I PUC Business Studies-Chapter 1-2 PDF

Chapter 1 Nature and Purpose of Business SECTION—A(One mark questions) 1.What is Economic activity? Ans:- Any activity is undertaken with the object of earning money or livelihood is called Economic Activity. 2.Mention any one type of e...

Chapter 1 Nature and Purpose of Business SECTION—A(One mark questions) 1.What is Economic activity? Ans:- Any activity is undertaken with the object of earning money or livelihood is called Economic Activity. 2.Mention any one type of economic activity. Ans:-Business is one type of economic activity. 3.State any one characteristic of Business. Ans:- Dealings in goods and services on a regular basis is one characteristic of Business. 4.Name the economic activity in which people are rewarded with salary or wage for their work. Ans:- Employment is an economic activity in which people are rewarded with salary or wage for their work. 5.What type of economic activity is the work of a chartered accountant? Ans:-Profession. 6.Give an example for Extractive industry. Ans:- Mining is an example for Extractive industry. 7.Give an example for Genetic industry. Ans:- poultry farms is an example for Genetic industry. 8.Give an example for Manufacturing industry. Ans:- oil refinery Industry an example for Manufacturing industry. 9.What is Analytical industry? Ans:- Analytical industry which analyses and separates different elements from the same materials as in the case of oil refinery., 10.What is Synthetical industry? Ans:- Synthetical industry which combines various ingredients into a new product as in the case of cement., 11.Give an example for processing industry. Ans;-Sugar Industry is an example for processing industry. 12.What is Assembling industry? Ans:- Assembling industry which, assembles different component parts to make a new product as in the case of television, car, computer, etc., 13.What is Construction industry? Ans;- Industries are involved in the construction of buildings, dams,, bridges, roads as well as tunnels and canals are called Construction industry. 14.Name the industry which provides support services to other industries. Ans;- Tertiary industries which provides support services to other industries. 15.State a branch of Commerce. Ans;- (i) trade and (ii) auxiliaries to trade are the branch of Commerce. 16.What is Trade? Ans;- Buying and selling of goods is termed as trade. 17.State any one auxiliary to trade. Ans;- Banking and Finance is one of auxiliary to trade. 18.Name the auxiliary to trade which provides protection against business risk. Ans:- Insurance will provides protection against business risk. 19.State an objective of Business. Ans:- Market standing is one of the objective of Business. 20.State any one characteristic of Business risk. Ans:- Uncertainties is one of the characteristic of Business risk. 21.State any one cause of Business risk. Ans:- Natural causes is oneof the causes of Business risk. 1  SECTION—A (Multiple choices One Mark Questions:) 1.Which of the following does not characterize business activity? (a)Productions of goods and services (b)Presence of risk (c)Sale or exchange of goods and services (d)Salary or wages Ans:- (d)Salary or wages 2.Which of the broad categories of industries covers oil refinery and sugar mills? (a)Primary (b)Secondary (c)Tertiary (d)None of the above Ans:- b)Secondary 3.Which of the following cannot be classified as an auxiliary to trade? (a)Mining (b)Insurance (c)Warehousing (d)Transport Ans:- (a)Mining 4.The occupation in which people work for others and get remunerated in return is known as (a)Business (b)Employment(c)Profession(d)None of the above Ans:- (b)Employment 5.The industry which provide support services to other industries are known as (a)Primary industries(b)Secondary industries(c)Commercial industries(d)Tertiary industries Ans:-( d)Tertiary industries 6.Which of the following cannot be classified as an objective of business? (a)Investment (b)Productivity (c)Innovation (d)Profit earning Ans:- (a)Investment 7.Business risk is not likely to arise due to (a)Changes in Government Policy (b)Good Management(c)Employee dishonesty (d)Power failure. Ans:- (b)Good Management SECTION—B (Two marks questions) 1.What is Business? Ans:- Business refers to an occupation in which people regularly engage in activities related to purchase, production and/or sale of goods and services with a view to earning profits. 2.State any two types of Economic activities. Ans:- (i) Business, (ii) Profession are the two types of Economic activities. 3.State any two characteristics of Business. Ans;- Two characteristics of Business are (i)It is an economic activity:(ii) It Dealings in goods and services on a regular basis: 4.How is business different from profession? Ans:- Provision of goods and services to the public for earning profit is called Business whereas rendering of personalised expert services to the public and received professional fees are called Profession. 5.What is Employment? Ans:- Employment refers to the occupation in which people work for others and get remunerated in return. 6.What is Industry? Ans:- Industry refers to economic activities which are connected with conversion of resources into useful goods. 7.What is Extractive industry? Ans;- Industries which are extract or draw out products from natural sources are called Extractive industry. They supply some basic raw materials that are mostly products of geographical or natural environment. 8.Give the meaning of Genetic industry. Ans:- Industries which are engaged in breeding plants and animals for their use in further reproduction are called Genetic industry. 9.What is manufacturing industry? Ans:- Industries which are engaged in producing goods through processing of raw materials and thus creating form utilities are called manufacturing industry. 2 10.What is commerce? Ans;- All activities involving the removal of hindrances in the process of exchange of goods and services are called commerce. 11.State the two types of activities of commerce. Ans:- (i) Trade and (ii) Auxiliaries to trade are two types of activities of commerce. 12.What are Auxiliaries to trade? Ans:- Activities which are meant for assisting trade are known as auxiliaries to trade. 13.State any two auxiliaries to trade. Ans;- (i) Transport and Communication: and (ii) Banking and Finance: are regarded as two types of auxiliaries to trade. 14.State any two objectives of Business. Ans;- (a) Market standing and (b) Innovation are two objectives of Business. 15.What is Business risk? Ans;- Possibility of inadequate profits or even losses due to uncertainties or unexpected events are called Business risk. 16.Mention any two characteristics of Business risks. Ans:- Two characteristics of Business risks are (i)Business risks arise due to uncertainties (ii) Risk is an essential part of every business 17.Mention any two causes of Business risks. Ans:- Natural causes like flood, earthquake, lightning, heavy rains and Human causes like dishonesty, carelessness or negligence of employees are two causes of Business risks. 18.State any two factors to be considered while starting a business. Ans:- (i)Selection of line of business and (ii) Size of the firm are two factors to be considered while starting a business. SECTION—C (Four marks questions) 1.Explain briefly any four characteristics of Business. Ans:- Four characteristics of Business are explained below (i)An economic activity: Business is, considered to be an economic activity because it is undertaken with the object of earning money or livelihood and not because of love affection sympathy or any other sentimental reason. (ii)Production or procurement of goods and services: Before goods are offered to people for consumption these must be either produced or procured by business enterprises. Thus every business enterprise either manufactures the goods it deals in or it acquires them from producers to be further sold to consumers or users. (iii)Sale or exchange of goods and services: Directly or indirectly business involves transfer or exchange of goods and services for value. If goods are produced not for the purpose of sale but say for personal consumption it cannot be called a business activity. Thus one essential characteristic of business is that there should be sale or exchange of goods or services between the seller and the buyer., (iv) Dealings in goods and services on a regular basis: Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase therefore does not constitute business. 2.Explain briefly the different types of Manufacturing industries. Ans:- Manufacturing industries are engaged in producing goods through processing of raw materials and thus creating form utilities. Manufacturing industries may be further divided into four categories on the basis of method of operation for production., (i) Analytical industry :-Industry which analyses and separates different elements from the same materials are called Analytical industry Ex., oil refinery. (ii) Synthetical industry:- Industry which combines various ingredients into a new product are calledSynthetical industry Ex., cement 3  (iii) Processing industry:- Industry which involves successive stages for manufacturing finished products are called Processing industry. Ex., sugar and paper Industries. (iv)Assembling industry:- Industry which assembles different component parts to make a new product are calledAssembling industry Ex., television, car, computer, etc., 3.Explain briefly any four auxiliaries to trade. Ans:- Brief explanation of four auxiliaries to trade are as follows:- (i) Transport and Communication:, Transport facilitates movement of raw material to the place of production and the finished products from factories to the place of consumption. Along with the transport facility there is also a need for communication facilities so that producers traders and consumers may exchange information with one, another. Thus, postal services and telephone facilities may also be regarded as auxiliaries to business activities. (ii) Banking and Finance: Business activities cannot be undertaken unless funds are available for acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained by businessmen from a bank. (iii) Insurance: Business involves various types of risks. Factory building, machinery, furniture etc. must be protected against fire theft and other risks. Materials and goods held in stock or in transit are subject to the risk of loss or damage. Employees are also required to be protected against the risks of accident and occupational hazards. Insurance provides protection in all such cases. (iv) Warehousing: Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed. Prices are thereby maintained at a reasonable level through continuous supply of goods. 