outside a function. Sanjayis teh advocate of High Court. Dhruvis the manager of a company. Aperson repairs scooters on road side. Ms. Meena is a lecturer is a college. She gets 72,000 p.m. as remuneration. Mr. Kund is a farmer producing 20 quintals of wheat for his own consumption and 2,000 quintals for sale Ms. Kirt, a journalist in an agency, teachers slum children after her office hours. She doesn't charge anything from them. This gives her psychological and mental satisfaction i) Teaching in a college by Ms. Meena refers to which type of human aetivity. ii) Production of wheat by Mr. Kunal for his own consumption refers to which human activity and why ? ili) Identify the value which according to you motivate Kirti to teach slum children. [Hints] i) Economic Activity. ii) Economic activity as production of wheat by Mr. Kunal for his own consumption helps him for his livelihood, a) Social Responsibility b) Educating under privileged children ©) Helping in increasing literacy in the country,Chapter-2 Forms of Business Organization Meaning :- A business enterprises is an institutional arrangement to form any business activity. On the basis of ownership business enterprises can be divided into following 3 categories. Forms of Business Enterprise Private Enterprises Owned Maraged and Owned, managed Swed managed sents scones wre conta Bivat porsen oy Goverment by Paste & Govt. Enterprises Types of Private Enterprises Types of Public Enterprises 1 3se peortrstin sncoporn 1 besten sna 2 Parvarsip _ ftencomte 2 Sty parton 3. Hindu (Joint)family business- 3, Govt. Company 4. Co-operative society —] 5. Joint stock Company |— corporate Form Sole Proprietorship :- Meaning Proprietor 4 1 only Owner Sole proprietor means a form organization in which there is only ‘owner of business. He himself manages and is the only receipt of all profits and losses (risks). Features of Sole-Proprietorship 1) Single ownership :- He is sole owner of all the assets and resources of business. 2) No separate Legal Entity :- The Business has no separate existance or entity that of the business. Alll the assets and liabilities of the business are that of the business man. 3) NoLegal Formalities :-No Legal Formalities are required to start, manage and dissolve such business organization,4) Control and management :- Sole proprietor has full power tocontrol and manage such organizations. 5) Unlimited liability :- The liability of owner is unlimited. In case, the assets of business are not sufficient to meet its debts, the personal property of owner can be used for paying debts. 6) Undivided Risk :- Means the owner bears all the losses and enjoys allthe gains. 7) Suitable for some special form |; oars att tne buono gets of business :- It is suitable in Jino aimicuty and cant pay is areas of personalized services | debs, the owner ofthe business is and small scale activities like |[op. °° onaly lanl’ fr these debs agriculture, the job of stitching, bakery, beauty parlour ete, 8) Secrecy :- All the important informations concerning the business rests only with the owner so that no outside party can take any under advantage of it 1) Easy Formation :- It can be easily started and closed as there is no need to observe any legal formalities. 2) Quick Decision :- A Sole trader takes the decision quickly as he isnot required to consult anybody about his decisions. 3) Secrecy :- All the secrets are confined with the owner. They are not shared with any body. 4) Direct motivation :- Direct relationship between efforts and reward provide incentive to the sole trader to work hard. 5) Personal touch :- The side trader can maintain personal contacts with his customers and employees. In this way, good works possible at less cost and time. Limitation 1) Limited financial resources :- Funds are limited to the owner's personal savings (i.e. his capital) and his borrowing capacity. 2) Limited managerial ability :~ Sole trader can't be good in all aspects of business and he can't afford to employ experts also.3) Unlimited liability :- As the sole trader has to face the entire risk of business, so he compels him to avoid risky and bold decisions. 4) Uncertainty :- Death, insolvency, lunacy or illness of a proprietor may leads to its closure. 5) Limited scape for expansion :- Due to limited capital and managerial skills, it can't expand toa large scale. SUITABILITY: Sole Trader-ship is suitable. Where the personal attention to customer is required as in tailoring beauty parlour. Where goods are unstandardized like artistic jewelery. Where modest capital & limited managerial skills are required as in case or retail store. Business where risk is not extensive i.e., lesser fluctuation in price and demand.e. stationary shop. Joint Hindu Family Business Itis owned by the members of undivided joint Hindu Family and managed by the eldest member or manager of teh family known as KARTA. It is governed by the provisions of Hindu Law. The basis of membership is birth in a particular family. The common properties include- a) There should be at least two memberin a family. b) Ancestral property to be inherited by them. There are two systems which govern membership:- Dayabhaga System Mitakshara System i) It prevails all over India except i) Itprevails in West Bengal Weet Benge il) It allows both male and female member [Link]-parceners il) It allows only male members to be co-parceners Features:- 1) Formation :- There should be at best two members in a family and some ancestral property to be inherited by them toform this type of Business.2) Membership :- Membership automatically starts by birth in the family. 3) Control :-In this, Business is managed wholly by Karta only. The others members can suggest him only. 4) Liability :- Liability of Karta is unlimited but of all other members in limited to the extent of their share in property. 5) Permanent Existence :- The existence is permanent like the existence of the company. There is no effect of the death, insolvency or luncy of the members on the business 6) Minor Members :- A minor can also become full-fledged member of the family business. 7) Registration :- There is no need of any registration. Merits 1) Effective Control :- The Karta can prompty take decisions as he has the absolute decision making power. 2) Continued business Existance :- The death, Lunacy of Karta will not affect the business as next eldest member will then take up the position. 3) Limited Liability :- The ilabilty of all members except Karta is limited. It gives them a relief. 4) Secrecy :- Complete secrecy regarding business decisions can be maintained by Karta. 5) Loyalty and Co-operation :- It helps in securing better co- operation and greater loyalty from all the members who run the business. LIMITATION 1) Limited capital :- There is shortage of capital as itis limited tohtancestral property. 2) Limited Managerial Skill :-In this, all the decision have to be taken by the Karta but he is not intelligent in all fields of business. Therefore, sometimes the decisions taken are not fevourbale to the business. 3) Unlimited Liabilities :-In this, the responsibility of the Karta is unlimited so, he hesitates in taking new and risky decisions.4) Unbalances decision :- As Karta is overburdened, with work, he may take hart and unbalances decisions. Note :- The joint Hindu Family business is an decline because of the diminishing number of joint Hindu families in the country. Q. Abdul is the sole owner of a shoe manufacturing factory, It expands and grows, but now it faces the problem of limited financial and managerial resources. i) Name the form of organization on which is being carried out by Abdul ii) Give two alternatives to solve the problem. [Hint : (i) Employ a paid assistant (ji) Admit one or more partners PARTNERSHIP Q.1 What is the maximum number of partners in a partnership firm with :- i) Banking Business ii) Non-Banking Business Definition :- According to Indian Partnership Act 1932. "Partnership is the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.” Characteristic of Partnership :~ i) More than one person :- Partnership needs a minimum number of two persons and maximum 20. ii) Agreement :- It is an outcome of an ord or written agreement. iii) Profit motive and sharing of profit :- Main characteristic of partnership into earn profit in business and divide it among the partners. iv) Decision making and control :- Every partner has a right to participate in management and decision making, v) Unlimited Liability :- Partners have unlimited liability. vi) Lock of continuity :- Firms existance comes to end by the death, Lunacy and insolvency of any of its partner.vii) Principal Agent Relationship :- Every partner plays double role of an owner and an agent. Merits of Partnership :- i) Ease of Formation and closure :- It can be easily formed and closed without any legal formalities. ii) Large financial Resources :- There are more funds as capital in contributed by number of partners. iii) Balanced Decisions :~As all important decisions are taken jointly by partners, they are good and balanced iv) Sharing of Risks :- Risks get distributes among partners. Which reduces burden and stress on individual partner. v) Secrecy :- The accounts of partnership firms are not presented before public and are not required to publish. So, business affairs are kept secret. Limitations :- i) Limited Resources :- As there is a restriction on the number of partners so capital contributed by them is also limited ii) Unlimited liability :-The liability of all partners is unlimited. iii) Lock of continuity :- Partnership comes to an end with the death, retirement, insolvency or lunacy on any of ts partner. iv) Lack of public confidence :- Partnership firms are not required to publish their reports and accounts. Thus, they lack public confidence. v) Lack of Harmony :- Because of more people, there can be difference of opinions which leads to discard and lack of co- ordination. Note: When the business happens to be of medium size and te partners have mutual understanding and goodwill, then partnership form of business organisation is the best eg. C.A firms, hotels and factories of middle level ete Types of Partners i) Classification on the Basis of Duration Partnership at Will Particular Partnership This type of partnership exits at the will of|This type