Class XI Business Studies Study Support Material 2024-25 PDF

ZIET, MYSORE  ंदेश विद्य लयी वि में िैव उत्कृष्टत प्र प्त रन े न्द्रीय विद्य लय संगठन ी सिोच्च िरीयत है। हम रे विद्य र्थी, वि एिं िैव नेतृत्व त ा वनरं तर उन्नवत हे तु प्रय सरत रहते हैं ।...

ZIET, MYSORE  ंदेश विद्य लयी वि में िैव उत्कृष्टत प्र प्त रन े न्द्रीय विद्य लय संगठन ी सिोच्च िरीयत है। हम रे विद्य र्थी, वि एिं िैव नेतृत्व त ा वनरं तर उन्नवत हे तु प्रय सरत रहते हैं । र ष्टरीय वि नीवत 2020 े संदर्ा में योग्यत आध ररत अवधगम एिं मूल् ं न संबन्धित उद्दे श्ों ो प्र प्त रन तर्थ सीबीएसई े वदि वनदे िों प लन, िताम न में इस प्रय स ो और र्ी चुनौतीपूर्ा बन त है। े न्द्रीय विद्य लय संगठन े प ंचों आं च िक शक्ष ए ं प्र शक्षण ंस्थ द्व र सं वलत यह ‘विद्य र्थी सह य स मग्री’ इसी वदि में ए आिश् दम है । यह सह य स मग्री 9 से 12 े विद्य वर्थायों े वलए सर्ी महत्वपूर्ा विषयों पर तैय र ी गयी है । े न्द्रीय विद्य लय संगठन ी ‘विद्य र्थी सह य स मग्री’ अपनी गुर्ित्त एिं परी संबंधी स मग्री-सं लन ी वििेषज्ञत े वलए ज नी ज ती है और अन्य वि र् संस्थ न र्ी इस उपयोग परी संबंधी पठन स मग्री ी तरह रते रहे हैं । िुर्-आि एिं विश्व स है व यह सह य स मग्री विद्य वर्थायों ी सहयोगी बन र सतत म गादिान रते हुए उन्हें सफलत े लक्ष्य त पहुं च एगी । िुर् ं सवहत । वनवध प ंडे आयुक्त, े न्द्रीय विद्य लय संगठन ZIET, MYSORE  LIST OF TEACHERS AND OTHER OFFICIALS INVOLVED IN THE PREPARATION OF STUDENT SUPPORT MATERIAL PRINCIPAL ACADEMIC - SHRI.RAJAPPAN M N PMSHRI KV NO.1 PALAKKAD COORDINATOR ERNAKULAM REGION ZIET TRAINING ASSOCIATE (GEOG) COORDINATOR Mr. P SELVAMANI ZIET, MYSORE SMT. SUDHA K R, PGT COMMERCE, PMSHRI KV NO.1 CALICUT EDITED AND COMPILED BY SMT. SWAPNA V P, PGT COMMERCE, PMSHRI KV NO.2 CALICUT SHRI SACHIN E, PGT COMMERCE, PMSHRI KV MALAPPURAM SMT. DHANYA M, PGT COMMERCE, PMSHRI KV NO.1 PALAKKAD CONTENT CREATERS NAME OF THE TEACHER NAME OF THE KV REGION 1 MRS.RACHNA B CHHILWAR HEBBAL BENGALURU 2 NARENDRA VERMA DONIMALAI BENGALURU 3 MR. JAGADEESH MYSURU BENGALURU 4 MRS. NISHA AFS AVADI CHENNAI 5 MRS. R. LALINI NO.2 TAMBARAM CHENNAI 6 MRS. CINI AUGUSTINE KARAIKUDI CHENNAI 7 MRS. RAJI KRISHNAN PORT TRUST, COCHIN ERNAKULAM 8 MS. SHYMOL T VARGHESE PORT BLAIR NO.1 CHENNAI 9 MRS. KALA V NO.1 TRICHY CHENNAI 10 SMT. SOJA C P K V PAYYANUR ERNAKULAM 11 SHRI. MUHAMMED NIZAR K A K V THRISSUR ERNAKULAM 12 MR SHAHZAD ARABI NO.1 TIRUPATI (S.1) HYDERABAD 13 MR G GURAVA REDDY BOLARUM HYDERABAD 14 MR PARAS ANAND NFC NAGAR HYDERABAD ZIET, MYSORE  INDEX SL.No. TOPIC 1 CBSE Syllabus 2024-25 2 Question Paper Design 3 Nature and Purpose of Business 4 Forms of Business Organisations 5 Public, Private and Global Enterprises 6 Business Services 7 Emerging Modes of Business 8 Social Responsibility of Business and Business Ethics 9 Sources of Business Finance 10 Small Business 11 Internal Trade 12 International Business 13 Sample Paper 1 solved 14 Sample Paper 2 solved 15 Sample Paper 3 solved 16 Sample Paper 1 unsolved 17 Sample Paper 2 unsolved 18 Sample Paper 3 unsolved ZIET, MYSORE  SYLLABUS BUSINESS STUDIES (Code No. 054) CLASS XI (2024-25) Theory: 80 Marks Project: 20 Marks 3 Hours Units Periods Marks Part A Foundations of Business 1 Nature and Purpose of Business 18 16 2 Forms of Business Organisations 24 3 Public, Private and Global Enterprises 18 14 4 Business Services 18 5 Emerging Modes of Business 10 10 6 Social Responsibility of Business and 12 Business Ethics Total 100 40 Part B Finance and Trade 7 Sources of Business Finance 30 20 8 Small Business 16 9 Internal Trade 30 20 10 International Business 14 Total 90 40 Project Work (One) 30 20 ZIET, MYSORE  Suggested Question Paper Design Business Studies (Code No. 054) Class XI (2024-25) March 2025 Examination Marks: 80 Duration: 3 hrs. SN Typology of Questions Marks Percentage 1 Remembering and Understanding: Exhibit memory of previously learned material by recalling facts, terms, basic concepts, and answers. 44 55% Demonstrate understanding of facts and ideas by organizing, comparing, translating, interpreting, giving descriptions, and stating main ideas 2 Applying: Solve problems to new situations by applying acquired knowledge, facts, techniques 19 23.75% and rules in a different way. 3 Analysing, Evaluating and Creating: Examine and break information into parts by identifying motives or causes. Make inferences and find evidence to support generalizations. Present and defend opinions by making 17 21.25% judgments about information, validity of ideas, or quality of work based on a set of criteria. Compile information together in a different way by combining elements in a new pattern or proposing alternative solutions. Total 80 100% ZIET, MYSORE  CHAPTER – 1 NATURE AND PURPOSE OF BUSINESS History of Trade and Commerce India has Himalayas in the north, bordered by water in south. India got connected to adjoining foreign countries through the network of roads leading to Silk Route. The maritime routes linked the east and west by sea and were used for trade of spices known as a Spice Route. Role of business in the development of economy Business activities have been undertaken since the ancient era. There existed transfer of goods both within and outside the country, and the income received from such economic business activities were used for further investments. Hundi: It is an instrument of exchange used in old times which involved a contract that warrants the payment of money, a promise or order which is unconditional, and can be exchanged through transfer by valid negotiation. HUNDI AS PRACTICED BY INDIAN MERCHANT COMMUNITIES Name of Classification Functions of Hundi Hundi Dhani-jog Darshani Payable to any person-no liability over who received payment. Sah-jog Darshani Payable to a specific person, someone ‘respectable’. Liability over who received payment. Firman-jog Darshani Hundi made payable to order. Dekhan-har Darshani Payable to the presenter or bearer. Dhani-jog Muddati Payable to any person—no liability over who received payment, but payment over a fixed term. Firman-jog Muddati Hundi made payable to order following a fixed term. Jokhmi Muddati Drawn against dispatched goods. If goods lost in transit, the drawer or holder bears the coasts & the Drawee carries no liability. Rise of Intermediaries Comprises of Commission agent, broker and distributor. Foreign Trade was financed by loans. Prominent role in promotion of trade. Provide financial security in return of risk taken. Later with emergence of credit transaction, exports exceeded import and benefited indigenous banking system. Commercial bank and industrial bank evolved to finance trade and commerce. Agricultural bank evolved to provide short-term and long-term finance to agriculturist. ZIET, MYSORE Maritime Trade Trade maintained by means of sea is referred to as maritime trade. Maritime trade was another important branch of global trade network. Malabar Coast, on which Muziris is situated. Pepper was particularly valued in the Roman Empire and was known as ‘Black Gold’. It was in the search for an alternate route to India for spices that led to the discovery of America by Columbus and also brought Vasco-da-Gama to the shores of Malabar. Calicut was such a bustling emporium that it was even visited by Chinese ships to acquire items, like frankincense (essential oil) and myrrh (fragrant resin used in perfumes, medicines) from the Middle East, as well as, pepper, diamonds, pearls and cotton from India. On the Coromandel Coast, Pulicat was a major port in the 17th century. Textiles were the principal export from Pulicat to Southeast Asia. Merchant Corporation Formed to protect the interest of traders. Framed their own rules of membership and code of conduct which kings also accepted. Trade and industrial taxes were major source of revenue. The chief directly deals with king, tax collector and settle market toll on behalf of merchant at fixed sum of money. MAJOR TRADE CENTRES IN ANCIENT TIMES 1. Pataliputra: Known as Patna today. It was not only a commercial town, but also a major centre for export of stones. 2. Peshawar: It was an important exporting centre for wool and for the import of horses. It had a huge share in commercial transactions between India, China and Rome in the first century A.D. 3. Taxila: It served as a major centre on the important land route between India and Central Asia. It was also a city of financial and commercial banks. The city occupied an important place as a Buddhist centre of learning. The famous Taxila University flourished here. 4. Indraprastha: It was the commercial junction on the royal road where most routes leading to the east, west, south and north converged. 5. Mathura: It was an emporium of trade and people here subsisted on commerce. Many routes from South India touched Mathura and Broach. 6. Varanasi: It was well placed as it lay both on the Gangetic route and on the highway that linked North with the East. It grew as a major centre of textile industry and became famous for beautiful gold silk cloth and sandalwood workmanship. ZIET, MYSORE 7. Mithila: The traders of Mithila crossed the seas by boats, through the Bay of Bengal to the South China Sea, and traded at ports on the islands of Java, Sumatra and Borneo. Mithila established trading colonies in South China, especially in Yunnan. 8. Ujjain: Agate, carnelian, muslin and mallow cloth were exported from Ujjain to different centres. It also had trade relations through the land route with Taxila and Peshawar. 9. Surat: It was the emporium of western trade during the Mughal period. Textiles of Surat were famous for their gold borders (zari). It is noteworthy that Surat hundi was honoured in far off markets of Egypt and Iran. 10. Kanchi: Today known as Kanchipuram, it was here that the Chinese used to come in foreign ships to purchase pearls, glass and rare stones and in return they sold gold and silk. 11. Madura: It was the capital of the Pandayas who controlled the pearl fisheries of the Gulf of Mannar. It attracted foreign merchants, particularly Romans, for carrying out overseas trade. 12. Broach: It was the greatest seat of commerce in Western India. It was situated on the banks of river Narmada and was linked with all important marts by roadways. 13. Kaveripatta: Also known as Kaveripatnam, it was scientific in its construction as a city and provided loading, unloading and strong facilities of merchandise. Foreign traders had their headquarters in this city. 14. Tamralipti: It was one of the greatest ports connected both by sea and land with the West and the Far East. It was linked by road to Banaras and Taxila. TYPES OF HUMAN ACTIVITIES All human being, wherever they are, required to perform some or the other activity to satisfy their needs. They pursue different occupations to earn a livelihood and to get some psychological satisfaction. Activities which human beings undertake are known as human activities. Classification of Activities 1. Economic Activities: Economic activities are any activities that are carried out with the goal of earning money and livelihood. For example, a worker working in a factory, a teacher teaching in school. It is majorly of three types: Business Profession Employment. 