4.Explain briefly any four objectives of business. Ans:- The following are the four objectives of business:- (i) Market standing: Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise must aim at standing on stronger footing in terms of offering competitive products to its customers and serving them to their satisfaction. (ii) Innovation: Innovation is the introduction of new ideas or methods in the way something is done or made. No business enterprise can flourish in a competitive world without innovation. Therefore innovation becomes an important objective. (iii) Productivity: Productivity is ascertained by comparing the value of output with the value of inputs. It is used as a measure of efficiency. In order to ensure continuous survival and progress every enterprise must aim at greater productivity through the best use of available resources. (iv) Earning profits: One of the, objectives of business is to earn profits on the capital employed. Profitability refers to profit in relation to capital investment. Every business must earn a reasonable profit which is so important for its survival and growth. 5.Explain briefly the nature/characteristics of business risk. Ans:- Brief explanation of the nature/characteristics of business risk are as follows:- (i) Business risks arise due to uncertainties: Uncertainty refers to the lack of knowledge about what is going to happen in the future. Natural calamities, change in demand and prices, changes in government policy, improvement in technology, etc., are some of the examples of uncertainty which create risks for business because the outcome of these future events is not known in advance., (ii) Risk is an essential part of every business: Every business has some risk. No business can avoid risk although the amount of risk may vary from business to business. Risk can be minimised but cannot be eliminated., (iii) Degree of risk depends mainly upon the nature and size of, business: Nature of business (i.e., type of goods and services produced and sold) and size of business (i.e., volume of production and sale) are the main, factors which determine the amount of risk in a business. (iv) Profit is the reward for risk taking: ‘No risk no gain’ is an age-old principle which applies to all types of business. Greater the risk involved in a business higher is the chance of profit. An entrepreneur undertakes risks under the expectation of higher profit. Profit is thus the reward for risk taking. 4 6.Explain briefly the causes of business risks. Ans;- Causes of business risks are as follows:- (i) Natural causes: Human beings have little control over natural calamities like flood, earthquake, lightning, heavy rains, famine, etc., These result in heavy loss of life property and income in business. (ii) 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., (iii)Economic causes: These include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of, technology or method of production, etc. Financial problems like rise in interest rate for borrowing, levy of higher taxes etc., also come under these type of causes as they result in higher unexpected cost of operation of business. (iv)Other causes: These are unforeseen events like political disturbances, mechanical failures such as the bursting of boiler, fluctuations in exchange rates etc., which lead to the possibility of business risks., 7.Explain briefly any four factors to be considered while starting a business. Ans:- The following four factors are to be considered while starting a business:- (i)Selection of line of business: The first thing to be decided by any entrepreneur of a new business is the nature and type of business to be undertaken. He will obviously like to enter that branch of industry and commerce which has the possibility of greater amount of profits. (ii) Size of the firm: Size of the firm or scale of its operation is another important decision to be taken at the start of the business. Some factors favour a large size whereas others tend to restrict the scale of operation. (iii)Choice of form of ownership: The choice of the suitable form of ownership will depend on such factors as the line of business, capital requirements, liability of owners,, division of profit, legal formalities,, continuity of business, transferability of interest and so on. (iv) Location of business enterprise:, An important factor to be considered at the start of the business is the place where the enterprise will be located. Availability of raw materials and labour, power supply and services like banking transportation, communication, warehousing, etc., are important factors while making a choice of location. SECTION—D(Eight marks questions) 1.What is Business? Explain the characteristics of Business. Ans;- Business refers to an occupation in which people regularly engage in activities related to purchase, production and/or sale of goods and services with a view to earning profits. characteristics of Business are explained below:- (i)An economic activity: Business is considered to be an economic activity because it is undertaken with the object of earning money or livelihood and not because of love affection sympathy or any other sentimental reason. (ii)Production or procurement of goods and services: Every business enterprise either manufactures the goods it deals in or it acquires them from producers to be further sold to consumers or users. Goods may consist of consumable items of daily use such as sugar, ghee, pen, notebook, etc., or capital goods like machinery, furniture, etc. Services may include facilities offered to consumers business firms and organisations in the form of transportation, banking, electricity, etc., (iii)Sale or exchange of goods and services: Directly or indirectly business involves transfer or exchange of goods and services for value. If goods are produced not for the purpose of sale but say for personal consumption it cannot be called a business activity. Thus one essential characteristic of business is that there should be sale or exchange of goods or services between the seller and the buyer., (iv) Dealings in goods and services on a regular basis: Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase therefore does not constitute business. (v) Profit earning: One of the main purpose of business is to earn income by way of profit. No business can survive for long without earning profit. 5 (vi) Uncertainty of return: Every business invests money (capital) to run its activities with the objective of earning profit. But it is not certain as to what amount of profit will be earned. Also there is always a, possibility of losses being incurred in spite of the best efforts put into the business. (vii) Element of risk: Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavourable or undesirable event. The risks are related with certain factors like, changes in consumer tastes and fashions changes in methods of production strike or lockout in the work place, increased competition in the market, fire, theft, accidents, natural calamities, etc. No business can altogether do away with risks., 2.Compare business with profession and employment. Ans:- COMPARISON OF BUSINESS, PROFESSION AND EMPLOYMENT, BASIC BUSINESS PROFESSION EMPLOYMENT 1. Mode of, establishment, Entrepreneur's, decision Membership of a, Appointment letter, and and, other legal, professional body and, service, agreement, formalities, if, necessary certificate of practice, 2. Nature of, work, Provision of goods, and Rendering of, personalised, Performing work as, per services to, the public, expert, services service contract, or rules of service 3. Qualification No minimum, qualification Qualifications, expertise, Qualification and, training is, necessary and training in a specific, as, prescribed by the, field as prescribed by the employer professional body is a, must 4. Reward or, return Profit earned Professional fee Salary or wages 5. Capital, investment Capital, investment, Limited capital needed for, No capital required required as per, size and establishment nature of, business, 6. Risk Profits are, uncertain and, Fee is generally regular, Fixed and regular, pay; no irregular; risk is, present, and certain; some risk or little risk 7. Transfer of, interest Transfer possible, with Not possible Not possible some, formalities 8. Code of, conduct No code of conduct is Professional code of, Norms of behaviour, laid prescribed. conduct is to be followed down by the, employer are to be, followed. 3.Explain the various types of Industries with examples. Ans:- Industry is concerned with production of goods and services.Industries may be divided intothree broad categories namely primary,secondary and tertiary. (a) Primary industries: These include all those activities which are connected with the extraction and production of natural resources and reproduction and development of living organisms plants etc. These industries may be further subdivided as follows: (i) Extractive industries: These industries extract or draw out products from natural sources. Important extractive industries include farming, mining, lumbering, hunting and fishing operations. ii) Genetic industries: These industries remain engaged in breeding plants and animals for their use in further reproduction. Seeds and nursery companies, cattle breeding, farms, poultry farms, and fish hatchery come under the class of genetic industries., (b) Secondary industries: These are concerned with using the materials which have already been extracted at the primary stage. Secondary industries may be further divided as follows:, (i) Manufacturing industries: These industries are engaged in producing goods through, processing of raw materials and thus creating form utilities. Manufacturing industries may be further divided into four categories on the basis of method of operation for production., Analytical industry which analyses and separates different elements from the same materials as in the case of oil refinery., 6  Synthetical industry which combines various ingredients into a new product as in the, case of cement., Processing industry which involves successive stages for manufacturing finished products as in the case of sugar and paper., Assembling industry which assembles different component parts to make a new product as in the case of television, car, computer, etc., (ii) Construction industries: These industries are involved in the construction of buildings, dams, bridges, roads as well as tunnels and canals. Engineering and architectural skills are an important part in construction industries. (c) Tertiary industries: These are concerned with providing support services to primary and secondary industries as well as activities relating to trade. Included in this category are transport, banking, insurance, warehousing, communication, packaging and advertising. 