of partnership is formed by partners and continue forunlimited time. |specified objective and come to end after accomplishment of objective.Limited Partnership Liabilty of at best one partner is unlimited where as the others may doesn't get affected by the death, lunacy or in solvency of the partner} with limited liability. have limited. ii) They do not have right to manage business management. ii) Registrationis compulsory. Classification on the basis of Liability General Partnership by the death, lunacy, insolvency or| business management. retirement of the partners. joint. Bb mo1eq abe 's9ss0) 94 10U joseuyeg Awaer pewunun |e syosd sy ‘uuy Jo weweBeuew Jeune u ajedtoqued you 0g JOU ‘30880 -B sioid sy o2eys soupeg ‘Ager pay JOU op Ajjes8Ue9 [eUIWON Tue ‘se wily wasaidas Ager powwnun | sossojy sword | uy yo quowebeuew | 0} s10W0 Auop | yno Bulpjoy 831 e1eys jou og | ul ojedionsed jou og | use0p oH) evdeo | “fq souseg ‘ainququos you og 7m lp aq 04 saxjo ssoudu} Ager pawwnun | sessojy sword | -uuy yo quewabeuew | “onpu0940 spuom | joddoys3 sy oueys jou og | ur ojedionsed jou og | sty Aqinq reiides | Aq Jouned ‘nququos jou og and jerees ‘30880 umouyun si pue | souseg ‘Aager pemunun | 9 sword sy aeus jeudeo seinguiues | yosv0g seuneg ‘sasso reydeo seinquueg | juewoa ‘Awaert pawuiun |g swoid sy azeus | ul ved eye yuse0q Budees ‘30880 ‘uuy jo weueBeuew | jeydeo uonnquweg | seuseg ‘Ager pewwiun |e sword sy exeus onioy ‘Auaert Buyeys word | ssousng BuiBeuew fuonnaiucs eudeo| dL iv) The continuity of business is affected] iv) Continuity of limited partnership 1) Liability of partnership is imited and] Ui) Each partner participates actively in ili) Registration in optional ii)Partnership Deed :- The Written agreement on a stamped paper which specifies the terms and conditions of partnership is called the Partnership Deed Itgenerally includes the following aspects :— 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) Name and address of the firm. Names and Address of Partners. Duration of Partnership. Scope of Business. Contribution of Capital by Partners. Profitand loss Ratio. Terms relating or salaries, drawing interest on capital and interest on drawing of partners. Duties & obligations of partners. Terms governing admission, retirement & expulsion of a power. Method for solving disputes. Valuation of goodwill Registration of Partnership :- Registration is not compulsory but itis always beneficial to get the firm registered. The consequences of non- registration of afirm are as follows - i) Apartner of an unregistered firm can'tfile suit against the firm or the partner. ii) The firm can'tfile a suit against third party. ili) The firm can'tfile a case against it's partner. Co-operative Society Co-operative co erate tL J together Operate for the motive of welfare. ‘Co-operative! means working together and with others for a common purpose. A Co-operative society means a voluntary organization whichis established by some persons on the basis of co-operative and ‘equality to safeguard their common economic interests, Features :- 1) Voluntary Membership :- Every one having a common interest, is free to join a co-operative society. 2) Legal Status :- Its registration is compulsory and it gives it a separate legal identify. 3) Limited Liability :- The liability of the members is limited to the extent of their capital contribution in the society. 4) Control :- Management and control lies with the managing committee elected by the members by giving vote. 5) Service motive :- The main aims to serve it's members and not, tomaximize the profit. 6) Cashtrading :-They give preference to cash trading. 7) Government control :- They have to sent their annual report and accounts to the register so that the government exercise it's control from time to time by checking their accounts. 8) Arrangement of Finance :- They arrange finance from sale of Merits of Co-operative Societies : 1) 2) 3) 4) 5) shares tomembers, loans obtained from the governmentete. Ease of Formation :- Any ten adults having common objective can establish co-opetative society by getting registered with register. Stable existance :- Due to registration it is a separate legal entity and is not affected by the death, lunacy or in solvency of any of its member. Limited liability :- The liability of members is limited to the extent of their capital contribution. Supply of Goods ay Cheaper Role :- These societies benefit their members by supplying them goods at cheaper rates than the market. Government Support :- Govt. provides support by giving loans atlower interest rates, subsidies and by charging less taxesLimitations :- 1) 2) 3) 4) 5) 6) Shortage of Capital :- It suffers from shortage of capital as it is usually formed by people with limited means. Inefficient Management :- These are managed by elected members who may not be competent and experienced. Due to lack of managerial knowledge. They can't run the society effectively. Lack of Secrecy :- These have to send their annual reports and accounts to the registrar of co-oprative societies. In this way, the secrets of business become public. Excessive Govt. Control :- It suffers from excessive rules and regulations of Good. Conflict among members :- The members are from different sections of society with different view point. Sometime as when some members become rigid the resultis conflict. Lack of motivation :- Members are not in dined to put their best efforts as there is no direct link between efforts and rewards. TYPES OF CO-OPERATIVE SOCIETIES Consumers co-operative Society :- It seeks to eliminate middleman by establishing a direct link with the producers. It purchases goods of daily consumption directly from manufacturer or wholesalers and sells them to the members at reasonable prices. Producer s Co-operative Society :- The main aim is to help small producers who cannot easily collect various items of production and face some problem in marketing. These societies, purchase raw materials, tools, equipments and other items in large quantity and provide these things to their members at reasonable price. Marketing Co-operative Society :- It performs various marketing function such as transportation, warehousing, packing, grading, marketing research etc. for the benefit of its members, The production of different members is pooled together and sold by society at good price. Farmer's Co-operative Society :- In such societies, small farmers join together and pool their resources for cultivating their land collectively. Such societies provide better quality seeds,fertilizers, machinery and other modem techniques for use in the cultivation of crops. It provides them opportunity of cultivation on large scale. 5. Credit co-opearative Society :- Such societies protect the members from exploitation by money lenders. They provide loans to their members at easy terms and reasonably low rate of interest. 6. Co-operative Housing Society :- The main aim is to provide houses to people with limited means/income at reasonable price. JOINT STOCK COMPANY Meaning - Joint stock company is a voluntary association of persons having a separate legal existence, perpetual succession and common seal. Its capital is divided into transferable shares. FEATURES 1. Incorporated association :- The company must be incorporated or registered tender the companies Act 1956. without registration no companies Act. 1956. Without registration no company can come into existence. Seperate Legal Existence :- It is created by law and it is a distinct legal entity independent of its members. It can own property, enter into contracts, can file suits in its own name. Perpetual Existence :- Death, insolvency and insanity or change of members as no effect on the life of a company It can come to an end only through the prescribed legal procedure. Limited Liability :- The liability of every memberis limited to the nominal value of the shares bought by him or to the amt. guaranteed by him. Transferability of shares :- Shares of public Co. are easily transferable. But there are certain restrictions on transfer of share of private Co. Common Seal :-Itis the official signature of the company and it is affixed on all important documents of company. Separation of ownership and control :- Management of company is in the hands of elected representatives ofshareholders known individually as c.,.rector and collectively as board of directors. MERITS 1. 2. 5. Limited Liability :- Limited liability of shareholder reduces the degree of risk borne by him. Transfer of Interest :- Easy transferability of shares increases the attractiveness of shares for investment. Perpetual Existence :- Existence of a company is not affected by the death, insanity. Insolvency of member or change of membership. Company can be liquidated only as per the provisions of companies Act ‘Scope for expansion :-A company can collect huge amount of capital from unlimited no. of members who are ready to invest because of limited liability, easy transferability and chances of high return Professional management :-A company can afford to employ highly qualified experts in different areas of business management. LIMITATIONS 1. Legal formalities :- The procedure of formation of Co. is very long, time consuming, expensive and requires lot of legal formalities to be fulfilled Lack of secrecy :-Itis very difficult to maintain secrecy in case of public company, as company is required to publish and file its annual accounts and reports. 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. Delay in decision making :- Red papism and bureaucracy do not permit quick decisions and prompt actions. There is little scope for personal initiative. Oligarchic management :- Co. 