2. Non-Economic activities: Activities which are performed out of love, affection, sympathy, etc, and without the aim of earning profit are called non- economic activities. For Example, social work, religious activities etc. ZIET, MYSORE TYPES OF ECONOMIC ACTIVITIES Business Any economic activity that is undertaken regularly and continuously to satisfy the societal needs as well as to earn profit through the mechanism of sale and purchase of goods and services is called a business. Characteristics of Business Activities: - 1. An economic activity: Business consists of sale or exchange of goods and services with the primary objective of earning money. Hence it is an economic activity. 2. Sale or exchange of goods and services for creating value: In business there should be transfer or exchange of goods or services for value. Production of goods for the purpose of personal consumption is not termed as business. 3. Regularity in dealings: To constitute a business there should be dealings in goods and services on regular intervals. Doing one single transaction does not constitute business. For example, selling your old books, or furniture and purchasing a new one is not termed as business. 4. Production or procurement of goods and services: In every business enterprise before the consumption, production takes place. As a result, a business either manufactures the goods on its own or purchases them from producers, and then sells them to end customers. 5. Profit earning: The primary objective of every business is to earn more and more profit. No business can survive without earning profit. Hence all the efforts of the businessman are directed towards the earning of sufficient profit. 6. Uncertainty of return: It’s not certain how much profit a business is going to earn, as there is a possibility of losses as well because of the changing environment. Every business has to handle both losses as well as profits. 7. Risk: Every business is exposed to certain risks, these risks can either be due to natural factors, human factors, financial factors, or personal factors. Therefore, both profit and losses walk hand in hand and every business has to take some risk in order to survive. Profession Any economic activity which is carried out by a person with specialised knowledge and skills in order to serve society is called profession. Employment Any economic activity which involves doing work for someone else in consideration of money is termed as employment. ZIET, MYSORE Comparison of Business, Profession and Employment Basic Business Profession Employment Establishes after Starts after receiving Mode of fulfilling some A certificate of an appointment establishment required legal practice required. letter. formalities. Selling and Rendering specialized Work is as per the Nature of work buying of goods contract and the services and services. rules of service. Formal qualification Qualification No minimum and training from a Qualification qualification requirements differ professional body is a required. with job type. must. Reward or Profit Professional fee Wages or salary return It is dependent Capital Limited capital upon the type and No capital. investment needed. size of business. High uncertainty Risk Little or limited risk No risk and risk. Transfer of Possible Not possible Not possible interest Code of No code of Professional code of Rules set by the conduct is employer are to be conduct conduct is there. prescribed. followed. Chartered A person having Accountants, Jobs in banks, Example his shop, factory Lawyers, Doctors are companies etc. etc. all professionals. OBJECTIVES OF BUSINESS 1. Economic Objectives 2. Social Objectives 1. Economic Objectives: - ZIET, MYSORE Under economic objectives, the following objectives are included: (i) Market standing: The basic purpose of every organisation is to survive and exist in the competition market for a long period of time. (ii) Earning Profit: The most important objective of every organisation is earning adequate amount of profit. Profit is essential for survival, growth and expansion of business. (iii) Innovation: It is the introduction of new ideas or methods in the way something is done or made (iv) Increasing productivity: Productivity is ascertained by comparing the value of output with value of inputs. Every business must aim at greater productivity through the best use of available resources. (v) Optimum utilisation of physical and financial resources: The business enterprise must aim at greater productivity through the best use of available resources. 2. Social Objectives: - Social Objectives are those which are desired to be achieved for the benefit of the society. (i) Supply of Desired Quality of Products: Customer prefer to buy the products only when they are of satisfactory quality and are available at a reasonable price. Today’s customer is a quality conscious customer and he expects value for money. (ii) Avoidance of Unfair Trade Practices: Anti-social or unfair trade practices include black marketing, adulteration, hoarding, overcharging, etc. Exaggerating in advertisement s about the uses of products is also an unfair trade practice. (iii) Employment Generation: The business man must create employment opportunities and help in overcoming this basic problem of developing countries. The business employs people to perform different types of work. (iv) Social Service or Community Service: The big companies can help in social service programmes run by NGOs and Government organisations by contributing large amount of funds in the form of donations, charity, etc. (v) Avoidance of Pollution: As a businessman has added to spreading of pollution, so it becomes the moral duty of the businessman come forward and help in solving the problem of pollution. Role of Profit in the Business: (i) Survival: A business and businessman cannot survive for a long time without earning adequate profit. Profit is a source of income for a businessman which becomes his means of livelihood. ZIET, MYSORE (ii) Expansion and Growth: The business is expanded only when it is earning sufficient amount of profit. When profit is large, a part of it can always be reinvested for expansion or diversification of production and other operations of the business. (iii) Symbol of efficiency or an Index of Performance: Profits indicate whether a business is being managed efficiently or not. Higher profits indicate the efficiency of management and lowest profit indicate inefficiency of management. (iv) Reward for bearing the risk: Profit is considered as a price or reward paid to a businessman for bearing the risk. The desire to earn profit motivates the businessman to bear the uncertainties and unexpected risks. (v) Helps to gain reputation of goodwill: A profit earning company always has a better reputation in the market as compared to companies which are running in loss. Classification of Business Activities The Business activities are mainly classified into: Industry Commerce o Trade o Auxiliaries to Trade A. Industry It is basically concerned with the production of goods and services for an economic motive. It is further divided into following categories: 1. Primary 2. Secondary 3. Tertiary 1. Primary Industry ZIET, MYSORE  It includes all those activities which are concerned with the extraction and production of natural resources and development of plants, etc. It is further divided into two parts: a. Extractive industries: These industries provide some basic raw materials that are mostly products of the natural environment. It includes farming, mining, etc. b. Genetic industries: These industries do breed of plants and animals for their use in further reproduction. Example- cattle breeding, poultry farms. 2. Secondary Industries These industries are concerned with further processing of the material extracted at the primary sector so as to convert them into a finished product. Example, Mining of iron ore. It is further divided into two parts: a. Manufacturing industries: These industries engage in producing goods through processing of raw materials and creating utilities. It is further divided into four parts: Analytical industry: These industries separate and bifurcate different elements from the basic material, so as to produce various by-products from the same element. For example, petrol, diesel etc all are made from one basic material that is crude oil Synthetically industry: These industries bring together materials and ingredients from varied sources and combine them to form a new product. For example, the cement industry. Processing industry: These industries are involved in the extraction and processing of resources and raw materials, so as to produce semi-finished or finished products. For example, the sugar industry, paper industry, textile industry etc. Assembling industry: These industries bring together different components of various firms to form a new product. For example, different components of various industries are brought together to assemble them and convert it into a television, computer, car etc. b. Construction industries: These industries are involved in the construction sector, and it involves constructive works such as building dams, bridges, buildings, etc. 3. Tertiary Industry These industries provide support services to primary and secondary industries so that they can perform their work without any hindrances. For Example, banking industry, transportation industry, communication industry,etc. B. Commerce Commerce includes all the activities which are required for the exchange of goods and services. It also involves all the activities that assists in removal of ZIET, MYSORE hindrances of people, place, time, finance, risk, information faced during the exchange of goods and services. Functions of Commerce 1. Removing the hindrance of person- by marking 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 removes 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. Classification of Commerce It includes two types of activities: Trade Auxiliaries to Trade Trade The buying and selling of goods and services with an aim to earn profit is termed as trade. The people who are involved in trade are referred to as traders. Trade can be classified into two: (a) Internal Trade (b) External Trade. (a) Internal Trade: - It