OCM Notes

INDEX
S.N CHAPTER NAME PAGE NO

1 Forms of Business Organization 1.1 – 1.38
2 Business Services 2.1 – 2.43
3 Emerging Modes of Business 3.1 – 3.14
4 Social Responsibility of Business 4.1 – 4.21
5 Consumer Protection 5.1 – 5.14
6 Principle of Management 6.1 – 6.11
7 Function of Management 7.1 – 7.28
8 Entrepreneurship Development 8.1 – 8.17
9 Board Question Paper 9.1 – 9.8
10 Model Question Paper 10.1 – 10.4
XII Commerce : Organization of Commerce & Management: Forms of Business Organization
1 Forms of Business Organization
Introduction :
'Business or Trading' is evolved from barter activities i.e. the exchange of goods and/or servicesfor other goods andfor
services between people. However, it became a profit making activitywith the introduction of money in the later
years.
Today there are many forms of business that are either of small scale or large scale operationsthat have a single owner
who invests his personal money OR multiple owners who pool in theircombined money resources.
The forms of organizations can be broadly classified as Sole Trading Concern, Partnership Firm, Joint Hindu
FamilyBusiness, Joint Stock Company,Co-operative Societies, Departmental Undertakings, Statutory Corporations,
and Government Companies.
Let us study one by one the various forms of business organizations in today's business scenario.
Sole Trading Concern / Sole Proprietorship :

Meaning of Sole Trading Concern:
 Sole trading concern is a private sector enterprise, where the ownership, management andcontrol of the
organization are all in the hands of one entrepreneur.
 The ward proprietor means 'owner and the word sole means 'single, thereby making theterm Sole Proprietor or
Sole Trader.
 It is a form of organization that has only one owner.
 It is a 'one man show' as the owner is also the manager of the business.
 It is the oldest and simplest form of an organization.
 It is the type of a business unit where one person is solely responsible for providing the capital, bearing the risk of
the enterprise and forming the management of the business".
Definitions of Sole Trading Concern:

 Prof. James L. Lundy defines a Sole Trading Concern as, "the sole proprietorship is aninformal type of business
owned by one person"
 Prof. L. Hanson, defines a Sole Trading Concern as, "Sometimes known as a one manbusiness.
Q.1. State the features of a proprietorship.

Ans. : The features of a sole trading concern (proprietorship) are as follows:
i. Formation:
 It is very simple and easy to form a sole trading concern.
 There are almost no legalities for its formation, registration, functioning or closing down its operations.
 Proprietary concerns are not governed by any separate law.
 Anybody who is a major at age, has a sound mind and has not been disqualified to conduct business under any
law, can start of Sole Trading Concern.
ii.
Ownership and Management:
 The proprietor owns all the assets and resources of the business.
 He is the single owner of the enterprise and manages of affairs of the enterprise all by himself.
 Since the proprietor takes all decisions on his own and without anyone's consultation or advice, he uses the best
of his knowledge and learning.
 However, it is not possible for one person to have full knowledge regarding each andaspect of a business, neither
can he give equal attention to all of them.
 In such situations, he might appoint people for the required assistance.
Unique Academy 1.1 CS Shubham Modi

iii. Liability:
 The owner of a proprietorship firm has unlimited liability.
 It means that if the proprietor is not able to pay off the creditors with the he ρ of his businessassets, he may even
have to sell off his personal assets to repay them.
 Higher risk due to unlimited liability causes the proprietor to be over cautious.
iv. Profits and Loss Sharing :

 The proprietor is the sole owner of the business.
 He is not expected to share any profit earned.
 However, he alone has to bear the entire losses, if any, of the business.
 in other words, the sole trader is not liable to share the profit and losses of the enterprisewith anybody
v. Suitability for Special Businesses:

 Certain businesses are of such nature that they require individual attention and service.
 These types of businesses can be best managed by a sole proprietor.
 For e.g. beauty parlors, cake shops etc.
vi. Business Secrecy:

 The information about all the important matters concerning the business rests only with theowner and hence no
other party can take undue advantage out ofit.
 This ensures maximum business secrecy.
vii. Freedom in Selection of Business:

 The sole trader has the freedom to select any business according to his desire.
 A proprietary concern can conduct any type of legal business.
 The sole trader also has the freedom to choose the method of keeping books of accounts.
 Generally, sole traders in India, adopt the Single Entry System of book keeping.
viii.Direct Contact with Customers and Employees:

 The proprietor is in direct contact with his customers and employees as he is the single poetof contact with them.
 Thus, through direct contact, the proprietor is able to understand the market requirement and bring in the
necessary changes, which results in excellent rapport and good relations withcustomers.
ix. Government Control:

 The legal formalities that are involved in the formation of a sole trading concern are minimum.
 Proprietary concerns are not governed by any separate law and are easy to form, because norigid legal formality
has to be followed for either forming, running or closing down the organization.
Q.2. Write a short note on: Merits of Proprietorship.

Ans. : The merits of a sole proprietorship form of organization are as follows:
i. Easy Formation :
 The establishment of aSole Trading Concern is very easy because the legal formalities involved in its formation
are minimal.
 Registration of the business is not required.
 Anybody who is a major at age, has a sound mind and has not been disqualified to conduct business under any
law, can start a Sole Trading Concern.
ii. Quick Decisions :

 Since the proprietor is the single owner as well as the manager of the sole trading concern,he does not have to
consult anybody before taking any decisions.
 Therefore, he can take quick decisions.
iii. Lower Costs-

 As owner is manager he ensures there is less waste of resources and better control on the expenses incurred as all
incurred out of his pocket.
iv. Flexibility:
 Since the sale trader is the only decision maker in a Sole Trading Concern, the decisions takencan be changed
quickly depending upon the changing circumstances.
 For e.g. Decisions like expansion of business, reduction of business activities, new additionsto business etc.
 This provides great flexibility in the business operations which is important for any businessto be successful.
v. Direct Motivation :
 There is a direct relationship between the efforts put in by the sole trader and the profits he reaps.
 Since all the profits are enjoyed by the sole trader himself, he is motivated to work harder.
vi. Less Operating Expenses:

 All the aspects of the business organization are controlled by the sole trader.
 Since he has the complete control of entire business operations, he can personally ensurethat the wastage is
minimized and the expenses are controlled.
vii. Efficiency:
 Since the sole trader is solely responsible for all the profits and losses of his firm, he runs hisbusiness with
maximum efficiency.
 He does not waste any resources and efforts.
 He ensures that the productivity of his business is maximum, leading to higher profitability.
viii.Development:
 A sole proprietor is totally responsible for his enterprise and thus, takes all efforts to run it well.
 He takes extra measures to ensure that he is updated, possesses all the required skills & competencies and is
technologically well versed.
 He may even attend necessary seminars, training programs and learn all the newtechnicalities required to make
his enterprise profitable.
 By doing so, he develops his own personality, leadership skills and decision making ability.
ix. Business Secrecy:

 Here, all the business activities are controlled, managed and run by the sole owner.
 There is no need for the sole proprietor to publish any accounts or share any informationwith outsiders. He need
not consult anybody regarding any business decisions.
 Hence no other party can take undue advantage out of it.
x.Limited Government Control:

 Registration of the business is not required.
 Proprietary concerns are not governed by any separate law and are easy to form, because norigid legal formality
has to be followed for either forming, running or closing down theorganization.
 Only the general tax and labour laws have to be followed.
Q.3. State the Demerits of Proprietorship.

Ans.: The demerits of a Sole Trading Concern (proprietorship) are as follow :
i. Lack of Capital:
 The sole trader is the person who solely invests in the business.
 He provides for all the resources required for the business from his own savings or from borrowed sources.
 However, the amount of capital that he can gather singly has its limitations and cannotexpand his business on a
large scale, which ultimately restricts the growth of his business.
ii. Restricted Expansion:

 It is not possible to expand a business in the sole trading form beyond a certain limit.
 This is because of the limited capital, limited managerial skills and unlimited liability.
 The sole trader cannot hence fully utilize the available resources.
 Hence, this type of business is not suitable for conducting business operations on a large scale.
iii. Unlimited Liability :

 The owner of a proprietorship firm has unlimited liability.
 It means that if the proprietor is not able to pay off the creditors with the help of his businessassets, he may even
have to sell off his personal asserts to repay them.
 This is the biggest disadvantage of the sole trading concern.
 Higher risk due to unlimited liability causes the proprietor to be over cautious. This can have an adverse effect on
the growth of the business.
iv. Limited Managerial Ability:

 The sole trader is not only the sole owner of the enterprise but he also has to manage the affairs of the enterprise
all by himself.
 He may appoint employees to manage tasks for him, but the responsibility is entirely his alone.
 Since the proprietor takes all decisions on his own and without anyone's consultation or advice, he uses the best
of his knowledge and learning.
 However, it is not possible for one person to have full knowledge regarding each and every aspect of a business,
neither can he give equal attention to all of them.
 In such situations, his decisions might go wrong which could ultimately affect the profitability of the enterprise.
v. Lack of Stability:
 The sole trading business is highly unstable.
 Since there is no difference between the owner and the business, there is high level of uncertainty involved.
 The business will have to be dissolved with the death or insolvency of its owner.
 In case of any unexpected situation, the whole organization might collapse.
vi. Unprofessional Decisions :

 The sole trader is the person who takes all the decisions for the business based on his limited knowledge.
 Sometimes certain wrong decisions taken, due to insufficient know-how or expertise might result into huge loses.
vii. Absence of Specialization:

 A sole trader himself is the owner, manager, supervisor and controller of the business.
 Moreover, due to small scale business and division of labour, specialization is not possible; due to which he
cannot conduct the business efficiently.
Joint Hindu Family Business:

Joint Hindu Family:
 As per the Hindu Law, a joint family comprises of all family members, men as well asunmarried women, who
have either descended lineallyfrom a common ancestor and includesthose women who have married into that
family and who hold the family name.
 Although all the family members having the family name ore a part of the joint family, it isonly those who are
born' into the family, who con get any share in the ancestral property as itis created with the help of the ancestor.
 This ancestral property is created with the help of ancestral an personal property treated as the property of the
Family also calledas 'co-parcenary property'/ 'khandaanizameen'/'jaidaad' andthose who are thus born into the
family are called 'co-parceners'.
 'Co-parcenary' means common ownership and 'co-parceners' mean common owners.
 The right for an equal share of the ancestral property is bestowed on the heirs, mostly beingthe boys who were
born in that family.
 However, there are two schools of thought under the Hindu Law, by which it determines whenthe sons can get
their entitled co-parcenery property.
 One is the "Mitakshara School of Thought" and the other is the "Dayabhaga School of Thought".
Mitakshara :
 Under this school of thought, Hindu families remained undivided and accordingly, whenever a son is born,
he instantly acquires all the equal rights, along with his father in the ancestral property. He has right to ask
for a division of the family property, if he chose to. These Hindu joint families are present in all Indian states,
excepting Assam, Bengal andcertain parts of Orissa.
Dayabhaga:
 Under this school of thought, a son does not instantly acquire all the rights along with hisfather in the ancestral
property, but inherits it only after his father's death. The right on thefamily property remains with the father

during his entire lifetime. Such joint hindfamilies arepresent in Assam, Bengal and certain parts of Orissa.
Definition of Joint Hindu Family Business :

 "When a Joint Hindu Family (Hindu Undivided Family or HUF) conducts business inherited byit as per Hindu
Law, it is called as Joint Hindu Family Firm.
 Thus, in a Joint Hindu Family Firm, business is passed on from one generation to another".
Meaning of Joint Hindu Family Business:

 The business is said to be a Joint Hindu Family Business when it is run as a family business, byits family
members.
 Such type of firm comes into existence by the law of inheritance.
 It is created by the operation of Hindu Law. There is no contract between the co-parceners.
 The Joint Hindu Family Business is governed by the Hindu Succession Act, 1956. Here, the lineof co-parcenary
interest is even extended to female members born in the family.
 In Maharashtra, the female members of the Joint Hindu Family Business possess a right inco-parcenary property
since 1964.
 The authority of controlling the business lies in the hands of the Karta or the manager who isusually the head of
the family. He claims all the profits and bears the losses, if any.
 The co-parceners cannot question Karta's decision.
Q.4. Write a short note on: Features of a Joint Hindu Family Business.
Ans: The features of a Joint Hindu Family Business are as follows :
i. Formation:
 A Joint Hindu Family business is formed as per the operation of Hindu Law
 The members of the family, by virtue of their birth in the family become the co-parceners in the business.
ii. Management :
 The Karta, who is the senior most member of the family, controls the management of the business.
 He is the controller, co-coordinator and decision maker in the business.
 The Karta enters into contracts with third parties, draws bills, issues receipts, buys or sellsproperty on behalf of
all the other co-parceners.
iii. Liability:
 The liability of the Karta is unlimited.
 It means that if the property of the Joint Hindu family firm is not sufficient to pay off the thirdparty's liabilities,
then his personal property can be utilized for that purpose.
 However, the liability of the co-parceners is limited to the extent of their share in thebusiness.
iv. Membership :
 The membership of a Joint Hindu Family firm is unlimited.
 All the members of the Joint Hindu Family firm (including girls in Maharashtra State) becomea co-parcener in
the Joint Hindu Family firm by virtue of their birth in the family.
 There is no need for any agreement to become a co-parcener of the business.
 Thus, the number of members in the firm depends upon the births and deaths in the family.
v. Quick Decisions :
 Since the Karta is the controller and the sole decision maker in the business, the decisions can be taken promptly
as per the changing business situations.
vi. Joint Ownership :

 The property of a Joint Hindu Family firm is jointly owned by the members of the joint family.
 The senior most member of the family becomes the head of the business and manages the business on behalf of
the other members. He is known as the "Karta".
 Karta is the custodian of the joint property of the Joint Hindu Family Firm.
vii. Profits and Loss Sharing:

 The ratio of sharing of profits and losses is not specified by the Hindu law.

 It changes depending on the births and deaths in the family.
viii.Good Relations:
 The Joint Hindu Family maintains close and personal relations with its employees.
 Also personal contact is maintained with the customers because of the small scale nature ofthe business.
Q.5. Write a short note on: Merits of Joint Hindu Family Firm.
Ans. :
The merits of a Joint Hindu Family Firm are as follows:
i. Easy to Start:
 The Joint Hindu Family Business is formed as per the operation of the Hindu law.
 Family members become co-parceners of the firm by virtue of their birth in the family.
 Moreover, no registration is required for a Joint Hindu Family firm in respect of minimum ormaximum
members.
 Thus, the formation of a Joint Hindu Family firm is very easy.
ii. Credit Standing :

 Since the Joint Hindu Family firm carries its business for it long period of time and passes it on from one
generation to another, it enjoys goodwill and good credit standing in the market.
 Also, as the liability of the Karta is unlimited, banks and financial institution are ready to grant loans and
financial assistance to the firm to the extent of business assets and Karta's personal assets.
iii. Co-parceners' Liability:

 A co-parceners' liability is limited to the extent of their share in the family business.
 However, Karta's liability is unlimited.
 It means that the property of the Joint Hindu family firm is not sufficient to pay off the thirdparty's liabilities,
then his personal property of Karta can be utilized for that purpose.
iv. Flexibility :
 Since the Karta has complete control over the business, the decisions taken can be changedquickly depending
upon the changing circumstances.
 For e.g. Decisions like expansion of business, reduction of business activities, new additions to business etc.
 This provides great flexibility in the business operations which is important for any business to be successful.
v. Good Relations :
 Generally, a Joint Hindu Family Firm operates on a small scale.
 Hence it is possible for the Kara, as well as the co-parceners to maintain close and personalrelations with
itsemployees and customers.
 Due to this, the employees get motivated and customers feel personal touch.
vi. Quick Decisions :

 The head of the family who controls the business is known as the Karta.
 He has complete control over the business.
 He need not consult anyone before taking any decisions.
 So prompt decisions can be taken according to the changing business scenario.
vii. Business Secrecy :

 Karta of the joint Hindu family business is the manager of the business himself and all thefamily members are co
arceners of the business.
 Hence all the information about all the important matters concerning the businessrestswithin the family and no
other party can take undue advantage out of it.
vii. Continuity and Stability:

 Since the business in a Joint Hindu Family is passed on from one generation to another, thecontinuity and
stability of the business is ensured.
 It is not affected by the birth or death of any of its members.
 This is crucial for the success of any business organization.
Q.6. What are the demerits of a joint Hindu Family Firm?
Ans. :
The demerits of a Joint Hindu Family Firm are as follows:
i. Unlimited Liability of Karta :
 The liability of the Karta is unlimited.
 It means that if he is not able to pay off the creditors with the help of business assets, he may even have to sell
off his personal assets to repay them.
 Hence, he is required to be careful while taking any business risks which may affect the growth and profitability
of the firm.
ii. Lack of Motivation:

 The Karta controls all the activities of the firm.
 However, the profits of the firm are shared by all co-parceners.
 The authority of controlling the business lies in the hands of the karta or the manager who is usually the head of
the family.
 He claims all the profits and bears losses, if any.
 The members are liable only to the extent of their share in the joint family business whereas the Karta is liable to
make good of any losses in the business.
 Thus, there is no direct 'effort-reward' relationship in a joint Hindu family firm. This may demotivate Karta as
well as the co-parceners from working hard.
iii. Lack of capital :

 The financial resources invested in a Joint Hindu Family firm are limited to the extent of the personal
possessions and savings of their family members.
 Hence, the amount of capital that a family can arrange is low and it restricts the business toremain on small scale
and in local areas.
iv. Lack of Stability:

 There is a permanent risk of the breaking of a joint family business due to the possible differences of opinion
among the members of the family.
 This risk can divide or break the family business resulting in endangering the continuity and stability of the
business.
 These differences may lead to dispute which may affect the smooth working of the business.
 In some cases, the family business may also come to an end.
v. Unlimited Co-parceners :
 The number of co-parceners in a Joint Hindu Family firm is unlimited since the membership is based on the
births and deaths in the family.
 Thus, there is no upper limit on the number of co-parceners.
 As the number of co-parceners increases, the profit share decreases as it gets divided between all of them.
vi. Limited Managerial Ability:

 The Karta takes decision all by himself and may not consult others.
 It is not possible for one person i.e. the Karta to have all the required knowledge and skills tohandle all the
aspects of a business.
 Hence, he may fail to take the right decisions in terms of quality, timeliness and proper understanding of all
possible situations. This could affect the profitability of the business.
vii. Restricted Expansion:

 A Joint Hindu Family firm has limited amount of financial and managerial resources.
 Also, the Karta becomes cautious while making decisions.
 This restricts the firm from making any expansion and the Joint Hindu Family firms are forcedto operate on a
small scale and deal in the local markets.
Partnership Firm :
Meaning of Partnership Firm:
 "Two heads are better than one". This adage in the business contest led to the sole proprietor to join hands
with one or more persons or businesses and start a new form of organization called a partnership firm.
 The owners are called as partners and the organization is called partnership firm.
 A partnership firm is governed by the Indian Partnership Act, 1932.
 It suited the business interests of the sole proprietor as his limitations of limited capital and tack of managerial
ability did not exist anymore.
 It made the partners contributes their resources as well as share their profits and risks in the business.
Definitions of Partnership Firm :

Indian Partnership Act, 1932(Sec 4) defines partnership as "Partnership is the relationbetween the persons who
have agreed to share the profits of a business carried on by all orany one of them acting for all".
Prof. Haney defines partnership as "the relation existing between persons competent to make contracts, who agree to
carry on a lawful business, in common, with a view to privategain."
Dr. J. A Shubin defines partnership as "Two or more individuals may form a partnership bymaking a written or oral
agreement that they will jointly assume full responsibility for theconduct of a business".
Q. 7. Explain the features of Partnership Firm :

Ans. :
The features of Partnership Firm are as follows:
i. Agreement :
 A partnership firm is formed when two or more persons voluntarily agree to do business.
 This agreement can be oral or written.
 A written partnership agreement is usually advisable as it clearly states the terms andconditions regarding the
internal management of the firm, the profit sharing ratios and the profit sharing rations and the role of partners.
 Partnership agreement in written form is known as 'Partnership Deed'.
ii. Joint Ownership :

 All the partners are the joint owners of the business and its assets.
 Hence, all the assets and resources of the firm should be used for the purpose of businessonly and not for
personal use.
iii. Membership :
 Minimum two partners are required to form a partnership firm.
 The maximum number of partners for conducting banking business is 10 and that forconducting any other
business is 20.
iv. Liability :
 The liability of partners in a partnership firm is unlimited, joint and several.
 The personal property of the partners can be used to pay oft third party's liabilities, in case the business assets are
not sufficient.
 If any partner is declared insolvent, other solvent partners will have to share the respective liability.
v. Lawful Business:
 Partnership firms should undertake only those activities that are lawful
 Any illegal activities like smuggling or gambling cannot be undertaken. Other than that, a
 partnership firm can choose to start any business
vi. Management:
 All the partners have equal rights to manage the business as per the Act.
 In some cases, for the sake of convenience, some partners act as the managing partners andsome may voluntarily
surrender their managerial rights.
 However, the responsibility of the partners is joint and several.
vii. Profits and Loss Sharing:

 All the partners are responsible the business operations.
 Profits and losses of the firm are shared among the partnersin the ratio agreed in the partnership deed.
 If the profit sharing ratio is not mentioned, then it is shared equally among all the partners.
viii.Principal Agent Relationship :

 Every partner of a firm works in two capacities- as a principal and as an agent.
 When he is dealing with his partners, he is known as a principal and when he is dealing with third parties on
behalf of the firm, he is known as an agent.
ix. Dissolution:
 The death, insolvency or insanity of any partner results into dissolution of partnership unless specified.
Otherwise the remaining partners may continue to conduct business on the basis of a fresh agreement among
them.
 The partnership at will is compulsorily dissolved, when any partner serves 14 days’ notice to other partners
regarding his unwillingness to continue the business.
 A particular partnership gets dissolved on completion of the specified venture or period for which it was formed.
Q.8. State the Registration of Partnership and its procedure.