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 interests of shareholders and Co. Types of Companies :- On the basis of ownership, companies can be divided into two categories :- i) Private Company ii) Public Company Basis Private Company Public Company 1. Name It has to write private Ltd. after its] It has to write only Ltd. after ita name ame. 2 No. of Minimum 2 Minimum-7 Members Maximum-50 Maximum-No Limit 3. No. of Minimum -2 Directors Minimum - 3 Directors Directors 4, Minimum 1 Lakh Shakh paid-up share capital 5. Invitation ‘ Public Company can invite public Pvt. Co. cant invite public f to public 0 cat invite public for] PUP erring shaves & debentures. ©. Transfer of No restriction on transfer of Transfer off No freedom to transfer shares. tion on 7. Index of _ | Not essential to prepare an index| If no. of members exceeds 50, members of members. then itis necessary to prepare index of members ‘@.Commence| After getting cerifcate of ‘fier obtaining certificate of mnt incorporation. commencement of business ‘Questions :- i) Howwill you identify whether the company is private or Public ? ii) Give two examples of Private companies? ii) Give two examples of Public companies ?Choice of Forms of Business Organization :- The following factors are important for taking decision about form of organization. i) vii) Cost and ease in setting up the Organization :- Sole proprietorship is least expensive and can be formed without any legal formalities to be fulfilled. Formation of a company is expensive with lot of legal formalities. So, sole proprietorship is better. Liability :- The liability of the owners in sole proprietor business and partnership business is unlimited but the responsibility of the share holders in a companyis limited. So, Company organization should be selected. Continuity :- In sole proprietorship and partnership firms death, lunacy or insolvency of any of its member, business ends but in Joint Hindu Family Business & Co-oprative Societies company business is not affected by there above picture. So, company co- operative society are much better to be chosen. Managerial Needs :-In sole proprietorship & Joint Hindu Family Business, experts opinion is not affordable but companies can afford exports for management. so keeping in view, the nature of work and managerial needs companyis liked. Capital Considerations :- Business activities requiring huge financial resources prefer company form while for small & medium size business, partnership or sole proprietorship is better. Control :- For direct control & direct decision. Sole proprietor is, liked while where the control has to be shared, they prefer company. Nature of Business :- If the work requires personal attention, it is generally set up as a sole proprietorship Units engaged in large seals manufacturing are more likely to be organized in company form or partnership form. Formation of ACompany Formation of a company means bringing a company into existence and starting Its business. The steps involved in the formation of a company are: (i) Promotion (ii) Incorporation(iii) Capital subscription {iv) Commencement of business. A private company has to under go only first two steps but a public company has to undergo all the four stages. | Promotioi Promotion means conceiving a business opportunity and taking an initiative to froma company. 1. Identification of Business Opportunity :- The First and foremost function of a promoter is to identify a business idea €.g. production of anew product Or service. 2. Feasibility Studies :- After identifying a business opportunity the promoters undertake detailed studies of technical, Financial, Economic feasibility of a business. 3. Name Approval :- After selecting the name of company the promoters submit an application to the Registrar of companies for its approval 4, Fixing up signatories to the Memorandum of Association :- Promoters have to decide about the director who will be signing the memorandum of Association. 5. Appointment of professional :- Promoters appoint merchant bankers, auditors etc. 6. Preparation of necessary documents :- The promoters prepare certain legal documents such as memorandum of Association, Articles of Association which have to be submitted to the Registrar of the companies. I. Incorporation Incorporation means registration of the company as body corporate under the companies Act 1956 and receiving certificate of Incorporation. Steps for Incorporation 1. Application for incorporation :- Promoters make an application for the incorporation of the company to the Registrar of companies.2. Filing of necessary documents :- Promoters files the following documents (i) Memorandum of Association. (ii) Articles of Association. (iii) Statement of Authorised Capital (iv) Consent of proposed director (v) Agreementwith proposed managing director. (vi) Statutory declaration. 3. Payment of fees :- Along with filing of above documents, registration fees has to be deposited which depends on amountof the authorised capital. 4, Registration :- The Registrar verifies all the document submitted. If he is satisfied then he enters the name of the company in his Register. 5. Certificate of Incorporation :- After entering the name of the company in the register. The Registrar issues a Certificate of Incorporation. This is called the birth certificate ofthe company. Il, Capital Subscription:- public company can raise funds from the public by issuing shares and Debentures. For this it has to issue prospectus and undergo various other formalities:- Step required for raising funds from public :- 1. SEBI Approval :- SEBI regulates the capital market of India. A public company is required to take approval from SEBI. 2. Filing of Prospectus :- Prospectus means any documents which invites offers from the public to purchase share and Debenture of the company. 3. Appointment of bankers, brokers, underwriters :- Banker of the company receive the application money. Brokers encourage the public to apply for the hares, underwriters are the person who undertake to buy the shares if these are not subscribed by the public. They receive a commission for underwriting jinimum subscription :- According to the SEBI guide lines minimum subscription is 90% of the issue amount. If minimum, subscription is not received then the allotment cannot be madeVa and the application money must be returned to the applicants within 30 days. Application to Stock Exchange :- It is necessary for a public company to list their shares in the stock exchange therefore the promoters apply in a stock exchange to list company shares. Allotment of Shares :- Allotment of shares means acceptance of share applied. Allotment letters are issued to the shareholders. The name and address of the shareholders submitted to the Registrar. COMMENCEMENT OF BUSINESS :- To commence business a public company has to obtain a certificate of com-mencement of Business. For this the following documents have to be filled with the registrar of companies. 1 2. A declaration that 90% of the issued amount has been subscribed. A declaration that all directors have paid in cash in respect of allotment of shares made to them. A statutory declaration that the above requirements have been completed and must be signed by the director of company. Important documents used in the formation of company:- 1. Memorandum of Association - Itis the principal document of a company. No company can be registered without a memorandum of association and that is why it is sometimes called alife giving document. Contents of Memorandum of Association :- 1. Name clause - This clause contains the name of the company. The proposed name should not be identicator similar to the name of another exiting company. Situation clause - This clause contains the name of the state in which the registered office of the company isto be situated Object clause - This clause defines the objective with which the company is formed. A company is not legally entitled to do any business other than that specified in the object clause2. Liability Clauses - This clause limits the liability of the members tothe amount unpaid on the shares held by them. Capital clause - This clause specifies the maximum capital which the company will be authorized to ranise tough the issue of shares called authorised capital Articles of Association :- The articles of Association are the rules for the internal management of th( affaires of a company the articles defines the duties, rights and powers of the officers and the board of directors. Contents of the Article: BORNBRHARONA The amount of share capital and different classes of shares. Rights of each class of shareholders. Procedure for making allotment of shares. Procedure forissuing share certificates. Procedure for forfeiture and reissue of forfeited shares. Rules regarding casting of votes and proxy voting Procedure for selection and removal of directors Dividend declaration and payment related rules Procedure for capital readjustment Procedure regarding winding up of the company. Prospectus: Prospectus means any document which invites deposits form the public to purchase share or debentures of a company. Main contents of the Prospectus:- 1 2. 3. 4. Company's name and the address of its registered office. The main object of the company The number and classes of shares. Qualification shares of the directors5. The name and addresses of the directors, managing director or manager. 6. The minimum subscription which is 90% fo the size of the issue. 7. The time of opening and closing of the subscription list. 8. The amt. payable on the application and allotment of each class ofshare. 9. Underwriters to the issue. 10. Merchantbankers to the issue. 4. Statementis Lieu of Prospectus: Apublic company having a share capital may sometimes decide not to funds form the public because it may be confident of obtaining the required capital privately. In such case it will have to tile a statement in lieu of prospectus with the Registrar of companies. ItContains information much similar to that of a prospectus. Q.1_Namethe documents i) Which document defines the objectives of joint stock company? ii) In which document are the rules for attaining the internal objectives mentioned in the Memorandum of Association.Difference between Memorandum and Articles of Association Basis Memorandum of Articles of Association 1 Association (M.0.A) (A.A) It defines the objectives of the] It defines the rules for attaining Objectives. | company. the objectives mentioned in memorandum of association 2. Position —|Veryimportantdocument. _| Subsidiary document. 3. Valid The activities beyond the power] activities beyond th f 'Y JorMO.A. are not considered to} ates beyond the powers of be performed by the company) rectification in possible by the Jand even all the members can't} rompers rectify them. 4, Relationship|Defines the relationship] Defines the relationship between between the company & the] members and the company. outsides, 5. Necessity liv. preparation is necessary to| Necessary for private company Jgetthe company registered. | but not necessary to prepare for Public company. 