Business Studies: Sole Proprietorship & Partnerships

Commerce Notes

• Business activities are broadly divided into industry and commerce.
• Industrial activities involve growing, extending, and manufacturing material goods.
• Key characteristics of industries are wide scope, economic activity, economic development, production, and creation of utility.
• Primary industries provide basic raw materials from natural sources.
  • Two types: Genetic industries breed certain plants and animals for profit; and Extractive industries extract materials from natural sources.
• Secondary industries process or transform raw or semi-finished goods into finished products.
  • Includes Analytical (extraction of many goods from a single material), Synthetic (combining two or more materials), Processing (transforming materials to a final product form), and Assembly industries (combining components to create a final product)
• Construction industries create basic infrastructure, such as buildings and bridges.
• Industries contribute to economic development.
• Classification of industries: MO BEEFS
  • Mobilization of local resources
  • Optimization of Capital
  • Balanced regional development
  • Egalitarian Society
  • Exchange Earnings
  • Feeder to larger industries
  • Social advantage

Small Medium Macro Enterprises (SMEs)

• Categorization by size according to the MSME Act 2006.
  • Micro Units: Industry- Up to 25 lacs; Service - Up to 10 lacs
  • Small Units: Industry - 25 lacs to 5 crores; Service - 10 lacs to 2 crores
  • Medium Units: Industry - 5 crores to 10 crores; Service - 2 crores to 5 crores
  • Large Units: Industry - above 10 crores; Service - above 5 crores

Branches of Commerce

• Trade is the process of procuring and purchasing goods and services with the object of selling them for profit.
• Types of trade:
  • Home Trade (domestic/internal)- Buying/selling within a country;
    • A) Wholesale dealing in large quantities for resellers; B) Retail dealing in smaller quantities for final customers
  • Foreign Trade- buying/selling between countries -A) Export- selling goods to foreign buyers; B) Import- purchasing goods from foreign sellers; C) Entrepot-buying from one and selling to another country (re-export trade)
• Aids to Trade: Include transportation, warehousing, and insurance to facilitate trade.

Branches of Commerce

• Commerce encompasses buying and selling and the related activities such as transportation, warehousing, banking, insurance, advertising and publicity. It removes hindrances of place, time, exchange, risk, and knowledge.

Sole Traders

• Definition: A business organization where one person invests all the capital, manages and has control of the business. They face unlimited liability if the business is dissolved.
• Characteristics: Single ownership and control, no legal formalities, no legal separate entity, no sharing of profits, unlimited liability, small size, and ease of formation.
• Objectives: Creating self-employment, utilizing funds, serving customers, leading an independent life, equitable distribution of wealth and a feeder to larger companies.
• Merits: Personal touch, flexibility, economy, easy formation, easy dissolution, minimum government regulation.
• Demerits: Limited capital, limited managerial capabilities, limited scope for expansion, unlimited liability, lack of continuity, and secrecy.

Partnerships

• Definition: A relationship between two or more persons who agree to share profits of a business carried on by all or any of them acting for all.
• Features: Mutual agency, Agreement, Lawful business, Two or more persons, Sharing of profit, No legal separate entity.
• Formation: Two or more persons agree to do business and share profits.
• Partnership Deed: Contains rules on profit/loss sharing and responsibilities.
• Types: General partnership and Limited liability partnership.
• Advantages/Disadvantages: Easy formation, more capital than sole trader, specialization and expertise sharing, more flexibility, and quick decision making. Limited life and risk sharing, uncertainty of continuity, disagreement and conflict.

Joint Stock Companies

• Definition: An association of persons with a separate legal entity, perpetual succession, and common seal. Capital is divided into freely transferable shares.
• Features: Separate Legal existence, Separate ownership and control, Statutory control and regulation, Perpetual succession, Limited liability, Transferability of shares
• Distinct characterestics from partnerships
• Benefits: Larger capital, limited liability, continuity, and ease of transfer.
• Merits: Large capital, limited liability, continuity, wider ownership, easy transferability.
• Demerits: More legal formalities, more rigid rules, lack of secrecy, and potential for conflicts.

Types of Companies

• Chartered companies are established under royal charters.
• Statutory companies are incorporated under a special Act of the legislature.
• Company based on ownership: Private companies need a minimum of 1 lac in paid up capital and limit the members, while Public companies have no limitation of members and need 5 lacs in paid up capital.
• Companies based on liability: Limited by shares, Limited by guarantee, and Unlimited.

Public Enterprises

• Definition: Commercial and industrial undertakings owned, controlled, and managed by the government.
• Characteristics: Service motive, state ownership/control, government financing, public accountability, and autonomous operation.
• Merits: Secrecy, aid to public revenue, instrument for social change, direct government control, public accountability, and public interest.
• Demerits: Lack of accountability, political interference, lack of motivation, and conflicts.

Public Utility Companies

• Types: Companies related to electricity, gas, water, and transport etc.
• Characteristics: Supply of essential services, heavy fixed investment, inelastic demand, and non-transferable demand, monopoly position.

Public-Private Partnerships (PPPs)

• Definition: A partnership between a public sector and a private sector in financing, design, and developing infrastructure and facilities.
• Features: Partnership, pooling of resources, high priority projects, revenue sharing, and attractive capital.
• Benefits: Financial burden on the government is reduced, faster implementation, better quality services, cost reduction, and risk sharing.
• Demerits: Government accountability and potential conflicts.

Cooperative Organizations

• Definition: A society with cooperative principles aimed at promoting the economic interests of its members.
• Features: Separate legal entity, service motive, state control, one-man-one-vote, limited return, disposal of surplus, voluntary association, religious and political neutrality, and continuous existence.
• Types: Consumer cooperatives, producer cooperatives, housing cooperatives, and credit cooperatives.
• Merits: Democratic management, limited liability, low operating costs, internal financing, continuity and stability, cheaper and better supplies, and social utility.
• Demerits: Limited capital, lack of motivation, lack of secrecy, inefficient management, disagreements among people, and difficulty in transfer of interest.

Government Regulation of Business

• Regulatory bodies control and oversee business activities to protect consumers, ensure fair practices, and maintain market stability.

E-Business

• Definition: Conducting business activities with the support of electronic media and communication.
• Advantages: Global reach, wider market, ease of formations, reduced costs, swift transaction times, efficiency, increased convenience and new businesses.
• Disadvantages: Security threats, technical dependence, high investment and low return, and limited customer dealings.

Stock Exchanges

• Definition: A marketplace for buying, selling, and trading securities (shares, bonds, etc.).
• Functions: Price determination, protection of investors, ready market, capital formation, channel for investments, clearing house of information, facilitating the distribution of new securities, and economic barometer.
• Services to the stock exchange such as wider market, high share prices, price stability, and dealing with security
• Services to investors such as easy marketability, loan facility, ease in purchase sell, safe transaction, timely trading/investment advise and public confidence about the security investments etc

Retailing

• Definition: The activities involved in purchasing goods in bulk from wholesalers and selling in smaller quantities to consumers for personal or household use.
• Types: Mobile trading, fixed shops, chain stores, and mail order business.

Other types

• Hyper markets
• Consumer Cooperative stores
• Franchising.
• Wholesale trade