OR
State the registration procedure for a partnership firm.
Ans. :
 According to the Indian Partnership Act, 1932, it is not compulsory to get a partnership firmregistered for its
formation.
 But it is beneficial to get the firm registered.
 In Maharashtra, the registration of partnership firm is compulsory with effect from 1stApril, 1985.
The procedure for registration of a partnership firm is as follow :

 An officer is appointed for the purpose of registration of the firm. He is known as "Registrar of Firms".
 All the prescribed forms need to be obtained from the office of the Registrar of firms of thearea in which the
business of the firm is located.
 The forms need to be filled up with the following information :
a. The name of the firm.
b. The principal place of the firm (head office).
c. Name of the other places where the firm has businesses (branches).
d. The date when each partner joins the firm.
e. The name in full and addresses of the partner.
The duration of the firm (in case of partnership at will/for particular period)
 Then the statement has to be fully signed by all the partners. This form along with theprescribed fees has to be
deposited in the office of Registrar.
 After proper scrutiny, if the Registrar is satisfied, he enters the information in the Registerand then issues a
certificate. This is called the 'Certificate of Registration'.
Q.9. Explain the Effects of Non Registration and Benefits of Registration for a Partnership Firm.
Ans: It is not mandatory for a partnership firm to register itself under the Indian Partnership Act, 1932. However, a
firm may face some issues if it does not opt for registration.
Effects of Non Registration for a Partnership Firm :

 An unregistered partnership firm cannot start any legal proceedings against any of its partners.
 A partner of an unregistered partnership firm cannot file a suit against the firm or any otherpartner of the firm, in
case of any disputes.
 An unregistered partnership firm cannot file a suit against any third party for breach ofcontract. However, any
third party can file a suit against the partnership firm.
Benefits of Registration for a Partnership Firm:

 The partners of the firm can file a suit against the firm, its partners or other outside parties.
 Registered firms have the right to file a suit against any third party in the court.
 Registration of partnership firm continues to benefit the firm in case of death ofdeath or retirement of any of its
partners.
Q.10 State the merits of Partnership Firm.

OR
Write a short note on Merits of Partnership Firm.
Ans. :
The merits of a partnership firm are as follows :
i. Formation :
 The formation of a partnership firm is easy as there are not many legal formalities involved.
 A written agreement is sufficient to start any lawful business.
 Registration of a firm has been made compulsory In Maharashtra since April 1985.
ii. More Financial Resources :

 In a partnership firm, all partners contribute towards the resources, thus making the capitalof the firm larger than
that of a sole trading concern.
 Since more partners can also be added, the capital brought in by the additional partnersfurther strengthen the
financial position and enable expansion of the business.
iii. More Manpower Resources :

 The a partnership firm, the skills and abilities of all the partners are combined to run the business
 There can be a higher degree of division of labour and specialization as compared to soletrading concern, thereby
enabling efficient running of the business.
iv. Good Relations :

 Partnership firm conducts business on a relatively smaller scale and hence is capable ofmaintaining close and
personal contact with its customers.
 This increases customers' satisfaction and helps the firm earn goodwill in the market.
 Also, good relations are maintained with the employees of the firm.
v. Business Secrecy :
 In a partnership firm, all the business activities are controlled, managed and run by thepartners.
 There is no need for a partnership firm to publish any accounts or share any information withoutsides.
 Hence no other party can take undue advantage out of it.
vi Flexibility :
 Since there is no strict rule on the management of the business, changes can be brought interms and conditions of
the partnership deed easily.
 As all the decisions are taken by the partners only, the firm can easily expand/reduce ordiversify the business
activities as per the changing business scenario.
vii. Rational Decisions :

 Every partner’s liability in partnership firm is unlimited and hence the partners are very cautious and careful
while taking decisions.
 Decisions are taken in consultation with other partners.
 Hence, rational decisions can be taken.
viii.Division of Risks :
 In a partnership firm, there is division of risks among the partners of the firm.
 The partners jointly and severally bear the risks of the business.
ix. Simple Dissolution:

 The procedure involved in dissolution is simple.
 The death, insolvency or insanity of any partner results into dissolution of partnership unless specified.
Otherwise the remaining partners may continue to conduct business on the basis of a fresh agreement among
them.
 The partnership at will is compulsorily dissolved, when any partner serves 14 days notice to other partners
regarding his unwillingness to continue the business.
 A particular partnership gets dissolved on completion of the specified venture or period for which it was formed.
Q.11. What are the demerits of Partnership Firm?

Ans. :
The demerits of a partnership firm are as follows:
i. Unlimited liability:
 The liability of partners in a partnership firm is unlimited, joint and several
 The personal property of the partners can be used to pay off third party's liabilities, in casethe business assets are
not sufficient.
 If any partner is declared insolvent, the other solvent partners will have to share the respective liability
ii. Lack of Capital :

 The maximum number of partners for conducting banking business is 10 and that for conducting any other
business is 20.
 Hence the financial resources remain confined to the capital of the partners and theircapacity to raise loans
iii. No Separate Legal Status :

 The partners of a firm are not distinct from the partnership firm.
 The Indian Partnership Act, 1932, does not give an independent legal status to the firm.
iv. Risk of Implied Authority:

 Every partner of a firm works as a principal and as an agent.
 As a principal, a partner can take decisions for the firm and as an agent; the partner can represent the firm and
take actions like entering into a contract with any third party.
 The decisions made and the actions taken by any one partner is binding on all the other partners.
 Thus, a wrong decision or action of a single partner may lead to lossses which have to be borne by all partners
i.e. they all would have to suffer its adverse effects.
v. Lack of Stability :
 Since a partnership firm does not have any independent legal status, it is dependent on the mutual undertaking of
the partners
 The death, insolvency or insanity of any partner can lead to dissolution of the firm.
vi. Mutual Disputes :

 Since there is more than one partner involved in the running of the business, there are chances of conflicts and
disputes among the partners.
 Some partners tend to blame each other for wrong decisions. Such conflicts adversely affect the running of the
business and also affect the reputation of the firm.
 Mutual conflicts and lack of team spirit among partners can lead to loss of reputation of the firm and sometimes
even dissolution of the firm.
Q.12. State the types of partners.

OR
Write a short note on: Types of Partners.
Ans. : The partners of a firm play different roles. Some partners participate in the business activities whereas some
partners just lend their name to the business. There are different types of partners according to the various
responsibilities undertaken by them.
The different types of partners are explained below :

i. Active Partners/Actual Partners:
 These are the partners who take active part in the day-to-day activities of the business.
 They contribute towards the capital of the firm and have a share in the profits or losses of the firm.
 Their liabilities are unlimited.
 They act as agents of the firm.
 They are also known as Ordinary or General Partners.
 They are required to give a public notice about their retirement.
ii. Nominal Partners :

 Nominal partners do not contribute towards the capital of the firm and they also do not havea share in the
profits and losses of the firm.
 They lend their name and goodwill to the firm for the benefit of the firm.
 They are not answerable to the third party and are not directly attached to the firm.

iii. Sleeping o Dormant Partners :
 These partners do not take active part in conducting the business of the firm.
 They invest money into the business and share this profits and losses of the business.
 Their liability is unlimited.
 They need net give a public notice regarding their retirement.
iv. Partner in Profits Only :

 A partner who specifically agrees to share only the profits and not the losses of the firm is called as partner in
profits only.
 He has no right to participate in the day to day conduct of the business.
 However, is liability is unlimited like the other partners.
v. Limited Partners :
 A partner whose liability is limited to the extent of his investment in the firm is knownaslimited partner.
 He does not have the right to participate in the daily working of the business.
 It is to be noted that, all partnership firms must have at least one partner with unlimited liability Only then that
partnership firm can have limited partners.
vi. Partner by Holding Out :

 A partner by holding out is a person who is not a partner of the firm but represents himself as the partner through
spoken or written word or through his conduct.
 In case a third party has given loans and advances to the firm on the faith of such representation, the liability of
such a partner to repay the loans and advances is equal to that of the other partners.
vii. Secret Partner :

 When a person does not disclose his relation with the firm and s unknown to the generalpublic he is known as a
secret partner.
 He is similar to all the other partners.
 He invests in the capital of the firm and his liability is unlimited.
 He also shares the profits and losses of the firm and participates in its day-to-day activities.
Viii. Minor Partner :

 According to the Indian Contract Act, 1872, a person who is below 18 years of age is called a minor.
 However, as per the Indian Partnership Act, 1932, he can be a partner in the profits of the firm, it the consent is
obtained from all the other partners.
 A minor is not liable for the losses of the firm and his liability in the firm is limited.
Q.13. State the types of Partnership Firm.

OR
Write a short note on: Types of Partnership Firm.
Ans. :
The type of partnership firm are as follows :
i. Partnership at will and Particular Partnership :
 Partnership at will is partnership wherein there is no provision in the agreement regarding the duration of the
partnership.
 Such a partnership can be dissolved by any partner by giving 14 days notice in writing to all other partners
regarding his intentions.
 If the partnership is formed for the achievement of some specific objectives or for a certain period of time then
such a partnership is called as 'particular partnership'.
 This type of partnership comes to an end on the completion of the venture or at the end of the period as decided.
ii. General and Limited Partnership:

 There are two types of partners, general partner whose liability is unlimited and special partner whose liability is
limited.
 Only general partners have the right to participate in the management of the firm.
 When the liability of the partners in a partnership firm is unlimited, it is calledgeneral partnership.
 When all the partners except one have their liabilities limited to the extent of their capital contributed, it is known
as limited partnership.
iii. Registered and Unregistered Partnership :

 A partnership firm which is not registered under the Indian Partnership Act, 1932 is known as an Unregistered
Partnership Firm.
 Registration of a partnership firm under the Act is compulsory in the state of Maharashtrasince April, 1985.
 A partnership firm which is registered under the Indian Partnership Act, 1932 and operates as per its rules is
known as a Registered Partnership Firm.
Co-operative Society :
Meaning of Co-operative Society :
 A Co-operative society is a voluntary association of persons who come together in order to achieve a certain
common economic objective.
 The nature of co-operative organization is service oriented.
 'Each for all and all for each' is the principle of a co-operativesociety.
Definitions of Co-operative Society :

 As per the Indian Co-operative Societies Act, 1912, "Co-operative society is a society is a society which has
its objectives for the promotion of economic interests of its members in accordance with co-operative principles".
 As per the International Labour Organization "An association of persons, usually of limited means, who have
voluntarily joined together to achieve a common economic end through the formation of democratically
controlled business organization, making equitable contribution to the capital required and accepting a fair share
of risks and benefits of the undertaking."
 Definition according to Prof. H. Calvert, "Co operation is a form of organization, whereinpersons voluntarily
associate together as human beings on a basis of equality for thepromotion of the economic interests of
themselves.
Q.14. Write a short note on: Features of a Co-operative Society.

OR
State the features of a Co-operative Society.
Ans. :
The features of Co-operative Society are as follows :
i. Formation:
 A Co-operative Society is a voluntary association of persons who come together in order toachieve a certain
common economic objective.
 Registration of a co-operative society is compulsory It has to be registered under therelevant Act in each state.
 For e.g. In Maharashtra, a co-operative society has to be registered under the MaharashtraState Co-operative
Societies Act, 1960.
ii. Management :
Democratic Management:
 Co-operative organization follows democratic principles in the management of the organization.
 Every member of the organization is allowed to participate in the management of theorganization equally.
 The day-to-day administration is done by the managing committee, which is an elected body of representatives of
its members. The managing committee lays the required rules &regulations for the co-operative society. These
framed rules & regulations are known as 'bye-laws'.
iii. Equal Voting Rights:

 In co-operative societies, One member one vote' is the principle followed in voting. giving allmembers equal
voting rights, unlike in companies which follow the principle of One shareone vote'.
 Thus in this way, members with higher share capital cannot dominate their terms, making the co-operative
societies fair and democratic in decision making and other business activities.
iv. Liability :
 The liability of members in a co-operative organization is limited to the extent of the unpaid amount of shares
which are held by them.
 The personal properties of members cannot be used to pay off any liabilities of the organization.

v. Membership :
 A co operative society is an association of persons formed voluntarily.
 A person from any caste, creed or religion can become a member of a co-operative society bysimply buying its
shares.
 The membership is open to all.
 Ali the members work together towards a common goal which benefits all the members.
 It is managed and controlled on democratic principles.
 In other words, it is not compulsory for anybody to join or leave a co-operative society.
vi. Service Motive :

 Co-operative society is ant formed with the intention of earning profits and accumulating wealth.
 Its main motto is to work in the interest of its members and to provide goods and services to them by treating
every member at par with others.
 All members are equally treated irrespective of the number of shares held by them.
vii. Profits and Loss Sharing :

 The co-operative society distributes a part of its profits as dividend and bonus.
 Out of any surplus profit remaining after the payment of dividend and bonus, a part is transferred to the statutory
reserve and the remaining balance is utilized for the welfare of the locality where the co-operative society is
situated.
viii. Legal Status :

 A co-operative organization has an independent legal status different from its members.
 It is granted under the Co-operative Societies Act, 1912.
 Thus, co-operative society enjoys stability and continuity.
ix. Government Control :

 Every co-operative society must be registered as per the relevant act of the state according to the Co-operative
Societies Act 1912.
 They are subject to government control and supervision.
 The government also provides them with various benefits and concessions from time to time.
Q.15. Write a short note on: Merits of a Co-operative Society :

OR
State the merits of a Co-operative Society :
Ans. :
The merits of a co-operative society are as follows :
i. Formation:
 The formation of a co-operative society is very easy.
 A minimum of ten adult members is required for the registration of a co-operative society.
 Registration of a co-operative society is compulsory.
 It has to be registered under the relevant Act in each state.
 The procedure for the registration of a co-operative society is very simple and theregistration fee is also nominal.
ii.
Democratic Management :
 Co-operative organization follows democratic principles in the management of the organization.
 The day-to-day administration is done by the managing committee, which is an elected bodyof representatives of
its members.
 'One member one vote' is the principle followed in voting.
iii. Open Membership :

 A co-operative society is an association of persons formed voluntarily.
 A person from any caste, creed or religion can become a member of a co-operative society by simply buying its
shares.
 The membership is open to all.
 All the members work together towards a common goal which benefits all the members.
 In other words, it is not compulsory for any body to join or leave a co-operative society.
iv. Limited Liability :

 The liability of members in co-operative organization is limited to the extent of the unpaid amount of shares
 The personal proponent of members cannot be used to pay off any liabilities of the organization.
v. Self Financing and Charity :

 The co-operative society distributes a part of its profits as dividend and bonus.
 Out of any surplus profit remaining after the payment of dividend and bonus, a part istransferred to the statutory
reserve and the remaining balance is utilized for the welfare ofthe locality where the co-operative society is
situated.
vi.
Less Operating Expenses :
 The operating expenses of a co-operative society are low.
 This is because, the members provide services on an honorary basis (without charging anyfees /salary).
 A co-operative society does not incur any expenses onaccount of advertisement, nor do theyhave involvement of
any middlemen.
 The society gets the benefits of various concessions, reliefs and privileges like concession onregistration fees,
income tax exemption etc. provided to them by the government.
vii. Continuity and Stability :

 A co-operative organization has an independent legal status different from its members.
 The existence of a co-operative society does not get affected by the death, insolvency orinsanity of any of its
members.
 Therefore, a co-operative society enjoys stability and continuity.
viii. Supply of Goods at Cheaper Rates:

 The main aim of a co-operative society is to provide services to its customers
 The society makes bulk purchases directly from the wholesalers or manufactures thereby
 Procuring the goods at a cheaper rate.
 This benefit is eventually passed on to its members.
ix. Tax Concession:

 The government provides various benefits to a co-operative society as they play an importantrole in the overall
economic and social development of the country.
 The government provides them with an exemption on income tax payment up to a certainlimit. This increases its
profitability.
Q.16. Write a short note on: Demerits of a Co-operative Society.

OR
What are the demerits of a Co-operative Society?
Ans.:
The demerits of a co-operative society are as follows:
i. Lack of Motivation:
 The members of the managing committee provide their services on a honorary basis andhence may lack
motivation to do the job.
 There is no direct effort-reward relationship which may result in lack of Interest in themanagement of the
society.
ii. Lack of Capital :

 The capital of the co-operative society is limited due to the following reasons :
 Majority members of a co-operative society are from the lower and middle income groups of the society. Hence,
they cannot invest high amount of capital.
 Since the number of shares does not decide the number of votes, the members may not be interested in buying
more shares.

 Also co-operative society does not give much incentive to its members ie only a maximum of 15% can be given
as dividend annually.
iii. Lack of Public Confidence:

 Co-operative societies lack public confidence because many societies fail to achieve theirobjectives.
 Also there is unnecessary interference of politicians and government officials in the workingof co-operative
societies.
vi. Limited Managerial Ability :

 The day to-day administration of the organization is done by the managing committee, which is an elected body
of representatives of its members.
 The members may not possess the required skill, experience and abilities to look after the management
efficiently.
 They provide their services on an honorary basis and hence may lack motivation to do the job.
 Due to lack of capital resources, co-operative societies cannot engage the services of experts or professionals.
 All these lead to incompetent management.
v. Mutual Disputes :
 There are constant conflicts and disputes amongst the members of a co-operative society, as they lack maturity
and expertise in handling of the business matters.
 Some members purchase their requirement from other sources rather than from the co-operative society of
which, they are members.
 Moreover, some members try to use the concessions and privileges provided by the society for personal gains.
 These matters result in further disputes and may also result in winding up.
vi. Restricted Expansion :

 Due to limited financial and managerial resources, a co-operative society cannot expand the business beyond a
certain limit.
vii. Excessive Government Control:

 Apart from the basic requirement of registration under the Co-operative Societies Act, the government maintains
strict control and supervision on the working of a co-operative society.
 The society is compelled to maintain records, submit audited returns and subject to frequent inspections by the
office of the Registrar.
 Due to excessive Government interference, the spirit of the society gradually comes down.
Q.17. State the Types of Co-operative Societies :

Ans. : A co-operative society provides various services to its members. According to the nature of the services
rendered by them, Co-operative Societies are classified into the following types: [Mnemonic: C2 - FM - HP]
i. Consumer's Co-operative Society :
 These types of co-operative societies are formed to provideits members products atreasonable prices and also
render other services.
 Consumer's co-operative societies make heir purchases in bulk quantities, directly from the manufacturers or
wholesalers and provide them in small quantities to its members at a very reasonable price.
 Additionally, members are also entitled to a bonus and share in the profits, proportionate to their investment.
For e.g. Apna Bazar, Sahakari Bhandar, Kendriya Bhandar, etc.
ii. Credit Co-operative Society :

 A credit co-operative society is formed with the objective of granting loans to its members ata reasonable rate of
interest for productive as well as non-productive purposes.
 These type of societies are formed by agriculturist or artisans in rural areas and are called as 'Rural Credit
Societies' or by salary earners or Industrial workers in urban areas and are calledas 'Urban Banks', 'Salary
Earner's Societies' Worker's Societies', etc.
 For e.g. Village Service Co-operative Credit Societies, Employees Co-operative CreditSocieties, etc.
iii. Farming Co-operative Society :

 These societies are formed by farmers to conduct agricultural operations jointly.

 They pool their lands and jointly conduct agricultural activities using scientific and modernmethods, better
variety of seeds etc. in order to get better results
 For e.g. Pani Panchayat, Lift Irrigation co-operative Societies, etc.
iv. Marketing Co-operative Society:

 These types of societies undertake the centralized sale of the goads produced by itsmembers.
 They provide all marketing functions like packaging, branding, grading, standardizing, advertising,
transportation, distribution, etc.
 The proceeds of the sale of the products is then distributed amongst the members accordingto the quantity of
their products sold.
 For e.g.Pala Marketing Co-operative Society Ltd., etc.
v. Housing Co-operative Society :

 A housing co-operative society is formed by members in order to construct or maintainbuildings for residential
purposes.
 They purchase land and develop it.
 For e.g. Bombay Co-operative Housing Association, Sainik Co-operative House Society Ltd.
vi. Producers Co-operative Society :

 They are also known as Industrial co-operative Societies'.
 These types of societies provide raw materials, tools and technical guidance to the memberson easy terms so that
they can produce superior quality products.
Joint Stock Company :

Introduction:
The need of Joint Stock Company form of organization was felt when Sole Trading Concern, Partnership Firm and
Joint Hindu Family Business wasn't able to gather huge amount of capital; which is required in order to expand/
diversify/ conduct trade on a large scale.
Also, such forms of organizations, due to low capital, weren't able to hire professionals whichresulted in slow
growth.
Post Industrial Revolution (in 1760), there felt a need for high production capacities and management.
The period after 1760 was known as the Machine Age. This was because, after this period, the technology in
commerce and industry had grown phenomenally.
In order to satisfy the then ever-growing requirement of capital and strong management skills, the need for a new
form of business organization was felt.
This led to the emergence of corporate / company form of organization.
Meaning of Joint Stock Company :

 A Joint Stock Company is formed by a collective set of people who contribute a fixed amount of capital.
 The fixed capital is termed as the "joint stock" of the company,
 This capital entitles them to the shares of the company, through which they become the shareholders /owners of
the company.
 This stock is jointly held by the people, to the extent of the capital contributed by them.
 The company formed is a separate legal entity from its owners / shareholders.
 The company usually has a large number of shareholders / owners. However, the company's affairs are not
managed by the owners, but they jointly elect professionals known as 'Board of Directors' to run the business.
 To sum up, it is a professionally managed association with huge amount of capital.
Definitions of Joint Stock Company :

As per the Indian Companies Act, 1956, Sec. 566 - "A company having a permanent paid up or nominal share
capital of fixed amount, divided into shares, also of fixed value held and transferable as stock, or divided and held
partly in one way and partly in the other and formed on the principle of having for its members, only the holders of
those shares or that stock and not other persons"

(Now Companies Act 2013 is applicable and it defines company as Company incorporated under this Act or any
other previous act)
As per Prof. Haney, 'A Joint Stock Company is a voluntary association of individualsfor profits having capital
divided into transferable shares, the ownership of which is the condition on membership"
Chief Justice Marshal defines a Joint Stock Company as "A company is a person, artificial invisible, intangible and
existing only in the eyes of law. Being a mere creature of law, it possesses only those properties which the charter of
its creation confers upon it either expressly or incidental to its very existence."
Q.18. State features of Joint Stock Company :

Ans. :
The features of a Joint Stock Company are as follows :
i Formation:
Registration:
 In India, registration of a Joint Stock Company is compulsory.
 Registration gives a legal status to the company.
 Every company should be registered with the Registrar of Companies under the IndiaCompanies Act, 1956.
(Now 2013)
ii. Registered Office :
 The registered office of the company is very important and must be mentioned in the domicile clause of
Memorandum of Association (MOA).
 It is a centralized location where all the important documents like Register of Members; Annual Returns etc.,
which need to be inspected by the members or the general public are maintained.
 Also all the correspondence between the company and outside parties take place through the registered office.
iii. Ownership and Management :

 The shareholders are the owners of the company.
 They cannot look after the management of the business as they are large in numbers and scattered over a wide
area.
 The shareholders appoint a body of elected representatives to look after the management of the business.
 These elected representatives are known as the Board of Directors.
 It is the Board of Directors who are responsible for the management of the company whereas; the shareholders
are the actual owners of company.
 Hence, there is a separation in the ownership and management of the business.
iv. Liability :
 In a Joint Stock Company, the liability of its members is limited to the extent of the unpaid value of the shares
held by them.
 The personal property of the shareholders cannot be used to pay off the debts of the company.
v.Membership :
 A joint stock company is a voluntary association of persons.
 Person of any caste, creed, and religion can buy the shares and become a member of a joint stockcompany.
 Members are also free to sell the shares at any time as per their will (except in case of aprivate limited company).
 The management of the company is based on democratic principles.
 The minimum number of members in case of a public limited company is 7. There is nomaximum limit on the
number of members.
 In a private company, the minimum number of members is 2 and the maximum number ofmembers is 50.
(Now 200)
vi. Legal Status:

Artificial Legal Person:
 A company is an artificial person which is created by law and has a legal existence.
 It does not have a physical existence as it is not a natural person.
 However, ithas a separate name and common seal, which allows the company to enter intocontract with third
parties
Separate Legal Entity:

 Being an artificial person, a Joint Stock Company has a separate existence which is independent from its
members.
 It is created by law.
 The shareholders though owners of the company, do not own the property of the company.
 Also the shareholders are not responsible for the acts or the liabilities of the company.
vii. Common Seal :

 Since a company is an artificial person who does not have a physical existence, a common seal is used as
substitute for the signature of the company.
 It is a symbol of the company's incorporation.
 It contains the name of the company.
 It is affixed on all contracts that the company enters into and is witnessed by the signature of two directors of the
company.
vii. Transferability of Shares:

 In order to be a member of a joint stock company, a person has to own the shares of the jointstock company.
 The shares in a public limited company are freely transferable and can be purchased and soldthrough the stock
exchanges.
 It means that the members can buy or sell the shares of the company without seeking anypermission from the
company or other members of the company.
 The shares of a private limited company however, are not easily transferrable.
ix.Continuity and Stability:

 A joint stock company enjoys a continuous and stable life.
 Since a joint stock company is an artificial person created by law, with a common seal, it enjoys an independent
legal status, separate from its members.
 The existence of the company is not affected by the death, insolvency or insanity of any of its members.
 Thus, the company form of organization has a perpetual succession. It has continuous life and is considered to be
most stable form.
Q.19. State the merits of Joint Stock Company.