6 Alteration It can't be easily altered many| It can be easily. altered by a matters require approval. off special resolution court 1 Mark Questions :- 1 Write the name of form of business organization found only in India. Name two types of business in which sole proprietorship is very suitable. Name the person who manages a Joint Hindu Family business. Write the names of systems which govern membership in Joint Hindu Family business. Enumerate the two conditions necessary for formation of Joint Hindu Family business. What is the minimum no. of persons required to form a co- operative society? Explain the meaning of unlimited liability. Name the type of Co. which must have a minimum paid up capital of 5 lakhs.1. 12. 13. 14, 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. Whatis meant by minimum subscription ? Identify a company which has no restriction of on transfer of shares. Maruti Suzuki Pvt. Ltd. and Tata Iron and Steel company are name of two companies. Identify whether they are public companies or Private companies Rohit and Shweta are partners in a partnership business. To avoid conflicts they want to have a written agreement. Name the agreement. ABC Ltd. is required to issue a prospectus. Which type of companyis it? Employees of DCM Ltd. formed a society to purchase land and construct flats for their members. Which is this form of business organization. 3-4 Marks Questions Explain the concept of mutual agency in partnership with suitable example. Whatis the rate of Karta in Joint Hindu Family business ? Name the types of company which two persons can start. Whatis meant by partner by estoppel ? Define prospectus. Name any three main contents of prospectus. Whatis secret partner Write a short note on producer co-operative society. Explain a co-operative organisation in democratic setup. Shiv, Anandi & John were partners John died in a car accident Both Shiv & Anandi decided to admit his son Ryan who was 16 years old as partner. Can they do so? Justify. {Hint : Minor asa partner] Mr. Singhs in lighting’ business for the post 15 years. To help his friend, Mr Yadav, a beginner he projected himself as a partner before Mohd. Abdul, a whole sale dealer of fancy lights. Mohd Abdul gave Mr. Yadav the stock without asking for payment and gave him credit imit of one month. Will Mr. Singh be liable to Md. Abdul if Mr. Yadav does not pay him on time ? Classify Mr.25. 26. 27. 28. 29. 30. 31. Singh's role here along with an explanation. [Hint : Partner by Estoppel] Akriti, Sonam & Supreeti were friends who started a partnership business. They did not get their firm registered as it was optional Soon, Sonam & Supreeti started having conflicts. Sonam wanted to approach a lawyer. If you were a lawyer than how would you guide her? Mangal, Sazia & Sughbeer Singh wish to start a business in partnership. They want to make a partnership deed, Suggest what aspects of the deed should be included in it? Explain any four limitations of Joint Stock Company. A, B & C were partners in a financing firm. B&C had gone for a meeting in America for analysing business prospects in that, country. In the mean while, A invested a huge amount of money in buying shares of a new company by borrowing money from Mr. X. This turned out to be a bad deal as the share prices soon fell. When B&C came back they said they were not liable to pay to Mr. X as they did not take the money. Were B&C right in doing so? Under which aspect of partnership are they bound ? Rohan has a shop of stationary products. He takes assistance from his brother to handle it and pays him a fixed salary. He also employed a 11 year old boy for his shop. Both the brothers regularly abuse him and cut his wages as and when desired. i) Which form of organization is referred here ? ii) Write any one feature associated with it. ili) Write any two values lacking in the brothers, Ravina is a Science teacher in a coaching institute. She is not satisfied with the salary being received here. So she decides to start her own coaching institute. But students generally take coaching for Science as well as maths. What do you recommand Ravinatodo? {Hint : Go for partnership with a maths expert ] The business assets of a firm are worth £70,000 but debt remain unpair at worth %1,00,000. What course of action can creditors take in following cases! i) The organization is a sole proprietorship firm. ii) The organization is a partnership with 2 partners A and B sharing profits and losses equally.32. 33. 34. 35. 36. 37. Sita and Zoya are two friends belonging to Hindu and Muslim religion. They start a business of handicrafts together. They decide to open the factory in rural area and give employment opportunities to local residents. i) Which form of business organization have they opted ? ii) Write any one feature of the form ? ili) Mention the values involved in this question Continous exploitation of milkman of charm wood village by the intermediaries compel them to form a voluntary association to protects their interest gain access to markets there by ensuring maximum retums for their efforts and welfare of the members. i) Name the form of business organization adopted by the milkman ii) Give an example of organization identifies in (i) above ili) Which principle governs such organization and how government support them ? Alll the members of a company are killed in an earthquake. While holding a general meeting. Will the company wind up ? Why ? Rohit and Mohit are partners dealing in shares. Mohit uses firm's money to buy shares on his name. He didn't disclose this information with his friend Rohit, a) Does Rohit have any share in the profit eamed from sale of these shares? b) Which values did Mohit ignore by using firm’s money and not disclosing to his partner (Friend)? Rohan, Sohan and Mohan are partners of a business of publishing books. They have adopted three villages which are educationally backward. Every year they distribute books to schools established in these villages for free to promote education. Write any one feature of partnership. Identify three values followed by the partnership firm Star Ltd. has received applications for 48 crores (issue size was 50 crores). Discuss the documents filled with the register of companies. [Hint]: i) A declaration that 90% of the issued amount has been subscribed.38. 39. 40. a1. 42. 43, ii) A declaration that all the directors have paid in cash in respect ofallotment of shares made to them. ili) A statutory declaration that the above requirements have been completed and must be signed by the director of company. Aditya is promoting a company. Before the company is formed, he enters into a contract with DLF for purchase of land and also agreed to pay 10 crores within a period of 2 moths. The company was formed within 1 month. On the basis of the facts, answer the following - i) Which type of contractis entered by Aditya ? ii) Isthe contract legally binding on the company ? ili) Can DLF Ltd. hold Aditya liable for the payment money? iv) What can the company do to prevent Aditya from such a situation? 5-6 Marks Questions :- Differentiate between private & public company. Mr. Amit Kumar is interested in the floatation of a company. Briefly discuss the steps he should take. Discuss the reasons of superiority of joint stock company over sole proprietorship and partnership. Which form of businessis suitable for following types of business and why ? {a) Beauty Parlour (b) Coaching Centre for science students (c) Hotel (d) Shopping mall {e) Restaurant () Smaliretail business. Dhirubhai Chaurasiya operates a textile business. His family is joint and has a lot of ancestral property. All the 15 family members are a part of this business. He is the eldest male member in the family so he heads the business. He is liable to all the creditors of the business as he is the decision maker. Dhirubhai's grandson has just born a few days ago and he is also the member of the business.44. 45. 46. {a) Which form of business is being undertaken by Dhirubhai Chaurasiya? (b) Identify the features of this form of business based on the information given, (c) Textile business is part of which type of industry according toyou? Every day Amul collects milk from 2.12 million farmers (many iliterate) & converts the milk into branded packaged products & delivers goods all over the country. The story of Amul started in Dec, 1946 with a group of farmers been to free themselves from intermediaries, gain access to the market & there by ensure maximum returns for their efforts" (a) From the above information, identify the form of business organisation used by Amul (b) Also quote the line which suggest its features ? (c)_ According to you. Amulis part of which type of industry ? Mohan, Sohan and Ramesh are brothers living in a village Mohan is a farmer. He grows sugar cane in his field sohan is manufacturer of sugar who is doing the business with his friends Rohan Singh and Jitender. Rameshis a transporter. He sells the sugar in the city using his truck. This year the sugar got spoiled due to heavy rain. Sohan his friends reduced the wages of his workers to cut down theirlosses. 1. Classify the business activity undertaken by Mohan & Ramesh, 2. What form of business is Sohan doing with his friends. write any two features of the form? 3. Which value is violated by Sohan & his friends ? 4, What type of business risks faced by them ? Explain Rahul and Sanchali felt that there was an opportunity of business in providing a service of online grocery stores for working people. They analysed the idea in terms of technical, financial and economic liability. Once they found all the aspects satisfactory they decided to start a company called ‘convenience @ home! private Ltd. They got the name registered with the registrar. {a) Which steps of formation of company are being referred to here? (b) Also write the next3 steps associated with it.47. 48. 49. 