4.Describe the activities relating to commerce. Ans:- Commerce includes two types of activities viz., (i) trade and (ii) auxiliaries to trade. (i)Trade:-Trade is an essential part of commerce. It refers to sale transfer or exchange of goods. Trade may be classified into two broad categories — internal and external. Internal domestic or home trade is concerned with the buying and selling of goods and services within the geographical boundaries of a country. This may further be divided into wholesale and retail trade. When goods are purchased and sold in bulk it is known as wholesale trade. When goods are purchased and sold in comparatively smaller quantities for final consumption it is referred to as retail trade. External or foreign trade consists of the exchange of goods and services between persons or organisations operating in two or more countries. If goods are purchased from another country it is called import trade. If they are sold to other countries it is known as export trade. When goods are imported for export to other countries it is known as entrepot trade., (ii) Auxiliaries to Trade:-Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are generally referred to as services because these are in the nature of facilitating the activities relating to industry and trade. Transport, banking, insurance, warehousing, and advertising are regarded as auxiliaries to trade. Auxiliaries are an integral part of commerce in particular and business activity in general. These activities help in removing various hindrances which arise in connection with the production and distribution of goods. Transport facilitates movement of goods from one place to another. Banking provides financial assistance to the manufacturer and trader. Insurance covers various kinds of business risks. Warehousing creates time utility by way of storage facilities. Advertising provides information to the consumers. In other words, these activities facilitate movement, storage, financing, risk, coverage and sales promotion of goods. 5.Why does a business need multiple objectives? Explain the objectives of business. Ans:- Business enterprises are part of society and need to have several objectives including social responsibility to survive and prosper in the long run. Since a business has to balance a number of needs and goals it requires multiple objectives. The following are the important objectives of the business:- (i) Market standing: Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise must aim at standing on stronger footing in terms of offering competitive products to its customers and serving them to their satisfaction. (ii) Innovation: Innovation is the introduction of new ideas or methods in the way something is done or made. No business enterprise can flourish in a competitive world without innovation. Therefore innovation becomes an important objective. (iii) Productivity: Productivity is ascertained by comparing the value of output with the value of inputs. It is used as a measure of efficiency. In order to ensure continuous survival and progress every enterprise must aim at greater productivity through the best use of available resources. (iv) Physical and financial resources: Any business requires physical resources like plants, machines, offices etc., and financial resources, i.e., funds to be able to produce and supply goods and services to its customers. The business enterprise must aim at acquiring these resources according to their requirements and use them efficiently., 7 (v) Earning profits: One of the, objectives of business is to earn profits on the capital employed. Profitability refers to profit in relation to capital investment. Every business must earn a reasonable profit which is so important for its survival and growth. vi) Manager performance and development: Business enterprises need managers to conduct and coordinate business activity. Various programmes for motivating managers need to be implemented. Manager performance and development therefore is an important objective. The enterprises must actively work for this purpose., (vii) Worker performance and attitude:, Worker’s performance and attitudes determine their contribution towards productivity and profitability of any enterprise. Therefore, every enterprise must aim at improving its workers performance. It should also try to ensure a positive attitude on the part of workers. (viii)Social responsibility: Social responsibility refers to the obligation of business firms to contribute resources for solving social problems and work in a socially desirable manner., Thus a business enterprise must have multiple objectives to satisfy different individuals and groups. This is essential for its own survival and prosperity., 6.Explain the nature and causes of business risks. Ans:- Nature of business risks are as follows:- (i) Business risks arise due to uncertainties:- Natural calamities, change in demand and prices, changes in government policy, improvement in technology, etc., are some of the examples of uncertainty which create risks for business because the outcome of these future events is not known in advance., (ii) Risk is an essential part of every business: Every business has some risk. No business can avoid risk although the amount of risk may vary from business to business. Risk can be minimised but cannot be eliminated., (iii) Degree of risk depends mainly upon the nature and size of business: Nature of business and size of business are the main factors which determine the amount of risk in a business. For example a business dealing in fashionable items has a high degree of risk. Similarly a large-scale business generally has a higher risk than what a small scale has., (iv) Profit is the reward for risk taking: ‘No risk no gain’ is an age-old principle which applies to all types of business. Greater the risk involved in a business higher is the chance of profit. An entrepreneur undertakes risks under the expectation of higher profit. Profit is thus the reward for risk taking. Causes of Business Risks are as follows:-.(i) Natural causes: Human beings have little control over natural calamities like flood, earthquake, lightning, heavy rains, famine, etc., These result in heavy loss of life property and income in business. (ii) 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., (iii)Economic causes: These include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of, technology or method of production, etc. Financial problems like rise in interest rate for borrowing, levy of higher taxes etc., also come under these type of causes as they result in higher unexpected cost of operation of business. (iv)Other causes: These are unforeseen events like political disturbances, mechanical failures such as the bursting of boiler, fluctuations in exchange rates etc., which lead to the possibility of business risks., 7.Explain the factors to be considered while starting a business. Ans:- The following factors are to be considered while starting a business:- (i)Selection of line of business: The first thing to be decided by any entrepreneur of a new business is the nature and type of business to be undertaken. The decision will be influenced by the customer requirements in the market and also the kind of technical knowledge and interest the entrepreneur has for producing a particular product. (ii) Size of the firm: Size of the firm or scale of its operation is another important decision to be taken at the start of the business. Some factors favour a large size whereas others tend to restrict the scale of operation. (iii)Choice of form of ownership: The choice of the suitable form of ownership will depend on such factors as 8 the line of business, capital requirements, liability of owners,, division of profit, legal formalities,, continuity of business, transferability of interest and so on. (iv) Location of business enterprise:, An important factor to be considered at the start of the business is the place where the enterprise will be located. Availability of raw materials and labour, power supply and services like banking transportation, communication, warehousing, etc., are important factors while making a choice of location. (v) Financing the proposition:, Financing is concerned with providing the necessary capital for starting as well as for continuing the proposed business. Proper financial planning must be done to determine (a) the requirement of capital (b) source from which capital will be raised and (c) the best ways of utilising the capital in the firm. (vi) Physical facilities: Availability of physical facilities including machines and equipment, building and supportive services is a very important factor to be considered at the start of the business. (vii) Plant layout: Once the requirement of physical facilities has been determined the entrepreneur should draw a layout plan showing the arrangement of these facilities. Layout means the physical arrangement of machines and equipment needed to manufacture a product. (viii) Competent and committed worked force: It is another factors to be considered at the start of the business.Every enterprise needs competent and committed work force to perform various activities so that physical and financial resources are converted into desired outputs. (ix) Tax planning: The founder of the business has to consider in advance the tax liability under various tax laws and its impact on business decisions. (x) Launching the enterprise: After the decisions relating to the above mentioned factors have been taken the entrepreneur can go ahead with actual launching of the enterprise which would mean mobilising various resources, fulfilling necessary legal, formalities, starting the production process and initiating the sales promotion campaign. SECTION—E(PRACTICAL ORIENTED QUESTION—FIVE MARKS QUESTION) 1.As the owner of a business unit, what risks are faced by you in running it? Ans:-As the owner of a business unit, the following type of risks are associated with the business:- (i) Natural causes like flood, earthquake, lightning, heavy rains, famine, etc., are result in heavy loss of life property and income in business. (ii) Human causes like dishonesty carelessness or negligence of employees stoppage of work due to power failure, strikes, riots, management inefficiency etc., (iii)Economic causes like uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of technology or method of production etc. Financial problems like rise in interest rate for borrowing, levy of higher taxes etc., also come under these types of causes as they result in higher unexpected cost of operation of business. (iv)Other causes like political disturbances, mechanical failures such as the bursting of boiler, fluctuations in exchange rates etc., which lead to the possibility of business risks., Chapter 2 Forms of Business Organization SECTION—A(One Mark Questions) 1.Name any one form of Business Organization. Ans:- Partnership is one form of Business Organization 2.Give the meaning of Sole Proprietorship. Ans:- Any business organisation which is owned, managed and controlled by an individual are called Sole Proprietorship. 3.Give an example for Sole Proprietorship. Ans;- Beauty parlours an example for Sole Proprietorship. 4.State the nature of liability of a Sole Proprietor. Ans:- Liability of a Sole Proprietor is Unlimited. 9 5.Name the form of business organization which is found only in India? Ans:- JOINT HINDU FAMILY BUSINESS form of business organization which is found only in India. 6.In which country only do you find Hindu Undivided Family Business? Ans;- Joint Hindu family business is a specific form of business organisation found only in India. 7.Which Law governs Hindu Undivided Family in India? Ans:- It is governed by the Hindu Succession Act, 1956. 8.Give the meaning of Hindu Undivided Family. Ans:- It refers to a form of organisation wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF). 