Ans. :
The merits of a Joint Stock Company are as follows :
i. Democratic Management:
 The shareholders appoint Board of Directors to look after the management of the business.
 The Directors are accountable to the shareholders and their activities are supervised by the shareholders
indirectly.
 Any major decision taken by the directors has to be approved by the shareholders in the general meeting.
 If the shareholders are not satisfied with the performance of any of its directors, he/she can be removed and a
new one can be appointed by the members.
ii. Limited Liability:

 In a Joint Stock Company, the liability of its members is limited to the extent of the unpaid value of the shares
held by them.
 The personal property of the shareholders cannot be used to pay off the debts of the company.
 Since the company has an independent legal status, it is responsible for its own liabilities.
iii. Public Confidence:

 The working of a Joint Stock Company is strictly governed by the provisions of the Indian Companies Act, 1956.
 As per the Act, the company has to get its accounts audited by a practicing Chartered Accountant. Thereafter,
publish the financial statements.
 This helps to create public confidence.
iv. More Financial Resources:

 The capital of a joint stock company is huge.
 In case of a public limited company, there is no maximum limit on the number of members.
 Smaller denominations of shares, easy transferability of shares and limited liability of the shareholders makes the
investment more attractive to a large number of investors.
 A Joint Stock Company enjoys good creditworthiness in the market and so it is possible for the company to raise
loans from banks and other financial institutions.
v. Transferability of Shares:
 In order to be a member of a joint stock company, a person has to own the shares of the joint stock company.
 The shares in a public limited company are freely transferable and can be purchased and sold through the stock
exchanges.
 It means that the members can buy or sell the shares of the company without seeking any permission from the
company or other members of the company.
 The shares of a private limited company however,are not easily transferable.
vi. Scope for Growth and Expansion :

 A Joint Stock Company has access to huge financial and manpower resources.
 Services of experts and professionals can be used to manage the business professionally and for the expansion of
the business.
 Additionally, the profits earned by the company are transferred to reserves and these reserves are further utilized
for the expansion of the business.
vii. Expert Services :

 Since a JointStock Company has huge financial resources, the company can afford appoint experts and
professionals for managing each area or function of the business.
 Thus, there is a great degree of professionalism and efficiency in management of business.
viii. Tax Concession:

 A company pays taxes at a flat rate.
 So the amount of taxes paid by a company on large amount of profits may be less than thetaxes paid by
individuals in the same tax bracket.
Q.20 State the demerits of Joint Stock Company :

Ans. :
The demerits of a Joint Stock Company are as follows :
i. Formation is Difficult:
 The formation of a Joint Stock Company involves a lot of formalities and hence it is very difficult.
 There are various documents that need to be prepared and submitted to the Registrar ofCompanies for approval
and registration like Articles of Association (AOA). Memorandum ofAssociation (MOA) etc.
 Registration of a joint stock company is compulsory according to the Indian Companies Act, 1956.(Now 2013)
 A public limited company cannot start business before obtaining a Certificate of Commencement.
 Hence the procedure to start a Joint Stock Company is costly, time consuming andcomplicated.
ii. Lack of Motivation:

 There is a separation of ownership and management in the Joint Stock Company.
 The rewards for the efforts put in by the management are enjoyed by a large number ofshareholders.
 Therefore there is no direct 'effort-reward relationship which may de-motivate themanagement from putting in
their best efforts.
iii. Lacks Personal Contact:

 As a result of the large size of the company, the shareholders and directors do not havedirect contact with the
employees of the company.
 The employees do not feel motivated as they feel their efforts are not recognized andappreciated.
 This may affect the productivity of the employees.
iv. Lack of Business Secrecy:

 A Joint Stock Company has to publish its annual accounts and other important documents asper the requirements
of Indian Companies Act, 1956.
 So there is no business secrecy in the company.
 The competitors can take undue advantage of such information.
v. High Cost of Management:

 A Joint Stock Company manages its affairs by using the services of specialized workforce of professionals and
skilled labour for various functions like underwriters, financial and technicalexperts, stock brokers, solicitors,
bankers etc.
 These professionals are paid high salaries and are benefited with various facilities bycompany, which makes
thecosts rise higher than the other forms of businesses.
vi.
Delay in Decision Making :
 In a Joint Stock Company, there is a separation in the ownership and management of the business.
 Management of the company is handled by the Board of Directors.
 But the various decisions taken by them need to be approved from the shareholders.
 They have to conduct board meetings and shareholders meetings for which certain procedures need to be
followed.
 This results in delaying the decision making process.
vii. Excessive Government Control :

 A Joint Stock Company has to strictly follow various rules and regulations as per the India Companies Act, 1956.
(Now 2013)
 Non-compliance with these rules and regulations results in penalties.
 This acts as hindrance in functioning of the company.
viii. Undue Speculation :

 Directors are responsible for the management of the company.
 They may sometimes misuse the inner information and indulge in speculation of shares.
 It may result in sudden fluctuations in the market prices of shares which may have an adverse effect on the
confidence of shareholders and investors.
Types of Companies :
Types of
Companies
Chartered company Statutory company Registered company
Unlimited company Limited company
Company limited by Guarantee & Share Company limited by share
Public limited Company Private limited Company

Q.21. Distinguish between
Company limited
Private by Guarantee
Limited Company and Public Limited Company.
Ans.
Sr. No. Private Limited Company Public Limited Company
Meaning
i. Accord to Sec 3(I) (iii) of the Companies According to Sec 3(I) (iv) of the
Act, 1956, A private Company is a Companies Act, 1956, A public company
company which by its articles restricts the means a company which is not a private
right to transfer its shares, if any, limits the company. It has no restriction to transfer its
number of its members to 50 and prohibits shares and has no maximum limit for the
any invitation from public to subscribe for number of members.
any shares or debentures of the company.
Number of Directors
ii. The minimum number of directors in a The minimum number of directors in a
private limited company is 2 public limited company is 3.
Invitation to subscribe to shares / debentures
iii It cannot invite the public to subscribe to It can invite the public to subscribe to
shares or debentures of the company. shares or debentures of company.
Number of Members
iv. The minimum number of members is 2 and The minimum number of members is 7 and
maximum is 50.(Now 200) there is no maximum limit.
Name
v. It is compulsory to add the name 'Private It is compulsory to add the word 'limited'
Limited' after the name of the private after the name of the public company.
company.
Issue of Prospectus
vi. It is not compulsory for a private limited It is compulsory for a public company to
company to issue Prospectus/statement in issue Prospectus / Statement Lieu of
Lieu of Prospectus. Prospectus.
Minimum Capital
vii. Minimum paid-up capital is one lakh Minimum paid up capital is five lakh
rupees. (Now no limit) rupees.(Now no limit)
Factors to be considered for Starting Business :

Q.22 State the factors to be considered before starting a business.
Ans. : Before starting a new business, there are various important factors that needs to be considered as these factors
contribute towards the success or failure of a business.
The factors that need to be considered for starting business are as follows:[Mnemonic: BIRTHFUL]
i. Form of Business Organization :
 An entrepreneur has to consider the type of business before starting his venture.
 Various factors like the personal capacity of the entrepreneur to manage and control the business, investment
required, risk factors, continuity and stability, government control, tax liability, business secrecy, flexibility, etc.
should be considered.
ii. Identification of Business Opportunity :

 It is very important to first understand the business environment.
 A systematic approach to understand the environment is the'SWOT' analysis i.e. strength, weakness, opportunity
and threat.
 An understanding of the external environment in terms of opportunities and threats and the internal environment
in terms of strength and weakness is important for the existence, growth and profitability of the organization.
iii. Raw Material :

 When starting a new business, a vital factor that needs to be considered is the availability of raw materials.
 Also he type, quality, quantity, delivery time and cost of raw materials is also required to be considered.
iv. Technology and Equipment :

 Use of latest technology and equipment enables an organization to produce improved quality of goods and
services.
 It also results in cost savings for the organization.
 Therefore, selection of the right technology and equipment is very important for an organization.
v. Human Resources :
 Manpower is the most important factor for any business as it is manpower that is required to manage the other
factors for production.
 Hence, without manpower all other factors are useless.
 Therefore, while starting a new business, factors concerning manpower need to be considered, like the
requirement of skilled and semi-skilled manpower, its availability and cost, etc.
vi. Financial Planning :

 For the running of any business, capital is needed.

 Capital is required for purchase of fixed assets and other operational expenses.
 Hence, while starting a new business, it is necessary to have proper financial resources.
vii. Utilities :
 A variety of utilities like power, water, fuel, steam and other consumables is required for starting a business.
 Therefore, necessary clearances from various government authorities like Pollution Control Board etc. are
required before starting enterprises.
viii. Selection of Location :

 Location of business play an important role in the success of a business.
 In case of manufacturing business, the availability of raw materials, skilled personnel, electricity, climatic
conditions, transport, etc. has to be considered.
 In case of service oriented business (for e.g. a grocery store, restaurant), the skills and knowledge base of people
near the store should be considered.
 Transportation banking facilities etc. also influence the selection of the location for the business.
Choice of Forms of Business Organization

Q.23 State the point of choice of forms of Business Organization.
Ans. : Each form of organization has its advantages and disadvantages. In other words, all forms of organizations are
not suitable in all respects.
The following factors must be considered before selecting the form of business organization.
i. Requirement of Capital :
 The choice of form of organization is influenced by the capital requirement of the business.
a. If the capital requirement of business is :
b. Small, then the sole proprietorship form of business is suitable.
c. Medium, then partnership or private company form of business is suitable.
d. Large, then a joint stock company will be more suitable.
ii. Continuity and Stability :

 In a sole proprietorship or a partnership firm, there is little continuity or stability. The business ends with the
death, insanity or insolvency of the sole owner or a partner.
 From the point of view of continuity and stability of the business, the company from of organization is a better
option.
iii. Risk Factors and Liabilities :

 The risk taking ability of an entrepreneur also is a deciding factor in the form of business organization.
 If the risk is low and the entrepreneur is ready to take that risk, then the sole proprietorship form of business
organization is suitable.
 If the risk is high or if the entrepreneur is not willing to take the risk, then company form of business will be
suitable as in company organization, the owners' liability is limited.
iv. Managerial Needs :

 The scale of operating the business and the availability of human resources is also an important factor.
 If the scale of the business is small, a sole owner can look after the management of the business, then a sole
trading concern can be selected.
 If more than one person is required to manage the business, then partnership firm can be selected.
 If the scale of the business is large and expert knowledge and skills are required to manage the business, then a
joint stock company form of organization will be the best.
v. Government Control :
 Different business forms require different regulations and therefore different levels of government control.
 A sole proprietorship has almost no government interference; a partnership firm is regulated under the Indian
Partnership Act 1932, but doesn't require any registration.
 Another form of business is the Joint Hindu Family Business which is governed by the Hindu Law and the Hindu
Succession Act.
 Co-operative Societies fall under the Indian Co-operative Societies Act and are service oriented.

 A Joint stock company has the highest government control and interference.
 Thus while choosing the business, the government regulations need to be taken into consideration.
vi. Flexibility:
 An organization 's ability to adapt to the changing business situations is termed as flexibility.
 A sole trading concern has maximum flexibility as it can change quickly to the changing business environment.
vii. Tax Liability :

 The tax liability of a sole proprietorship and partnership is lesser as compared to that of a joint stock company.
 An ideal business organization should have lesser tax liability.
viii. Business Secrecy :

 A sole trading concern has maximum business secrecy. There is no need for a sole trader to share any business
information with any outsider.
 On the other hand, a joint stock company has to publish the financial statements. Thus, minimum secrecy is
maintained.
 Partnership firms and private companies also enjoy the advantage of business secrecy to some extent.
Multiple Choice Questions :

I. Select the proper option from those give below and rewrite the complete sentences :
1. ........................ is not a Private sector undertaking.
(A) Partnership firm (B) Statutory Corporation (C) Joint Stock Company
2. A sole proprietorship is the ................. form of organization.

(A) Private Sector (B) Public Sector (C) None of these
3. A proprietor has .................... liability.

(A) Unlimited (B) Limited (C) Restricted
4. A sole proprietorship has ................. owner / owners.

(A) One (B) Two (C) Unlimited
5. A sole trading concern ensure ............ business secrecy.

(A) Minimum (B) Maximum (C) Limited
6. The responsibility of a sole trader is ....................

(A) Unlimited (B) Limited (C) Limited by guarantee
7. Business organization which is controlled by Hindu Succession Act is known as ...................

(A) Joint Stock Company (B) Partnership Firm (C) Joint Hindu Family Firm
8. The members of Hindu Undivided Family Business are called .................

(A) Karta (B) Partners (C) Co-parceners
9. The Karta in Joint Hindu Family Business has ................. liability.

(A) Unlimited (B) Limited (C) Joint
10. Limited Managerial skill is the .................. of joint Hindu Family business.
(A) Feature (B) Limitation (C) Advantage
11. The head of Joint Hindu Family Business is called as ................

(A) Proprietor (B) Karta (C) Advantage
12. The senior most member of the Joint Hindu Family Business is known as ...............
(A) Karta (B) Manager (C) Executive
13. The rights and liabilities of co-parceners are governed by the Hindu Succession Act of ..................

(A) 1932 (B) 1947 (C) 1956
14. The maximum number of partners for a firm carrying on backing business is ....................
(A) Ten (B) Twenty (C) Seven
15. Registration of partnership firm is .................. in Maharashtra.

(A) Compulsory (B) Not Compulsory (C) Optional
16. Indian Partnership Act was passed in the year ......................

(A) 1932 (B) 1923 (C) 1942
17. In partnership Firm the liability of partners is ....................

(A) Limited (B) Unlimited (C) None of these
18. In a partnership firm, every partner is the principal as well as the .................
(A) Agent (B) Karta (C) Partner
19. At least ................ persons are required to form a partnership firm.

(A) Two (B) One (C) Three
20. Maximum number of partners in a non-banking business is ..................

(A) Ten (B) Two (C) Twenty
21. A person below 18 years of age is called minor according to ...............

(A) Indian Companies Act, 1956 (B) Indian Partnership Act, 1932(C) Indian Contract Act, 1972
22. The minimum number of members allowed in a co-operative society is .................

(A) 20 (B) 10 (C) 7
23. The Co-operative societies Act was passed in the year ............
(A) 1032 (B) 1912 (C) 1956
24. The Maharashtra State Co-operative Societies Act came into force in .................
(A) 1956 (B) 1960 (C) 1932
25. In a co-operative society, the principal followed is ................

(A) One share one vote (B) One man one vote (C) Not vote
26. The maximum numbers of members in a private limited company are .................
(A) 50 (B) 40 (C) 20
27. The minimum number of persons required for registration of a private company is ...............
(A) 5 (B) 2 (C) 7
28. The liability of the shareholders in the public limited Joint Stock Company is ................
(A) Limited (B) Unlimited (C) Collectively
29. The elected representatives of shareholders are called ....................

(A) Directors (B) Members (C) Owners
30. A joint stock company is an artificial person created by...........

(A) Law (B) Public (C) Directors
31. Registration of Joint Stock Company is ................

(A) Compulsory (B) Not compulsory (C) Optional
32. The minimum amount of paid up capital for public company is ...................
(A) Two (B) Three (C) Five
33. The minimum amount of paid up capital for public company is .....................
(A) Five Lakhs (B) One Lakh (C) Ten Lakhs
34. From the point of continuity, .................. business organization is the most suitable.
(A) Compulsory (B) Partnership (C) Sole proprietorship
35. While selecting the place of business ..................... is important.

(A) Locality (B) Region (C) Capital
36. The management of a Joint Stock Company is controlled by ................

(A) Partners (B) Board of Directors (C) Managing Committee
37. ................... does not enjoy an independent existence.

(A) Joint Stock Company (B) Partnership firm (C) Co-operative Society
Match the Pairs

II. Match the correct pairs :
1.
Group "A" Group "B"
i. Private company a. Compulsory
ii. Public company b. Minimum 7 members
iii. Common seal c. Maximum 50 members
iv. Registration of a company d. 61% share capital
v. Government Company e. 51% share capital
f. Symbol of company
g. Optional
h. Simple formation
i. Easy dissolution
j. Hindu Succession Act, 1956
Ans. : (i-c), (ii-b), (iii-f), (iv-a), (v-e).
Government company is registered (either as a private company or as a public company) with the Registrar of Companies
under the Indian Companies Act, 1956. The government in such companies holds 51% or more share capital.
2.
Group "A" Group "B"
i. Sole proprietorship a. Many member one vote
ii. Joint Stock Company b. Partner
iii. Partnership Activities c. 1976
iv. Co-operative Society d. Optional
v. Joint Hindu Family Firms e. One member one vote
f. Karta
g. Maximum business secrecy
h. Common seal
i. 1932
j. Compulsory
Ans. : (i-g), (ii-h), (iii-i), (iv-e), (v-f)
3.
Group "A" Group "B"
i. Co-operative Society a. Formation by Deed
ii. Indian Companies Act b. Easy identification of an organization

iii. Partnership Act c. Sole Trader
iv. Private Company/Private Limited d. 1947
Company
v. Partnership Firm e. Minimum 50 members
vi. Single Ownership f. 1956
vii. Common Seal g. 1972
viii Sole Trading Concern h. 1932
ix. Public Company i. Service Motive
j. Maximum 50 members
k. Unlimited Liability
l. Difficult identification of an
organization
m. Minimum 7 members
Ans. : (i-i), (ii-f), (iii-h), (iv-j), (v-a), (vi-c), (vii-b), (viii-k), (ix-m).
One Word
iii. Write a phrase or a term which can substitute each one of the following : [1 mark each]
1. The owner is the sole manager and decision maker of this business.
2. The commercial organization which has maximum secrecy.
3. 'One man show' type of business.
4. The oldest and simplest form of organization.
5. The senior most family member of Joint Hindu Family Firm.
6. The members of the Joint Hindu Family Business.
7. The person who manages and controls the Joint Hindu Family Business.
8. The Head of the Joint Hindu Family Business.
9. The form of organization which comes into existence by law of inheritance.
10. A partner who gives his name to partnership firm.
11. A partner in partnership firm who takes active participation in day-to-day work.
12. The partnership for which the durations is not fixed.
13. The partnership for which the duration is fixed.
14. A partner who does not want to disclose his identity.
15. The Act applicable to partnership firms.
16. The partnership under which the liability of every partner is unlimited.
17. The partnership which is dissolved on the completion of the specific task or the achievement of specific
objectives.
18. The business organization which has minimum 10 members.
19. The type of commercial organization established for providing services to its members.
20. An elected body of representatives of co-operative organization for its day-to-day administration.
21. The rules and regulations laid down by the Managing Committee of a co-operative organization.
22. Minimum number of members required to form a co-operative society.
23. An artificial person created by law.
24. A company which by its articles restricts the right to transfer its shares.
25. The company in which the minimum number of members is seven.
26. A company in which there are maximum 50 members.
Ans.
1. Sole Proprietorship 2. Sole Proprietorship
3. Sole Proprietorship 4. Sole Trading Concern
5. Karta 6. Co-parceners
7. Karta 8. Karta
9. Joint Hindu Family Firm 10. Nominal Partner
11. Active partner / Actual Partner 12. Partnership at will
13. Particular Partnership 14. Secret Partner
15. Indian Partnership Act, 1932 16. General Partnership
17. Particular partnership 18. Co-operative organization
19. Co-operative organization 20. Managing Committee
21. Bye laws 22. Ten
23. Joint Stock Company 24. Private Limited Company
25. Public Limited Company 26. Private Limited Company
Distinguish Between
IV Distinguish between the following :
1. Joint Hindu Family Firm and Sole Trading Concern.
Ans. :
Sr. No. Sole Trading Concern Joint Hindu Family Firm
Meaning
i. It is a form of business organization which It is a form of business organization which
is owned and managed by a single person. is conducted by the members of a Joint
Hindu Family.
Ownership
ii. Sole proprietor is the owner of the assets All the members of the joint family are
and properties of the business. joint owners of the business assets and
properties.
Profit and Loss Sharing
iii Entire profit or loss belongs to the sole The profits and losses are shared by all the
proprietor. co-parceners.
Membership
iv. There can be only one owner. There is no maximum limit on
membership.
Liability
v. The liability of the sole owner is unlimited The liability of the Karta is unlimited and
the liability of its co-parceners is limited.
Financial Resources
vi. Financial resources are very limited as Financial resources of Joint Hindu Family
compared to a Joint Hindu Family Firm. Firm are relatively more than that of a sole
trader.
Stability
vii. Since the sole trading concern depends on Joint Hindu Family firm is comparatively
the survival of its sole owner, it lacks more stable than a sole trading firm. This is
stability. because, after the death of the Karta the
business is passed on to the next
generation.
2. Sole Trading Concern and Partnership Firm

OR
Ans. : Sole Trader and Partnership Firm.
Sr. No. Sole Trading Concern Partnership Firm
Meaning
i. It is a form of business organization which It is a form of business organization where
is owned and managed by a single person. two or more persons agree to undertake the
business and share the profits/losses.
Formation
ii. Formation of a sole trading concern can be Formation of a partnership firm can be
done any time when the proprietor decides. done when an agreement is formed between
two or more persons who are competent to
enter into an agreement.
Registration
iii Registration is not necessary. Registration is not compulsory, except in
the state of Maharashtra.
Ownership
iv. Sole proprietor is the owner of the assets Partners are the Joint Owners of the assets
and properties of the business. and properties of the firm.