refers to buying and selling of goods or services within the geographical boundaries of a country. (i) Wholesale trade: It refers to buying and selling of goods and services in large quantities. (ii) Retail Trade: It refers to buying and selling of goods and services in small quantities. (b) External Trade: - It refers to buying and selling of goods or services beyond the geographical limits of the country. It involves: ZIET, MYSORE (i) Imports: It refers to the purchase of goods and services from other countries. (ii) Exports: Selling goods and services to other countries. (iii) Entrepot: Importing goods and services from one country & exporting to some third country. Auxiliaries to Trade: - Auxiliaries to trade assists the buying and selling of the goods and services by removing the hindrances of place, people, time, finance, risk and information. The auxiliaries to trade are: (a) Transport and Communication: Transportation helps in the movement of raw material and finished products from the place of production to the place of consumption. Communication enables easy interaction by one party with another, who is far away from each other. It assists in removal of the hindrance cause due to place. (b) Banking and finance: It helps business activities to overcome the problem of finance by lending loans and credit facilities. (c) Insurance: It provides protection to businesses from various types of risks such as due to fire, theft etc. It assists in curbing hindrances of risk. (d) Warehousing: It helps business firms to overcome the problem of storage and facilitates the availability of goods. It assists in curbing hindrances of time. (e) Advertising: It helps them to increase the sales and widen the customer base by promoting business products or services at a wide spectrum. Business Risk The risk caused due to inadequate profits or losses as a result of uncertainties or unexpected events is called business risk. Nature of Business Risks Risk is an essential part of every business. It can only be reduced but not eliminated in full. It arises due to uncertainties like natural calamities such as earthquakes, floods etc., which are unavoidable. The extent of risk depends upon the nature and size of business. ’No risk, no gain’ is applicable to every business. Hence, profit is the reward for risk taking. Causes of Business Risks Natural causes: These are due to natural causes such as floods, earthquakes, etc. Every person has little control or no control over these causes. Human causes: These causes include unexpected events caused by man, such as negligence of employees, power failure, employee’s or customer’s dishonest practices etc. ZIET, MYSORE  Economic causes: The economic causes involve the changes and variations taking place in the economy such as uncertainties due change of technology and method of production, political disturbances, change in prices, tax rates etc. Other causes: All those causes which cannot be considered under the above causes are the other causes, such as exchange rate fluctuations etc. MULTIPLE CHOICE QUESTIONS 1. Assertion (A): Business is considered as an economic activity. Reason (R): It involves exchange of goods and services among people in the society. (a) Both A and R are true. R is the correct explanation of A (b) Both A and R are true, but R is not the correct explanation of A (c) A is correct, but R is incorrect (d) A is incorrect, but R is correct 2. Mehak is a practicing Chartered Accountant. She has her C.A. Firm in Bangalore. She deals in providing Income Tax and GST related services to her clients against very reasonable consultancy fees. Identify the type of economic activity performed by Mehak as referred in the above case. (a) Business (b) Profession (c) Employment (d) None of the above 3. Which of the following cannot be classified as an auxiliary to trade? (a) Mining (b) Insurance(c) Warehousing (d) Transport 4.“Vishesh” is an NGO operating in the district. It deals in providing medicines and other medical facilities to the rural, backward, and below- poverty-line people in the district. In case of need, arrangements are made by the NGO to shift critical patients to referred hospitals. Name the type of human activities performed by the NGO “Vishesh”. a) Economic Activities (b) Non-Economic Activities (c) Spiritual Activities (d) None of the above 1. Amar, Akbar and Anthony and Balvinder pursued their MBA from a reputed institute in Mumbai. After completion of their studies, all of them got engaged in different fields. Amar got a job at an Oil Refinery Industry as a Junior Executive in Finance. Akbar joined his family business in Textile Industry in Jalandhar, Punjab. Anthony opened his own Dairy Firm and Balvinder join the construction business. Identify the type of industry Mr. Akbar worked with as highlighted in the above case. (a) Analytical Industry (b) Synthetic Industry (c) Processing Industry ZIET, MYSORE  (d) Assembly Industry 6. Himalaya General Store is a big businessman who deals in selling Nestle products in his locality. He purchased products of Nestle directly from the State Distributor in bulk quantities and sold them in the market to small shopkeepers from different corners of the city. Identify the type of trade followed by Nutan General Store. (a) Wholesale Trade (b) Retail Trade (c) International Trade (d) Entrepot Trade 7.Suman’s factory was destroyed due to flood. Identify the type of business risk: (a) Economic Causes (b) Human Causes (c ) Natural Cause (d) Other Causes 8. Warehousing facilitates the availability of goods as and when required. By doing this, which of the following utilities are provided by Warehousing? (a) Place Utility (b) Time Utility (c) Both (a) and (b) (d) Neither (a) nor (b) 9. Read the following statements carefully and choose the correct alternative Statement 1: Business involves exchange of goods and services on a regular and recurring basis. Statement 2: Every business aims to earn profits. Alternatives: (a) Both the statements are true. (b) Both the statements are False. (c) Statement 1 is true and Statement 2 is false. (d) Statement 2 is true and Statement 1 is false. 10. Mr. Kumar is engaged in the business of Importing machinery from China and further selling it to Nepal. Which type trade is Mr. Kumar engaged in ? (a) Export (b) Import (c)Entrepot (d) None of the Above Answers 1.a, 2. B, 3. A, 4.b, 5.c, 6.a, 7.c, 8. B, 9.a, 10.c SHORT ANSWER TYPE QUESTIONS (3-4 marks) 1. Samaira took advanced fashion designing course at Beads Academy to become a fashion designer. After completion of the course, she got a job at Trendz Fashions. She used her expertise to design modern outfits, which became famous overnight. Identify and explain the type of economic activity that Samaira is engaged in. ZIET, MYSORE  Answer : Samaira is engaged in is ‘Employment’. Employment: Any economic activity which involves doing work for someone else in consideration of money is termed as Employment. 2. Rohit and Lohith are partners selling electronic products across India. They import the components from their friend Aman who does his business in China and assemble them in their factory established in a rural area of Jharkhand where most of the workers in the factory are children and women. They are paid very less salaries thus owner save on labour cost. They store their stocks in a warehouse but do not take proper safety measures against fire, burglary. There was a short circuit in the factory and as a result most of the stock was damaged. On the basis of the given information, answer the following questions: a) Specify the type of business activity performed by Rohit and Lohith. b) Specify the type of business activity performed by Aman. c) Name and explain the auxiliary to trade used by Rohit and Lohith. Answer: a) Rohit and Lohith are engaged in an Industrial Activity (Secondary Industry: Assembling). b) The business activity performed by Aman is Trade (Export trade) c) The auxiliary to trade used by Rohit and Lohith is warehousing. Warehousing: It helps business firms to overcome the problem of storage and facilitates the availability of goods. It assists in curbing hindrances of time. 3. Rahul and Sahil completed their studies and planned to start their own business instead of looking for job. Rahul’s father is working in Portland cement manufacturing company as supervisor. He told them that common materials used to manufacture cement include limestone, shells, and chalk combined with clay, slate, blast furnace slag, silica sand, and iron ore. He also told them that limestone is most often mined from a quarry which is done by Antra Ltd. He told them that his company is facing a problem of storing the limestone because of shortage of space. This gave them an idea to start a ware housing business. On the basis of the given information, answer the following questions: a) Identify the different types of industries being discussed in above case. b) Specify the category of type of industries to which the industries identified in part(a). Answer: The different types of industries being discussed above are: Portland Cement Company: Secondary industry. Antra Ltd.: Primary industry. Warehouse Business: Tertiary industry. b) The category of aforesaid industries are I. Portland Cement Company: Manufacturing industry. (Synthetic industry) ZIET, MYSORE  II. Antra Ltd.: Extractive industry. 4. Sunita bought a readymade dress for Rs.5,000. Her friend liked the design of dress very much, so Sunita sold the same dress to her friend without charging anything. After completing her studies, Sunita opened a shop of selling readymade dresses for girls. a) Can transaction between Sunita and her friend be termed as Business? Give reason in support of your answer. b) Can the sale of dresses on her shop be called as Business? Answer : (a) No. The transaction between Sunita and her friend cannot be termed as Business. This is because exchange of dress is done without any consideration. Also, profit motive is not involved and the transaction is not done on regular basis. (b) Yes, the sale of dresses on her shop will be called as Business as shop is opened with the motive of earning profit through regular transactions of exchange of dress for money. 