9.Who is the head of Hindu Undivided Family Business? Ans;-Karta is the head of Hindu Undivided Family Business 10.Who is Karta? Ans:- Karta is the eldest member of the H U F. 11.Who are co-parceners? Ans;- All members have equal ownership right over the property of an ancestor and they are known as co-parceners. 12.State the nature of liability of Karta. Ans:-Karta’s liability is Unlimited. 13.State the nature of liability of co-parceners. Ans;- co-parceners liability is Limited. 14.State the minimum number of persons required to set up a partnership. Ans;- The minimum number of members needed to start a partnership firm is two(2). 15.Which Act governs partnership business in India? Ans:- The partnership form of business organisation is governed by the Indian Partnership Act, 1932. 16.Who is a Minor Partner? Ans:-Minor Partner is one who has not attend age of 18 years. 17.State any one consequence of Non-Registration of Partnership firm. Ans:- One consequence of Non-Registration of Partnership firm are the firm cannot file a suit against third parties. 18.State any one type of Partnership. Ans;- General Partnership is one type of Partnership. 19.Which Act governs Co-operative Societies in India? Ans;- Cooperative Societies Act 1912 will governs Co-operative Societies in India. 20.State the minimum number of persons required to form a co-operative society. Ans;- The minimum number of persons required to form a co-operative society is Ten(10). 21.State the nature of liability of the members of co-operative societies. Ans;- Liability of the members of co-operative societies is Limited. 22.State the main objective of co-operative societies. Ans;- Service is the main objective of co-operative societies. 23.State the voting principle in co-operative societies. Ans;- ‘one man one vote’ is the voting principle in co-operative societies. 24.Mention any one type of co-operative societies. Ans;- Consumer’s cooperative societies is one type of co-operative societies. 25. Which Act governs the Joint Stock Companies in India? Ans;- The companies Act, 2013 (earlier The Companies Act, 1956)will governs the Joint Stock Companies in India. 26.State any one type of Joint Stock Companies. Ans;- Private Company is one type of Joint Stock Companies. 27.Mention the minimum number of members in a private company. Ans;- The minimum number of members in a private company is Two(2). 28.Mention the maximum number of members in a private company. Ans;- The maximum number of members in a private company is TWO HUNDRED(200). 29.Mention the minimum number of members in a public company. 10 Ans;-The minimum number of members in a public company is Seven(7). 30.Mention the maximum number of members in a public company. Ans:- The maximum number of members in a public company is Unlimited. 31.Name the type of company in which its shares are freely transferable. Ans;- public company’s shares are freely transferable. 32.Which type of company restricts the free transferability of its shares? Ans:- private company restricts the free transferability of its shares. 33.State any one feature of public company. Ans;- It has a minimum of 7 members and no limit on maximum members. 34.State any one feature of private company. Ans;-It does not invite public to subscribe to its share capital. SECTION---A (Multiple choices One Mark Questions) 1.Profits do not have to be shared. This statement referrers to (a) Partnership (b) Joint Hindu family business (c) Sole Proprietorship (d) Company Ans:- (c) Sole Proprietorship 2.The Head of the Joint Hindu family business is called (a) Proprietor (b) Director (c) Karta (d) Manager Ans:- (c) Karta 3.Karta in a Joint Hindu family business has (a) Limited liability (b) Unlimited liability (c) No liability for debts (d) Joint liability Ans:- (b) Unlimited liability 4.A Partner whose association with the firm is unknown to the general public is called (a) Active partner (b)Sleeping partner (c)Nominal partner (d)Secret partner Ans:- (d)Secret partner 5.In a cooperative society the principle followed is (a) One share one vote (b) One man one vote (c) No vote (d) Multiple votes Ans:- (b) One man one vote 6.Provision of residential accommodation to the members at reasonable rates is the objective of (a) Producers’ cooperative (b) Consumers’ cooperative (c) Housing cooperative (d) Credit cooperative Ans;- (c) Housing cooperative 7.The structure in which there is separation of ownership and management is called (a) Sole proprietorship (b) Partnership (c) Company (d) All the above business organizations Ans;- (c) Company 8.The capital of a company is divided into a number of parts each one of which is called (a) Dividend (b) Profit (c) Interest (d) Share Ans:- (d) Share 9.Minimum numbers of members to form a private company is (a) Two (b) Three (c) Five (d) Seven Ans:- (a) Two 10.Minimum number of members to form a public company is (a) Five (b) Seven (c) Twelve (d) Twenty one Ans:- (b) Seven 11.Board of Directors in joint stock company is selected by (a) General Public (b) Government agencies (c) Shareholders (d) Employees Ans:- (c) Shareholders SECTION—B (Two Marks Questions) 1.State any two merits of Sole Proprietary Organization. Ans;-(i) Ease of formation and closure (ii) Quick decision making are two merits of Sole Proprietary Organization. 2.Specify any two demerits of Sole Proprietary Organization. Ans:- (i) Limited resources and (ii) Unlimited liability are two demerits of Sole Proprietary Organization. 3.Give the meaning of Hindu Undivided Family business. Ans;- It refers to a form of organisation wherein the business is owned and carried on by the members of the Hindu Undivided Family (HUF). 4.Define Partnership. 11 Ans:- 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.” 5.Who is an Active Partner? Ans: An active partner is one who contributes capital, participates in the management of the firm, shares its profits and losses, and is liable to an unlimited extent to the creditors of the firm. 6.Who is a Sleeping Partner? Ans:- Partners who do not take part in the day to day activities of the business are called sleeping partners. A sleeping partner, however, contributes capital to the firm, shares its profits and losses, and has unlimited liability. 7.Who is a Nominal Partner? Ans;- A nominal partner is one who allows the use of his/her name by a firm, but does not contribute to its capital. But his/her liability is unlimited. 8.Who is a Partner by Estoppel? Ans:- A person is considered a partner by estoppels if, through his/her own initiative, conduct or behavior, he/she gives an impression to others that he/she is a partner of the firm. His/her liability also unlimited. 9.Compare active partner with partner by estoppel by taking capital contribution and sharing of profits and losses as bases. Ans:-Active Partner will contribute Capital as well as sharing profits and losses of the business whereas Partner by estoppels do not contribute capital as well as do not share profits or losses of the business. 10. Give the meaning of Partnership Deed. Ans;- The written agreement which specifies the terms and conditions that govern the partnership is called the partnership deed. 11. State any two contents of Partnership Deed. Ans:- Two contents of Partnership Deed are (i) Name of firm (ii) Nature of business and location of business 12. What is Particular Partnership? Ans;-When a partnership is formed for a particular venture or objectives it is called “Particular Partnership.” 13. What is Partnership at Will? Ans:-Where no provision is made in the contract between the partners for the duration of their partnership, the partnership is called “Partnership at will”. 14. What is General Partnership? Ans;-The partners whose liability is unlimited are called “General Partnership”. 15. Give the meaning of unlimited liability. Ans:- If personal assets of the partners may be used for repaying debts in case the business assets are insufficient are called as Unlimited Liability. 16. State any two consequences of Non-Registration of partnership firm. Ans:- Two consequences of Non-Registration of partnership firm are (b) The firm cannot file a suit against third parties, and (c) The firm cannot file a case against the partners. 17. Give the meaning of Co-operative Societies. Ans:- The cooperative society is a voluntary association of persons, who join together with the motive of welfare of the members. 18. State the minimum and maximum number of members in Co-operatives. Ans;-Minimum members to form a Co-operatives is Ten(10) Maximum members in Co-operatives are unlimited. 19. State any two types of Co-operative Societies. Ans;- Two types of Co-operative Societies are (i) Consumers’ Co-operative Societies (ii) Producers’ Co-operative Societies. 20. Give the meaning of Consumers’ Co-operative Societies. Ans:- The consumer cooperative societies are formed to protect the interests of consumers. The members comprise of consumers desirous of obtaining good quality products at reasonable prices. 21. Give the meaning of Producers’ Co-operative Societies. Ans:- 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. The society aims to fight against the big capitalists and enhance the bargaining power of the small producers. 22. Give the meaning of Housing Co-operative Societies. 12 Ans:- Cooperative housing societies are established to help people with limited income to construct houses at reasonable costs. The members of these societies consist of people who are desirous of procuring residential accommodation at lower costs. 23. Give the meaning of Marketing Co-operative Societies. Ans:- These societies are established to help small producers in selling their products. The members consist of producers who wish to obtain reasonable prices for their output. 24. Give the meaning of Farmers’ Co-operative Societies. Ans;- These societies are established to protect the interests of farmers by providing better inputs at a reasonable cost. The members comprise of farmers who wish to jointly take up farming activities. 25. Give the meaning of Credit Co-operative Societies. Ans;- Credit cooperative societies are established for providing easy credit on reasonable terms to the members. The members comprise of persons who seek financial help in the form of loans. 26. State any two advantages of Co-operative Societies. Ans:- Two advantages of Co-operative Societies are (i)The liability of members of a cooperative society is limited to the extent of their capital contribution. (ii)The member of a co-opertative society have equal vote in the management. 27. State any two limitations of Co-operative Societies. Ans;- Two limitations of Co-operative Societies are (i)It suffers from inadequate capital. (ii) Disputes among the members of a co-operative society leads to the collapse of the co-operative society. 28. Give the meaning of a Joint Stock Company. Ans;- A company can be described as an artificial person having a separate legal entity, perpetual succession and a common seal. 29. Define Joint Stock Company. Ans;- According to Prof.Haney “Joint stock company is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership.” 