50. [Hint : stepsin promotion ofa company] Lakhvinder Singh is confused as to which form of business he should follow for his garment business. You are his friend. Help him by rationally discussing the different factors so that he can take a sound business decision. Commenton the following :- i) Meeting of X Ltd. was going on in which all the members of the company were present suddenly a natural calamity occurred and all the members of the company X Ltd. died What would happen to the existence of the company 'X’ Ltd Why? ii) The company being an artificial person acts through its Board of Directors. All teh agreements on behalf of the company are entered by the Board of Directors. When is an agreement entered by the Board of directors not legally binding on the company. Sachin's father Mahesh was running a small shop selling accessories such as artificial jewellay, hair caps etc. Over the past couple of month he has been facing problem in managing it due to increase demand of the items. Although Sachin also helps his father but they both fail to attend all the customers due to space constraint. Non-availability of required finance acts as a hindrance in expanding their business. Sachin asks his father to join hands with Raja (his father's friend) to solve the problem. His father agreed and entered in to agreement with Raja in writing containing various terms and conditions. i) Which form of business organization does Mahesh form with Raja? ii) Which documents contains the written agreement specifying the terms and conditions between Mahesh and Raja ? ili) In which form of business organization Sachin help his father toattend customers. Sonu, a tailor by profession was working in a famous boutique in Kamla Nagar. He was a_ skilled worker with many years of experience at and saving worth rupees 5 lakh. He finally decided that he would start his own boutique. He rented a shop in Rohini He was not sure about his venture as now he would not have any security of income. But soon he started getting lot of work due to his efficiency & his profits increased,51 52. 53. {a) Which type of economic activity was Sonu undertaking when he was working ina boutique? (b) Which form of business organization did he opt for later? (c) Identify any 2 merits & 2 demerits you can recognize of the form of business opted by him Aarti is a sole proprietor. Over the part 15 years, her business has grown from operating a neighbourhood shop selling Kurtis, bags, cosmetics etc. to a retail chain with four branches in the branches, she is thinking to form a company to manage the business better. She also wants to grow further. a) Explain two merits of Aarti remaining a sole proprietor. b) Explain two advantages of her converting to a joint stock co ¢) Ifshe wishes to grow further then which of the two options is better? Identify the type of partner highlighted in the following statements: i) This partner doesn't take part in the day to day activities of the business. ii) He gives an impression of his being partners to others by his, words or conduct. ili) He allows reuse of his goodwill to benefit the firm and can be represented as a partner. iv) Heis represented as a partner and in spite of knowing this, he does not deny such impression v) His association with the firm is not disclosed to the general public. vi) This takes active partin carrying out business of the firm. Which form of business organization is suitable in the following cases: i) Abusiness organization having stability and continuity. ii) There should be minimum expenses in starting the business. il) The business organization should be suitable from the point of view ofinvestors. iv) The ancestral property isto be used for doing the business. v) More funds and professional services are required.Chapter-3 Private, Public and Global Enterprises Since the Indian economy consists of both privately owned and government owned business enterprises, it is known as a mixed economy. Private sector Enterprises It consist of business owned by individuals or a group of individuals whose main objective is to eam profit and growth of business. For example Reliance Industries limited, ITC limited, HDFC Bank limited etc. Public sector Enterprises It consists of various organization owned, managed and controlled by central or state of by both government. For example- Indian Railway, Indian Post, Doordarshan, Bharat Heavy electricals Limited (BHEL) etc. Its main objective is public welfare or service. Indian Economy Public Sector Private Sector Departmental Statutory Government Undertaking Corporation Company Sole Partnership Joint Hindu Co-operative Joint Stock Multinational Proprietorship Family Society ‘Company Corporations Public Company Private Company FORMS OF PUBLIC ENTERPRISES 1. Department Undertaking These are established as departments of the ministry and are financed, managed and controlled by either central govt. or state govt. or jointly by both. For examples-Indian Railways, Post & Telegraph, Doordarshan, Prasar BhartiFeatures 1) 2) 3) 4) 5) 6) Merits 1) 2) 3) 4) 5) Demerits 1) 2) 3) 4) 5) It is establish as department of concerned ministry under central of State Govt. No Separate Entity :-Ithas no Separate legal entity. Finance :- Itis financed by annual budget allocation of the govt. and all its earnings go to govt. treasury. Accounting & audit :- The Govt. rules relating to audit & accounting are applicable to it. Staffing :- Its employees are govt. employees & are recruited & appointed as per govt. rules. Accountability :- These are accountable to the concemed ministry. Itis more effective in achieving the objective laid down by govt. as itis under the direct control of govt. It is a source of govt. income as its revenue goes to govt treasury. It is accountable to parliament for all its actions which ensures proper utilization of funds. Due to budgetary, Accounting and audit controls, risk of misuse of public funds is less Itis suitable for activities where secrecy and strict control is require like defence production. It Lacks flexibility which is essential for smooth operation of business. It suffers from political interference in their day to day working. It suffers from red tapism in day to day work and any required action is taken after completion of proper process. These organization are usually insensitive to consumer needs due to absence of competition and monopoly, Such organization are managed by civil servants and govt.officials who may not have the necessary expertise and experience in management Suitabiti 1) Where full Govt. controlis needed. 2) Where secrecy is very important such as defence Industry. Box-1 Following Departmental undertakings come under which ministers :- 1) AirIndia Limited 2) Coalindian Limited 3) CBSE. 4) Kendriya Vidyalaya Sangathan 5) _ National Highway Authory of India [Hints :] 1) Ministry of Civil Aviation 2) Ministry of Coal 3) Ministry of Human Resources Development 4) Ministry of Road Transport & Highways Statutory Corporations Itis established under a special Act Passed in parliament or state legislative assembly. Its objectives, powers and functions are clearly defined in teh special Act. Examples:- Unit Trust of India. Life Insurance Corporation, GAIL, SCI, FCI Features 1. tis established under a special act which defines its objects, powers and functions. 2. Ithasa separate legal entity. 3. Its management is vested in a Board of directors appointed or nominated by government. There is no govt. interference in day to day functioning4. Ithas its own staff, recruited and appointed as per the provisions ofact. 5. __ Itsinitial capital is provided by the govt. This type of enterprise is usually independently financed. It obtains funds by borrowing from govt. or form public or through earnings. 6. It is not subject to same accounting & audit rules which are applicable to govt. department. Merits 1. Internal Autonomy :- It enjoys a good deal of autonomy in its day to day operations and if free from political interference. 2. Quick decision :-Itcan take prompt decisions and quick actions asitis tree from the prohibitory rules or govt. 3. Parliaments control :- Their performance is subject to discussion in parliament which ensures proper use of public money. 4. _ Efficient Management :- These are Independentin recruitment and selection of their employees and Professionals. Experience and specialists are appointed on important posts Demerits 4. Inreality, there is not much operational flexibility. It suffers form lot of political interference from minister, Govt. officials and political parties. 2. Usually they enjoy monopoly in their field and do not have profit motive due to which their working times out to be inefficient 3. Where there is dealing with public, rampant occupation exists. Thus public corp. is suitable for undertaking requiring monopoly powers e.g. public utilizes. Suitability : Public enterprise is suitable when :— i) The enterprise requires special powers under on Act. ii) The enterprise requires a huge amount of capital investment.Government Company A Government company is a company in which not less than 51% of the paid up share capital is held by teh central govt. or state Govt. orjointly by both. Itis registered as per company act, 1956. Examples :- State Trading Corp. of India, Hindustan Machines Tools. Features 1. __ Itisregistered of Incorporated under companies Act, 1956 2. Ithasa separate legal entity. 3. Govt. has minimum 51% of paid up capital. 4. Itis managed by board of director selected by Govt. and other shareholders. 5. Employees are recruited and appointed as per the rules and regulations contained in its Memorandum and Articles or Association. 6. The Govt. Co. obtains funds from govt. shareholdings and other private shareholdings. Itcan also funds form capital market. Merits 4. Itcan be easily formed as per the prevision of companies Act. There is no need to pass special actin the parliament. 2. _Itenjoys full autonomy in management decisions and flexibility in day to day working, 3. Itcanappoint professional managers on high salaries. Limitations 1. It suffers from interference from Govt. Official, ministers and politicians. 2. Itevades constitutional responsibility which a company financed by the govt. should have, as it is not directly answerable to parliament. 3. The board usually consists of the politicians and civil servants who are interested more in pleasing their political bosses than in efficient operation of the company.‘SUITABILITY : i) Where the Govt, want to work along with private sector. ii) Where projects need govt. planing and funds. Box2 Q.