5. “Earning of profit cannot be the objective of business any more than the eating is the objective of living”. Do you agree with this statement? Give reasons in support of your answer. Answer : Yes, I agree with this statement. Like eating is essential for survival of any human being, same way profit is essential and a must for survival of any business. But a person cannot survive for a long time and cannot lead a healthy life only by eating. A person has to perform other activities also such as social activities, religious activities and patriotic activities. Similarly, a business with the sole motive of earning profit cannot survive for a long time. To capture a big share in market and to create the goodwill businessman must have social and individual objectives along with economic objective of earning profit. LONG ANSWER TYPE QUESTIONS (6 marks) 1. Alex David is a legal advisor in a multinational company. He gets Rs.65,000 per month as his salary. On weekends, Alex David goes to nearby village and teaches some slum children, he does not charge anything from them, he does it out of sympathy and concern for poor children. This given him mental and psychological satisfaction. On the basis of the given information about Alex David, answer the following questions: a. Specify the types of human activity performed by Alex David. b. Differentiate between types of human activity identified in part (a) on any four basis. Answer : a) The human activities performed by Alex David are: ZIET, MYSORE  I. Working as legal advisor in a multinational company is an economic activity. II. Teaching students in slum is a non- economic activity. b) The difference between economic and non- economic activityare: S.No. Basis Economic activity Non- economic activity 1. Motive These activities are These activities are undertaken undertaken with an with the social or psychological economic motive of motive. earning money and creation of wealth. 2. Expectation Money income is expected Money income is not expected from these activities. from these activities. 3. Purpose Creation of wealth Psychological Satisfaction. 4. Outcome Production of goods and Mental satisfaction of person services. who undertake it. 2. These days almost all corporate offices adopt parks or roads near to their office complex for maintenance. (a) Which objective they try to achieve by doing so? (b) Name and explain the other two objectives of the business. Answer : a) Social Objectives. Business diverts the profits earned to maintain the public property, this way they are able to help society and the employees working in the areas by providing well maintained facilities. This helps them to create awareness about the company and builds company image. b) Other two objectives of the business are : i. Economic Objectives (Explain) ii. Human Objectives (Explain) 3. Ajit was running a trading business in India. Now he extended its operations to Dubai and USA by establishing places of business in these countries. In order to increase sales in Dubai, the company adopted selling strategies like sales promotion and advertising. As the company had an excellent credibility in the capital market, it was able to meet all its financial requirements by borrowing from Citi Bank. On the basis of the given information about Ajit, answer the following questions: a) Identify and explain the auxiliaries to trade used by Ajit for running his business. Also quote lines. b) Identify the type of trade carried on by Ajit earlier and now. Answer : a) Advertising, Banking “In order to increase sales in Dubai, the company adopted selling strategies like sales promotion and advertising. As the company had an excellent credibility in the capital market, it was able to meet all its financial requirements by borrowing from Citi Bank.” b) Trade carried earlier- Internal Trade. ZIET, MYSORE  Internal Trade: - It refers to buying and selling of goods or services within the geographical boundaries of a country. Trade carried Now- External Trade External Trade: - It refers to buying and selling of goods or services beyond the geographical limits of the country. 4. Ratan after doing his B.Pharm degree from a reputed government college started two chemist shops in two different localities of his home town. Encouraged with the success of these shops, he started six more shops in different cities of the state. His strategy was to cut price, focus on lower- and middle-class patients and open shops near hospitals. He earned good profit margins. But the staff of the shops did not give much attention to the customers. Because of this mis-management he started incurring huge losses and his business failed. On the basis of the given information about Ratan, answer the following questions: a) Identify and explain the main cause behind the business failure of Ratan. b) Explain any two other causes of risk associated with Ratan’s business. Answer: a) The main cause behind the business failure of Ratan is Human Cause. Human Causes: Human causes include such unexpected events, like dishonesty, carelessness or negligence of employees, stoppage of work due to power failure, strikes, riots, management inefficiency, etc. b) The other causes of business risks are: I. Natural causes: Human beings have little control over natural calamities like flood, earthquake, famine etc. They result in heavy losses of life, property and income in business. II. Economic Causes: They are related to a chance of loss due to change in market condition e.g., fluctuation in demand and prices, competition, change in exchange rate etc. CHAPTER 2 Forms of Business Organisation The business enterprises which are owned, controlled and managed by private individuals are known as Private sector enterprises. These enterprises work with the main motive of earning profit. Various forms of such business organisations are: (a) Sole proprietorship (b) Joint Hindu family business (c) Partnership (d) Cooperative societies and (e) Joint stock company ZIET, MYSORE  a) Sole Proprietorship: The word “sole” implies “only”, and “proprietor” refers to “owner”. Hence, a sole proprietor is the one who is the only owner of a business. It refers to a form of business organisation which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks. Features of Sole Proprietorship Business (i) Formation and closure: Hardly any legal formalities are required to start a sole proprietary business. Closure of the business can also be done easily. Thus, there is ease in formation as well as closure of business. (ii) Liability: Sole proprietors have unlimited liability. She /he has to sell her personal property to repay the firm’s debts. (iii) Sole risk bearer and profit recipient: The risk of failure of business is borne all alone by the sole proprietor. The proprietor enjoys all the benefits also. (iv) Control: Sole trader can carry out his plans without any interference from others. (v) No separate entity: Business does not have an identity separate from the owner. (vi) Lack of business continuity: The death, insanity, imprisonment, physical ailment or bankruptcy of the sole proprietor may even cause closure of the business. Merits: (i) Quick decision making: A sole proprietor enjoys considerable degree of freedom in making business decisions. Further the decision-making is prompt because there is no need to consult others. (ii) Confidentiality of information: Sole decision-making authority enables the proprietor to keep all the information related to business operations confidential and maintain secrecy. (iii) Direct incentive: A sole proprietor directly gets the benefits of his efforts as he is the sole recipient of all the profit. (iv) Sense of accomplishment: The knowledge that one is responsible for the success of the business not only contributes to self-satisfaction but also a sense of accomplishment and confidence in one’s abilities. (v) Ease of formation and closure: Sole proprietorship is the least regulated form of business; it is easy to start and close the business as per the wish of the owner. Limitations (i) Limited resources: Resources of a sole proprietor are limited to his personal savings and borrowings from others. Lack of resources is one of the major reasons why the size of the business generally remains small. (ii) Limited life of a business concern: The sole proprietorship business is owned and controlled by one person, so death, insanity, imprisonment etc of the proprietor can lead to its closure. ZIET, MYSORE (iii) Unlimited liability: The liability of the sole proprietor is unlimited. If the business fails, the creditors can recover their dues not merely from the business assets, but also from the personal assets of the proprietor. (iv) Limited managerial ability: It is rare to find an individual who excels in purchasing, selling, financing, etc. Thus decision making may not be balanced in all the cases. b) Partnership The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.” Features (i) Formation: The partnership form of business organisation is governed by the Indian Partnership Act, 1932. It comes into existence through a legal agreement. (ii) Liability: The partners of a firm have unlimited liability. Personal assets may be used for repaying debts of the business. (iii) Risk bearing: The partners bear the risks involved in running a business as a team. (iv) Decision making and control: The partners share amongst themselves the responsibility of decision making and control of day to -day activities. (v) Continuity: The death, retirement, insolvency or insanity of any partner can bring an end to the business. (vi) Number of Partners: The minimum number of persons to start a partnership firm is two. As per Rule 10 of The Companies (miscellaneous) Rules 2014, at present the maximum number of members can be 50. (vii) Mutual agency: The business is carried on by all or any one of the partners acting for all. Every partner is both an agent and a principal. Merits (i) Ease of formation and closure: A partnership firm can be formed easily by putting an agreement between the prospective partners. Closure of the firm too is an easy task. (ii) Balanced decision making: The partners can oversee different functions according to their areas of expertise. So the decisions are likely to be more balanced. (iii) More funds: In a partnership, the capital is contributed by a number of partners. So it can raise larger amount of funds. (iv) Sharing of risks: The risks involved in running a partnership firm are shared by all the partners. ZIET, MYSORE  (v) Secrecy: A partnership firm is not legally required to publish its accounts and submit its reports. So it can maintain confidentiality of information. Limitations: (i) Unlimited liability: Partners are liable to repay debts even from their personal resources. Thus, they have unlimited liability. (ii) Limited resources: Capital contributed by the partners is usually not sufficient to support large scale business operations. (iii) Possibility of conflicts: Difference in opinion of partners on some issues may lead to disputes between partners. (iv) Lack of continuity: Partnership