30. State any two features of a private company. Ans;- Two features of a private company are (i) It restricts the right of members to transfer its shares. (ii) It does not invite public to subscribe to its share capital. 31. State any two features of a public company. Ans:- Two features of a public company are (i) It has no restriction on transfer of shares. (ii) It invite public to subscribe to its share capital. 32. State the minimum and maximum number of members in a public company. Ans;- Public company has a minimum of 7 members and no limit on maximum members; 33. State the minimum and maximum number of members in a private company Ans:- Private company has a minimum of 2 and a maximum of 200 members. 34. State any two differences between public and private companies. Ans;- Two differences between public and private companies are (i) Private company restricts the right of members to transfer its shares whereas Public company does not restricts the right of members to transfer its shares. (ii) Private company does not invite public to subscribe to its share capital whereas Public company invite public to subscribe to its share capital. 35. State any two merits of Joint Stock Company. Ans:- Two merits of Joint Stock Company are (i)Liability of the shareholders is limited. (ii)It has a continuous existence(perpetual succession). 36. State any two limitations of Joint Stock Company. Ans;- Two limitations of Joint Stock Company are (i)Formation of Joint Stock Company are difficult. (ii) Secrecy about the operations of company cannot be possible. SECTION—C (Four Marks Questions) 1. Explain briefly any four features of Sole Proprietorship form of business organisation. Ans:- Four features of Sole Proprietorship form of business organisation are as follows:- 13 (i) Formation and closure: No legal formalities are required to start a sole proprietary business, though in some cases one may require a license. There is no separate law that governs sole proprietorship. 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. (iii) Sole risk bearer and profit recipient: The risk of failure of business is borne all alone by the sole proprietor. (iv) Control: The right to run the business and make all decisions lies absolutely with the sole proprietor. 2. Explain briefly any four merits of Sole Proprietorship form of business organisation. Ans;- Four merits of Sole Proprietorship form of business organisation are as follows (i) Quick decision making: A sole proprietor enjoys considerable degree of freedom in making business decisions. (ii) Confidentiality of information: Sole decision making authority enables the proprietor to keep all the information related to business operations confidential and maintain secrecy. A sole trader is also not bound by law to publish firm’s accounts. (iii) Direct incentive: A sole proprietor directly reaps the benefits of his/her efforts as he/she is the sole recipient of all the profit. (iv) Ease of formation and closure: There is no separate law that governs sole proprietorship. As 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. 3. Explain briefly the limitations of sole proprietorship form of business organisation. Ans;- Limitations of sole proprietorship form of business organisation are as follows:- (i) Limited resources: Resources of a sole proprietor are limited to his/her personal savings and borrowings from others. Lack of resources is one of the major reasons why the size of the business rarely grows much and generally remains small. (ii) Limited life of a business concern: In the eyes of the law the proprietorship and the owner are considered one and the same. Death, insolvency or illness of a proprietor affects the business and can lead to its closure. (iii) Unlimited liability: A major disadvantage of sole proprietorship is that the owner has unlimited liability. (iv) Limited managerial ability: The owner has to assume the responsibility of varied managerial tasks such as purchasing, selling, financing, etc. It is rare to find an individual who excels in all these areas. 4. Explain briefly any four features of Hindu Undivided Family business. Ans:- Four features of Hindu Undivided Family business are explained below:- (i) Formation: For a joint Hindu family business, there should be at least two members in the family and ancestral property to be inherited by them. The business does not require any agreement as membership is by birth. It is governed by the Hindu Succession Act, 1956. (ii) Liability: The liability of all members except the karta is limited to their share of co-parcenery property of the business. The karta, however, has unlimited liability. (iii) Control: The control of the family business lies with the karta. He takes all the decisions and is authorised to manage the business. 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. The business can, however, be terminated with the mutual consent of the members. 5. Explain briefly the merits of Hindu Undivided Family business. Ans;- Merits of Hindu Undivided Family business are explained below:- (i)Effective control: The karta has absolute decision making power. This avoids conflicts among members as no one can interfere with his right to decide. This also leads to prompt and flexible decision making. (ii)Continued business existence: The death of the karta will not affect the business as the next eldest member will then take up the position. Hence, operations are not terminated and continuity of business is not threatened. (iii)Limited liability of members: The liability of all the co-parceners except the karta is limited to their share in the business, and consequently their risk is well-defined and precise. 14 (iv) Increased loyalty and cooperation: Since the business is run by the members of a family, there is a greater sense of loyalty towards one other. Pride in the growth of business is linked to the achievements of the family. This helps in securing better cooperation from all the members. 6. Explain briefly the limitations of Hindu Undivided Family business. Ans:- Limitations of Hindu Undivided Family business are explained below:- (i)Limited resources: The joint Hindu family business faces the problem of limited capital as it depends mainly on ancestral property. This limits the scope for expansion of business. (ii)Unlimited liability of karta: The karta is burdened not only with the responsibility of decision making and management of business, but also suffers from the disadvantage of having unlimited liability. His personal property can be used to repay business debts. (iii)Dominance of karta: The karta individually manages the business which may at times not be acceptable to other members. This may cause conflict amongst them and may even lead to break down of the family unit. (iv) Limited managerial skills: Since the karta cannot be an expert in all areas of management, the business may suffer as a result of his unwise decisions. His inability to decide effectively may result into poor profits or even losses for the organisation. 7. Explain briefly any four features of Partnership. Ans;- Four features of Partnership are explained below:- (i)Formation: The partnership form of business organisation is governed by the Indian Partnership Act, 1932. (ii) Liability: The partners of a firm have unlimited liability. Personal assets may be used for repaying debts in case the business assets are insufficient. Further, the partners are jointly and individually liable for payment of debts. (iii) Continuity: Partnership is characterised by lack of continuity of business since the death, retirement, insolvency or insanity of any partner can bring an end to the business. However, the remaining partners may if they so desire continue the business on the basis of a new agreement. (iv)Risk bearing: The partners bear the risks involved in running a business as a team. The reward comes in the form of profits which are shared by the partners in an agreed ratio. However, they also share losses in the same ratio in the event of the firm incurring losses. 8. Explain briefly any four merits of Partnership. Ans:- Four merits of Partnership are explained below:- (i) Ease of formation and closure: A partnership firm can be formed easily by putting an agreement between the prospective partners into place whereby they agree to carry out the business of the firm and share risks. There is no compulsion with respect to registration of the firm. 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. Because an individual is not forced to handle different activities, this not only reduces the burden of work but also leads to fewer errors in judgments. As a consequence, decisions are likely to be more balanced. (iii) More funds: In a partnership, the capital is contributed by a number of partners. This makes it possible to raise larger amount of funds as compared to a sole proprietor and undertake additional operations when needed. (iv) Sharing of risks: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden and stress on individual partners. 9. Explain briefly the limitations of Partnership. Ans:- The limitations of Partnership are explained below:- (i) Unlimited liability: Partners are liable to repay debts even from their personal resources in case the business assets are not sufficient to meet its debts. The liability of partners is both joint and several which may prove to be a drawback for those partners who have greater personal wealth. (ii) Limited resources: There is a restriction on the number of partners, and hence contribution in terms of capital investment is usually not sufficient to support large scale business operations. As a result, partnership firms face problems in expansion beyond a certain size. (iii) Possibility of conflicts: Partnership is run by a group of persons wherein decision making authority is shared. Difference in opinion on some issues may lead to disputes between partners. 15 (iv) Lack of continuity: Partnership comes to an end with the death, retirement, insolvency or lunacy of any partner. It may result in lack of continuity. However, the remaining partners can enter into a fresh agreement and continue to run the business. 10. Explain briefly the types of Partnership. Ans;-Different types of Partnership are explained below:- Classification on the basis of duration (i) Partnership at will: This type of partnership exists at the will of the partners. It 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 say construction of a building or an activity to be carried on for a specified time period is called particular partnership. It dissolves automatically when the purpose for which it was formed is fulfilled or when the time duration expires. 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 of the firm and their acts are binding on each other as well as on the firm. Registration of the firm is optional. The existence of the firm is affected by the death, lunacy, insolvency or retirement of the partners. (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. The limited partners do not enjoy the right of management and their acts do not bind the firm or the other partners. Registration of such partnership is compulsory. 