__ Identify the type of public sector enterprise in the following cases where. a) Govt. wishes to bring its own enterprise so that it can complete with the private sector. b) Enterprise requires special powers to fulfill a particular purpose for social cause. c) Enterprises is required to provide public utilities and to control the monopoly of private sector in publicinterest. Ans. a) Govt. Company b) Statutory Corporation c) Departmental Undertaking Changing role of Public Sector Public sector in India was created to achieve two types of objective- (1) (2) to speed up the economic growth of the country and to achieve a more equitable distribution of income and wealth among different sections of society. The role and importance of public sector in the society has been changing with time. Its role in the development of the country over a period of ime can be summarized as following :- 1. Development of Infrastructure :- At the time of Independence, India suffered from acute shortage of heavy industries such as transport, communication, Electricity, Generation, iron and Steel, oil refineries, heavy engineering etc. Because of huge investment requirement and long gestation period, private sector was not willing to enter these areas. The duty of development of basic infrastructure was assigned to public sector which it discharged quite efficiently. Regional Balance :- Earlier private sector was hesitant to establish industries in backward or remote areas due to lack of infrastructure. To provide employmentto the people and to accurate the economic development of backward areas, many newindustries were set up by Govt. in these areas3. Economies of scale :- In certain industries (ike Eclectic power plants, natural gas, petroleum etc.) huge capital and large base are required to function economically. Such areas were taken up by public sector. Restricting Economics Concentration :- Only few industrial houses in private sector had invested at large scale, resulting in concentration of capital in few hands. As a result, monopoly increased and leads to inequality of income. To stop such practices, industries were established in public sector so that large scale division of income and money among workers and labouris done. Import Substitution :- Firstly Public Enterprises were established in production of capital equipments which were earlier imported from other countries. And several enterprises were also established to promote export of goods. It increase the foreign currency reserves a lot. Very important role was assigned to public sector but is performance was far from satisfactory which forced govt. to do rethinking on public enterprises. Public Sector Reforms In the industrial policy 1991, the govt, of India introduced four major reforms in public sector. i) ii) iii) Reduction in No. of Business reserved for public Sector from 17 to 8 and to 3 only in 2001. These three industries are atomic energy, arms and rail transport. Memorandum of Understanding (MOU) :- Under this public sector was provided with greater autonomy govt. lays down performance target for the management and gives greater autonomy these units to hold the management accountable for the results. Disinvestment :- Equity Shares of some public sector enterprises were sold to private sector and the public. It was expected that this would lead to improved managerial performance and better financial discipline. Re- structural and Revival :- All public sector sick units were referred to Board of Industrial and financial RE- Construction (BIFR). Units which were potentially viable were restructured and which could not be reviewed were closed down by the board.Multinational Companies/Global Enterprises Multinational company may be defined of a company that has business operation in several countries by having its factories, branches or office in those countries. But it has its headquarter in that, country where itis incorporated. Examples :- Coca Cola, Sony, Reebok etc. Features 1. Huge capital Resources :- MNCs posses huge capital resources and they are able to raise lot of funds from various sources. 2. International Operations :- MNS do business in several countries. For this it has business, factories and offices in several countries. 3. Centralized control:- MNCs have headquarters in their home countries from where they exercise control over all branches and subsidiaries, and there is no interference their day to day operations. 4. Foreign Collaboration:- Usually they enter- into agreements relating to sale of technology, production of goods, use of brand name ete. with local firms in the host country. 5. Advanced technology :- These organisations possess advanced and superior technology which enable them to provide world class products & services. 6. Product Innovations:- MNCs have highly sophisticated research and development departments. These are engaged in developing new products and superior design of existing products. 7. Marketing Strategic - MNCs use aggressive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion JOINT VENTURES Meaning :- When two or more independent firms together establish a new enterprise by pooling their capital, technology and ‘expertise, itis known as ajoint venture. Exampl :+Hero Cycle of India and Honda Motors Co. of Japanjointly established Hero Honda. Similarly Suzuki Motors of Japan and Maruti of Govt. of India come together to form Maruti Udyog. FEATURES 1 2 Capital is provided jointly by the Government and Private Sector Entrepreneurs, Management may be entrusted to the private entrepreneurs. Itcombines both social and profit objectives. Itis responsible to the Government and the private investors. BENEFITS 1. Greater resources and Capacity :- In a joint venture the resources and capacity of two or more firms are combined which enables it to grow quickly and efficiently. Access to advanced technology :- It provides access to advanced techniques of production which increases efficiency and then helps in reduction in cost and improvement in quality of product. Access to New Markets and distribution network :- A foreign co. gain access to the vast Indian market by entering into a joint venture with Indian Co. It can also take advantage of the well established distribution system of local firms. Innovation :- Foreign partners in joint ventures have the idea and technology to develop innovative products and service. As a result, new products and theirnew uses come in the market. Low cost of production :- Raw material and labour are comparatively cheap in developing countries so if one partner is form developing country they can be benefitted by the low cost of production. Well known Brand Names :- When one party has well established brands & goodwill, the other party gets its benefits. New products of such brands names can be easily launched in the market. Division of Risk :- Inherent risk of new project get divided among partners of joint venture and it also increases the competitive powers of small firms.Public Private Partnership (PPP) Itmeans an enterprise in which a projector service is finance and operated through a partnership of public and private enterprise. PPP is a long term partnership between public and private sector. PPP model is being used in following areas - 1) Transport- Rad, Railway and Toll Bridge 2) Health-Hospital 3) Water-Collecting, Cleaning and Distributing 4) Education - School and University Features of PPP Facilities partnership between public sector and private sector. 2. Pertaining high priority project. 3. Suitable for big project (Capital intensive and heavy industries.) 4 Useful in public welfare projects example Delhi Metro Railway Corporation a Sharing revenue - Revenue is shared between public and private enterprises in the agreed Ratio. Box3 Q.___ Identify the enterprises :- a) b) Ans. a) 4) Such enterprises brings in advance Technology form home country. Such enterprises helps in completing public utilities project, atmuch higher speed, with the help of private sector. Such organization is formed by 2 or more business organization, pooling their resources to achieve particular goals. Insuch organizations at least 51% capitalis held by Govt. Global Enterprises (MNCs) Public Private Partnership Joint Venture Government Company Very Short Answer Question (1 Mark) 1. Name the type of business enterprise which operates in more than one country.Which type of organization is most suitable if itis concerned with National Security and public interest. Atomic Energy is one of the three sectors that are reserved for public sector in spite of its huge potential for electricity production. Give one reason. Which type of business enterprise would emerge when two business firms agree to join together to achieve a common purpose and mutual benefit. Mention any two objective of public sector enterprises. Short Answer Questions (3/4 Marks) 1 2, 3. Explain any three features of Public Private Partnership. How does the govt. maintain regional balance in the country. Identify the form of public sector enterprise in the following cases:- (a) Thisis the oldest and traditional form of public enterprise. (b) Special act of the parliament brings this public enterprise into existence. (c)_ Minimum 51% of the paid up capitalis held by Government. Explain three differences between Departmental undertakings and Government Company. Long Answer Questions (5/6 Marks) 1 2. Define Joint Venture and explain its major benefits. Itis a public enterprise established under Indian Companies Act and conducts business in competition with companies in private sector. (a) Identity the type of public enterprise. (b) Whatis the minimum investment Govt. has to make in such companies. (c) In whose name shares of this type of company are purchased. (4) Explain any two advantages and limitations of such companies.Explain three merits and three limitations of Departmental undertaking Multinational companies establish themselves in developing countries to enjoy huge profits by selling consumer goods or luxury items. They start business by offering wide variety of good at prices cheaper than local retailers offer. But once they are established they increase prices. a) State the values the government of a developing country ignores while allowing MNC's to establish in their