comes to an end with the death, retirement or insolvency of any partner. It may result in lack of continuity. (v) Lack of public confidence: A partnership firm is not legally required to publish its financial reports. As a result, the confidence of the public in partnership firms is generally low. Types of Partnership Partnership can be classified on the basis of two factors, i.e, duration and liability. Classification on the basis of duration (i) Partnership at will: This type of partnership can continue as long as the partners want and is terminated when any partner gives a notice of withdrawal from partnership to the firm. (ii) Particular partnership: Partnership formed for the accomplishment of a particular project or for a specified time period is called particular partnership. Classification on the basis of liability (i) General Partnership: In general partnership, the liability of partners is unlimited and joint. The partners enjoy the right to participate in the management. (ii) Limited Partnership: In limited partnership, the liability of at least one partner is unlimited whereas the rest may have limited liability. Such a partnership does not get terminated with the death, lunacy or insolvency of the limited partners. Registration Registration of a partnership firm means the entering of the firm’s name, along with the relevant prescribed particulars, in the Register of firms kept with the Registrar of Firms. It is optional for a partnership firm to get registered. The consequences of non-registration of a firm ZIET, MYSORE (a) A partner of an unregistered firm cannot file a suit against the firm or other partners, (b) The firm cannot file a suit against third parties, and (c) The firm cannot file a case against the partners. In view of these consequences, it is therefore advisable to get the firm registered. Partnership Deed The written agreement which specifies the terms and conditions of the partnership is called the partnership deed. Types of Partners (i) Active partner: An active partner is one who contributes capital, participates in the management, shares its profits and losses and has unlimited liability. (ii) Sleeping or dormant partner: Partners who do not take part in the day- to-day activities of the business are called sleeping partners. (iv) Nominal partner: A nominal partner is one who allows the use of his name by a firm, but does not contribute capital, does not actively take part in management, does not share its profit or losses but has unlimited liability. (v) Partner by estoppel: A person is considered a partner by estoppel if, through his own initiative, conduct or behaviour, he gives an impression to others that he is a partner of the firm. Such partners are held liable for the debts of the firm. c) Joint Hindu Family Business This is a specific form of business organisation found only in India. It refers to a form of organisation wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF). It is governed by the Hindu Law. The basis of membership in the business is birth in a particular family and three successive generations can be members in the business. The business is controlled by the head of the family who is the eldest member and is called karta. Features of Joint Hindu Family (i) Formation: There should be at least two members in the family and ancestral property to be inherited by them to start a sole proprietorship (v) Minor Members: The basis of membership in the business is birth in a particular family Hence, minors can also be members of the business. (ii) Liability: The liability of all members except the Karta is limited to their share of co-parcenery property of the business, But Karta has unlimited liability. (iii) Control: The control of the family business lies with the Karta. His decisions are binding on the other members. ZIET, MYSORE (iv) Continuity: The business continues even after the death of the Karta as the next eldest member takes up the position of Karta, leaving the business stable. (v) Minor Members: Minors can become the members of the business. d) Cooperative Society The cooperative society is a voluntary association of persons, who join together with the motive of welfare of the members. The cooperative society is compulsorily required to be registered under the Cooperative Societies Act 1912. The consent of at least ten adult persons is required to form a society. The capital of a society is raised from its members through issue of shares. Features (i) Voluntary membership: A person is free to join a cooperative society, and can also leave at any time. There cannot be any compulsion for him to join or quit a society. (ii) Legal status: Registration of a cooperative society is compulsory. This provides a separate identity to the society which is distinct from its members. (iii) Limited liability: The liability of the members of a cooperative society is limited to the extent of the amount contributed by them as capital. (iv) Control: In a cooperative society, the power to take decisions lies in the hands of an elected managing committee. (v) Service motive: The cooperative society through its purpose lays emphasis on the values of mutual help and welfare. If any surplus is generated, it is distributed to the members as dividend. Merits (i) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative society. (ii) Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution. (iii) Stable existence: Death, bankruptcy or insanity of the members do not affect continuity of a cooperative society. (iv) Economy in operations: The members generally offer honorary services to the society. As the focus is on elimination of middlemen, this helps in reducing costs. (v) Support from government: The cooperative society finds support from the Government in the form of low taxes, subsidies, and low interest rates on loans. (vi) Ease of formation: The cooperative society can be started with a minimum of ten members. Its formation is governed by the provisions of Cooperative Societies Act 1912. ZIET, MYSORE Limitations (i) Limited resources: The low rate of dividend offered on investment also acts as an obstacle in attracting membership or more capital from the members. (ii) Inefficiency in management: Cooperative societies are unable to attract and employ expert managers because of their inability to pay them high salaries. (iii) Lack of secrecy: As a result of open discussions in the meetings of members, it is difficult to maintain secrecy about the operations of a cooperative society. (iv) Government control: Control of the government negatively affects its freedom of operation. (v) Differences of opinion: Internal conflicts arising as a result of contrary viewpoints may lead to difficulties in decision making. Types of Cooperative Societies: (i) Consumer’s cooperative societies: The consumer cooperative societies are formed to protect the interests of consumers. It purchases goods in bulk directly from the wholesalers and sells goods to the members. (ii) Producer’s cooperative societies: These societies are set up to protect the interest of small producers. The members comprise of producers desirous of procuring inputs for production of goods to meet the demands of consumers. It supplies raw materials, equipment and other inputs to the members and also buys their output for sale. (iii) Marketing cooperative societies: Such societies members consist of producers who wish to obtain reasonable prices for their output. The society aims to eliminate middlemen and improve competitive position of its members by securing a favourable market for the products. (iv) Farmer’s cooperative societies: These societies are established to protect the interests of farmers by providing better inputs at a reasonable cost. The aim is to gain the benefits of large-scale farming and increase the productivity. (v) Credit cooperative societies: Credit cooperative societies are established for providing easy credit on reasonable terms to the members. The aim of such societies is to protect the members from the exploitation of lenders who charge high rates of interest on loans. (vi) Cooperative housing societies: Cooperative housing societies are established to help people with limited income to construct houses at reasonable costs. These societies construct flats or provide plots to members on which the members themselves can construct the houses as per their choice. ZIET, MYSORE  e) Joint Stock Company A company is an artificial person having a separate legal entity, perpetual succession and a common seal. The company form of organisation is governed by The Companies Act, 2013. The shareholders are the owners of the company while the Board of Directors is the chief managing body elected by the shareholders. Features (i) Artificial person: Like natural persons, a company can own property, incur debts, borrow money, enter into contracts, sue and be sued. It is, therefore, called an artificial person. (ii) Separate legal entity: From the day of its incorporation, a company acquires an identity, distinct from its members. (iii) Formation: The formation of a company is a time consuming, expensive and complicated process which involves the preparation of several documents. (iv) Perpetual succession: A company being a creation of the law, can be brought to an end only by law. (v) Control: The management and control of the affairs of the company is undertaken by the Board of Directors, which appoints the top management officials for running the business. (vi) Liability: The liability of the members is limited to the extent of the capital contributed by them in a company. (vii) Common seal: The company being an artificial person cannot sign its name by itself. Therefore, every company is required to have its own seal which acts as official signature of the company. (viii) Risk bearing: The risk of losses in a company is borne by all the shareholders. Merits (i) Limited liability: The shareholders are liable to the extent of the amount unpaid on the shares held by them. (ii) Transfer of interest: The shares of a public limited company can be easily sold in the market and converted into cash in case the need arises. This avoids blockage of investment. (iii) Perpetual existence: Existence of a company is not affected by the death, retirement, resignation, insolvency or insanity of its members as it has a separate entity from its members. (iv) Scope for expansion: Capital can be attracted from the public as well as through loans from banks and financial institutions. Thus there is greater scope for expansion. ZIET, MYSORE (v) Professional management: A company can afford to pay higher salaries to specialists and professionals. It