Management
v. The entire management is the responsibility The management is divided among the
of the sole owner. partners. There is division of work which
results of specialization.
vi. All the profits are enjoyed and losses are Profits and losses are shared amongst the
borne by the sole trader only. partners as per the agreement between
them.
Business Secrecy
vii. A sole trading concern ensures maximum Information is shared amongst the partners
secrecy as only the sole owner has access to of the business.
the business information.
3. Partnership Firm and Joint Hindu Family firm.

Ans. :
Sr. No. Partnership Firm Joint Hindu Family Firm
Meaning
i. In this form of business organization, two In this form of business organization,
or more persons agree to undertake the business is conducted by the members of
business and share the profits/losses. Joint Hindu Family which is inherited by
them as per the Hindu Law.
Formation
ii. Formation of a partnership firm can be Joint Hindu Family Firm is created by the
done when an agreement is formed between operation of Hindu Law.
two or more persons who are competent to
enter into an agreement.
Regulating Law/Act
iii It is governed by the Indian Partnership It is governed by the Hindu Law.
Act, 1932
Management
iv. The management is divided amongst all the Karta is the key person responsible for the
partners. Every partner has a right to management of the business. He may be
participate in the managerial activities. assisted by the co-parceners to a limited
extent.
Membership
v. Minimum two partners are required to form There is no limit on the number of
a partnership firm. The maximum limit of members since the membership depends on
partners in a firm conducting banking the births and deaths in the family.
business is 10 and for a non-banking
business, it is 20.
Liability
vi. The liability of all the partners of the firm The liability of the Karta is unlimited
is unlimited whereas the liability of all the co-parceners
is limited.
Minor Members
vii. A Minor can be a partner only in the profits Information is shared amongst the partners
of the firm, if the consent is given by all the of the business.
other partners.
4. Sole Trading Concern and co-operative Society.

Ans. :
Sr. No. Sole Trading Concern Co-operative Society
Meaning
i. It is a private enterprise that belongs to a It is voluntary association of persons, who
single individual. come together to provide service to its
members.
Regulating Law/Act
ii. There is no law that governs proprietorship It is governed by the Indian Co-operative
firm. General regulations, tax and labour Societies Act, 1912. However, every state
laws have to be followed. has a separate regulating law.
Management
iii. The sole proprietor is the owner and The management of a Co-operative society
manager of the concern. is based on the democratic principle of
management. The managing committee is
elected by the members and acts as a
representative of the co-operative society.
Membership
iv. The sole proprietor is the owner and the A minimum number of 10 members are
only member of the sole trading concern. required for the formation of a co-operative
society.
Motive
v. Profit making is its only motive. Providing service to the members is its
main motive.
vi. Profits earned belong wholly to the Profits are distributed in the form of
proprietor as his personal income. Losses, dividend. (Max 15% p.a.)
if any, are also to be borne by him
Liability
vii. The owner of a proprietorship firm has The liability of the members is limited to
unlimited liability. the extent of the unpaid amount of shares
held by them.
Legal Status
viii. A proprietorship firm doesn't have a Co-operative society has a separate legal
separate legal status. status distinct from its members.
5. Joint Hindu Family Business and Co-operative Society.

Ans. :
Sr. No. Joint Hindu Family Business Co-operative Society
Meaning
i. In this form of business organization, It is a voluntary association of person, who
business is conducted by the members of come together to provide service to its
Joint Hindu Family which is inherited by members.
them as per the law.
Regulating Law/Act
ii. It is regulated by the Hindu Law. It is governed by the Indian Co-operative
Societies Act, 1912. However, every state
has a separate regulating law.
Management
iii. Karta is key person responsible for the The management of a Co-operative society
management of the business. He may be is based on the democratic principal of
assisted by the co-parceners to a certain management. The managing committee is
extent. elected by the members and acts as a
representative of the co-operative society.
Membership
iv. There is no maximum limit on the number A Minimum number of 10 members are
of members in a Joint Hindu Family required for the formation of a Co
Business. operative society.
Motive
v. Earning profits is its main motive. Providing service of the members is its
main motive.
Liability
vi. The liability of the Karta is unlimited The liability of the members is limited to
whereas the liability of all the co-parceners the extent of the unpaid amount of shares
limited. held by them.
6. Co-operative Society and Partnership Firm.

Ans. :
Sr. No. Co-operative Society Partnership Firm
Meaning
i. It is a voluntary association of persons who In this form of business organization, two
come together to provide service to its or more persons agree to undertake the
members. business and share the profits/losses.
Regulating Law/Act
ii. It is governed by the Indian Co-operative It is governed by the India Partnership Act,
Societies Act, 1912. However, every state 1932.
have a separate regulating law.
Registration
iii. Registration is compulsory under the Act. Registration is not compulsory except in
the state of Maharashtra.
Membership
iv. A minimum number of 10 members are Minimum two partners are required to form
required for the formation of a Co- a partnership firm. The maximum limit
operative society. of partners in a firm conducting
banking business is 10 and for a non-
banking business is 20.
Motive
v. Providing service to the members is its Earning profits is its main motive.
main motive
vi. Profits are distributed in the form of Profits and losses are shared amongst the
dividend . (Max 15% p.a.) partners as per the agreement between
them.
Liability
vii. The liability of a member is limited to the The liability of partners is unlimited, joint
extent of the unpaid amount of shares and several.
Legal Status
viii. Co-operative society has a separate legal Partnership firm does not enjoy an
status distinct from its members. independent legal status.
Transferability of Shares
ix. Shares cannot be transferred by the Partners cannot transfer their share to
shareholder, though it can be surrendered to others without the consent of other
the society. partners.
7. Sole Trading Concern and Joint Stock Company.

Ans. :
Sr. No. Sole Trading Concern Joint Stock Company
Meaning
i. It is a form of business organization which It is an incorporated association which is an
is owned and managed by a single person. artificial person created by law, having a
common seal, ensuring perpetual
succession and a common stock comprising
of transferable shares carrying limited
liability.
Membership
ii. There can be only one owner of the The minimum number of members in case
business. of a public limited company is 7. There is
no maximum limit on the number of
members. In a private company, the
minimum number of members is 2 and the
maximum number is 50.
Liability
iii. The liability of the sole owner is unlimited The liability of the members is limited to
the extent of the amount unpaid on the
shares held by them.
Legal Status
iv. A sole trading concern does not have a A joint stock company has a distinct legal
separate legal status different from its status separate from its members.
owner.
Financial Resources
v. Financial resources are very limited in a A Joint stock company enjoy perpetual
sole proprietorship succession. Its stability and continuity is
not dependent on its members.
Stability
vi. Since the sole trading concern depends on A joint stock company enjoys perpetual
the survival of its sole owner, it lacks succession. Its stability and continuity is
stability. not dependent on its members.
8. Partnership Firm and Joint Stock Company

Ans. :
Sr. No. Partnership Firm Joint Stock Company

Meaning
i. In this form of business organization, two It is an incorporated association which is an
or more persons agree to undertake the artificial person created by law, having a
business and share the profits. common seal, ensuring perpetual
of transferrable shares carrying limited
liability.
Formation
ii. Formation of a partnership firm can be The formation of a joint stock company
done when an agreement is formed between involves a lot of formalities so it is very
two or more persons, who are competent to difficult and time consuming. There are
enter into an agreement. It is comparatively various documents that need to be prepared
simple and less costly. and submitted to the Registrar of
Companies.
Regulating Law/Act
iii. Partnership is controlled under the Indian Joint Stock Company is controlled under
Partnership Act, 1932. the Indian Companies Act, 1956.
Management
iv. The management of a partnership firm is in The management of a joint stock company
the hands of the partners. is in the hands of the elected Board of
Directors.
Membership
v. Minimum 2 partners are required to form a The minimum number of members in case
partnership firm. The maximum limit of of a public limited company is 7 There is
partners in a firm conducting banking no maximum limit on the number of
business is 10 and for a non-banking members. In a private company, the
business it is 20 minimum number of members is 2 and the
Liability
vi. The liability of all the partners of the firm The liability of the members is limited to
is unlimited the extent of the amount unpaid on the
Business Secrecy
vii. There is sound business secrecy, as the There is less secrecy as it has to publish its
partnership firm need not publish accounts financial statements and other information.
and other information.

Stability
viii. The continuity of a partnership firm A Joint Stock Company enjoys continued
depends upon the mutual trust among the existence. The death of a shareholder or a
partners. Again due to death or retirement director does not affect the existence of the
of a partner, the partnership may have to be company.
closed down.
9 Joint Hindu Family Firm and Joint Stock Company.

Ans. :
Sr. No. Joint Hindu Family Firm Joint Stock Company
Meaning
i. It is a form of business which is conducted It is an incorporated association which is an
by the members of joint Hindu family. artificial person created by law, having a
common seal ensuring perpetual succession
and a common stock comprising of
transferable shares carrying limited
liability.
Regulating Law/Act
ii. A joint Hindu family business is a family Joint Stock Company is controlled under
concern that operates under the provisions the Indian Companies Act, 1956.
of the Hindu Law and Hindu Succession
Act, 1956.
Membership
iii. There is no maximum limit on the number The minimum number of members in case
of members in a joint Hindu family of a public limited company is 7. There is
business. no maximum limit on the number of
minimum number of members is 2 and the
Financial Resources
iv. The financial resources of joint Hindu A joint stock company has access to large
family firm are limited as compared to a financial resources.
joint stock company.
Liability
v. The liability of the Karta is unlimited and The liability of the members is limited to
the liability of Co-parceners is limited. the extent of the amount unpaid on the
Stability
vi. The stability of joint Hindu family firm A Joint stock company enjoys perpetual
depends on the birth and death in the succession. Its stability and continuity is
family. After the death of the Karta, the not dependent on its members.
business is passed on to the next
generation.
10. Co-operative Society and Joint Stock Company.

Ans. :
Sr. No. Co-operative Society Joint Stock Company
Meaning
i. It is a voluntary association of persons, who It is an incorporated association which is an
come together to provide service to its artificial person crated by law, having
members. common seal, ensuring perpetual
of transferable carrying limited liability.
Formation
ii. Formation of a co-operative society is The formation of a Joint Stock Company
relatively easy as compared to that of a involves a lot of formalities so it is very
Joint Stock Company. difficult and time consuming. There are

various documents that need to be prepared
and submitted to the Registrar of
Companies.
Management
iii. The managing committee looks after the The "Board of Directors" looks after the
management of the co-operative society. management of the company.
Membership
iv. A minimum number of 10 members are The minimum number of members in case
required for the formation of a Co of a public limited company is 7. There is
operative society. no maximum limit on the number of
minimum number of members is 50.
Motive
v. The main motive of a co-operative society The primary motive of a joint stock
is to provide service to its members. Profits company is to make profits. Providing
making is its secondary objective service is it secondary objective.
Capital Raising Capacity
vi. The capital raising capacity of a co The capital raising capacity of a joint stock
operative society is limited as the dividend company is large since attractive dividend
is fixed and there is no capital appreciation. is paid and there is capital appreciation.
Transferability of Shares
vii. Shares cannot be transferred by the Shares of a joint stock company can be
shareholder, though it can be surrendered to easily transferred, in case of a public
the society. limited company.
Voting Rights
viii. The principle of voting is one member one The principle of voting is one share one
vote. vote.
Remuneration
ix. The managing committee works on Directors are paid fees (allowances) for
honorary basis. attending the board meetings.
Rate of Dividend
x. There is restriction on the rate of dividend, There is normally no restriction on the rate
which works out to be about 15% of dividend. Companies may declare any
rate of dividend depending upon profits.
True of False
V. State with reasons, whether the following statements are True or False:
1. A sole trading concern is easiest to form.
Ans. : This statement is TRUE.
Reasons :
 Sole trading concern is a private sector enterprise, where the ownership, management and control of organization
are all in hands of one entrepreneur.
 It is a form of organization that has only one owner.
 The concern is not required to be registered under the provisions of any law,
 It just has to observe the general laws of tax and labour.
 It is free from complex government rules and regulation.
 The concern can be started by any person who is a major, with a sound mind and one who has not been
disqualified to conduct business under any law.
Thus, the sole trading concern is easiest to form.
2. Sole proprietorship is useful for small business.

Reasons. :
 Sole trading concern is a private sector enterprise, where the ownership, management and control of the
organization are all the hands of one entrepreneur.

 A sole proprietor has limited capital resources. Sole proprietorship, therefore, operates in the local market due to
small scale of business.
 A sole trader can maintain good relations with the customers and also provide personalized services.
 Since the sole trader is the only decision maker, the decisions taken can be changed quickly depending upon the
changing circumstances.
 The government regulations for a sole trading business are minimum. Registration of a sole trading concern is
not required. There are no laws that control the operations, functioning or dissolution of sole trading firm.
Thus, the above mentioned benefits make sole proprietorship useful model for small business.
3. The owner of the sole proprietorship is the sole decision maker of his business.
Ans. : The Statement is TRUE.
Reasons :
 The sole proprietor invests his own capital into the firm.
 He is the sole bearer of all the risks and also enjoys all the profits.
 Being the sole owner of the firm, he has full control on his business activities.
 In other words, the sole trader is not required to consult anyone for taking business decisions.
Thus, the sole trader is the owner as well as the sole decision maker.
4. The liability of a sole trader is limited.

Ans. : This statement is FALSE. [The liability of a Sole Trader is unlimited]
Reasons :
 In the eyes of law, the sole trader and his business are not separate i.e. they are treated one and the same.
 He is the sole bearer of all the risks and also enjoys all the profits.
 In case of losses, if the sole trader fails to settle the outstanding amount of the creditors form the business assets;
then his personal and private assets can also be used to repay them.
Thus, the liability of sole trader is unlimited.
5. Business secrecy cannot be maintained in a sole Trading Concern.

Ans. : This statement is FALSE. [In a sole trading concern, maximum business secrecy can be maintained.]
Reasons :
 In such type of trading concern, the sole proprietor is not required to publish any accounts or share any
information with outsiders.
 Also, he need not consult anybody regarding any business decisions.
 Hence, there is no scope for any outsiders taking advantage of the information about the business.
Thus, maximum business secrecy is maintained in a sole trading concern.
6. A Sole Trader has weak bargaining power.

Reasons :
 Sole trading concern is a private sector enterprise, where the ownership management and control of the
 A sole trader has limited capital and limited managerial ability and hence his business works on a small scale.
 His bargaining power with wholesalers is limited because he makes purchases on a smaller scale.
 Also, he cannot grant longer credit facility to his customers.
 Moreover, his business is easily affected by any small change in the market conditions. So he does not have
much control on the market situations.
Due to the above reasons, a sole trader has weak bargaining power.
7. There is no limit for membership in Joint Hindu Family business.

Reasons :
 The Joint Hindu Family firm comes into existence by the operation of the Hindu Law.
 All the members of the Joint Hindu Family firm become members by virtue of their birth in the family and cease
to be a member after their death.
 In other words, the membership is attained on birth and the family members can be the co-parceners in such type
of business. In order to become a co-parcener/member of the joint hindu family business, there is no need for any
kind of agreement.
 The number of members in the firm depends upon the births and deaths in the family.
Thus, there is no limit for membership in the Joint Hindu Family business.
8. The liability of a Karta in a Joint Hindu Family Firm is limited.
Ans. : This statement is FALSE. [The liability of the Karta in a Joint Hindu Family Firm is unlimited].
Reasons :
 In a Joint Hindu Family Firm, Karta has the sole right to take decisions and conduct the business. He has all the
proprietary and managerial rights regarding the business.
 The other members / co-parceners cannot challenge or question the business decisions taken by the Karta.
 This gives implied authority to the Karta to borrow money for the business.
 The Karta hence becomes responsible for the repayment of the entire amount. Even his personal assets can be
used to repay the loans, if his business assets are not sufficient enough.
 The other members though will be liable for repayment only to the extent of their share in the joint family
property.
Therefore, the liability of a Karta is unlimited as per the Hindu Law.
9. In a Partnership Firm, Agreement may be oral or written.
Reasons :
 A partnership firm is formalized by singing an agreement called 'partnership deed' which states the terms and
conditions regarding the internal Management, Profit Sharing and the Roles of Partners.
 As per the provisions of the Indian Partnership Act, 1932, it is not compulsory to register a partnership firm and
neither is any penalty levied for non-registration.
 Maharashtra is the only state in India where it has been made compulsory, since April 1985.
 However, it is desirable to get the firm registered as it has benefits, in case of any unfovaurable circumstances or
conflicts amongst partners or with third parties.
Hence, a partnership agreement can be written, oral or implied.
10. A minor cannot be admitted as a partner in a partnership firm.

Ans. : This statement is FALSE. [Aminor can be admitted as a partner in a partnership firm].
Reasons :
 As per the Indian Contract Act, 1972, a minor refers to a person who has not attained 18 years of age.
 He cannot enter into a contract.
 However, as per the Indian Partnership Act, 1932, he can be a partner in the profits of the firm, if the consent is
given by all the other partners.
 He has the right to the benefits of the firm.
 The minor partner cannot participate in the management of the firm and his liability is limited.
Thus, a minor can be admitted as a partner in a partnership firm.
11. In a Partnership, the liability of every partner of a firm is unlimited.

Reasons :
 A partnership firm does not have a separate legal status different from its partners.
 So the liability of a partnership firm becomes the liability of the partners.
 The partners are liable to pay the debts of the firm from their personal assets, if the assets of the firm are
insufficient to pay the firm's debts.
 If any partner is declared insolvent, the other solvent partners have to share the liabilities.
Thus, a partner's liability is unlimited, joint and several.
12. Co-operative society differs from other forms of business organization.

Reasons :
 A co-operative society differs from other forms of commercial organizations in many aspects.

 The main motive of other commercial organization is to maximize profits whereas; a co-operative society's main
aim is to provide service to its members and others.
 Other organizations follow the rule 'one share one vote' in case of voting whereas a co-operative society follows
the rule 'one member one vote' irrespective of the number of shares held by the members.
 Co-operative society follows democratic management system.
 Membership of a co-operative society is usually open.
 In a co-operative society, there is a ceiling on the rate of dividend. (Max 15% p.a.).
 A co-operative society has a social objective. A part of the surplus is given back to the members as bonus and the
remaining is spent for the welfare of the members and the community at large.
Thus, the above statement is true.
13. The main purpose of a co-operative organization is to earn profit.

OR
Maximization of profit is the main motto of a Co-operative Society.
Ans. : The statement is FALSE. [The main aim of a co-operative organization is to provide services to its members].
Reasons :
 A co-operative society is formed by a group of people voluntarily, for the economic welfare of its members.
 The need of such type of organization was felt as large scale trading companies use to exploit the employees as
well the consumers.
 In order to solve this problem, a group of people decided to come together and form an organization on a co-
operative basis.
 The members here usually belong to middle and lower income groups of the society.
 Co-operative societies buy various products and services and sell them to their members at prices which are
lower than the prices at which the products are originally available in the markets.
 All the members are treated equally and no distinction is made on the basis of the shares held by them.
Thus, the main aim of a co-operative organization is to provide services to its members and others and not to
maximize profit.
14. The membership of a co-operative society is voluntary.

Reasons :
 A co-operative society is formed by a group of people voluntarily, for the economic welfare of its members.
 A person from any caste, creed or religion can become a member of a co-operative society by simply buying its
shares. In other words, the membership is open to all.
 They come together voluntarily on the basis of unity and equality for the purpose of providing service to their
members.
 All the members work together towards a common goal which benefits all the members.
 The members may even leave the society by transferring the membership to any other person.
Thus, the membership of a co-operative society is voluntary.
15. Company form of organization has developed before industrial revolution.

Ans. : This statement is FALSE. [The company form of organization has developed after the industrial revolution.]
Reasons :
 The factory system came into existence during the industrial revolution.
 The industrial revolution resulted in changes in the production techniques, widening of markets, requirement of
large capital etc.
 Huge capital investments were required to bring about these changes which the sole trader or partnership firms
were not able to invest.
 Also the expansion in the scale of the business resulted in increase in the managerial functions. Sole trader and
partners could not cope with these functions efficiently.
Hence, the company form of organization came into existence in order to meet these shortcomings.
16. Shareholders can manage the business of a Joint Stock Company.

Ans. : This statement is FALSE. [The joint stock company is managed by "Board of Directors"]
Reasons :
 The shareholders of the company are owners of the company.

 However, they do not participate in the day-to-day working of the business as there are a large number of
shareholders who are spread over a wide area.
 Shareholders also do not necessarily have the skills and ability to manage the business.
 When the shareholders/owners voluntarily leave the membership by transferring the shares, the membership
keeps on changing.
 Hence, the shareholders elect representatives amongst themselves called as 'directors'. The directors from 'Board
of Directors' who look after the daily operations of the business.
Thus, the joint stock company is managed by the "Board of Directors" and not the shareholders.
17. A Joint Stock Company can raise huge capital.

Ans. : This statements is TRUE.
Reasons :
 The need of joint Stock Company form of organization was felt when Sole Trading Concern, Partnership Firm
and Joint Hindu Family Business weren't able to gather huge amount of capital; which is required, in order to
expand/diversify/conduct trade on a large scale.
 A Joint Stock company has access to various sources to raise large amount of capital viz. through the issue of
shares and debentures.
 It may even raise capital from a large number of investors spread over a large area.
 Smaller denominations of shares, easy transferability of shares and limited liability of the shareholders makes the
investment more attractive to the prospective investors.
 A Joint Stock Company enjoys good creditworthiness in the market, hence is possible for the company to raise
loans from banks and other financial institutions.
Thus, a Joint Stock Company can raise huge capital.

XII Commerce : Organization of Commerce & Management: Business Services
2 Business Services
Business Services
Q.1.What are Business Services? Discuss the nature of Business Services
Ans. : Meaning of Business Services :
 Business services help or assist in successful running of a business.
 They may directly support a business or provide support to a business process.
 They may also help in delivering the final product to the end customers.
 The various types of business services are banking, insurance, transportation, communication and
warehousing.
Nature of Business Services :

The nature of business services is as follows:
i. Intangible :
 Service are intangible in nature i.e. they cannot be seen, touched or smelled. In other words, they can
only be felt.
 Service can't be measured in physical quantity.
 For e.g. The building of a bank is visible, however, banking services can't be seen, yet people benefit
from the services provided by the bank.
ii. Non-stocking :
 Services are perishable in nature i.e. they cannot be saved or stored for future use.
 In other words, the production and consumption of service must happen simultaneously.
 For e.g.: If the bank employees go on strike on 10th January, it is not possible to stock their services and
use it some other day.
iii. Heterogeneous :
 As services are provided by people, their quality may vary from one person to another.
 Also, the quality of the service when delivered by the same person on two separate occasions may not be
the same.
 Hence, services are heterogeneous in nature.
iv. Participation of Customers :

 In order to avail any service, customer's participation is important.
This is because; services are produced and consumed at the same time.
 For e.g.: A transport company provides tour facilities. It provides a bus for the customers. Any person,
who intends to avail the service of the tour, will have to book a ticket and travel in the bus.
v. Non-transferable :
 When a product is purchased, there is a transfer of ownership from seller to buyer.
 However, in case of services, the ownership doesn't get transferred to the customer.
 For e.g. : A patient takes the treatment of the doctor by paying the fees. However, he cannot own the
service. If he falls ill again, he has to revisit the doctor.
Q.2. Write a short note on: Types of business services.