11. Explain briefly any four types of partners. Ans:- Four types of partners are explained below:- (i) Active partner: An active partner is one who contributes capital, participates in the management of the firm, shares its profits and losses, and is liable to an unlimited extent to the creditors of the firm. These partners take actual part in carrying out business of the firm on behalf of other partners. (ii) Sleeping or dormant partner: Partners who do not take part in the day to day activities of the business are called sleeping partners. A sleeping partner, however, contributes capital to the firm, shares its profits and losses, and has unlimited liability. (iii) Secret partner: A secret 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. (iv) Nominal partner: A nominal partner is one who allows the use of his/her name by a firm, but does not contribute to its capital. He/she does not take active part in managing the firm, does not share its profit or losses but is liable, like other partners, to the third parties, for the repayments of the firm’s debts. 12. Explain briefly the procedure for the registration of Partnership firm. Ans:- The procedure for the registration of Partnership firm are as follows:- 1. Submission of application in the prescribed form to the Registrar of firms. The application should contain the following particulars: Name of the firm Location of the firm Names of other places where the firm carries on business The date when each partner joined the firm Names and addresses of the partners Duration of partnership This application should be signed by all the partners. 2. Deposit of required fees with the Registrar of Firms. 3. The Registrar after approval will make an entry in the register of firms and will subsequently issue a certificate of registration. 13. State any eight contents of Partnership Deed. Ans:- Eight contents of Partnership Deed are as follows:- 16 (i) Name of firm (ii) Nature of business and location of business (iii) Duration of business (iv)Investment made by each partner (v) Distribution of profits and losses (vi) Duties and obligations of the partners (vii) Salaries and withdrawals of the partners (viii) Interest on capital and interest on drawings 14. Explain briefly any four features of Co-operative societies. Ans:- Four features of Co-operative societies are explained below:- (i ) Voluntary membership: The membership of a cooperative society is voluntary. A person is free to join a cooperative society, and can also leave anytime as per his desire. Membership is open to all, irrespective of their religion, caste, and gender. (ii) Legal status: Registration of a cooperative society is compulsory. This accords 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. 15. Explain briefly any four merits of Co-operative societies. Ans:- Four merits of Co-operative societies are explained below:- (i) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights. (ii) Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution. The personal assets of the members are, therefore, safe from being used to repay business debts. (iii) Stable existence: Death, bankruptcy or insanity of the members do not affect continuity of a cooperative society. A society, therefore, operates unaffected by any change in the membership. (iv) Support from government: The cooperative society exemplifies the idea of democracy and hence finds support from the Government in the form of low taxes, subsidies, and low interest rates on loans. 16. Explain briefly any four limitations of Co-operative societies. Ans;- Four limitations of Co-operative societies are explained below:- (i) Limited resources: Resources of a cooperative society consists of capital contributions of the members with limited means. (ii) Inefficiency in management: Cooperative societies are unable to attract and employ expert managers because of their inability to pay them high salaries. The members who offer honorary services on a voluntary basis are generally not professionally equipped to handle the management functions effectively. (iii) Lack of secrecy: As a result of open discussions in the meetings of members as well as disclosure obligations as per the Societies Act (7), it is difficult to maintain secrecy about the operations of a cooperative society. (iv) Differences of opinion: Internal quarrels arising as a result of contrary viewpoints may lead to difficulties in decision making. Personal interests may start to dominate the welfare motive and the benefit of other members may take a backseat if personal gain is given preference by certain members. 17. Explain briefly any two types of Co-operative societies. Ans:- Two types of Co-operative societies are explained below:- (i) Consumer’s cooperative societies: The consumer cooperative societies are formed to protect the interests of consumers. The members comprise of consumers desirous of obtaining good quality products at reasonable prices. 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, thereby eliminating the middlemen. Profits, if any, are distributed on the basis of either their capital contributions to the society or purchases made by individual 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. The society aims to fight against the big capitalists and enhance the bargaining power of the small producers. It supplies raw materials, equipment and other inputs to the members and also 17 buys their output for sale. Profits among the members are generally distributed on the basis of their contributions to the total pool of goods produced or sold by the society. 18. Explain in brief any four features of Joint Stock Companies. Ans;- Four features of Joint Stock Companies are explained below:- (i) Separate legal entity: From the day of its incorporation, a company acquires an identity, distinct from its members. Its assets and liabilities are separate from those of its owners. The law does not recognise the business and owners to be one and the same. (ii) Perpetual succession: A company being a creation of the law, can be brought to an end only by law. Members may come and members may go, but the company continues to exist. (iii) 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. (iv) Liability: The liability of the members is limited to the extent of the capital contributed by them in a company. 19. Explain in brief any four merits of Joint stock Companies. Ans:- four merits of Joint stock Companies are explained below:- (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 ease of transfer of ownership adds to the advantage of investing in a company as the share of a public limited company can be sold in the market and as such can be easily converted into cash in case the need arises. (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: As compared to the sole proprietorship and partnership forms of organisation, a company has large financial resources. Further, capital can be attracted from the public as well as through loans from banks and financial institutions. Thus there is greater scope for expansion. 20. Explain in brief any four limitations of Joint stock Companies. Ans;- Four limitations of Joint stock Companies are explained below:- (i) Complexity information: The formation of a company requires greater time, effort and extensive knowledge of legal requirements and the procedures involved. As comparedto 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 about the operations of company. (iii) Numerous regulations: The functioning of a company is subject to many legal provisions and compulsions. A company is burdened with numerous restrictions in respect of aspects including audit, voting, filing of reports and preparation of documents, and is required to obtain various certificates from different agencies, viz., registrar, SEBI, etc. This reduces the freedom of operations of a company and takes away a lot of time, effort and money. (iv) 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. 21. State any four privileges of a private company as against a public company. Ans:- Four privileges of a private company as against a public company are as follows:- 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. 4. A private company needs to have only two directors as against the minimum of three directors in the case of a public company. 22. State any four differences between public and private companies. 18 Ans;- Four differences between public and private companies are as follows:- Basis Public company Private company Members Minimum - 7 Maximum - Minimum - 2 Maximum - 200 unlimited Minimum number of directors Three Two Minimum paid up capital Rs. 5 Lakhs Rs. 1 Lakhs Index of members Compulsory Not compulsory Transfer of shares No restriction Restriction on transfer Invitation to public to Can invite the public to Cannot invite the public to subscribe to shares subscribe to its shares or subscribe to its shares and debentures debentures SECTION—D (Eight Marks Questions) 1. Explain the merits and demerits of Sole Proprietorship form of business organization. Ans:- Merits and demerits of Sole Proprietorship form of business organization are explained below:- Merits:- (i) Quick decision making: A sole proprietor enjoys considerable degree of freedom in making business decisions. (ii) Confidentiality of information: Sole decision making authority enables the proprietor to keep all the information related to business operations confidential and maintain secrecy. A sole trader is also not bound by law to publish firm’s accounts. (iii) Direct incentive: A sole proprietor directly reaps the benefits of his/her efforts as he/she is the sole recipient of all the profit. (iv) Ease of formation and closure: There is no separate law that governs sole proprietorship. As 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. Demerits:- (i) Limited resources: Resources of a sole proprietor are limited to his/her personal savings and borrowings from others. Lack of resources is one of the major reasons why the size of the business rarely grows much and generally remains small. (ii) Limited life of a business concern: In the eyes of the law the proprietorship and the owner are considered one and the same. Death, insolvency or illness of a proprietor affects the business and can lead to its closure. (iii) Unlimited liability: A major disadvantage of sole proprietorship is that the owner has unlimited liability. (iv) Limited managerial ability: The owner has to assume the responsibility of varied managerial tasks such as purchasing, selling, financing, etc. It is rare to find an individual who excels in all these areas. 2. Explain any four merits and four limitations of Partnership form of business. Ans;- Four merits and four limitations of Partnership form of business are explained below:- Merits:- (i) Ease of formation and closure: A partnership firm can be formed easily by putting an agreement between the prospective partners into place whereby they agree to carry out the business of the firm and share risks. There is no compulsion with respect to registration of the firm. 