can, therefore, employ people who are experts in their area of specialisations. Limitations (i) Complexity in formation: As compared to sole proprietorship and partnership form of organisations, formation of a company is more complex. (ii) Lack of secrecy: The Companies Act requires each public company to provide from time-to-time a lot of information to the office of the registrar of companies. Such information is available to the general public also. It is, therefore, difficult to maintain complete secrecy. (iii) Impersonal work environment: Separation of ownership and management leads to situations in which there is lack of effort as well as personal involvement on the part of the officers of a company. (iv) Numerous regulations: The functioning of a company is subject to many legal provisions and compulsions. This reduces the freedom of operations of a company and takes away a lot of time, effort and money. (v) Delay in decision making: Companies are democratically managed through the Board of Directors which is followed by the top management, middle management and lower-level management. Communication as well as approval of various proposals may cause delays not only in taking decisions but also in acting upon them. (vi) Oligarchic management: In most large sized organisations having a multitude of shareholders and are spread all over the country and a very small percentage attend the general meetings. The Board of Directors as such enjoy considerable freedom in exercising their power which they sometimes use even contrary to the interests of the shareholders. (vii) Conflict in interests: There may be conflict of interest amongst various stakeholders of a company. These demands pose problems in managing the company as it often becomes difficult to satisfy such diverse interests. Types of Companies: A company can be either a Private or a Public company and One Person Company Private Company: A private company means a company which: (a) restricts the right of members to transfer its shares; (b) has a minimum of 2 and a maximum of 200 members, excluding the present and past employees; (c) does not invite public to subscribe to its securities. It is necessary for a private company to use the word private limited after its name. Public Company A public company means a company which is not a private company. As per The Companies Act, a public company is one which: (a) has a minimum of 7 members and no limit on maximum members; ZIET, MYSORE (b) has no restriction on transfer securities; and (c) is not prohibited from inviting the public to subscribe to its securities. However, a private company which is a subsidiary of a public company is also treated as a public company. Privileges of a private limited company as against a public limited company: 1. A private company can be formed by only two members whereas seven people are needed to form a public company. 2. There is no need to issue a prospectus as public is not invited to subscribe to the shares of a private company. 3. Allotment of shares can be done without receiving the minimum subscription. A private limited company can start business as soon as it receives the certificate of incorporation. 4. A private company needs to have only two directors as against the minimum of three directors in the case of a public company. However, the maximum number of directors for both types of companies is fifteen. 5. A private company is not required to keep an index of members while the same is necessary in the case of a public company. One Person Company One Person Company is a company with only one person as a member. That one person will be the shareholder of the company. It avails all the benefits of a private limited company such as separate legal entity, protecting personal assets from business liability and perpetual succession. Formation of a Company: Formation of a company is a complex activity involving completion of legal formalities and procedures. These formalities can be divided into three distinct stages, which are: (i) Promotion; (ii) Incorporation and (iii) Subscription of capital. 1. Promotion of a Company: Promotion is the first stage in the formation of a company. It involves conceiving a business idea and taking an initiative to form a company so that practical shape can be given to exploiting the available business opportunity. Any person or a group of persons or even a company may have discovered an opportunity. If such a person or a group of persons or a company proceeds to form a company, then, they are said to be the promoters of the company. Steps in Promotion: Identification of Business Opportunity: The first and foremost function of a promoter is to identify a business idea e.g. production of new product or service. ZIET, MYSORE  Feasibility Studies: After identifying a business opportunity the promoters undertake detailed studies of technical, Financial, Economic feasibility of a business. Name Approval: After selecting the name of company the promotors submit an application to the Registrar of companies for its approval. Fixing up signatories to the Memorandum of Association: Promotors have to decide about the director who will be signing the memorandum of Association. Appointment of professional: Promoters appoint merchant bankers, auditors etc. 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. 2.Incorporation Application for incorporation: Promoters make an application for the incorporation of the company to the Registrar of companies. Filing of necessary documents: Promoters files the following documents: (i) Memorandum of Association. (ii) Articles of Association. (iii) Statement of Authorized Capital (iv) Consent of proposed director. (v) Agreement with proposed managing director. (vi) Statutory declaration. Payment of fees: Along with filing of above documents, registration fee has to be deposited which depends on amount of the authorized capital. Registration: The Registrar verifies all the document submitted. If he is satisfied then he enters the name of the company in his Register. 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 of the company. 3 Capital Subscription: A 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: Steps in capital subscription: 1. SEBI Approval: SEBI regulates the capital market of India. A public company is required to take approval from SEBI. ZIET, MYSORE 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 shares, underwriters are the person who undertake to buy the shares if these are not subscribed by the public. They receive a commission for underwriting. 4. Minimum 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 and the application money must be returned to the applicants within 30 days. 5. Application to Stock Exchange: It is necessary for a public company to list their shares in the stock exchange therefore the promoters apply in stock exchange to list company shares. 6. 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. 4. COMMENCEMENT OF BUSINESS: To commence business a public company has to obtain a certificate of commencement of Business. For this the following documents have to be filled with the registrar of companies. 1. A declaration that 90% of the issued amount has been subscribed. 2. A declaration that all directors have paid in cash in respect of allotment of shares made to them. 3. A statutory declaration that the above requirements have been completed and must be signed by the director of company. IMPORTANT DOCUMENTS IN THE FORMATION OF A COMPANY 1. Memorandum of Association: It is the most important document as it defines the objectives of the company. No company can legally undertake activities that are not contained in its Memorandum of Association. Contents of Memorandum of Association: (i) The name clause: This clause contains the name of the company with which the company will be known. (ii) Registered office clause: This clause contains the name of the state, in which the registered office of the company is proposed to be situated. (iii) Objects clause: It defines the purpose for which the company is formed. (iv) Liability clause: This clause limits the liability of the members to the amount unpaid on the shares owned by them. (v) Capital clause: This clause specifies the maximum capital which the company will be authorised to raise through the issue of shares. ZIET, MYSORE 2. Articles of Association: Articles of Association are the rules regarding internal management of a company. These rules are subsidiary to the Memorandum of Association. Contents of the Articles: 1. The amount of share capital and different classes of shares. 2. Rights of each class of shareholders. 3. Procedure for making allotment of shares. 4. Procedure for issuing share certificates. 5. Procedure for forfeiture and reissue of forfeited shares. 6. Rules regarding casting of votes and proxy voting 7. Procedure for selection and removal of directors 8. Dividend declaration and payment related rules 9. Procedure for capital readjustment 10. Procedure regarding winding up of the company. 3. Prospectus: Prospectus means any document which invites deposits from the public to purchase share or debentures of a company. Choice of form of Business Organisation (i) Cost and ease in setting up the organisation: From the point of view of initial cost, sole proprietorship is the preferred form as it involves least expenditure. Company form of organisation, on the other hand, is more complex and involves greater costs. (ii) Liability: In case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. In joint Hindu family business, only the karta has unlimited liability. In cooperative societies and companies, however, liability is limited. (iii) Continuity: The continuity of sole proprietorship and partnership firms is affected by death, insolvency or insanity of the owners. However, such factors do not affect the continuity of business in the case of Joint Hindu family business, cooperative societies and companies. (iv) Management ability: A sole proprietor may find it difficult to have expertise in all functional areas of management. If the organisation’s operations are complex in nature and require professionalised management, company form of organisation is a better alternative. (v) Capital considerations: If the scale of operations is large, company form may be suitable whereas for medium and small sized business one can opt for partnership or sole proprietorship. (vi) Degree of control: If direct control over operations and absolute decision- making power is required, proprietorship may be preferred. But if the owners do not mind sharing control and decision making, partnership or company form of organisation can be adopted. (vi) Nature of business: If direct personal contact is needed with the customers, sole proprietorship may be more suitable. For large manufacturing ZIET, MYSORE units, however, when direct personal contact with the customer is not required, the company form of organisation may be adopted. Similarly, in cases where services of a professional nature are required, partnership form is much more suitable. MCQ QUESTIONS 1. The certificate of …………is called as the birth certificate of the company. A. Prospectus B. Certificate of Incorporation C. Certificate of commencement D. Memorandum of Association 2. Assertion: A public company inviting funds from the general public must make adequate disclosure of all relevant information and must not conceal any material information from the potential investors. Reason: Prior approval from SEBI is necessary for protecting the interest of the investors. (A) Both A and R are true. R is the correct explanation of A. (B) Both A and R are true, but R is not the correct explanation of A. (C) A is correct, but R is incorrect. (D) A is incorrect, but R is correct. 