Ans. : Business services help in the successful running of a business. These services have become important with
the growth in business outlook. The main types of business services are as follows :
i. Banking services:
 Finance forms the life-blood of any business organization.
 In simple terms, any business form to run efficiently; requires finance to meet its short term as well as
long term expenses.

 The bank can fulfill this requirement by advancing loans; for which it charges interest.
 Apart from finance, bank provides various facilities such as loans, draft facility, locker facility, debit and
credit card facilities etc.
 Now-days, with ATM cards, a customer can withdraw the required cash at any point of time.
ii. Insurance Services :

 While conducting business, the businessman has to bear various kind of risks viz. risk due to fire,
accidents, theft, loss, etc.
 The insurance company considers such risks and transfers them from the business unit to itself.
 For providing this service, the insurance company charges certain fee called 'Premium'.
 The types of insurances are life insurance, fire insurance, marine insurance etc.
iii. Warehousing :
 Warehouse refers to a building or a structure; which provides storage facility of goods.
 Business do require such facility to store various kinds of goods. Those include stocking of raw
materials, unfinished goods and/or finished goods.
iv. Communication :
 Communication is the process of exchanging messages between individuals to create a common
understanding or to share certain information.
 In business, timely communication is a must.
 Here, communication is required for making inquiries, placing orders, advertising, registering
complaints, giving suggestions, finalizing business transactions etc.
v. Transport Services :
 Transportation refers to the movement of people, animals and/or goods from one place to another.
 In business, transportation plays its role by facilitating the movement of raw material, human resources
or finished goods from one place to another.
 There are various forms of transport services available to assist business viz. road transport railway
transport, water transport and air transport.
Banking
Meaning of Bank :
 A bank is a financial institution which deals in money and credit.
 It accepts deposits from the public and uses such deposits to grant loans and advances to people in need
of funds.
 We can say that, banks create a link between "customers who need funds" and "customers who have
surplus funds".
 They facilitate the development of country by granting loans to farmers, small scale industries, self-
employed people, large business houses, etc.
 Additionally, banks develop the habit of savings among people.
 Banks also help in improving the standard of living of people by providing them with financial
assistance for the purchase of consumer durables, houses, cars etc.
Definition of Banking :
 According to Indian Banking Companies Regulation Act, 1949, "Banking Company is one which
transacts the business of banking which means the accepting for the purpose of lending or investment of
deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque,
draft, order or otherwise."
Q.3. Define Bank, Explain different types of banks.

Ans. :  A bank is a financial institution which deals in money and credit.
 It accepts deposits from the public and uses such deposits to grant loans and advances to people in need
of funds.
 Oxford Dictionary defines Bank as "an establishment for custody of money, which it pays out on
customer's order."
The various types of Bank are as follows :

i. Central Bank :
 Central Bank is the top most bank in any banking system.
 It controls the monetary as well as the banking system of a country.
 As the apex banking institution, the central bank's main function is to maintain country's economic
stability.
 It is known as the Banker's Bank as it provides guidance and assistance to other banks if they face any
problems.
 Apart from this, it performs other functions too viz. issue of currency, exerting control over other banks,
working as a banker to the Government.
 It can only accept deposits from the government and other commercial banks.
 The central banks of various countries are as follows:
India - The Reserve Bank of India (RBI).
England - The Bank of England
America - The federal Reserve Bank.
ii. Commercial Banks :

 These banks accept deposits from the general public and use these deposits to provide loans to traders,
manufacturers and businessmen.
 They provide short term loans through cash credits, overdraft facility etc.
 They also provide a variety of other services like collecting cheques, Bills of Exchange, remitting money
from one place to another. etc.
 Their main motive is to make profit.
 Commercial banks mainly provide financial services to business organizations, but in recent years, some
commercial banks have started providing long term housing loans to individuals as well.
There are three type of commercial banks :
 Public Sector Banks :

Here, the majority stake is held by the Government of India or Reserve Bank of India.
State Bank of India, Corporation Bank, Bank of Baroda, Dena Bank etc. are some examples of Public
Sector Banks.
 Private Sector Banks :

Here, the majority stake is held by private individuals.
These banks are registered as companies with limited liability.
ICICI bank, Bank of Rajasthan Ltd., Global Trust Bank, Vyasa Ban etc. are the examples of Private
Sector Banks.
 Foreign Bank :
These are registered and have their headquarters in a foreign country.
They have branches in various countries, including India.
With the Financial Reforms introduced in 1991, there has been an increase in the number of foreign bank
operating in India.
Hong Kong and Shangai Banking Corporation (HSBC), Citibank, Standard Chartered, American Express
etc. are some examples of foreign banks.
iii. Development Banks :

 These banks provide capital for both, medium term as well as long term.
 They majorly fund expansion and modernization projects.
 Apart from this, they also subscribe to shares and debentures issued by the company, if the issue is
under-subscribed by the public.
 Industrial Finance Corporation of India (IFCI), State Financial Corporation (SFC's) etc. are example of
development banks in India.
iv. Co-operative Banks :

 These banks are registered under the Co-operative Societies Act, 1912.
 Their main purpose is to provide assistance to the economically weaker sections of the society.
 In India, Co-operative banks are the main source of rural credit.
 These banks provide loans at a lower rate of interest as compared to other banks.
 These banks also encourage saving habits among villagers.
There are three types of co-operative banks at different levels. They are as follows :
 Primary Credit Societies :

These operate at the village or town level and are limited to a small area.
Here, all the members belong to the same locality and know each other.
It is, thus, easy to keep a watch over the activities of each other & prevent frauds.
 District Central Co-operative Banks.

These are set up and operate at district level.
The primary credit societies are the members of such banks.
They act as a like between the primary credit societies and state co-operative banks.
 State Co-operative Banks :

These operate at the state level.
They are the apex co-operative bank in the state.
These banks channelize and create a balance for the surplus resources of various co-operative banks in
the state.
v. Regional Rural Banks :

 These banks were established in 1975.
 The main purpose of setting up such banks is to develop banking and financial services in rural areas.
 The main function of RRBs is to grant loans and advances especially to small and marginal farmers,
agricultural, rural artisans, small traders etc.
50% provide by Central Government
Capital of RRB 35% provide by Commercial Banks
15% provide by State Government (of the respective State)
vi. Specialized Banks :

 These banks provide unique services to its customers.
 They also provide assistance for businesses in specific areas.
Following are a few examples of specialized banks :
 Export Import Bank of India (EXIM Bank) :

This bank provide financial assistance and support to exporters and importers.
Apart from this, the bank provides other support like providing information about the international
markets, import of technology, export product development, export marketing etc.
 Smll Industries Development Bank of India (SIDBI) :

The aim of SIDBI is to provide finance and any other support required for the growth and development
of small scale industries.
It provides them loans on easy terms.
It also provides financial assistance for modernization, introduction of new technology etc.
 National Bank for Agricultural and Rural Development (NABARD):

It is an apex institution which is set up for financing the activities in agricultural and rural sectors.
Its aim is to uplift rural India by providing them the required financial assistance.
NABARD provides both long term as well as short term credit through Regional Rural Banks.
vii. Exchange Banks :
 These banks provide financial assistance to those conducting foreign trade.
 They undertake the functions of remitting money from one country to another; discounting of foreign
bills of exchange; support in import and export trade etc.
 Bank of Tokyo, Bank of America are some examples of exchange banks in India.
viii. Indigenous Bankers :

 These bankers have been carrying out banking functions for generations.
 An indigenous banker deals in "hundis" (native bills of exchange) and promissory notes. They advance
loan on the basis of these hundis and promissory notes.
 The rates of interest charged by these banks on loans are very high.
 However, with the growth of organized commercial and other banks, there has been a considerable
decline in the popularity of Indigenous bankers.
ix. Savings Banks :

 These banks accept small deposits from people who have fixed income; thereby encouraging saving
habits.
 In India, Post Office Savings Bank is an example of savings bank shares Commercial and Co-operative
banks also performs the role of saving banks.
Q.4. What is Commercial Bank? Explain its primary functions.

Ans. : Commercial bank accepts deposits from the general public and use these deposits to provide loans to traders,
manufacturers and businessmen. Its sole intention is to earn profit.
The functions of commercial banks can be classified into two broad categories viz. Primary functions and
Secondary Functions.
Primary functions of Commercial Bank :

i. Accepting Deposits :
 The most important function of commercial bank is to mobilize deposits.
 People, who, have surplus income and savings prefer depositing it in bank. This allows them to earn
interest as well as avail the various services offered by banks.
There are different types of deposits depending on the various requirements of the depositors.
They are :
I. Demand Deposits :
Under demand deposits, the depositor can withdraw the money from the account at any point of time. They
are of two types:
 Current Account :
In a current account, there are no limits on the deposits and withdrawals made from the account.
Mainly such type of account is used by business firms, corporate bodies, companies, businessmen etc.
Usually, no interest is provided on such type of account.
The account holder has to ensure maintenance of minimum amount in the current account; failing to
which, the bank may charge a service fee.
Through this account, the account holder can also avail the overdraft facility.
 Saving Account :
In this type of account, small amounts as deposits are accepted from people having fixed and regular
income.
The main purpose of savings account is to promote the habit of saving among people.
There are no limitation s on the number of deposits. However, there are certain restrictions on the
number of times the amount is withdrawn.
Rate of interest on savings account is lower than the fixed deposits but higher than the current account.
The interest is credited to the account once every six months.
II. Time Deposits :

Under time deposits, the deposited amount cannot be withdrawn before a specified term. If withdrawn
earlier, the bank may charge a penalty or pay a lower rate of interest. They are of two types :
 Fixed Deposit :
In fixed deposit, a fixed amount is deposited with the bank for a fixed period of time.
A depositor is issued a 'Fixed Deposit Receipt' against the deposit made.
The tenure for which the money is deposited can vary from 7 days to 5 years and above.
The rate of interest offered is highest. The bank is able to offer a good amount of interest as this amount
is reinvested by the bank.
In case the depositor withdraws before the date of maturity, the bank may charge a penalty or pay a
lower rate of interest.
 Recurring Deposit Account :

In this type of account, a depositor makes regular deposits of a fixed amount every month for a particular
period of time.
The depositor cannot withdraw the amount before the expiry date of the term except in certain
conditions.
The interest amount on the deposit is re-deposited in the account along with the principle amount.
The interest in this account is higher as compared to all other types of deposits except fixed deposit.
III. Multiple Option Deposit Account :

 It is a combination of savings account and fixed deposit.
 It is a savings account where any amount in excess of a particular limit is transferred automatically to
fixed deposit.
 For e.g. Two Stars Pvt. Ltd. is a renowned manufacturing company. It has opened a Multiple Option
Deposit Account with a bank. They have instructed the bank to transfer the excess amount beyond 2 lacs
to the fixed deposit account. If on any day, the account has Rs. 2,25,000 then Rs. 2 lacs will be kept in
the savings account and the balance of Rs. 25,000 will be transferred to the fixed deposit account.
 On the other hand, if adequate funds are not available in the savings account in order to honor a cheque,
then the required amount is transferred back from the fixed deposit to the savings account automatically.
 For e.g. In case the vendor's payment is due For Rs. 2,10,000 then the bank will honor the cheque by
debiting the savings account by Rs. 2,00,000 and the balance of Rs. 10,000 from the fixed deposit
account.
ii. Granting Loans and Advance :

 Deposits are the main source of money for a bank.
 The bank uses these deposits to grant loans and advances to people who need it.
 The bank gives a low rate of interest on the deposits and charges a higher rate of interest on the loans and
advances.
They are explained as below :
 Loan :
Loan is an amount granted to businessmen or individuals against personal security, gold and silver or any
movable or immovable assets.
It is either paid in cash or is credited to the customer's account.
The borrower can either withdraw the whole amount or in installments.
However, the interests charged on the full amount of loan, irrespective of the amount withdrawn by the
customer.
The loans may be granted for either short term or long term.
Generally, commercial banks grant short term loans.
 Advance :
An advance is different from loan as it is granted for a very short period of time.
It is taken to meet the daily requirements of business.
It is a credit facility which is provided by the banks to its customers.
Interest is charged on the amount that is used by the customer and not on the amount sanctioned. There
are three type of advance :
 Discounting of bill of exchange :

A bill of exchange is a negotiable instrument.
In this form of bank credit, the bank provides short term finance by discounting the bills,
Wherein the bank honors the payment of the bill before its maturity date.
The bank deducts a certain amount for its services which is known as discount.
If the bills is dishonored on its maturity date, the bank has the right to recover the amount from the
customer.
 Overdraft :
This type of advance is made available by the bank to its current account holders.
Here, the bank allows the account holder to withdraw money over and above the balance available in the
account.
The overdraft facility is a temporary arrangement and is made available to the account holder either
against the security of assets or on personal security or both.
The bank charges interest on this facility and the current account would show a debit balance when the
overdraft facility is availed.
 Chas Credit :
Under this type of advance, the bank creates a separate cash credit account for the customer.
The customer can withdraw from the account up to the limit sanctioned by the bank.
The limit depends on the collateral security provided by the customer.
Here, the bank charges interest only on the amount utilized by the customer and not on the amount
sanctioned.
Q.5. Describe the secondary functions of Commercial Banks.

Ans. : Apart from the primary functions, which are accepting deposits and granting loans and advance, commercial
banks also perform certain other functions. These functions are known as secondary functions.
Secondary functions include Agency functions and General Utility Functions. They are as follows:
Agency Functions :
The agency functions provided by the banks are as follows:
i. Collections:
 On behalf of the customers, the bank collects cheques, drafts, promissory notes, interest on debentures /
shares, dividend etc.
 The amount collected is then credited to the customer's account.
 For providing this service, banks levy a charge.
ii. Payments :
 On behalf of the customers, the bank make payment of rent, insurance premiums, subscriptions,
telephone bills, electricity bills, etc.
 For this, the customer give standing instructions to bank and it continues to pay till the instructions are
revoked (cancelled).
 The customer's account is debited for the amount of the payments made.
 The said service is known as ECS or Electronic Clearing Service.
iii. Dealing in Foreign Exchange :\

 Customers can convert their currency with some other country's currency at commercial bank, as these
banks deal in purchase and sale of foreign currency.
 While giving this service, the banks are strictly required to comply with the 'RBI Exchange Control
Regulations'.
iv. Purchase and sale of Securities :

 Commercial banks also undertake the purchase and sale of different securities like shares, debenture,
bonds etc. on behalf of the customers.
 In case of wealthy customers, bank run a separate 'Portfolio Management Scheme' to help them manage
their investments.
v. Acts as a Trustee, Executor of will, Attorney etc. :

 Bank acts a s a trustee by acting as a custodian and manager of the funds of the customer.
 Bank also acts as the executor of will.
 Acting as an attorney of the customer, the bank may receive payments or sign transfer deeds for
properties on behalf of the customer.
vi. Act as a Correspondent :

 The commercial banks act a correspondent of the customers by communicating on behalf of the
customers.
 Banks also book travel tickets, book vehicles, receive letters etc. on their customers behalf.
vii. Preparation of Income Tax Returns :

 Banks act as income tax consultants for their customers.
 They prepare income tax returns and also advise customers on tax matters.
 The banks appoint tax experts who provide their services to the banks customers.
viii. Bank Drafts :

 Bank Draft is a financial instrument issued by bank which helps in easy remittance of money from one
place to another.
 If an individual intends to obtain a bank draft, he has to deposit the amount with the bank. The bank, in
return, issues a bank draft.
 Unlike cheque, a draft is certain to be paid, as it can't be dishonoured.
 The bank charges commission for the issue of bank drafts.
 They are commonly known as "Demand Draft" or "DD".
ix. Underwriting of Shares :

 Commercial banks provide underwriting services.
 Here, the bank acts as a guarantor to companies in case of issue of shares.
 If the shares issued by the company are not sold, the bank will take the responsibility for the shares
which are unsold.
 The bank charges commission for underwriting the shares.
x. Demat Account :
 The bank provides demat services to its customers who invests in shares. It is helpful for the customers
as:
It helps to keep a record of the shareholding of the customers in electronic form; and it facilitates the
customer to buy and sell shares in the market easily.
 The bank issues a statement of holding to the account holder periodically for their information and
records.
Utility Functions :
The utility functions provided by the banks are as follows:
i. Safe Deposit Vault/Lockers :

 Bank provide the "safe deposit vaults" or "lockers" facility to the customers for safekeeping of their
valuables like jewels, documents etc. (Lockers are small cabinets which are fitted in steel racks and kept
in strong rooms known as vaults.)
 The customer during the banking hours can have access to these lockers.
 For this service, banks charge half yearly or annual fee (rent).
ii. Traveller's Cheques :

 Traveller's cheque helps the customers carry currency safely while travelling.
 It is widely accepted as mode of payment in many countries.
 There is no risk or fear of theft or loss of money as it can be replaced if lost or stolen.
 It is useful for both, domestic as well as international travelers but is often used by individuals travelling
of foreign countries.
iii. Letter of Credit (LC) :

 Letter of Credit helps the traders to buy goods on credit from foreign countries.
 This document is issued by the customer's bank in one country to the supplier's bank in another country
to honour the drafts or the cheques of the person whose name is written on it.
 This document basically serves the purpose of giving an assurance to the supplier that he will get the
payment of the goods sent by him.
 The bank provides the Letter of Credit after considering the credit standing of the customer.
 For the said service, the bank charges a certain percentage of the LC amount as commission.
 Letter of Credit is a valuable instrument in international transactions.
 There are four parties to a Letter of Credit.;
The buyer or the importer (Applicant);
The bank which issues the letter of credit (Opening Bank);
The seller in whose favour the letter of Credit is issued (Beneficiary); and
The credit receiving bank.
iv. Provides Trade Information :

 Commercial banks perform the function of collecting information of various industries and thereafter
prepare concise reports.
 Using the reports made, the banks provide industrial and business knowledge to its customers.
 Such information can prove to be of great value to the people who have entered the business for the first
time.
 They can acquire the knowledge pertaining to the business environment abroad, payment rules,
regulations, etc.
v. Gift Cheques :
 Gift cheques are a facility made available by the bank to the general public.
 It is a cheque for the amount equivalent to what has been paid by the customer to the bank and can be
used for presentation on occasion like weddings, birthdays etc.
Q.6. What is E-banking?

Ans. : Meaning of E-banking :
 E-banking is derived from the term 'electronic banking'.
 E-banking, also known as virtual banking or online banking, is a system that allows the customers of the
bank to undertake all the financial transactions through computerized systems.
 In other words, an account holder can deposit or transfer money to and from his account, transfer funds
from one account to another and also get information of his account online without going to the bank.
 The Oxford Dictionary defines e-banking as "a method of banking in which the customer conducts
transactions electronically via the internet".
 There are various types of e-banking services that a customer can avail. These services are:
Automated Teller Machine (ATM)- ATM are electronic machines which are used by customers to
deposit and withdraw cash. To operate it , one has to insert card in ATM and can withdraw money by
following instructions. ATM provides 24 hrs service and convenience for bank customers. ATM is safe
and non-risky.
Credit Cards
Debit Cards
Electronic Funds Transfer
Core Banking
Internet banking
Phone Banking
National Electronic Funds Transfer (NEFT)
Real Time Gross settlement (RTGS)
Q.7. Discuss the different types of E-banking Services.

Ans. : E-banking also known as virtual banking or online banking, is system that allows the customers of the bank
to undertake all the financial transactions through computerized systems. E-banking is where computers are
used to perform banking transaction such as withdrawals through cash dispensers / ATM's or transfer of
funds with the use of debit / credit cards etc. The different types of e-banking services are as follows:
i. Phone Banking :
 Under this service, the bank allows the customers to conduct financial transactions over the phone.
 Through phone banking the customer can get information about his account; make transaction like fixed
deposits, money transfers, demand draft, collection of money or making payments of bills etc.
 Additionally, the customer may even send/receive messages (Short Message Service-SMS) for any
banking transactions performed.
ii. Real Time Gross Settlement (RTGS) :

 RTGS is found transfer system where they money or funds are transferred from one bank to another on a
'Real time' and on 'Gross basis."
 Real time' basis means the funds are transferred immediately without any waiting period. It means, one
processed, the transactions are immediately settled.
 'Gross settlement' on the other hand, means the transaction is not bunched or netted with any other
transactions. It is settled on one-to-one basis.
iii. Internet Banking :

 Under this service, the customers can conduct banking transactions over the internet.
 By logging on to the bank's website, the customers can access the information relating to their accounts,
make payments of bills, give instructions for transfer of money, fixed deposits, collection of bills etc.
iv. Core Banking :

 Core banking services or Centralized banking solutions, known as CBS, is a service provided by the
different branches of a bank which are networked with each other.
 Under CBS system, the bank considers their customers as 'Customer of the Bank' rather than 'Customer
of the Branch'.
 If a customer opens a bank account with one branch of the bank, under this system, he can operate this
account from all the branches of the same bank across the country.
v. Electronic Funds Transfer :

 This system enables transfer of money between different accounts through computer generated system
rather than use of cheques and cash.
 The customer can have direct credits into his account which include dividend on shares, interest on
debentures, commission, salary pension etc.
At the same time, the customer's account can be directly debited with payments like telephone and
electricity bills, loan installments, insurance installments, credit card dues etc.
vi. Debit Cards :

 Banks issue Debit Cards to the savings or current account holders.
 The debit card replaces cash while making payment during purchases.
 The amount which is paid through debit card is automatically debited from the customer's account.
 It provides convenience as well as security to the customers.
vii. Automated Teller Machine (ATM):

 ATMs are electronic device that enables the customer of bank to conduct financial transactions without
the help of the bank staff.
 In other words, the customer can operate the ATM on his own to withdraw or deposit cash.
 Here, the customer needs an ATM card; which is plastic smart card that is magnetically coded and has a
unique number. He has to insert the card in the machine. Thereafter, the card is used to identify the
customer who then has to authenticate himself by entering the password. If the password is correct then
the ATM allows the transaction. After the transaction is completed, the card is ejected from the machine.
 All ATMs operate 24 hours round the clock, and hence provide customers with easy access to their bank
accounts.
vii. Credit Cards :

 Banks issue Credit Cards (VISA / MASTER) to individuals who may or may not be a customer of the
bank.
 It is a system of payment which allows the card holder to purchase the goods and services without
paying cash.
 The bank allows a certain period for the card holder to pay back the credit amount.
 If the payment is not made within the due date, the bank charges interest on the amount due.
 For this service, banks charge a certain amount of annual fee.
ix. National Electronic Funds Transfer (NEFT) :

 NEFT is a system under which the funds can be transferred electronically anywhere across the country.
 Money can be transferred between individuals, firms and companies from one bank branch to any other
bank in the country.
 NEFT transactions are settled in batches, the settlement takes place at a particular point of time.