country. b) Which values do the MNC's Violate? c) Explain the role of MNC'sin developing Countries. After 1991, government wanted to speed up the infrastructure development that required huge investment & expertise. In the coming years, govt. devised a new way for it in which public sector enterprises, through clear agreements. Like Terminal 3 of Indira Gandhi international Airport i) Whatsuch agreement/arrangements are called ? ii) Write any 3 advantages of such arrangements. [Hints : Public Private Partnership] Itis are enterprises which is organized, financed and controlled wholly by the centre 4 state Govt. and itis under the control of its, head Mrs. Jeevan Raj (IAS). He is not taking any interest in its functioning of providing cheap clean water to a large section of the society as he is busy in the preparation of his son's marriage coming after 3 months. As a result, important decisions are getting delayed resulting in the suffering of revenue and well being of public, as itrequired the consent of its head. a) Which type of organization has been described in the above para? b) What social values are achieved by govt, through such organization c) _Whatare the limitations of such organization in this case. [Hints : Departmental Undertaking] Itis a public sector enterprises in which Govt. of India held 80% of paid up share capital and itis registered as per company Act, 1956. It deals in manufacturing of Engineering goods and compete with private sector enterprises in order to achieve higher profits.i) Which type of public sector enterprise is discusses above. ii) Do the employees of such organization considered as Civil Employees ? iii) Write any two characteristics of such organization. iv) Write any two limitations of such organization. [Hints : Government Company] Food Corporation of India (FCI) was established through special Act. passed in Parliament in 1964 with the objective to create buffer stocks of foods like wheat, rice etc. for emergency situations like drought, flood famine ete. i) Which type of public sector enterprise is discussed above ? ii) Does such enterprises have separate legal entity ? iii) Who providedinitial capital to such enterprises ? iv) Write any 2 demerits of such organization [Hints : Stationary Corporation]CHAPTER 4 BUSINESS SERVICES Ithhas already been stated that commerce consists of trade and auxiliaries to trade. Auxiliaries or aids to trade refer to the activities ice- to the buying related and selling of goods and services. These auxiliaries to trade are also known as business services or facilities. These services are essential and indispensable to the smooth flow of trade and industry. The examples of business services are Banking, insurance, transport, Warehousing and communication NATURE OF BUSINESS SERVICES: 1. Type of Services 1. 2. Intangibility :- Cannot be seen, touched or smelled. Just can only be felt, yet their benefits can be availed of e.g. Treatment by doctor. Inconsistency :- Different customers have different demands & expectation. e.g. Mobile services/Beauty Parlour. In Separability :- Production and consumption are performed simultaneously e.g. ATM may replace clerk but presence of customer is must. Inventory Loss :- Services cannot be stored for future use or performed earlier to be consumed at a later date. e.g. under utilized capacity of hotels and airlines during slack demand cannotbe stored for future, when there will be a peak demand. Involvement :- Participation of the customer in the service delivery is a must e.g. A customer can get the service modified according to specific requirement. Social Services :- Provided voluntarily to achieve certain goals e.g. health care and education services provided by NGOs. Personal Services :- Services which are experienced differently by different customers. e.g. tourism, restaurants ete. Business Services :- Services used by business enterprises for the conduct of their activities. e.g. Banking, insurance, communication, Warehousing and transportationBanks Banks occupy an important position in the modern business World. No country can make commercial and industrial progress Without a Well organized banking system. Banks encourage the habit of saving among the public. They mobilize small savings and channelize them into productive uses. Meaning of Bank : Bank is a financial institution which collect deposits from pubi , repayable on demand and earns a small margin of profit by lending money. FUNCTIONS OF COMMERCIAL BANK I ‘Accepting The Deposits Agency General 1. Freie depos ‘lometuncton eter runton [Link] Deposit > Gas crauit 3. Saving Deposit Account 3. Overdraft ‘4, Recurring Deposit Account 4. Discounting of Bill of ‘5. Multiple option Deposit Account Exchange (A) Primary Functions 1. Accepting Deposits :- Accepting deposits is the main function of commercial banks. Banks offer different types of Bank accounts Fixed Deposit, Current Deposit Saving Deposit Account, Recurring Deposit Account etc to suit the requirements and needs of different customers. Lending Money :- With the help of money collected through various types of deposits, commercial banks lend finance to businessman, farmers, and others. The main ways of lending money are Term Loans, Bank overdraft, Cash Credit, and Discounting of Bill of Exchange. Secondary Functions ‘The secondary functions of commercial banks are as under:-(1) Agent Functions. As an agent of its customers a commercial bank provides the following services:- 0 () Collecting bills of exchange, promissory notes and cheques, Collecting dividends, interest, ete.(i) (lv) (vy) (vl) Buying and selling shares, debentures and other securities, Paymentof interest, insurance premium etc. Transferring funds from one branch to another and from one place to another. Acting as an agent of representative while dealing with other banks and financial institutions A Commercial banks performs the above functions on behalf of and as per the instructions of its customers. (B) General Utility Functions:- Commercial banks also perform the following miscellaneous functions:- () (ll) Providing lockers for safe custody of jewelry and other valuables of customers. Giving references about the financial position of customers. (Ill) Providing information to a customer about the credit worthiness of other customers (IV) Supplying various types of trade information useful to customer. (V)_ Issuing letter of credit, pay orders, bank draft, credit cards and travelers cheques to customers. (VI) Underwriting issues of shares and debentures. (Vil) Providing foreign exchange to importers and travelers going abroad. TYPES OF BANK ACCOUNTS A. _ Fixed Deposit Account :- Money is deposited in the account for a fixed period. After expiry of specified period person can claim his money from the bank. Usually the rate of interest is maximum in this account. The longer the period of deposit, the higher will be the rate of interest on deposit. B. Current Deposit Account :- Current deposit Accounts are opened by businessman. The account holder can deposit and Withdraw money, Whenever desired. As the deposit is repayable on demand, itis also known as demand deposit. Withdrawals are always made by cheque. No interestis paid on current accounts.Rather charges are taken by bank for services rendered by it. Saving Deposit Account :- The aim of a saving account is to mobilize savings of the public. A person can open this alc by depositing a small sum of money. He can withdraw money from his account and make additional deposits at will. Account holder also gets interest on his deposit in this account though the rate of interest is lower than the rate of interest on fixed deposit account. Recurring Deposit Account :- The aim of recurring depositis to encourage regular savings by the people. A depositor can deposit a fixed amount, say Rs. 100 every month for a fixed period. The amount together with interest is repaid on maturity. The interest rate on this account is higher than that on saving deposits. Multiple Option Deposit Account :- Its a type of saving Bank Alc in which deposit in excess of a particular limit get automatically transferred into fixed Deposit. On the other hand, in case adequate fund is not available in our saving Bank Account so as to honour a cheque that we have issued the required amount gets automatically transferred from fixed deposit to the saving bank account. Therefore, the account holder has twin benefits from this amount (i) he can earn more interest and (ji) It lowers the risk of dishonoring a cheque. OTHER BANKING SERVICES A. Term Loans :- These loans are provided by the banks to their customers for a fixed period to purchases Machinery Truck. Scooter, House etc. The borrowers repay there loans in Monthly/ Quarteriy/Half Yearly/Annual instalments. Bank Overdraft :- The customer who maintains a current account with. the bank, takes permission from the bank to withdraw more money than deposited in his account. The extra amount withdrawn is called overdraft. This facility is available to trustworthy customers for a small period. This facility is usually given against the security of some assets or on the personal security of the customer. interest is charged on the actual amount overdrawn by the customer. Cash Credit :- Under this arrangement, the bank advances cash loan up to a specified limit against current assets and other securities. The bank opens an account in the name of the borrower and allows him to withdraw the borrowed money fromtime to time subjectto the sanctioned limit. interest is charged on the amount actually withdraw. Discounting of Bill of Exchange :- Under this, a bank gives money to its customers on the security of a bill of exchange before the expiry of the bill in ease a customers needs it. For this service bank charges discount for the remaining period of the bill Bank Draft :- Itis a financial instrument with the, help of which money can be remitted from one place to another. Anyone can obtain a bank draft after depositing the amountin the bank. The bank issues a draft for the amount in its own branch at other places or other banks (only in case of tie up with those banks) on those places. The payee can present the draft on the drawee bank at his place and collect the money. Bank charges some commission for issuing a bank draft. Banker's cheque or Pay Order:- tis almost like a bank draft. It refers to that bank draft which is payable within the town. In other words banks issue pay order for local purpose and issue bank draft for outstations. ELECTRONIC BANKING SERVICES/E-BANKING Using computers and intemet in the functioning of the banks is called electronic banking. Because of these services the customers do not need to go to the bank every time he has to transact with bank. He can make transactions with the bank at any time and from any place. The chief electronic services are the following. 