3. Identify the stage which involves conceiving a business idea and taking an initiative to form a company so that practical shape can be given to exploiting the available business opportunity. (A) Company (B) Promotion (C) Partnership (D) None of these 4. It is a popular form of business organisation and is the most suitable form for small businesses, especially in their initial years of operation. (A) Company (B) JHF (C) Partnership (D) Sole proprietorship 5. The Memorandum of Association must be signed by at least …. Persons in case of a public company and by ….. persons in case of a private company. A. 1 and 2 B. 2 and 5 C. 2 and 7 D. 7 and 2 6. Assertion: Promoters have to decide about the members who will be signing the Memorandum of Association of the proposed company. Reason: The people signing memorandum are also the first Directors of the Company. (A) Both A and R are true. R is the correct explanation of A. (B) Both A and R are true, but R is not the correct explanation of A. (C) A is correct, but R is incorrect. (D) A is incorrect, but R is correct. 7. Joint Hindu Family Business is controlled by the head of the family who is the eldest member and is called…... A. Karanavar B. Co-parcener ZIET, MYSORE  C. Kartha D. Superior 8. A ………… partner is one whose association with the firm is unknown to the general public. Other than this distinct feature, in all other aspects he is like the rest of the partners. He contributes to the capital of the firm, takes part in the management, shares its profits and losses, and has unlimited liability towards the creditors. (A) Secret (B) Active (C) Zero (D) None of these 9. Assertion: Articles of Association are the rules regarding internal management of a company. Reason: The rules are not subsidiary to the Memorandum of Association. (A) Both A and R are true. R is the correct explanation of A. (B) Both A and R are true, but R is not the correct explanation of A. (C) A is correct, but R is incorrect. (D) A is incorrect, but R is correct. 10. As per Rule 10 of The Companies (miscellaneous) Rules 2014, at Present the maximum number of partners can be … (A) 2 (B) 200 (C) 50 (D) 100 ANSWERS 1. (B) Incorporation 2. (A) Both A and R are true. R is the correct explanation of A. 3. (B) Promotion 4. (D) Sole proprietorship 5. ( D)Seven, two 6. (A) Both A and R are true. R is the correct explanation of A. 7. (c)Karta 8. (A) Secret 9. (C) A is correct, but R is incorrect. 10. (C) 50 Short Answer questions (3/4 Marks) 1. Read the following text and answer questions(A-D) on the basis of the same. Sarah's friends lived in a small town of 1,000 people. They were struggling to make ends meet. They didn't own a home and were paying heavy rents, leaving them with minimal funds for other essentials. Sarah was concerned about their well-being and she wanted to help them. She listened to their challenges and offering emotional support. Her aim was to solve the housing problems of that locality by constructing houses and giving the option of paying in instalments. Sarah and her friends established an organisation to help people with limited income to construct houses at reasonable costs. f lats or provide plots to members on which the members themselves can ZIET, MYSORE  construct the houses as per their choice. A. Name the form of organisation established by Sarah and her friends to solve their housing crisis? (A) Sole proprietorship (B) Partnership (C) Cooperative society (D) Company B. Under which Act, these organisations are governed? (A) Indian Partnership Act, 1932 (B) Cooperative Societies Act, 1912 (C) The Companies Act, 2013 (D) Hindu Succession Act, 1956 C. What is the minimum number of persons required to form such organisation? (A) 2 (B) 5 (C) 20 (D) 10 D. Who can become the members of the above identified organisation? (A) Person of Sound mind (B) Has a common interest (C) Any person who is above 18 years (D) All of the Above Answer: 1.(C) Cooperative society 2. (B) Cooperative Societies Act, 1912 3. (D) 10 4. (D) All of the Above 2. It can be described as an artificial person having a separate legal entity, perpetual succession and a common seal. Identify the type of business organisation. Explain its merits. Ans: Joint stock company Merits i. Limited liability: The shareholders are liable to the extent of the amount unpaid on the shares held by them. ii. Transfer of interest: The shares of a public limited company can be easily sold in the market and converted into cash in case the need arises. This avoids blockage of investment. iii. Perpetual existence: Existence of a company is not affected by the death, retirement, resignation, insolvency or insanity of its members as it has a separate entity from its members. iv. Scope for expansion: Capital can be attracted from the public as well as through loans from banks and financial institutions. Thus there is greater scope for expansion. v. Professional management: A company can afford to pay higher salaries to specialists and professionals. It can, therefore, employ people who are experts in their area of specialisations. 3. Partnership firm’s registration is optional, but still why do partnership firms willingly go through this legal formality and get themselves registered? Explain. ZIET, MYSORE  Ans: The consequences of non-registration of a firm a) A partner of an unregistered firm cannot file a suit against the firm or other partners, b) The firm cannot file a suit against third parties, and c) The firm cannot file a case against the partners. 4. Explain the choice of form of business organisation on the basis of: i) Liability ii) Continuity iii) Management ability iv) Capital consideration. i) Liability: In case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. In joint Hindu family business, only the karta has unlimited liability. In cooperative societies and companies, however, liability is limited. (ii) Continuity: The continuity of sole proprietorship and partnership firms is affected by death, insolvency or insanity of the owners. However, such factors do not affect the continuity of business in the case of Joint Hindu family business, cooperative societies and companies. (iii) Management ability: A sole proprietor may find it difficult to have expertise in all functional areas of management. If the organisation’s operations are complex in nature and require professionalised management, company form of organisation is a better alternative. (iv) Capital considerations: If the scale of operations is large, company form may be suitable whereas for medium and small sized business one can opt for partnership or sole proprietorship. 5. It is a voluntary association of persons, who join together with the motive of welfare of the members. They are driven by the need to protect their economic interests in the face of possible exploitation at the hands of middlemen obsessed with the desire to earn greater profits. Name the type of business organisation. Explain its types.Ans: Co-operative society. (i) Consumer’s cooperative societies: The consumer cooperative societies are formed to protect the interests of consumers; The society aims at eliminating middlemen to achieve economy in operations. It purchases goods in bulk directly from the wholesalers and sells goods to the members. (ii) Producer’s cooperative societies: These societies are set up to protect the interest of small producers. The members comprise of producers desirous of procuring inputs for production of goods to meet the demands of consumers. It supplies raw materials, equipment and other inputs to the members and also buys their output for sale. (iii) Marketing cooperative societies: Such societies members consist of producers who wish to obtain reasonable prices for their output. The society aims to eliminate middlemen and improve competitive position of its members by securing a favourable market for the products. ZIET, MYSORE (iv) Farmer’s cooperative societies: These societies are established to protect the interests of farmers by providing better inputs at a reasonable cost. The aim is to gain the benefits of large-scale farming and increase the productivity. Long answer questions (6 marks) 1.This form of business is particularly common in areas of personalised services such as beauty parlours, hair salons and small- scale activities like running a stationery shop in a locality. Identify the form of business organisation. Explain its advantages. Ans: Sole proprietorship Merits (i) Quick decision making: A sole proprietor enjoys considerable degree of freedom in making business decisions. Further the decision- making is prompt because there is no need to consult others. (ii) Confidentiality of information: Sole decision -making authority enables the proprietor to keep all the information related to business operations confidential and maintain secrecy. (iii) Direct incentive: A sole proprietor directly gets the benefits of his efforts as he is the sole recipient of all the profit. (iv) Sense of accomplishment: The knowledge that one is responsible for the success of the business not only contributes to self-satisfaction but also a sense of accomplishment and confidence in one’s abilities. (v) Ease of formation and closure: Sole proprietorship is the least regulated form of business, it is easy to start and close the business as per the wish of the owner. 