Do you know ?
NEFT settlement takes place 6 times a day during the week days - 9:30 a.m., 10:30 a.m., 12:00 noon, 1:00
p.m., 3:00 p.m. and 4:00 p.m. and 3 times on Saturdays 9:30 a.m., 10:30 a.m. and 12:00 noon. Any
transaction initiated after any of these settlement times will have to wait till the next settlement time.
Insurance
Meaning of Insurance :
 Insurance is service which offers protection to an individual against financial loss with is incurred due to
the happening of an unexpected event.
 Insurance helps an individual to minimize the various risks he is subject to in personal life or in business.
 In personal life, an individual faces risks like death by accident or premature death.
 In business, a person's business property faces risks like loss due to fire, theft or any natural calamities.
 Insurance provides indemnification (protection / compensation against damage, loss or injury) against
losses arising due to such risks.
 Insurance is a contract between two parties viz. the Insurer and the Insured.
 An Insurer is the company assuring to compensate and the Insured is the person to whom the assurance
is given against the payment of premium.
Definitions of Insurance :
 A contract of Insurance is defined as "a contract between two parties whereby the insurer agrees to pay
to the insured a certain sum of money on the happening of certain events or agrees to indemnify the
insured or assured from losses arising from certain specified events."
 According to the Insurance Act of 1938, Insurance is defined as "a provision which a prudent man
makes against inevitable contingencies."
Basic Insurance terms :

 Insured : Insured is the person to who a compensation is to be paid, in case of loss.
 Insurer : The company that agrees to pay compensation on the happening of a specific event against the
payment of regular premium is called Insurer.
 Premium : Fixed amount to be paid to the insurer by insured.
 Policy : Policy is the statement of contract between the insured and the insurer.
 Subject Matter of Insurance : It refers to the subject against which the policy is taken.
In life Insurance, the life of the assured is a subject matter.
In Fire Insurance, the goods and assets / property of the insured is the subject matter.
In Marine Insurance, the cargo / ship is the subject matter.
 Claim : it is the demand made by the insured from the insurer to compensate for loss on the happening
of the event.
 Proposal : It is a written request by the insured to the insurance company to issue an insurance policy.
Q.8. Define Insurance. Explain the various principles of insurance.

Ans. : Definition of Insurance :
Principles of Insurance :
 In Insurance, two parties enter into a contract. Hence, it becomes important that all the elements of a
valid contract are contained in it.
 Apart from this, the insurance contract should follow certain other principles also.
They are as follows: [Mnemonic: MUSI2C2]
i. Principle of Mitigation of Loss :

 This principle states that the insured should take all possible steps to minimize the loss of his insured
property on the occurrence of any uncertain events like fire outbreak, blast etc.
 In other words, it becomes the insured's responsibility to take all the necessary steps to prevent complete
damage/loss of the insured property in case of any unforeseen events.
 For e.g. Mr. A has insured his house against fire. If Mr. A's house is on fire due to an electric short
circuit then Mr. A should take all possible measures to stop the fire and reduce its damage on the
property. It is his responsibility to call the fire brigade and use fire extinguishers to reduce the damage.
He must not remain inactive and watch his house burn, because it is insured.
ii. Principle of Utmost Good Faith (Uberrimae Fidei):

 This principle states that both the parties in the insurance involved in the contract i.e. the insured and the
insurer, should have good faith towards each other.
 They should disclose all the material facts regarding the subject matter of the insurance in a clear, correct
and complete manner. Failing to which (i.e. by not disclosing / by hiding / by presenting in a wrong
manner), the contract becomes void.
 This principle becomes more important in life insurance policies as the Insurance company will decide
based on the information disclosed whether to enter into the contract or not.
 For e.g.Mr. A takes a life insurance policy for himself Rs. 10 lakhs. While entering into the insurance
contract, he did not disclose about his medical illness (heart problem). 2 years after taking the policy, Mr.
A dies due to heart attack. The insurance company comes to know about the illness of Mr. A only after
his death. In such a situation, the contract becomes void and the insurance company is not liable to pay
any compensation to Mr. A's dependents as Mr. A did not follow the principle of utmost good faith did
not disclose all the material facts.
iii. Principle of Subrogation :

 This principle states that once the insured has received compensation from the insurer for the loss due to
damage to the insured property; then the right of ownership of such property passes on to the insurer.
 This principle is corollary of the principle of indemnity and is applicable to all contracts of indemnity.
 This principle is applicable only when the property has any remaining value after it has been damaged.
 The insurer can recover the loss in full or in part from a third party, due to whose negligence the loss
may have occurred.
 However, the insurer can benefit out of the subrogation rights only to the extent of the amount he pays as
compensation to the insured.
For e.g. :
 A person has insured his furniture for Rs. 50,000 against fire and a part of the furniture was destroyed by
fire. The actual loss incurred by the insured was Rs. 35,000. The insurance company will pay Rs. 50,000
as compensation and the charge of the remaining furniture will be taken over by the insurer.
 Mr. A insures his house for Rs. 1 crore. The house is destroyed completely due to the negligence of his
neighbour Mr. B. In such a situation, the insurer shall settle the claim of Rs. 1 crore of Mr. A. The
insurer can then file a lawsuit against Mr. B. for causing the damage to the amount of Rs. 1.2 crores, the
market value of the house. Once the insurer collects the Rs. 1.2 crore from Mr. B, the insurer can retain
Rs. 1 crore (paid to Mr. A as compensation) and also other expenses such as court fees etc. The balance
amount if any will be given to Mr. A, the insured.
iv. Principle of Indemnity :

 Indemnity refers to compensate.
 It is an assurance provided by the insurer to the insured, to make good the loss that the insured has
suffered.
 However, an insurance contract does not cover the risk of losses due to future uncertainties arising due to
changing business environment/market conditions.
The applicability of this principle is as follows :
 In case of marine, fire and general insurance, the compensation amount is limited to the amount assured
or the actual incurred loss, whichever is less.
 This principle does not apply to life insurance policies as the value of human life cannot be measured in
terms of money.
 For e.g. If a person has insured his house for Rs. 3 lacs and it is destroyed by fire, due to which, the
insurer has suffered a loss of Rs. 2 lacs. In such a situation, the insurer will be paid the amount of actual
loss i.e. Rs. 2 lacs.
v. Principle of Insurable Interest :

 As per this principle, the person taking the insurance must have insurable interest (financially) in the
subject matter that is to be insured.
 The subject matter of insurance must be a physical object which is subject to risk.
 Insurable interest in life insurance refers to the life insured. In Fire and General Insurance, the insurable
interest must be present at time of making the policy and also at the time of occurrence of the loss. In
Marine Insurance, the insurable interest exists only at the time of the occurrence of the loss.
 Following are the examples to understand the principle of insurable interest :
A person has insurable interest in his own life and property;
A wife has insurable interest in the life of her husband;
A businessman has insurable interest in the goods and property of his business;
A creditor has insurable interest in the life of the debtors to the extent of loan given;
 In a partnership firm, a partner has insurable interest in the life of the other partners of the firm; etc.
 If there is no insurable interest, then the contract of insurance becomes invalid.
 Here, ownership of the property at the time of taking a claim as well as at the time of making the claim is
essential.
 For e.g. Owner of a car has insurable interest in his car and hence insures his car. If he sells off the car
he ceases to be the owner of the car and thus, does not have any insurable interest. Hence, the contract of
insurance become invalid.
vi. Principle of Contribution :

 This principle is a corollary (result/outcome) of the Principle of Indemnity.
 All contracts of indemnity have to follow this principle.
 This principle is applicable to the insured who has taken more than one insurance policy for the same
subject matter.
 Here, the insured can claim compensation only to the extent of actual loss suffered by him either from
any one or all insurers.
 If one insurer pays full compensation then that insurer can claim proportionate claim amount from the
other insurers.
For e.g. :
 Mr. A insures his house worth Rs. 60 lakhs with three insurance companies. X Co. Ltd. - Rs. 10 lacs, Y. -
Co. Ltd. Rs. 20 lacs and Z Co. Ltd. - Rs. 30 lacs. So if Mr. A incurs loss due to any damage to his house,
then the compensation will be paid by the three insurance companies in the ratio 1:2:3.
 Mr. S. insures his property worth Rs. 1 lakh with two insurers. A Co. Ltd. for Rs. 90,000 and with B Co.
Ltd. for Rs. 60,000. If the value of the actual property destroyed is Rs. 60,000, then Mr. S can claim the
full loss of Rs. 60,000 from either A Co. Ltd. or B Co. Ltd. or he can claim Rs. 36,000 from A Co. Ltd.
and Rs. 24,000 from B Co. Ltd. in the ratio of 3:2.
vii. Principle of Causa-Proxima (Nearest Cause) :

 As per this principle, if loss is caused by more than one reasons then, the cause that is proximate (closest)
or immediate must be considered.
The property may be insured against come causes and not all the causes.
 If the proximate cause for the loss is a cause insured against, then the insured can recover the
compensation from the insurance company.
 For e.g. A ship was insured against losses resulting from collision. There was a collision and the ship
was delayed by few days. Due to this delay, its cargo containing of mangoes became rotten and unfit for
consumption. The loss was caused due to two causes, delay and collision. In this case, the proximate
cause for loss was delay which led to damage to the cargo. Since the ship was insured against losses due
to collision and not due to delay; the insured cannot claim for any compensation from the insurer.
Type of Insurance Policies

Life Insurance
Meaning :
 Life insurance provides coverage of financial risk to human life against events like death, old age,
sickness, accidents etc.
 In some cases, where the policy expires at the end of a fixed term, life insurance also acts as a pension /
support for old age to the insured himself.
 It provides financial security to the dependents of the insured against any loss of income that arises due
to the death of the insured.
 Life insurance is not covered under the principle of indemnity as the loss to human life cannot be
measured in financial terms.
 Therefore, the insurer pays a definite and fixed sum of money after the death of the insured or at the
expiry of the term of the insurance policy, whichever is earlier.

Definition :
Life insurance can be defined as, "A contract where an insurance company undertakes in consideration of
regular payment of premium to pay a certain sum of money to the assured on maturity of policy or death,
whichever is earlier."
Q.9. List down the different types of Life Insurance Policies.

OR
Write a short note on: Types of Life Insurance Policies. [5]
Ans. : A Life Insurance policy provides coverage of financial risk to human life against events like death, old age,
sickness, accidents etc. There are many types of life insurance policies that can be taken by an individual.
They are :
i. Whole Life Policy:

 This policy provides insurance for the whole life of a person.
 The person assured is required to pay a nominal amount of premium throughout his lifetime.
 The sum insured is payable only on the death of the insured, to the nominee or legal heir of the deceased
policy holder.
 The rate of premium on this type of policy is very low.
 The benefit of this policy is that it provides financial assistance to the family of the policy holder after
his death.
ii. Endowment Insurance Policy:

 This policy is taken for a specific period of time.
 Under this policy, if the policy holder dies during the tenure of the policy, the beneficiary gets the sum
assured including the bonus.
 If the terms of the policy expires and the policy holder survives the policy tenure, then the insured
himself get the sum assured along with bonus.
 Thus, it serves a dual purpose of protecting the family of the deceased as well as a source of old age
pension to the insured.
iii. Term Insurance Policy:

 This policy provides protection to the person insured for a specific period of time.
 Here, the insurance company is liable to pay the sum assured only if the policy holder dies during the
policy term.
 The premium on this type of policy is lowest amongst all the insurance plans.
 A fixed amount has to be paid as premium on the policy which does not change throughout the policy
term.
iv. Money-back Policy :

 Such type of policies are favored by people who like to save money and at the same time be insured.
 Under this policy, a percentage of the sum assured is paid out at regular intervals during the term of the
policy.
 On the completion of the term, the balance of the sum assured is paid to the policy holder.
 In case of death of the policy holder during the term of the policy, the beneficiary will get the full sum
assured.
v. Joint Life Policy :

 Joint life policy provides risk cover to two or more persons jointly.
 It can be taken by partners in business or even by husband and wife.
 The person taking such policy should have insurable interest in each other.
 The sum assured becomes payable after the policy term expires or the first death of either of the two
policy holders, whichever is earlier.
vi. Annuity Policy :

 As per the Annuity policy, the insured pays the premium in lump sum or in installments over a certain
period of time.
 The policy holder will receive back a specific amount periodically, after a certain date.
 This amount will be paid to the policy holder, either for life or for a fixed period of time.
 This type of policy is suitable for individuals who want to ensure a regular income for themselves and
their dependents in the future.
 Such type of policy is generally taken by people who have surplus wealth and want to utilize the funds
after retirement.
vii. Pension Plan Policy :

 Pension plan policies do not provide any life insurance cover to the policy holder but it offers a
guarantee of providing income either for the whole life or for a specified period of time.
 It is a source of income after an individual's retirement.
viii. ULIP (Unit Linked Insurance Plans) :

 ULIPs are insurance products which are market-linked viz. combination of life insurance policies and
mutual funds.
 It is introduced by private companies.
 A part of the premium goes towards providing life cover and the remaining part is invested in equities or
debt funds or bonds.
 The expenses related to the management of the fund are also adjusted from the premium.
Fire Insurance :
Meaning :
 Fire insurance provides coverage of financial risk caused by fire resulting in any damage or loss to the
property of the insured. It also covers risk due to lightning and explosion.
 Fire insurance is provided against the payment of a premium. The amount of premium depends on the
value of the subject matter, place of storage and the extent of the risk involved.
 Fire insurance policies should be taken for protection of the property and not with the intent of making
profit.
Definitions :
 A fire insurance contract may be defined as "an agreement whereby one party, in return for a
consideration, undertakes to indemnify the other party against financial loss to property or assets due to
fire."
 According to Indian Fire Insurance Act, 1938, "In addition to other insurances, fire insurance is that
insurance contract which takes place against fire and such other risks which are mentioned in the fire
insurance contract. "
Q.10. State different types of Fire Insurance Policies.

Ans. : Fire insurance policies provide the insured protection against any risks or loss due to fire lighting and
explosion.
The different types of the insurance policies are.
i. Valued Policy :
 In valued policy, the value of the property to insured is decided at the time of entering the contract.
 In the event of loss to the property due to fire, the insured can recover the specified amount decided at
the time the policy was taken.
 This type of policy is useful when it is difficult to determine the value of articles or goods damaged in
case of loss by fire.
 It is suitable for insuring items such as art work, paintings etc.
ii. Average Policy :

 Average policy is the policy which contains an average clause.
 In some instances, when the subject matter of the insurance is under-insured, the in the event of loss the
insurance company will be liable to pay only percentage of loss for which the subject matter has been
insured.
Under-insured refers to when the insured value is less than the market value.
 For e.g. if a policy is taken for Rs. 50,000 against the market value of Rs. 1,00,000 and the policy holder
suffers a loss of Rs. 40,000 due to fire, then the insurance company will pay only Rs. 20,000 as

compensation (50% of Rs. 40,000). This is because, the insurance was taken only for 50% of the market
value of the property and thus insurance will also be paid only at 50% of the actual loss suffered.
iii. Specific Policy :

 Specific policy provides protection against loss up to a specific amount, irrespective of the market value.
 In case of loss, the insurance company pays that mentioned amount only.
 If the loss incurred is less than the sum assured, than the insurer is liable to pay only the suffered amount
of loss.
iv. Floating Policy :

 Floating policy is useful in providing risk cover for various goods which are lying in different locations /
go downs / warehouses and whose quantities keep fluctuating over a period of time.
 In such a situation, it becomes difficult for the owner to take specific policies for such varied goods.
 Floating policy is a single policy under one sum and one premium providing risk cover for goods located
in different places.
 This type of policy is more suitable for businessmen and traders.
v. Comprehensive Policy :
 Comprehensive policy is an all-in-one policy.
 It provides cover for various risks like fire, burglary, riots, explosions, strikes et.
 This type of policy is more popular in UK, USA etc.
vi. Excess Policy :

 Excess policy is suitable in cases when there are constant fluctuations in the value of stock in the market.
 In such cases, it is not practical for the owner to take a single policy of a certain sum for the stocks.
 It is advisable that the owner take two policies in order to cover the fluctuating prices.
 The two policies that the can take are:
One policy for minimum amount below which the value of the stock never falls; and
The second policy for a difference or the excess amount by which the value of the stock fluctuates. This
is the maximum amount of stock.
 For e.g. If the value of the stock fluctuates between Rs. 1,00,000 and Rs. 1,30,000 then the owner can
take one policy for Rs. 1,00,000 and another policy for the excess amount i.e. Rs. 30,000.
vii. Reinstatement Policy :

 Under reinstatement policy, the insurance company replaces the property or goods which are lost or
damaged due to fire.
 Thus, instead of paying cash as compensation for the loss, the insurer replaces or re-instates the property.
 The depreciation amount on the property is not considered while reinstating the property.
 The insured has to pay a higher amount of premium for this type of policy.
viii. Blanket Policy :

 Under blanket policy, risk coverage is provided to all types of assets i.e. the fixed as well as current
assets.
 The advantage of blanket policy is that it provides risk cover to all the assets to the insured lying at
different places under a single premium and a single policy.
Marine Insurance :
Meaning :
 Marine insurance provides protection to cargo or ships against losses or damage caused due to the
dangers of the sea such as sinking of the ship, storm, fire, explosion in the ship, crashing with icebergs,
pirates etc.
 It is very useful to exporters and importers who deal in foreign trade.
 It is mandatory for foreign traders to insure their goods.
 It also provides risk coverage to the passengers travelling by sea via cruises/ships while they are on their
journey.

Definitions :
 Marine insurance is defined as a contract under which the insurer undertakes to indemnify the insured
against the losses incidental to marine adventure.
 According to Marine Insurance Act, 1963, "An agreement whereby the insurer undertakes to indemnify
the assured, in the manner and to the extent thereby agreed, against losses incidental to marine adventure.
It may cover loss or damage to vessels, cargo or freight."
Q.11. What are the different types of Marine Insurance Policies ?

OR
Write a short note on : Types of Marine Insurance Policies.
Ans. : Marine insurance policies provide cover for risks caused due to dangers of the sea such as sinking of the
ship, storm, fire, explosion of the ship, crashing with icebergs, pirates etc. Marine insurance is mandatory for
foreign trade. Exporters and importers both need to take marine insurance.
The various types of marine insurance policies are as follows:

i. Voyage Policy :
 Under voyage policy, the subject matter is providing risk cover for a particular voyage (journey).
 The time involved in the voyage is not taken into consideration.
 The risk to the shipments is considered only once the ship starts the actual voyage.
 For e.g. Voyage from Mumbai to New York.
ii. Time Policy :

 Under this policy, the goods are insured for a definite period of time against the damagers or perils of
sea.
 The period of time cannot exceed one year.
 However, if the voyage takes more than the time specified, then the insured can opt for a continuation
clause.
 It means that even if the voyage is not completed within the specified period, the risk cover shall be
extended till the voyage is completed or till the ship arrives at the port.
iii. Mixed Policy :

 Mixed policy is a combination of time and voyage policy.
 Under this type of policy, the insurance cover is provided for a particular voyage as well as for a specific
period of time.
Thus, it covers both the risks.
 For e.g. An insurance policy can be taken to provide risk cover for the voyage of the ship from Mumbai
to New York for a period of 40 days starting from 5th January, 2014.
iv. Valued Policy :

 Valued policy is useful when the insurer finds it difficult to assess the value of the goods.
Here, the goods are insured for a value agreed between the insurer and the insured.
 For valuing the cargo, the cost of the goods plus freight and shipping charges plus 10% to 15% margin
for anticipated profits is considered.
This agreed value is more than the actual value of the goods.
v. Floating Policy :
 Floating policy provides insurance cover for several shipments.
 It is taken for a relatively large sum.
 Under this policy, several; shipments are provided with insurance coverage till the amount insured gets
exhausted.
 This type of policy is suitable for exporters who undertake large number of shipments as it is difficult for
them to take separate policy for each shipment.
vi. Blanket Policy :

 Blanket policy provides coverage for all types of risks by considering the nature of the goods insured,
specific routes, ports and places of voyages.
 Here, the maximum amount of risk exposure is estimated and thereafter a policy for that total amount is
made.
 The amount of premium on this type of policy is paid in advance by the insurer.
vii. Port Risk Policy :

 Port risk policy provides coverage to a ship against all the risks while it is anchored at the port for a
particular period of time.
 Once the ship departs from the port, the policy cover ceases to exist.
viii. Composite Policy :

 Composite policy is a policy which is taken from more than one insurance company.
 This type of policy is suitable when the insurance amount is very high.
 Each insurer has a distinct liability which is separate from the other insurers.
Communication
Introduction :
 Communication is the process of exchanging messages between individuals to create a common
understanding or to pass certain information.
 In business, communication helps exchanging information from time-to-time.
 Here, communication is required for making inquiries, placing orders, advertising, registering
complaints, giving suggestions and finalizing business transactions etc.
The modes of communication are as follows:
The modes of Communication
Traditional Modes Modern Modes

Postal Services :
i. Mail Service i. Courier Service
ii. Specialized Mail ii. Electronic Service
Service iii. Telecom Service
iii. Money Remittance iv. Wireless
Service Communication
iv. Retail Service
Q.12. Explain the postal services in detail.