1. Electronic/ Fund Transfer :- Under it, a bank transfers wages and salaries directly from the company s account to the accounts of employees of the company. The other examples of EFTs are on line payment of electricity bill, water bill, insurance premium, house tax etc. Automatic Teller Machines :- (ATMs) ATM is an automatic machine with the help of which money can be withdrawn or deposited by inserting the card and typing your personal Identity Number (PIN). This machine operates for all the 24 hours. Debit Card :- ADebit Card is issued to a customers in lieu of his money deposited in the bank. The customers can make immediate payment of goods purchased or services obtained on the basis of his debit card provided the terminal facility is available with the seller.Credit Card :- A bank issues a credit card to those of its customers who enjoy good reputation. This is a sort of overdraft facility. With the help of this card the holder can buy goods or obtain services up to a certain amount even without having sufficient deposit in their bank accounts. Tele Banking :- Under this facility, a customer can get information about the balance in his account or information about the latest transactions on the telephone. Core Banking Solution Centralized Banking Solution :- In this system a customer by opening a bank accountin one branch (which has CBS facility) can operate the same accountin all CBS branches of the same bank anywhere across the country. It is immaterial with which branch of the bank the customer deals with when he/she is a CBS branch customer. National Electronic Fund Transfer :- NEFT refers to a nation wide system that facilitate individuals, firms and companies to electronically transfer funds from any branch to any individual, firm or company having an account with any other bank branch in the country. HEFT settles transactions in batches. The settlement takes place at a particular point of time for example, NEFT settlement takes place 6 times a day during the week days (9.30am, 10.30 am, 12.00 noon, 1.00 pm. 3.00 pm & 4.00 pm) and 3 times during Saturday 9.30 am, 10.30 am and 12.00 noon) Any transaction initiated after a designated settlement time is settled on the next fixed settlement time. Real Time Gross Settlement :- RTGS refers to a funds transfer system where transfer of funds takes place from one bank to another on a Real time and on Gross basis. Settlement in Real time means transactions are Settled as soon they are processed and are not subject to any waiting period. The RTGS service for customers is available from 9.00 am to 3.00 pm on week days and from 9.00 am to 12.00 noon on Saturdays. Difference between RTGS AND NEFT : While RTGS transactions are processed continously, NEFT settles transactions in batches. The RIGS system is primarily meant for large value transactions ie above Rs. 2 Lakhs and NEFT for transaction below Rs. 2 LakhsBenefits of E-Banking to customer:- 1 2, 3. E-Banking provides 24 hours a day X 365 days a year services to the customers. Customers can make transactions from office or house or while traveling via mobile telephone. There is greater customer satisfactions through -banking as it offers unlimited access and great security as they can avoid travelling with cash Benefits of E-Banking to Banks:- 1 E-Banking lowers the transaction cost. 2. Load on branches can be reduced by establishing centralized data base. 3. E-Banking provides competitive advantage to the bank, adds value to the banking relationship. Answer Now 1. A Company has to transfer Rs, 3 lakhs and Rs. 1 lakh to two shopkeeper in other City on urgent basis. Which banking Services should be availed by Company ? Ans. RTGS,NEFT 2. Differentiate between RIGS and NEFT Service of Bank. 3. Natasha needed some money due to some emergency at 10 PM. Bank is closed at this time. Which Service she may use to withdraw money from bank ? ‘Ans. ATM/Debit Card 4. Which type of bank account of students are open in the Schools? Ans. Savings 5. _ Rubal has a credit Card of a bank. He has to make purchase of Rs, 5000 but he has only Rs. 3000 in his bank account. Can he make purchase of Rs. 5000 with the Credit Card? Ans. Yes he can, As in credit card no money is required in bane Account.INSURANCE Meaning of insurance : Insurance is a contract under which one party (insurer or Insurance Company) agrees in return of a consideration (Insurance premium) to pay an agreed sum of to another party (Insured) to make good for a loss, damage or injury to something of value in which the insured has financial interest as a result of certain event. Principles of Insurance These principles are : 1. Utmost Good Faith :- Insurance contracts are based upon mutual trust and confidence between the insurer and the insured. Itis a condition of every insurance contact that both the parties insurer and the insured must disclose each fact and information related to insurance contract to each other. Insurable Interest :- It means some pecuniary interest in the subject matter of insurance contract. The insured must have insurable interest in the subject matter of insurance i.e., life or property insured the insured will have to incur loss due to this damage and insured will be benefitted iffull Indemnity :- Principle ofindemnity applies to all contracts except the contract of life insurance because estimation regarding loss of life cannot be made. The objective of contract of insurance is to compensate to the insured for the actual loss he has incurred, These contracts ‘provide security from loss and no profit can be made out of these contracts. 4. Proximate Cause :-The insurance company will compensate for the loss incurred by the insured due to reasons mentioned in insurance policy. But if losses are incurred due to reasons not mentioned in insurance policy than principle of proximate cause or the nearest cause is followed. 5. Subrogation :- This principle applies to all insurance contracts which are contracts of indemnity. As per this principle, when any insurance company compensates the insured for loss of any of his property, then all rights related to that property automatically get transferred to insurance company. one insurance policy for the same risk then all the insurers will contribute the amount of loss in proportion to the amount assured by each of them and compensate him for the actual amount of loss because he has no right to recover more than the full amount of his actual loss.Contribution :- According to this principle if a person has taken more than steps to minimize the loss or damage to the insured property otherwise the claim from the insurance company may be lost. Mitigation :- According to this principle the insured must take reasonable steps to minimize the loss or damage to the insured property otherwise the claim form the insurance company may be lost. Types of insurance Life Insurance General Insurance Fire Insurance Marine Insurance Others Insurance LIFE INSURANCE Concept of Life Insurance:- Under life insurance the amount of Insurance is paid on the maturity of policy or the death of policy holder whichever. is earlier. If the policy holder survives till maturity he enjoys the amount of insurance. If he dies before maturity then the insurance claim helps in maintenance of his family. The insurance company insures the life of a person in exchange for a premium which may be paid in one lump sum or periodically say yearly, half yearly quarterly or monthly. Types of Life Insurance Policies:- 1. Whole Life Policy :- Under this policy the sum insured is not payable earlier than death of the insured. The sum becomes payable to the heir of the deceased. Endowment Life Insurance Policy :- Under this policy the insures undertakes to pay the assured to his heirs or nominees a specified sum on the attainment of a particular age or on his death whicheveris earlier. Joint Life Policy :- It involves the insurance of two or more lives simultaneously. The policy money is payable on the death of any one of lives assured and the assured sum will be payable to the survivor or survivors.(a) Feature: (b) (c) Annuity Policy :- This policy is one under which amount is payable in monthly, quarterly, half yearly or annual instalments after the assured attains a certain age. This is useful to those who prefer a regularincome after a certain age. Children's Endowment Policy :- This policy is taken for the purpose of education of children or to meet marriage expenses. The insures agrees to pay a certain sum when the children attain acertain age. GENERAL INSURANCE Fire Insurance :- It provides safety against loss from fire. If property of insured gets damaged due to property as compensation from insurance company. If no such event happens. The insured will not receive anything. For such service insurance company charges premium depending upon the amount of oss insured. 1. Utmost Good Faith Contract of Indemnity Insurable Interestin Subject matter. Subject to the doctrine of cause premimanearest cause It is a contract from year to year. It generally comes to an endatthe expiry of the year and may be renewed Marine Insurance :- Marine Insurance provides protection against loss during sea voyage. The businessmen can get his ship insured by paying the premium fixed by the insurance company. The functional principles of marine insurance are the sameas the general principles of Insurance. Other Insurance Health Insurance :- Health insurance has gained popularity these days. General Insurance companies provide special health insurance policies such as Medi-claim for the general public. The insurance company charges a nominal premium every year and in return undertakes to provide up to stipulated amounts for the treatment of certain diseases such as heart problem, cancer, etc. ARON