2. It is a specific form of business organisation found only in India which is one of the oldest types of business organisation in the country. Write a short note about this form of business. Ans: Joint Hindu Family Business This is a specific form of business organisation found only in India. It refers to a form of organisation wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF). It is governed by the Hindu Law. The basis of membership in the business is birth in a particular family and three successive generations can be members in the business. The business is controlled by the head of the family who is the eldest member and is called karta. (i) Formation: There should be at least two members in the family and ancestral property to be inherited by them to start a sole proprietorship. (v) Minor Members: The basis of membership in the business is birth in a particular family Hence, minors can also be members of the business. ZIET, MYSORE  (ii) Liability: The liability of all members except the karta is limited to their share of co-parcenery property of the business, But Karta has unlimited liability. (iii) Control: The control of the family business lies with the karta. His decisions are binding on the other members. (iv) Continuity: The business continues even after the death of the karta as the next eldest member takes up the position of karta, leaving the business stable. (v) Minor Members: Minors can become the members of the business. 3. Compare different types of partners like active partner, dormant partner, secret partner and partner by estoppel on the basis of capital contribution, liability, participation in management and profit share. (i) Active partner: An active partner is one who contributes capital, participates in the management, shares its profits and losses and has unlimited liability. (ii) Sleeping or dormant partner: Partners who do not take part in the day to day activities of the business are called sleeping partners. (iii) Secret partner: A secret partner is one whose association with the firm is unknown to the general public. He contributes to the capital of the firm, takes part in the management, shares its profits and losses, and has unlimited liability. (iv) Partner by estoppel: A person is considered a partner by estoppel if, through his own initiative, conduct or behaviour, he gives an impression to others that he is a partner of the firm. Such partners are held liable for the debts of the firm. 4. Briefly explain the various documents required to be submitted to get the company registered. 1. Memorandum of Association: It is the most important document as it defines the objectives of the company. No company can legally undertake activities that are not contained in its Memorandum of Association. 2. Articles of Association: Articles of Association are the rules regarding internal management of a company. These rules are subsidiary to the Memorandum of Association. 3. Prospectus: Invitation to public for subscription of shares. 5. As compared to the sole proprietorship and partnership forms of organisation, this form of organisation has large financial resources. Further, capital can be attracted from the public as well as through loans from banks and financial institutions. Identify the form of business organisation and explain its demerits. Ans: Joint stock company. ZIET, MYSORE Limitations (i) Complexity in formation: As compared to sole proprietorship and partnership form of organisations, formation of a company is more complex. (ii) Lack of secrecy: The Companies Act requires each public company to provide from time-to-time a lot of information to the office of the registrar of companies. Such information is available to the general public also. It is, therefore, difficult to maintain complete secrecy. (iii) Impersonal work environment: Separation of ownership and management leads to situations in which there is lack of effort as well as personal involvement on the part of the officers of a company. (iv) Numerous regulations: The functioning of a company is subject to many legal provisions and compulsions. This reduces the freedom of operations of a company and takes away a lot of time, effort and money. (v) Delay in decision making: Companies are democratically managed through the Board of Directors which is followed by the top management, middle management and lower level management. Communication as well as approval of various proposals may cause delays not only in taking decisions but also in acting upon them. CHAPTER-3 Public, Private and Global Enterprises Indian Economy Private Sector Public Sector Difference between Private Sector and Public Sector Private Sector Public Sector It includes the business It includes the enterprises and enterprises owned, managed organisations owned and managed by and controlled by individuals government (central or state or both) or group of individuals. either fully or partly. Enterprises work with the These are popularly known as Public main objective of earning Sector Undertakings /Enterprises profit. (PSUs/PSEs). There is more freedom of Enterprises work with the main motive operation. of providing social welfare. These are directly accountable There is less freedom of operation. to general public. These are accountable to general public Forms of Private Sector as well as to parliament. Enterprises are: Forms of Public Sector Enterprises: o Sole Proprietorship o Departmental Undertakings o Partnership o Statutory Corporations o Joint Stock Company (Public Corporations) o Government Company ZIET, MYSORE  (Public Company, Private Company and OPC) o Joint Hindu Family Business (Hindu Undivided Family) o Cooperative Society Public Sector Enterprises: 1. Departmental Undertakings: These are established as departments of ministry and financed, managed and controlled by either central government or state government. Indian Railways, All India Radio, State Public Transportation (KSRTC, UPSRTC, RSRTC, etc.) are some examples of these. Departmental Undertakings: Features Merits Limitations 1. No Separate Entity 1. Parliament has 1. Lack of Flexibility 2. Financed by Effective Control 2. Leads to Delay Government 2. High Degree of 3. Avoids Risky 3. Accounting & Audit Public Ventures Control as per Accountability 4. Over Political Government Rules 3. Source of Revenue Interference 4. Employees are for Government 5. Promotes Red Government Servants 4. Suitable for Tapism 5. Accountable to the National Security 6. Insensitive to concerned Ministry Consumer Needs 2. Statutory Corporations: These are established by passing special Act in the Parliament. The Act defines its power, functions, rules, regulations of governing employees and its relationship with government. RBI, UTI, ONGC, LIC are some examples of these. Statutory Corporations: Features Merits Limitations 1. Set up under Act of 1. Internal 1. Autonomy for Parliament Autonomy name’s sake 2. Separate Legal Entity 2. Quick decisions 2. Major Political 3. Employees are not 3. Effective Interference Government Servants Parliamentary 3. Hub of Corruption 4. Not Subject to Audit & control 4. Appointment of Accounting like 4. Efficient Advisors by Government Management Government Department 5. No Interference by 5. Independently Government in Financed Finance 6. Wholly owned by Government ZIET, MYSORE 3. Government Company: A government company is a company which is registered under the Companies Act, 2013 and in which not less than 51% of the paid-up capital is held by central government or state government or jointly by both. BHEL, SAIL, NMDC, etc. are some examples of it. Government Company: Features Merits Limitations 1. Registered under 1. Easy to 1. Interference of the Companies Act, Form Ministers and 2013 2. Separate Government 2. Separate Legal Legal Entity Officials Entity 3. Enjoys 2. Not Directly 3. Management by Autonomy Answerable to Provisions of the 4. Able to Parliament Companies Act Control 3. Government is 4. Employees are Market the Sole appointed as per Shareholder MOA of Companies 4. Provisions of the 5. Auditor is appointed Companies Act by Government do not have 6. Permitted to raise much Relevance funds from Capital Market Multi-national Company/Global Enterprise: Global enterprises are huge industrial organisations which extend their industrial and marketing operations through a network of their branches in several countries but these have their headquarters in one country in which these are incorporated. Walmart, IBM, Microsoft, Toyota Motors, Coca cola, Wipro, Infosys, Apple Inc. are some examples of MNCs. Features of MNCs: 1. Centralized control: MNCs have headquarters in their home countries from where they exercise control over all branches and subsidiaries. It provides only broad policy framework to them and there is no interference in their day-to-day operations. 2. International Operations: An MNC has production, marketing and other facilities in several countries. 3. Foreign Collaborations: Usually, they enter into agreements relating to sale of technology, production of goods, use of brand name etc. with local firms in the host country. 4. Huge Capital Resources: MNCs possess huge capital resources and they are able to raise lot of funds from various sources. ZIET, MYSORE 5. Advanced technology: These organisations possess advanced and superior technology which enables 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 Strategies: MNCs use aggressive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion. Joint Venture: When two or more businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture. These two or more organisations may be private, government-owned or a foreign company. In a broader sense, a joint venture is the pooling of resources and expertise by two or more businesses, to achieve a particular goal. Benefits of Joint Venture: (a) Increased resources and capacity: Joining hands with another or teaming up adds to existing resources and capacity enabling the joint venture company to grow and expand more quickly and efficiently. (b) Access to new markets & distribution networks: When a business enters into a joint venture with a partner from another country, it opens up a vast growing market. (c) Access to technology: Technology is a major factor for most businesses to enter into joint ventures. Advanced techniques of production leading to superior quality products save a lot of time, energy & investment as they do not have to develop their own technology. (d) Innovation: The markets are increasingly becoming more demanding in terms of new and innovative products. Joint ventures allow business to come up with something new and creative for the same market. (e) Low cost of production: When international corporations invest in India, they benefit immensely due to the lower cost of production. They are able to get quality products for their global requirements. India is becoming a