Ans. : The postal services were originated due to the requirement of communicating written message. Initially,
written message were sent from one place to another through persons who were known as "runners". In
India, till 1837, postal service was used only for sending official mail. Post 1837, the postal services were
opened for the public as well.
Indian Postal Services :

 The department of Post comes under the Ministry of Communication and Information Technology.
 Postal services are administered by Government of India throughout the country and hence charges for
all the services are minimal which are affordable to a common man.
 The postal network in India is the largest in the world. With over 1,55,333 post offices, the Indian post
employs over half a million people and serves over 300 million customers each year.
 Postal services include carrying letters and parcels, arranging remittance of money, accepting deposit
from public, etc.
The various types of postal services are as follows :

A. Mail Services :
One of the main services provided by the postal department is mail services. Post offices deal with collection
of letters and parcels from the sender which is then distributed amongst the receivers. Indian postal service
deals with both domestic / inland as well as international mails.
2
The various types of mail services are : [Mnenomic: TP - BITE]
i. Telegrams :
 Telegram is a very quick mode of sending message over long distance.
 Here, the sender writes the message to be communicated in the telegram and send it to the post office.
Thereafter, the post office would send the message to another post office which is situated near the
address of the receiver.
The message is then successfully delivered to the receiver.
 The expense of the telegram sent depends on the number of words written in the message.
FYI
After 163 years of service, Telegrams were discontinued by the Indian Postal Services on 14th July, 2013.
ii. Post Card :

 Post card is the cheapest means of sending a written communication through the post.
 It is rectangular piece of card used for sending messages by post without an envelope.
 It has a specific space for both, writing messages as well as mentioning the address of the receiver.
 There are two types of post cards available in the post office.
Ordinary Post Card - used to write letters; and
Competition Post Card - used to send letters and replies to questions asked in competitions which are
held in radios, televisions, newspapers and magazines.
iii. Parcel Post :

 It is a service provided by postal department through which articles can be sent in the form of parcels.
 Here, parcels of specific size and weight can be sent across the country as well as outside the country.
 The post office specifies the charges for the parcels which vary depending on the weight of the parcels.
 Also, the postage charges are different for inland and foreign parcel post.
iv. Book Post :

 Book post is used to mail printed materials, printed books, periodicals, greeting cards etc.
 If the books or periodicals are sent through book post then it should only be closed but not sealed. This is
because, the postage paid on book post is less than the postage paid on sealed envelopes.
 It is essential to write the words 'Book Post' on the face of the envelope.
v. Inland Letter Card :

 Inland letter card is similar to a post card and is used to send written messages within the country.
 Here, the messages can be written on one side and the written portion is thereafter folded and sealed.
Thus, it is possible to maintain secrecy of the message sent.
 The name, address of the receiver and sender is written on the outside portion.
 It is not possible to send enclosures with such type of letter.
 Similarly, a special type of inland letter card is used for sending messages to foreign countries which is
known as 'aerogram'.
vi. Telephone :
 Telephone is the best medium to send messages in a quick and easy manner.
 In India, telephone services were started by the post and telegraph department in the year 1881.
 Local calls refer to telephone calls made to persons in the same city and trunk call refers to calls made to
a person is some other city. Calls made to persons in other countries are known as ISD (International
Subscriber Dialing).
 Now telephone services are provided by the Videsh Sanchar Nigam Ltd. (VSNL) and Bharat Sanchar
Nigam Limited (BSNL).
B. Specialized Mail Services :

Apart from the mail services, post offices also provide mail services that offer certain extra advantages. It
includes sending mails faster, ensuring certainty of delivery of mails, providing compensation to the sender
in case of loss or damage to mail during transit etc. These benefits can be availed by payment of additional
postage. [Mnemonic: P-VIRUS]
i. Post Restante :
 It is used when the exact address of the receiver is not known.
 Here, the sender sends the letter to the postmaster of the area in which the receiver resides.
 The sender has to mention the words \post restante' or 'care of post master' on the envelope.
 It is suitable for tourists, travelers or salesmen who are not sure about their address.
 Under this service, the mail is retained by the post office for a maximum period of 14 days after which it
is returned to the sender.
 The addressee has to contact the postmaster and collect the post from the post office.
ii. VPP (Value Payable by Post) :

 VPP (Value Payable by Post) is used when the receiver intends to pay for the articles only at the time of
receipt.
 It is useful to the traders and others who want to recover the value of articles supplied by them through
the agency of the post office.
 The maximum amount that can be remitted to the sender is Rs. 1,000.
iii. Insured Post :

 Insured post means that the letter or parcel sent by post is insured in order to cover all risks in the course
of transmission of the post.
 If mail is sent as ordinary mail or registered letters or parcels, the post office is not liable for any loss or
damage to the letters or parcel.
 However, under insured post, the post office is liable to compensate for any loss or damage.
 Additional fees depending on the value of the mail insured have to be paid to the post office as premium
for the insurance cover.
iv. Registered Post :

 Registered post is a mail where, the post is registered by the post office and is used to send letters and
parcels.
 The post office issues a receipt of registered mail immediately on the receipt of the mail. This acts as
proof that the mail has been posted.
 Also, an "Acknowledgement Due Card" can be sent along with the registered mail. The receiver needs to
sign this card which is returned to the sender by post.
 The envelope is super scribed as 'Registered post AD'
 Additional postage has to be paid as registration charge.
v. UPC (Under Postal Certificate) :

 While using normal letters, the sender does not have any proof that the letter is posted as the letters are
dropped in the letterbox.
 But, when they are posted as UPC, the sender gets a proof that the letters are posted.
 Here, a certificate is issued by the post office called 'Certificate of posting'.
 For availing this service, the sender has to pay a prescribed fee.
 The certificate contains all the required details such as name of the sender and receiver, date of posting,
etc. and bears a seal of the post office.
 The words UPC are written on the face of the envelope.
vi. Speed Post :

 Speed Post ensures time bound and express delivery of letters, documents and parcels.
 This service is useful when there is some urgency or there is a need to avoid delay in delivery.
 This service is available only at specific post offices.
 For speed post services, the post office charges relatively more postage as compared to ordinary post and
varies according to the distance.
C. Money Remittance Service :

Through this service, money can be transferred from one person or place to another person or place. Post
officers provide the following money remittance services: [Mnemonic: GO SIMMI]
i. Money Gram :
 This service was launched by the Department of Posts on 29th September, 2011.
 The Department of Posts has entered into an International Co-operation Agreement with Money Gram
Payment System, Inc., USA to offer to the general public, the Money Gram International Money
Transfer Service.
 It is a fast, simple and convenient method to receive money from abroad.
ii. Electronic International Money Order Services :

 This service was introduced in February 2008.
 It was launched after India Post and Emirates Post, UAE signed an agreement.
 It intended to provide an easy and convenient way for remitting money between the two countries.
iii. Foreign Exchange Services :

 There has been an increase in the number of Indians going abroad to travel, study and do business.
Simultaneously, the number of foreign tourists visiting India for vacation as well as business has
increased.
 This has given rise for the need to have a reliable and quality service provider for the purchase and sale
of foreign exchange.
 Now Indian Post in association with HDFC bank, offers such Forex services in an affordable and
efficient manner through selected post offices.
iv. Instant Money Order :

 Instant money order is an on-line service for transfer of money.
 It is an instant, convenient, reliable and affordable web-based transfer of money through Post offices in
India.
 The amount ranging from Rs. 10,000 to Rs. 50,000 can be transferred through this service.
v. Money Order :
 A money order is an order of payment for a specified amount of money.
 It is issued by the post office to the person in whose name the money order is sent through the agency of
the post office.
 In simple words, if the payer wishes to transfer certain amount of money to the payee, then he has to visit
the post office, deposit the money and fill in the Money Order Form and provide the payee's details.
Thereafter, the money is directly delivered at the house of the payee.
vi. Money Order Videsh :

 This facility enables remittance of money to and from foreign countries through the medium of post
office.
 This service was started from 24th October, 2009 and is offered through head post offices.
vii. International Money Transfer :

 It I a quick and easy system of electronically transferring money from foreign countries to India.
 In India, only inward remittances are permitted.
 It is very beneficial to NRI dependent families, International tourists and foreign students studying in
India.
 This facility is made available in all the post offices in India enabling instant money remittance from
around 195 countries of India.
D. Retail Services :
Indian Post offers a number of retail services through its vast network of Post offices across the country. The
retail services are as follows:
i. Bill Mail :
 Under this service, communication in he form of financial statements, bills, monthly accounts bill or any
such items of similar nature can be posted by the service provider to the customer.
 It should be noted that, the frequency of sending such documents must be at least one in 90 days.
ii. Retail Post :

 Retail post includes the collection of electricity bills, telephone bills, insurance premium, collection of
taxes and fees for the government etc.
 Additionally, under Retail Post, post office sells application forms of UPSC, SSC, AFMC, Universities
etc.
 By providing these services, post offices provide convenience and affordability to the common man.

iii. E-payment :
 Indian Post provides he service of making payment of all bills and other dues online.
 Here, the amount of the bill has to be paid to the post office and thereafter, the post office pays the bill to
the service provider online.
 E-payment is a 'many-to-one' service through which electricity bills, telephone bills, examination fees
etc. are paid by customers in post offices.
Q.13. Describe the various modern modes of communication.

Ans. : In recent years, newer modes of communication have been developed which enable communication in quick,
safe said confidential manner. These can be broadly classified into two modes:
i. Courier Services :
 A courier is a service provided by a person or a company which delivers message, packages and mail.
 The main features that distinguish a courier service from an ordinary mail are the speed, security,
tracking capacity, signature, specialization and individualization of express service.
 As they provide these benefits, courier services charge usually more than the standard mail services.
 The scale of operations of courier services varies from within specific cities to regional and from national
to global services.
 Some of the large courier companies in the world are DHL, FedEx, TNT, UPS and Aramex.
ii. Electronic Services :

With the development of technology, newer methods of electronic services have made it possible to
exchange messages in a quick and easy manner. The various electronic services are as follows:
 Fax :
Fax, also known as telefax or telescoping, is an electronic machine which instantly transmits scanned
materials through means of telephone.
The message reaches the destination the moment it is inserted in the fax machine.
The 24 hour availability of this service makes it easily accessible.
 Internet :
Internet, a global system, connects a computer to millions of other computers worldwide.
This makes it easy to exchange a large amount of information in a very easy and speedy manner.
 E-mail :
E-mail is an electronic means of exchanging messages from one computer user to one or more recipients
through the medium of internet.
While sending messages through e-mail, the presence of the receiver is not necessary i.e. the messages
keep gathering on the server of the service provider (such as gmail, yahoo mail etc.) and the receiver can
access the same through a computer/smart phone at per his convenience.
He can read the messages or get them printed or store them on the computer or delete them.
Q.14. What is Telecom Service? Explain the types of wireless communication.

Ans. : Meaning of Telecom Services :
 Telecom services means sending and receiving of information over long distance through
electromagnetic signals.
 In India, it is growing at a very fast rate.
Do you know ?
History of Telecom Services :
 1851 - Telecom service was started in India by British East India Company.
 1854 - A separate department was set up to provide the services to the public.
 1881 - Oriental Telephone Company Limited of England opened telephone exchanges in Kokatta,
Mumbai, Chennai and Ahmadabad.
 1882 - (on 28th January 1882) First formal telephone service was established with a total of 93
subscribers.
 1975 - Department of Telecom (DoT) was separated from Indian Post and Telecommunications and
responsible to run telecom services of Delhi and Mumbai.
 1986 - Mahanagar Telephone Nigam Limited (MTNL) was chipped out of DoT and was responsible to
run telecom services of Delhi and Mumbai.
 1990 - Government opened up the telecom sector for privatization.
 1995 - TRAI (Telecom Regulatory Authority of India) was set up.
 2000 - DoT was renamed as Bharat Sanchar Nigam Limited (BSNL).
Wireless Communication :
The following are the types of wireless communication :
i. Pager Services :
 A pager is a wireless telecommunication device for receiving and displaying text messages.
 It was launched in India in the year 1995 and was used mainly for business communications.
 The sender, in order to page somebody, had to call on a common number and give the message.
Thereafter, the message would duly be sent to the person having the paper.
 Pager devices were generally worn on belts or carried in pockets.
 However, with the success of mobile phone, pagers lost their popularity.
 Mobilink, Pagelink, Usha Martin Telecom and Easy call were some companies providing pager services
however, Motorola was the largest player with nearly 80% market share. By 2002, Motorola stopped
making or servicing papers.
ii. Mobile Communication :

 Mobile communication is a mode of communication which does not depend on any physical connection
between two mobile devices.
 It is used to make/receive calls and send/receive text messages.
 New advanced phone with newer software applications known as Smart Phone have been launched in the
market.
iii. Broadband Communication :

 Through broadband communication, a person is connected to the internet and thereby can upload/
download data.
 It provides channels for data transmissions by many users at high speeds.
 After USA and Japan, India stands third in the number of internet users out of which 40% of the internet
is used via mobile phones.
 The speed of broadband in India is low as compared to Japan, Norway etc.
iv. Next Generation Network (NGN) :

 It is a multiple access network that connects customers to a core network based on IP technology.
 The connection to the network is through fiber optics or coaxial cable networks which are connected to
fixed locations/through Wi-Fi as well as 3G network connected to mobile users.
v. Indian Satellites :
 Since 1975, India has lunched more than 76 satellites (as on Dec, 2014).
 Indian Space Research Organization (ISRO) is responsible for the operations of the Indian Satellites.
 The Indian National Satellites (INSAT) programmed has launched 21 satellites out of which 11 are still
in operation.
Warehousing
Meaning of Warehousing :
 A warehouse is defined as "an establishment for the storage or accumulation of goods". In other words,
warehouse is a place where the goods are stored.
 In creates time utility as it provides the goods at the time of their requirement.
 The business require to store various types of goods. The warehousing service facilitates such business to
store their goods safely.
 To sum up, it is the process of storing such goods on a large scale, in specified manner.
Q.15. Explain the functions of Warehousing.

Ans. : Warehouse is used to store goods on a large scale in a specified manner. The basic function of warehouse is
to protect goods from conditions such as heat, wind, storm, moisture etc. This helps in reducing losses due to
spoilage or wastage. In addition to this, the other functions of warehousing are as follows :
i. Storage of Goods:
 The basic function of a warehouse is to store large quantity of goods.
 They are stored from the time they are produced till the time they are consumed.

ii. Projection of Goods :
 Warehousing provides protection to goods from damage due to heat, wind, dust, insects etc.
 It also makes necessary arrangements according to the nature of different products to protect them from
spoilage or wastage during storage.
 For e.g. Providing cold storage for perishable goods.
iii. Financing :
 The depositor, one he deposits the goods in the warehouse, is issued a receipt which is a proof that the
goods are deposited.
 The owner of the goods is also issued a document known as the "warehouse-keepers warrant".
 These documents are negotiable instruments and can be negotiated by endorsement and delivery. The
owner of goods can raise finance from banks and financial institutions by keeping the warehouse receipt
and warrant as security.
iv. Risk-bearing :
 Usually, the risk of loss, theft or damage of goods lies with the owner of goods.
 But, when the goods are stored in the warehouse, the entire responsibility of the safety of the goods is
transferred to the warehouse-keeper.
 Naturally, the warehouse keeper takes all precautions necessary to protect the goods.
v. Grading and Branding :

 Warehouses perform function s of grinding and branding of the goods on the manufacture's/
trader's/importer's behalf.
 Additionally, they provide facilities of mixing, blending and packaging of goods, which makes it
convenient for the owners to handle and sell the goods.
vi. Processing :
 Warehouse, on behalf of the owners, provide processing facilities for the goods.
 Owners can use this facility for certain commodities which are required to be processed before they are
consumed like polishing of paddy; seasoning of timber; ripening of fruits etc.
vii. Transportation :
 Warehouses provide transportation facilities to bulk depositors. they help in collecting the goods from
the production place and also facilitate sending them to the delivery place.
viii. Time and Place Utility :

 Warehouses create time as well as place utility.
 They provide storage facility; thereby help in preserving the goods till they are actually demanded, thus
creating time utility.
 It also provides the goods where there is a requirement for the same thereby creating place utility.
*Q.16. What is Warehousing? Explain different types of Warehouses.

Ans. : Warehouse is a place where the goods are stored.
It is storage structure constructed to provide protection to the goods stored.
The different types of warehouses are as follows :
i. Private Warehouses :
 These are owned and managed by big business firms, traders or manufacturers to store their own stock of
goods.
 Only private persons or businesses are given license to open a private warehouse for the goods imported
by them or on their behalf.
 Generally, farmers construct these warehouses near their fields, wholesalers and retailers near their
business areas and manufacturers near their factories.
 As these warehouses are privately owned, the design and the facilities provided therein are according to
the nature of the goods to be stored.
ii. Public/Commercial Warehouses :

 These are owned by an individual, partnership firm, company etc. but provide storage facilities to the
general public on the payment of charges or rent.
 To start public warehouses, a license is required from the government. Also, the rules are expected to be
followed.
 These type of warehouses are generally located near railway stations, highways, airport, seaport etc. to
facilitate easy storing of goods.
 Apart from storing, it also provides other facilities like packaging, grading, inspection by prospective
buyers etc.
iii. Government Warehouses :

 These are owned, managed and controlled by Central and State Governments or public corporation or
local authorities.
 It is suitable for small traders, farmers, businessmen who cannot afford to have their own warehouse.
 They can use the facilities of a government warehouses by paying a nominal charge.
 Central Warehousing Corporation of India, State Warehousing Corporation and food Corporation of
India are examples of agencies maintaining government warehouses.
iv. Bonded Warehouses :

 These are operated either by the government or customs authorities and are located near the ports.
 Here, the imported goods on which duty is yet to be paid are stored.
 These warehouses have to obtain license from the government.
 The goods can be removed from the bonded warehouses only with prior consent of the customs
authorities and the warehouse-keeper is required to sign an undertaking or a Bond to this effect. The
custom authorities give permission to take away the goods only after the custom duty is paid. The goods
are held in bond till that time.
 Exporters and importers are benefited by such warehouses i.e. if any importer is not able to pay the
custom duty on the import of goods, then he can store the goods in bonded warehouse till he pays the
duty. He also has the option to pay the duty in installment and can withdraw the goods proportionately.
 Bonded warehouses also provide facilities for packaging, grading and branding for selling the goods.
 Central Warehousing Corporation operates 75 custom bonded warehouses.
v. Duty Paid Warehouse :

 Here, the importer stores the imported goods after the duty has been paid.
 He may store the goods if he faces any problems / delay in transportation / if he wants to re-export the
goods.
 All the duty paid warehouses are public warehouses and hence are made available to the general public.
 They also provide assistance to the importers in taking care of the goods, processing of goods like
sorting repacking etc.
vi. Co-operative Warehouses :

 These are owned, managed and controlled by Co-operative Societies.
 They provide warehousing facility at nominal rates to the members of the society as well as to the public.
 Here, usually small farmers and traders who cannot afford warehousing facilities store their goods.
vii. Cold Storage Warehouses :

 These are used to store perishable commodities like fisheries, poultry, dairy products, vegetables, fruits
flowers etc.
 Such warehouses refrigerate the goods i.e. store them at very low temperatures; thereby making it
possible to use them in future.
 They make possible the importing and exporting of perishable products.
 For e.g. Green peas produced in India are exported to foreign countries.
Transport
Q.17. Describe the role of transport in modern times.
Ans. : Meaning of Transport :
Transport, an integral part of the economy's infrastructure, refers to the movement of people, animals and/or
goods from one place to another.

It enables trade and development of civilizations and hence it plays a very important role in the modern
times.
For the purpose of transportation, infrastructure consisting of fixed installations including roads, railways,
airways, waterways, canals and pipelines, airport terminals, railway stations, bus stations, seaports etc. is
required.
Role of Transport :
The role of transport can be explained as below : [Mnemonic: HP -SCIENC2E]
i. Helps in Production :
 Through transportation, manufacturers can quickly carry the raw materials and /or labour from the place
of availability to the production unit.
 It also helps quick dispatch and distribution of finished goods from the production centres to the
consumption centers.
ii. Provides help during Emergency :

 Transportation provides people with various necessities viz. food, water, medicines etc. during
emergency situations like earthquakes, landslides, floods, riots, bomb blasts, accidents, fire etc.
 It also helps people to reach their destinations.
 Helicopters, fire brigade etc. are used to conduct rescue operations.
iii. Stability of Prices :

 When three is shortage of goods, prices tend to rise.
 Transportation helps to solve this problem by continuously supplying the goods.
 This indirectly helps to maintain stability in prices of the goods by creating a balance between demand
and supply of goods.
iv. Creates Employment :

 Transportation creates direct as well as indirect employment opportunities.
 Directly it provides employment to transport owners, drivers, mechanics, helpers and so on.
 Indirectly it creates employment opportunities by making it possible for the goods and people to move
from one place to another.
 For e.g. Transport of imported cars into the country makes it possible for people in India to buy them.
vi. Economic Development :

 A good network system of transport is necessary for the establishment and development of industries in a
country as its helps to create more employment. This indirectly improves the standard of living of
people.
 With better standard of living, demand for goods and services increases.
 All these factors contribute to the economic development of the country.
vii. National Defense :

 An efficient transport system is very important in the defense system of country.
 It ensures quick movement of troops, arms and ammunition across the country.
 It is also required to keep a check on the external aggression on the boundaries of the country.
viii. Cost Reduction :

 The cost distribution and production can be considerably reduced by the use of quick, efficient and cheap
means of transport. This will in turn reduce the prices at which the goods are sold, thereby increasing the
demand and also expanding the market.
 If there is an increase in the demand for goods, it will lead to large scale production of goods which can
help businesses save costs.
ix. Creates Place Utility :

 Movement of goods from the place of its availability to the place of its requirement is possible due to
transport. Thus, people staying for away from the place where the goods are produced can also get is
benefit.
Thus, transportation creates place utility.
 For e.g. Apples produced in Kashmir are made available throughout the country.
Mangoes produced in India are sold in foreign countries etc.
x. Expanding Markets :
 Transportation brings the producers and consumers closer.
 It helps the manufacturer by covering a wide market area for the goods produced by making the goods
available whenever there is a need.
 Import and export of goods is also made possible due to the various means of transport like sea and air
transport.
Q.18. Explain the various modes of Transport.