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. Because an individual is not forced to handle different activities, this not only reduces the burden of work but also leads to fewer errors in judgments. As a consequence, decisions are likely to be more balanced. (iii) More funds: In a partnership, the capital is contributed by a number of partners. This makes it possible to raise larger amount of funds as compared to a sole proprietor and undertake additional operations when needed. (iv) Sharing of risks: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden and stress on individual partners. 19 Demerits:_ (i) Unlimited liability: Partners are liable to repay debts even from their personal resources in case the business assets are not sufficient to meet its debts. The liability of partners is both joint and several which may prove to be a drawback for those partners who have greater personal wealth. (ii) Limited resources: There is a restriction on the number of partners, and hence contribution in terms of capital investment is usually not sufficient to support large scale business operations. As a result, partnership firms face problems in expansion beyond a certain size. (iii) Possibility of conflicts: Partnership is run by a group of persons wherein decision making authority is shared. Difference in opinion on some issues may lead to disputes between partners. (iv) Lack of continuity: Partnership comes to an end with the death, retirement, insolvency or lunacy of any partner. It may result in lack of continuity. However, the remaining partners can enter into a fresh agreement and continue to run the business. 3. Explain the types of co-operative societies. Ans:- The types of co-operative societies are explained below:- (i) Consumer’s cooperative societies: The consumer cooperative societies are formed to protect the interests of consumers. The members comprise of consumers desirous of obtaining good quality products at reasonable prices. 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, thereby eliminating the middlemen. Profits, if any, are distributed on the basis of either their capital contributions to the society or purchases made by individual 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. The society aims to fight against the big capitalists and enhance the bargaining power of the small producers. It supplies raw materials, equipment and other inputs to the members and also buys their output for sale. Profits among the members are generally distributed on the basis of their contributions to the total pool of goods produced or sold by the society. (iii) Marketing cooperative societies: Such societies are established to help small producers in selling their products. The 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. It pools the output of individual members and performs marketing functions like (iv) Farmer’s cooperative societies: These societies are established to protect the interests of farmers by providing better inputs at a reasonable cost. The members comprise of farmers who wish to jointly take up farming activities. The aim is to gain the benefits of large scale farming and increase the productivity. Such societies provide better quality seeds, fertilisers, machinery and other modern techniques for use in the cultivation of crops. This helps not only in improving the yield and returns to the farmers, but also solves the problems associated transportation, warehousing, packaging, etc., to sell the output at the best possible price. Profits are distributed according to each member’s contribution to the pool of output. with the farming on fragmented land holdings. (v) Credit cooperative societies: Credit cooperative societies are established for providing easy credit on reasonable terms to the members. The members comprise of persons who seek financial help in the form of loans. The aim of such societies is to protect the members from the exploitation of lenders who charge high rates of interest on loans. Such societies provide loans to members out of the amounts collected as capital and deposits from the members and charge low rates of interest. (vi) Cooperative housing societies: Cooperative housing societies are established to help people with limited income to construct houses at reasonable costs. The members of these societies consist of people who are desirous of procuring residential accommodation at lower costs. The aim is to solve the housing problems of the members by constructing houses and giving the option of paying in instalments. These societies construct flats or provide plots to members on which the members themselves can construct the houses as per their choice. 20 4. Explain any four merits and four limitations of Co-operative societies. Ans:_ Four merits and four limitations of Co-operative societies are as follows:- Merits:- (i) Equality in voting status: The principle of ‘one man one vote’ governs the cooperative society. Irrespective of the amount of capital contribution by a member, each member is entitled to equal voting rights. (ii) Limited liability: The liability of members of a cooperative society is limited to the extent of their capital contribution. The personal assets of the members are, therefore, safe from being used to repay business debts. (iii) Stable existence: Death, bankruptcy or insanity of the members do not affect continuity of a cooperative society. A society, therefore, operates unaffected by any change in the membership. (iv) Support from government: The cooperative society exemplifies the idea of democracy and hence finds support from the Government in the form of low taxes, subsidies, and low interest rates on loans. Demerits:- (i) Limited resources: Resources of a cooperative society consists of capital contributions of the members with limited means. (ii) Inefficiency in management: Cooperative societies are unable to attract and employ expert managers because of their inability to pay them high salaries. The members who offer honorary services on a voluntary basis are generally not professionally equipped to handle the management functions effectively. (iii) Lack of secrecy: As a result of open discussions in the meetings of members as well as disclosure obligations as per the Societies Act (7), it is difficult to maintain secrecy about the operations of a cooperative society. (iv) Differences of opinion: Internal quarrels arising as a result of contrary viewpoints may lead to difficulties in decision making. Personal interests may start to dominate the welfare motive and the benefit of other members may take a backseat if personal gain is given preference by certain members. 5. Explain the features of Joint Stock Company. Ans:- Features of Joint Stock Company are as follows:- (i) Artificial person: A company is a creation of law and exists independent of its members. Like natural persons, a company can own property, incur debts, borrow money, enter into contracts, sue and be sued but unlike them it cannot breathe, eat, run, talk and so on. 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. Its assets and liabilities are separate from those of its owners. The law does not recognise the business and owners to be one and the same. (iii) Formation: The formation of a company is a time consuming, expensive and complicated process. It involves the preparation of several documents and compliance with several legal requirements before it can start functioning. Registration of a company is compulsory as provided under the Indian Companies Act, 2013 or any previous Company Law, (iv) Perpetual succession: A company being a creation of the law, can be brought to an end only by law. Members may come and members may go, but the company continues to exist. (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 acts through its Board of Directors. The Board of Directors enters into an agreement with others by indicating the company’s approval through a common seal. Any agreement which does not have the company seal put on it is not legally binding on the company. (viii) Risk bearing: The risk of losses in a company is borne by all the share holders 6. Explain any four merits and four limitations of Joint Stock Company. Ans:- four merits of Joint stock Companies are explained below:- (i) Limited liability: The shareholders are liable to the extent of the amount unpaid on the shares held by them. 21 (ii) Transfer of interest: The ease of transfer of ownership adds to the advantage of investing in a company as the share of a public limited company can be sold in the market and as such can be easily converted into cash in case the need arises. (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: As compared to the sole proprietorship and partnership forms of organisation, a company has large financial resources. Further, capital can be attracted from the public as well as through loans from banks and financial institutions. Thus there is greater scope for expansion. Four limitations of Joint stock Companies are explained below:- (i) Complexity information: The formation of a company requires greater time, effort and extensive knowledge of legal requirements and the procedures involved. As comparedto 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 about the operations of company. (iii) Numerous regulations: The functioning of a company is subject to many legal provisions and compulsions. A company is burdened with numerous restrictions in respect of aspects including audit, voting, filing of reports and preparation of documents, and is required to obtain various certificates from different agencies, viz., registrar, SEBI, etc. This reduces the freedom of operations of a company and takes away a lot of time, effort and money. (iv) 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. SECTION—E (PRACTICAL ORIENTED QUESTION) 1.You are planning to start a new business. Make a list of any five factors you consider while selecting a suitable form of business organization. Ans:- The following five factors can consider while selecting a suitable form of business organization. (i) Cost and ease in setting up the organisation (ii) Liability of the owner (iii) Continuity of the business (iv) Management ability (v) Capital considerations (vi) Degree of control (vii) Nature of business 22 Chapter 3 Private, Public and Global Enterprises SECTION-A(One Mark Questions) 1.What is Private Sector? Ans:- The private sector consists of business owned by individuals or a group of individuals. 2.What is Public Sector? Ans:- The public sector consists of various organisations owned and managed by the government. 3.Mention any one form of organizing Public Sector Enterprises. Ans:- Departmental undertaking is one form of organizing Public Sector Enterprises. 4.Give an example for Departmental Undertakings. Ans:- Post and telegraph department is one example for Departmental Undertakings. 5.Give an example for Statutory Corporations. Ans:- BSNL, MTNL,KPTCL ETC., example for Statutory Corporations. 6.Give an example for Government Company. Ans:-INDIAN TELEPHONE INDISTRIES LTD(ITI LTD.,) is an example for Government Company. 7.State the Minimum amount of Capital held by the Govt. in Government Companies. Ans;- Minimum amount of Capital held by the Govt. in Government Companies is not less than 51 percent of the paid-up capital. 8.Give an example for Global Enterprises. Ans:-Hindustan Lever Ltd is an example for Global Enterprises. 9.State any one benefit of Joint Venture. Ans;- Increased resources and capacity is one benefit of Joint Venture. 10.Give an example for Joint Venture. Ans:- Bharti and Airtel is an example for Joint Venture. 11.Expand MOU. Ans;- MOU:- Memorandum of Understanding 12.Expand MNC. Ans:-MNC=Multi-National Companies 13.Expand BIFR. Ans:-BIFR= Board for Industrial and Financial Reconstruction 23 SECTION-A(One Mark Questions)(Multiple Choices One Mark Questions) 1.A government company is any company in which the paid up capital held by the government is not less than (a)49 percent (b)51 percent (c)50 percent (d)25 percent Ans:- (b)51 percent 2.Centralized control in MNCs implies control exercised by (a)Branches (b)Subsidiaries (c)Headquarters (d)Parliament Ans:- (c)Headquarters 3.PSEs are organizations owned by (a)Joint Hindu Family (b)Government (c)Foreign Companies (d)Private entrepreneurs Ans:- (b)Government 4.Reconstruction of sick public sector units is taken up by (a)MOFA (b)MoU (c)BIFR (d)None of the above Ans:- (c)BIFR 5.Disinvestments of PSEs implies (a)Sale of equity shares to private sector/public (b)Closing down operations (c)Investing in new areas (d)None of the above Ans:- (a)Sale of equity shares to private sector/public. SECTION B(Two marks Questions) 1.What are Departmental Undertakings? Ans:- These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself. 2.State any two merits of Departmental Undertakings. Ans:- Two merits of Departmental Undertakings are:- (i) They are subject to accounting and audit controls applicable to other Government activities; (ii) The revenue earned by these are paid into the Government treasury. 3.State any two limitations of Departmental Undertakings. Ans:- Two limitations of Departmental Undertakings are:- (i) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business; (ii) These enterprises are unable to take advantage of business opportunities. 4.Give the meaning of Statutory Corporations. Ans:- Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament. 5.Mention any two merits of Statutory Corporations. 24 Ans:- Two merits of Statutory Corporations are:- (i)They are free from undesirable government regulation and control (ii) A statutory corporation is a valuable instrument for economic development. 6.Mention any two limitations of Statutory Corporations. Ans:- Two limitations of Statutory Corporations are:- (i) Government and political interference has always been there in major decisions or where huge funds are involved. (ii) Where there is dealing with public, rampant corruption exists; 7.Give the meaning of Government Companies. Ans:- According to the Indian Companies Act 2013, a government company means any company in which not less than 51 percent of the paid-up capital is held by the central government, or by any state government or partly by central government and partly by one or more state governments. 8.State any two merits of Government Companies. Ans:- Two merits of Government Companies are:- (i) It has a separate legal entity, apart from the Government; (ii) These companies by providing goods and services at reasonable prices. 9. State any two limitations of Government Companies. Ans:- Two limitations of Government Companies are;- (i) Since the Government is the only shareholder in some of the Companies, the provisions of the Companies Act do not have much relevance; (ii) It evades constitutional responsibility, which a company financed by the government should have. It is not answerable directly to the Parliament; 10.What is Disinvestment in relation to PSEs? Ans:- Disinvestment means the sale of the equity shares to the private sector and the public. 11. What do you mean by Global Enterprises? Ans:-A Global Enterprises owns and manages business in two or more countries. 12.Give the meaning of Joint Ventures. Ans;- Any business organisation can join hands with another business organisation for mutual benefit are called as Joint Ventures. 13.Write any two benefits of Joint Ventures. Ans:- two benefits of Joint Ventures are:- (i) Joint ventures allow business to come up with something new and creative for the same market. (ii) Low cost of production is another merits of joint ventures. 25  SECTION C(Four Marks Questions) 1.Briefly explain any four features of Departmental Undertakings. Ans:- Four features of Departmental Undertakings explained as below:- (i) The funding of these enterprises come directly from the Government Treasury and are an annual appropriation from the budget of the Government. The revenue earned by these is also paid into the treasury; (ii) They are subject to accounting and audit controls applicable to other Government activities; (iii) The employees of the enterprise are Government servants and their recruitment and conditions of service are the same as that of other employees directly under the Government. (iv) It is generally considered to be a major subdivision of the Government department and is subject to direct control of the ministry; 2.Briefly explain the merits of Departmental Undertakings. Ans:- Four Merits of Departmental Undertakings are explained as below:- i) These undertakings facilitate the Parliament to exercise effective control over their operations; (ii) These ensure a high degree of public accountability; (iii) The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the Government; (iv) Where national security is concerned, this form is most suitable since it is under the direct control and supervision of the concerned Ministry. 3.Briefly explain any four limitations of Departmental Undertakings. Ans;- four limitations of Departmental Undertakings are as follows:- (i) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business; (ii) These enterprises are unable to take advantage of business opportunities. The bureaucrat’s over-cautious and conservative approval does not allow them to take risky ventures; (iii) There is a lot of political interference through the ministry; (iv) These organisations are usually in sensitive to consumer needs and do not provide adequate services to them. 4.Briefly explain any two merits and two limitations of Departmental Undertakings. Ans:- Two Merits of Departmental Undertakings are explained as below:- i) These undertakings facilitate the Parliament to exercise effective control over their operations; (ii) These ensure a high degree of public accountability; Two limitations of Departmental Undertakings are as follows:- (i) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business; (ii) These enterprises are unable to take advantage of business opportunities. The bureaucrat’s over-cautious and conservative approval does not allow them to take risky ventures; 26 5.Briefly explain any four features of Statutory Corporations. Ans;- Four features of Statutory Corporations are as follows:- (i) Statutory corporations are set up under an Act of Parliament and are governed by the provisions of the Act. The Act defines the objects, powers and privileges of a statutory corporation; (ii) This type of organisation is wholly owned by the state. The government has the ultimate financial responsibility and has the power to appropriate its profits. At the same time, the state also has to bear the losses, if any; (iii) A statutory corporation is a body corporate and can sue and be sued, enter into contract and acquire property in its own name; (iv) This type of enterprise is usually independently financed. 6.Briefly explain any four merits of Statutory Corporations. Ans:- Four merits of Statutory Corporations are as follows:- i) They enjoy independence in their functioning and a high degree of operational flexibility. They are free from undesirable government regulation and control; (ii) Since the funds of these organisations do not come from the central budget, the government generally does not interfere in their financial matters, including their income and receipts; (iii) Since they are autonomous organisations they frame their own policies and procedures within the powers assigned to them by the Act. The Act may, however, provide few issues/matters which require prior approval of a particular ministry; (vi) A statutory corporation is a valuable instrument for economic development. It has the power of the government, combined with the initiative of private enterprises. 7.Briefly explain the limitations of Statutory Corporations. Ans:- Limitations of Statutory Corporations are as follows:- (i) In reality, a statutory corporation does not enjoy as much operational employees are governed by the provisions of the Act itself. At flexibility as stated above. All actions are subject to many rules and regulations; (ii) Government and political interference has always been there in major decisions or where huge funds are involved; (iii) Where there is dealing with public, rampant corruption exists; (iv) The government has a practice of appointing advisors to the Corporation Board. This curbs the freedom of the corporation in entering into contracts and other decisions. If there is any disagreement, the matter is referred to the government for final decisions. This further delay actions. 8.Briefly explain any two merits and two limitations of Statutory Corporations. Ans:- Two merits of Statutory Corporations are as follows:- i) They enjoy independence in their functioning and a high degree of operational flexibility. They are free from undesirable government regulation and control; (ii) Since the funds of these organisations do not come from the central budget, the government generally does not interfere in their financial matters, including their income and receipts; Two Limitations of Statutory Corporations are as follows:- 27 (i) In reality, a statutory corporation does not enjoy as much operational employees are governed by the provisions of the Act itself. At flexibility as stated above. All actions are subject to many rules and regulations; (ii) Government and political interference has always been there in major decisions or where huge funds are involved; 9.Briefly explain any four features of Government Companies. Ans;- Four features of Government Companies are as follows:- (i) It is an organisation created by the Indian Companies Act, 1956; (ii) The company can file a suit in a court of law against any third party and be sued; (iii) The company can enter into a contract and can acquire property in its own name; (iv) The management of the company is regulated by the provisions of the Companies Act, like any other public limited company; 10.Briefly explain the merits of Government Companies. Ans:- Merits of Government Companies as follows:- i) A government company can be established by fulfilling the requirements of the Indian Companies Act. A separate Act in the Parliament is not required; (ii) It has a separate legal entity, apart from the Government; (iii) It enjoys autonomy in all management decisions and takes actions according to business prudence; (iv) These companies by providing g