Ans. : Transport refers to the movement of people, animals and/or goods from one place to another.
There are various modes of transport that can be used in our day-to-day life.
They can be broadly classified into two categories viz. Traditional and modern means.
Traditional Means of Transport :

i. Walking :
 Walking means to cover a certain distance on foot.
 It is still an important mode of transportation in rural as well as urban areas.
 The MMRDA has commenced the construction of 50 more skywalks as a part of the Mumbai Skywalk
Project.
ii. Palanquin (Palkhi) :

 These were a luxurious mode of transport used in traditional times by the rich and noblemen.
 In the present times, however, the use of palanquins has become limited to Indian weddings. and
pilgrimages.
iii. Bullock Carts and Horse Carriages :

 They were used in small towns as there was no other means of transportation
 They are referred to as Tonga's or Buggies.
 Horse carriages are popularly known in Mumbai as 'Victoria's and are still used for tourism purpose.
iv. Bicycles :
 India is the second largest producer of bicycles in the world.
 Bicycles are a common mode of travel in most of India.
 Cycling along with walking accounts for 50% to 75% of the usage in rural areas.
FYI :
 Pune is the 1st city in India to have dedicated lanes for cycles.
v. Hand Puller :
 A hand puller is where a person pulls the rickshaw by hand.
 This type of transport is still available in Kolkata.
 The Government of West Bengal proposed a ban on the use of these rickshaws in 2005 describing them
as 'inhuman'.
vi. Cycle Rickshaw :

 Cycle rickshaws are big tricycles where two people sit on an elevated seat at the back and a person
pedals in the front.
 There rickshaws were introduced In India in the 1940's.
vii. Trams :
 Trams referee to the rail vehicle that runs on tracks along public streets.
 They were introduced during the British Era in many cities including Kolkata, Mumbai.
 They are still in use in Kolkata and provide an emission-free environment.
Modern means of Transport :
i. Road Transport ii. Rail transport
iii. Air transport iv. Water transport
v. Others.
Q.19. Write short notes on the following :

i. Road Transport.
Ans. :  Road transport refers to the transportation of people and/or goods from one place to another via roads
built on the surface of land.
 It includes bullock carts; cycles, motorcycles, cars, trucks, buses, taxis, auto-rickshaws, scooters, buses,
tempos, vans etc.
 It plays a vital role in India's economy. All major cities and state capitals in India are well connected by a
network of National Highways. All national highways are metalled. Besides, few national highways are
concrete roads, the most remarkable being the Mumbai-Pune Expressway.
 Some of the major roadways and bridges in India include the Yamuna Expressway, Bandra-Worli Sea
Link etc.
The most commonly used road transport in cities are :
 Taxes :
Taxes are a popular means of transport.
The livery (a unique appearance that enables easy identification) of the taxicabs is different in different
states in India.
In Delhi and Maharashtra, taxicabs are yellow and black in colour while in West Bengal they are yellow.
Private taxicabs need not follow any specific livery.
 Auto-rickshaw :
An auto-rickshaw, which is available on hire basis, is a three wheeler vehicle used a means of transport.
It has no doors and is generally characterized by a small cabin for the driver in the front and passenger
seat in the rear.
 Buses :
Buses constitute approximately 90% of the public transport.
The main benefit is that they are very cheap and hence a convenient transportation mode for all classes of
people.
Bus services are mainly run by state government owned transport corporation.
In order to improve bus transport systems in cities, state government have taken the Bus Rapid Transit
systems (BRT) and air condition buses.
Double-decker buses are also available in cities like Mumbai, Chennai, Kochi and Trivandrum.
Advantages of Road Transport :

 Road transport is cheaper as compared to the modes of transportation.
 It is suitable for transporting perishable goods at a faster speed over a short distance.
 It is a flexible mode as loading and unloading is possible at all destinations.
 It provides door-to-door service.
 Even in places which are not connected by any other means of transport like hilly areas, road transport
provides people with means to travel and carry goods from one place to another.
Limitations of Road Transport :

 Road transport has limited carrying capacity & hence it is not economical for long distance
transportation of goods.
 High cost can be involved to transport bulky goods by road.
 Road transport can be affected by adverse weather conditions like floods, rain, landslides etc.
 The possibility of road accidents is very high on highways. This makes road transportation risky.
 It causes air pollution due to the use of petrol and diesel. It also causes noise pollution.
ii. Rail Transport :

Ans.  Rail transport refers to the transport of people and goods along railways or rail lines via trains.
 It is provided by the state run India Railways, under the supervision of the Ministry of Railways.
 It was first introduced in India in 1853 from Mumbai to Thane.
 In India, railways transport over 18 million passengers and more than 2 million tonnes of freight daily.
Indian rail transport system is one of the largest and busiest rail networks in the world.
 The Mumbai Suburban Railway is the first rail system in India which began services in Mumbai. It
started in 1867 and transports 6.3 million passengers on a daily basis. It has the highest passenger density
in the world.

Rail Transport includes :

 Local Trains :
Local trains helps to connect several places within the city.
These are majorly used in the metropolitan cities.
 Long Distance Trains :
Long distance trains helps to connect one state with another state.
 Monorail :
Monorail is a rail-based transportation which is based on a single rail.
The Mumbai Monorail is the first monorail in India which started its operations on 1st February, 2014.
 Metro :
Metro is transit system wherein it connects major parts of the city.
Metro services are currently operational at Kolkata (1984), Chennai MRTS (1997), Delhi (2002),
Bangalore (2012).
 There are more MRTS (Modern Rapid Transit Systems) which are under construction or in planning
stages in several major cities in India.
 Various ambitious projects have been undertaken by the Indian Railways over the years in order to
improve connectivity to remote and inaccessible areas of the country. Some examples are the Konkan
Railway, Mangalore and Mumbai, Kashmir Railway.
 Proposals have been made to introduce high-speed rail in India. There are plans to build a Maglev tracks
within Mumbai to connect it to the national capital of New Delhi as well as to connect other parts of
Maharashtra.
Advantages of Rail Transport :

 It is convenient mode of transport for long distance travel.
 It is a faster mode of transport as compared to road transport.
 It is suitable for carrying heavy goods in large quantities over long distances.
 It operations are less affected by adverse weather conditions like rain, floods fog etc.
 It ensures safety and security of goods while transporting. Even costly and delicate goods can be sent by
rail.
Limitations of Rail Transport :

 It is a relatively expensive transportation mode for carrying goods and passengers over short distances.
 It is not available in remote parts of the country.
 It operates as per a fixed time schedule. It is not as flexible as road transport for loading and unloading of
goods.
 It involves heavy losses of life as well as goods in case of accident.
 It does not provide door-to-door service as it does not reach remote areas.
iii. Air Transport.

Ans. :  Air transport means transporting goods and passengers through airways.
 Different types of aircrafts are used for air transport like passenger aircraft, cargo aircraft, helicopters etc.
 The main benefit of air transport is its speed and time saving transportation.
 Air transport helps to reach remote and inaccessible area like hilly and mountainous areas, forests etc.
 Besides people, it is suitable to carry goods which are bulky or of high value in small quantities as the
transportation costs are very high.
 It is very useful for transporting goods and people during situations of ware or natural calamities like
earthquakes, floods etc.
 Air transport follows fixed air routes and schedules. It connects all the major cities in the country and
also almost all the countries in the world.
 Air transport can be classified into two - Domestic and International Air Transport.
 In India, government has set up two separate corporations - Air India, to cater to international air travel
and Indian Airlines, to look after domestic air travel. Air India which is India's flag carrier presently
operates a fleet of 159 aircraft. It plays a major role in connecting India with the rest of the world.
 Indi has 5 major international airports in Mumbai, Kolkata, Delhi, Chennai and Trivandrum of which,
Chhatrapati Shivaji International Airport in Mumbai is currently the busiest airport in India in terms of
passenger traffic.
 Pawan Hans Helicopters Ltd. is a public sector company that provides helicopter services to the
petroleum sector including ONGC, Oil India Ltd. etc. It also provides services to certain state
governments and public sector undertakings and also in the north-eastern states.
 There are 40 heliports in India. India also has to world's hihest helipad at the Siachen Glacier at a height
of 6400 meters (21000ft) above means sea level.
Advantage of Air Transport :

 It is the faster mode of transport.
 It is very useful in transporting goods and passengers to areas which cannot be accessible by any other
means.
 It is a convenient mode of transport during natural calamities like floods, earthquakes etc.
 It provides vital support to the national security and defense.
 It is less polluting as compared to road transport.
Limitations of Air Transport :

 It is a relatively more expensive mode of transport.
 It is not suitable for transporting heavy and bulky goods.
 It is affected by adverse weather conditions.
 It is not suitable for short distance travel.
 In case of accidents, it results in heavy losses of goods, property and life.
iv. Water Transport.

Ans. :  Water transport is the process of movement of people and goods through waterways.
 Means of water transport are boats, steamers, ships, launches etc.
 Water transport can be used to transport goods inside the country as well as outside the country. \
 When goods are transported within the country, it is known as inland water transport.
 When goods are transported using the sea routes, it is known as ocean transport.
 There is an intensive network of inland waterways in India in the form of rivers, canals, backwaters and
creeks. However, water transport is under-utilized in India.
 In Goa, West Bengal, Assam and Kerala waterways are used for transporting cargo.
 The Inland Waterways Authority of India (IWAI) is the statutory authority in charge of the waterways in
India.
Advantage of Water Transport :

 It is a relatively economical mode of transport for bulky and heavy goods.
 It is safe mode transport with respect to occurrence of accidents.
 The cost of maintaining and constructing waterways is very low as most of them are naturally made.
 It promotes international trade.
 It protects the goods from sun, rain wind, dust etc. as goods are mostly carried in containers, tankers etc.
Limitations of Water Transport :

 The depth and navigability of rivers and canals vary and thus, affect operations of different transport
vessels.
 It is a slow moving mode of transport and therefore not suitable for transport of perishable goods.
 It is adversely affected by weather conditions.
 Sea transport requires large investment for purchasing ships.
 It has high maintenance costs for ship and tankers as it requires constant repairs and painting of ships.
v. Other Modes of Transport.

Ans. : The other modes of transport are as follows :
a. Ropeway Transport :
 Ropeway transport is useful for people living in hilly and mountainous areas or across a valley or river.
 It constitutes of a trolley which moves on wheels and is connected to a rope.
 It is used to transport passengers as well as goods especially building materials; food etc.
b. Pipeline Transport :
 Pipeline transport use pipes for transportation of goods.
 Liquids and gases are most commonly sent through pipelines.
 Short distance network is used for transporting sewage, slurry, water and beer whereas long distance
network is used to transport petroleum and natural gas.
 Pneumatic tubes can be used to send solid capsules using compressed air.
c. Cable Transport :
 Cable transport is means of transport that use cables as foundation for transporting people and goods.
 Here, vehicles are pulled by cables instead of any internal power source.
 It is mostly used at steep gradient.
 Common modes of cable transport are aerial tramway, elevators, escalators and ski-lifts.
d. Spaceflight :
 Spaceflight is a means of transport into or through outer space out of the earth's atmosphere.
 Spacecrafts are used to travel to outer space.
 Spaceflights are mainly used to put satellites into orbit to conduct scientific experiments.
 It is also used in commercial activities like space tourism and satellite telecommunication.

1. Business Services are ……………. in nature.
(A) Homogeneous (B) Heterogeneous (C) Identical
2.Overdraft facility is given to ………………

(A) Savings Account (B) Current Account (C) Fixed Account
3.The account suitable for creating a saving habit is ……………….

(A) Current Account (B) Recurring Deposit Account (C) Saving Account
4.There is no limit on the frequency of withdrawals from a ……………….

(A) Saving Account (B) Fixed Account (C) Current Account
5. No interest is paid to ……………….

(A) Saving Account Holders (B) Current Account Holders (C) Fixed Deposits Holders
6.Highest interest rate is paid on ………………

(A) Saving Account (B) Fixed Deposits (C) Current Account.
7. …………….. is an example of a development bank.

(A) IFCI (B) HSBC (C) ICICI
8. ………….. percentage of the capital of regional rural banks is provided by the Central Government.
(A) 50 (B) 35 (C) 15
9. ………….. bank of a country is a banker to the government of the country.

(A) Central (B) EXIM (C) Commercial
10. …………. institution is involved in financing agricultural sector.

(A) SIDBI (B) NABARD (C) IFCI
11. SIDBI is to help ……………

(A) Small Scale Industries (B) Exporters and Importers (C) People of low income groups
12. ……………. is a secondary function of commercial banks.

(A) Granting loan (B) Accepting deposits (C) Dealing in foreign exchange
13. Overdraft is a type of ……………

(A) Advance (B) Loan (C) Utility function

14. Paying electricity bills through E-banking is …………..
(A) RTGS (B) NEFT (C) EFT
15. Principle of utmost goods faith is applicable to …………………

(A) Life insurance (B) Marine insurance (C) All types of insurance
16. Principle of indemnity is not applicable to ……………….

(A) Life insurance (B) Fire insurance (C) Marine insurance
17. Insurable interest must exist in ………………..

(A) Life insurance Contract only (B) Marine Insurance constrict only (C) Every Insurance contract
18. ………….. policy provides insurance for the whole life of a person.
(A) Whole Life (B) Endowment Insurance (C) Joint Life
19. In fire insurance, …………… is suitable in cases when there is constant fluctuation in the value of stock in
the market.
(A) Excess policy (B) Comprehensive policy (C) Floating policy
20. Principle of Subrogation is a corollary of …………..

(A) Principle of Indemnity (B) Principle of Mitigation of loss (C) Average Policy
21. If the subject matter is insured below the market value, it is called ……………
(A) Floating Policy (B) Comprehensive Policy (C) Average Policy
22. ………….. does not offer any life insurance cover.

(A) Pension Plan Policy (B) Money-Back Policy(C) Endowment Insurance Policy
23. Postal services are administered by …………….

(A) Private Companies (B) Government of India (C) Panchayat
24. In case of urgency and to avoid delays …………….. is sent.

(A) Registered Post (B) Speed Post (C) Insured Post
25. ………….. is the cheapest means of sending a written communication through the post.
(A) Post Card (B) Inland Letter Card (C) Telegrams
26. …………… is suitable when there is no exact address for the receiver.
(A) VPP (B) Post Restante (C) Speed post
27. In India, postal services were made available to the public after …………..
(A) 1837 (B) 1847 (C) 1857
28. Remittance money to foreign countries from India is facilitated through …………….
(A) Money Gram (B) Money Order Videsh(C) International Money Order
29. In Mumbai, telecom services are run by …………

(A) VSNL (B) MTNL (C) BSNL
*30. Bonded warehouses are located at ………….

(A) Railway station (B) Villages (C) Ports
*31. Perishable goods are stored in …………..

(A) Bonded Warehouses (B) Duty Paid Warehouses (C) Cold Storage Warehouses
32. ……………. are warehouses where the imported goods on which custom duty is yet to be paid are stored.
(A) Bonded Warehouses (B) Government Warehouses (C) Duty Paid Warehouses

33. Food Corporation of India is a …………….
(A) Banded Warehouse (B) Commercial Warehouse (C) Government Warehouse
34. In India, railways are owned and managed by ……………

(A) Private Companies (B) Government (C) Individuals
35. Door-to-door service is offered by ……………

(A) Rail Transport (B) Road Transport (C) Air Transport
36. The costliest means of transport is ………………

(A) Rail Transport (B) Water Transport (C) Air Transport
37. Road transport is suitable for ……………. distance.

(A) Short (B) Long (C) Medium
38. ………….. is a mode of transport which connects two places on hills or across a valley or river.
(A) Ropeway (B) Rail (C) Water
39. Limited carrying capacity is a characteristic of ……………. transport.

(A) Rail (B) Water (C) Road
40. ………….. is the cheapest mode of transport for heavy and bulky goods.
(A) Rail Transport (B) Water Transport (C) Air Transport
41. For travelling long distances safely and economically, the best option is ………….
(A) Air Transport (B) Rail Transport (C) Road Transport
Match the Pairs

1.
Group "A" Group "B"
i. RBI a. Recurring Deposit Account
ii. Overdraft b. 12 hours service
iii. Savings Account c. Withdrawals after fixed period of time
iv. ATM d. Central Bank
v. Fixed Deposit Account e. Current Account
f. Salaried people
g. 24 hours service
h. Cash Credit
i. Withdrawal before fixed period of time.
Ans. : (i-d), (ii-e), (iii-f), (iv-g), (v-c).
2.
Group "A" Group "B"
i. Life Insurance [Mar 15] a. Claim by Insured
ii. Mitigation of Loss b. Perishable Goods
iii. Premium c. Insurable Interest
iv. Cold Storage d. Maximum Loss
v. Warehousing e. Transfer of goods from one place to other.
f. To minimize the loss
g. Imported Goods
h. Principle of Indemnity
i. Storage of Goods
j. Payment made by policy holder
Ans. : (i-c), (ii-f), (iii-j), (iv-b), (v-i).
3.
Group "A" `Group "B"
i. Road Transport [July 16] a. Co-operative societies
ii. Rail Transport b. Self employed
iii. Air Transport c. Owned by Private Companies
iv. Courier services d. Door-to-door Service
v. Bonded Warehouse[Oct 14] e. Owned by Individuals
f. Costliest means of Transport
g. Huge Carrying Capacity
h. Difficulty in Transport
i. Cheapest means of Transport
j. Located within the sport
Ans. : (i-d), (ii-g), (iii-f), (iv-c), (v-j),
4.
Group "A" Group "B"
i. Rail Transport [Mar 17] a. Operated by custom authorities
ii. Palanquin b. 1946
iii. Co-operative Warehouses c. Used in traditional times by rich and noble
men
d. Government owned
e. Owned by private companies
f. Owned, managed and controlled by co-
operative Societies
Ans. : (i-d), (ii-c), (iii-f)
One Word
III. Write a phrase or a term which can substitute each one of the following :
1. Services which are essential for the successful running of a business.
2. Services which cover the financial risk of individuals and businessmen.
3. The process of exchanging messages between or among people to create a common understanding
4. The account suitable for salaried people
5. Overdraft facility is given to a certain definite account holder.
6. An account holder enjoys the privileges of any number of withdrawals.
7. An account where fixed amount is kept for a specific period
8. A bank, which is known is bankers' bank
9. Under this type of advance, the bank charges interest only on the amount utilized by the customer and not
on the amount sanctioned.
10. A saving account in which any deposit in excess of a particular limit, is transferred automatically to fixed
deposit.
11. A financial instrument issued by the bank which helps in easy remittance of money from one place to
another.
12. An instrument issued by the bank which guarantees payment in international trade.
13. The instrument issued by the bank which allows the customer to make purchases on credit.
14. A system under which the funds can be transferred electronically anywhere across the country.
15. Individuals or private agencies or institutions that perform the banking functions.
16. The type of insurance where the principle of indemnity is not applicable.
17. The policy under which cargo is insured for a specific period & voyage
18. The principle of insurance under which the insurer and insured must show complete faith towards each
other.
19. The guarantee to put the insured in same position as he was immediately prior to the happening of the
uncertain event.
20. A kind of marine policy that covers risk for a fixed period.
21. The marine policy under which a cargo is insured specifically for a voyage

22. The policy which provides insurance cover for several shipments.
23. An amount of compensation agreed to be paid after the loss to the subject matter is occurred.
24. The statement of contract between the insured and the insurer.
25. The type of fire insurance policy the insurance company undertakes to replace the property or goods which
are lost or damaged.
26. The type of policy that provides coverage to a ship against all the risks while it is anchored at the port for a
particular period of time.
27. A device through which calls and message can be sent and received.
28. An electronic letter through which the messages can be exchanged on the computer.
29. A type of postal service which insures the post and covers the risks during its transmission.
30. A service provided by the post office that ensures time bound and express delivery of letters, documents
and parcels.
31. A wireless telecommunication device for receiving and displaying text messages.
32. The organization which is responsible for the Indian Satellites.
33. A warehouse where the goods can be stored after the payment of import duty.
34. The type of warehouse where perishable goods are stored.
35. The document issued by warehouse-keeper which can be used as security for raising loans from the banks.
36. The costliest mode of transport.
37. Means of transport carrying build and heavy goods for international trade.
38. Mode of transport which helps to get goods and passengers at their door.
39. A rail-based transportation which is based on a single rail.
40. The statutory authority in charge of the waterways in India.
41. The type of transportation that is used to transport gases and liquids.
Ans.
1. Business Services 2. Insurance Services
3. Communication 4. Savings Account
5. Current Account Holder 6. Current Account Holder
7. Fixed Deposit 8. Central Bank
9. Cash Credit 10. Multiple Option Deposit Account
11. Bank Draft 12. Letter of Credit
13. Credit Card 14. National Electronic funds Transfer (NEFT)
15. Indigenous Bankers 16. Life Insurance
17. Mixed Marine Insurance Policy 18. Utmost Good Faith
19. Indemnity 20. Time policy
21. Voyage policy 22. Floating policy
23. Insurance claim 24. Insurance policy
25. Reinstatement policy 26. Port Risk policy
27. Mobile phones 28. E-mail
29. Insured post 30. Speed Post
31. Pager 32. Indian Space Research Organization (ISRO)
33. Duty Paid Warehouse 34. Cod Storage Warehouse
35. Warehouse receipt 36. Air transport
37. Water transport 38. Road transport
39. Monorail 40. Inland Waterways Authority of Indian (IWAI)
41. Pipeline
Distinguish Between
IV. Distinguish between the following :
1. Comparative chart of Current Account, Savings Account, Fixed Deposit and Recurring Deposit
Account.
Ans. :
Sr. Recurring Deposit
Current Account Saving Account Fixed Deposit
No. Account
Meaning
i. Current Account is Saving Account is Fixed Deposit is an Recurring deposit
maintained by opened by individuals account where a fixed account is maintained

businessmen and with the objective to amount is deposited by depositors who
others who need to save a part of their for a fixed period of want to save a fixed
perform banking income. time. amount regularly for a
transactions on a specific period.
regular basis.
Withdrawals
ii. Withdrawal of money Withdrawal of money Withdrawal of the Customers cannot
from current account from savings account amount deposited is withdraw money
can be done by by customers can be not permitted before during the period of
customers through done by either cheques the specified period. If the deposit. If
cheques. or withdrawal slips. withdrawn earlier, the withdrawn earlier, the
bank may charge a bank may charge a
penalty or pay a lower penalty or pay a lower
rate of interest. rate of interest.
Documents
iii The bank gives a pass The bank gives pass The bank gives a fixed The bank gives a pass
book, cheque book, book, cheque book deposit receipt against book and a pay-in-slip
statement of account and pay-in-slip book the fixed deposit to the book
and pay-in-slip book to savings account customer.
to current account holders.
Suitability
iv. It is suitable for It is suitable for It is suitable for any It is suitable for
traders, businessmen, individuals with a person with idle cash individuals with a
firms, institutions, etc. fixed income, wage or for a certain period of fixed income.
salary. time.
Rate of Interest
v. Generally, no interest A low rate of interest A higher rate of Interest is provided on
is provided on current is provided on savings interest is provided on recurring deposit at a
account. account. fixed deposit. Longer rate higher than
the period of the savings account but
deposit higher will be less than fixed deposit
the rate. account.
Overdraft Facility
vi. Temporary overdraft Overdraft facility is Overdraft facility is Overdraft facility is
facility is provided. not provided. not provided not provided.
2. Cheque and Bank Draft

Ans. :
Sr. No. Cheque Bank Draft
Meaning
i. According to the Indian Negotiable Instrument A bank draft is an order to pay money drawn by
Act, a cheque is an unconditional order one office of a bank upon another office of the
directing he banker to pay a certain sum of same bank for a sum of money payable to order
money only to the order of a certain person. on demand.
Aim
ii. The aim of a cheque is to facilitate businessmen The aim of a bank draft is to facilitate
to make local payments. immediate outstation payments.
Drawer
iii The account holder is the drawer of the cheque. The bank is the drawer of a bank draft.
Dishonour
iv. In case of a cheque, there are chances of it In case of a draft, there are no chances of it
being dishonoured. being dishonoured as it is already paid for.
Bank Charges
v. The bank may or may not charge for issuing The bank charges a nominal amount to issue a
cheque books. draft.
Payments
vi. In case of crossed cheques, payment is not In case of bank drafts, payment is obtained
obtained immediately. immediately.
Facility Extended to
vii. Cheque facility is available to the account Draft facility is available to the account holders
holders of the banks only. of the bank as well as outsiders.
Reliability
viii. There are chances of a cheque not being cleared A bank draft is more reliable as it is issued by
due to various reasons like sign not matching, the bank only after the receipt of the payment.
post dated, less balance etc.
3. Loan and Overdraft.

Ans. :
Sr. No. Loan Overdraft
Meaning
i. Loan is an advancement of certain amount for a Overdraft is a facility provided to current
fixed period of time. account holders to overdraw from their account.
Eligibility
ii. Any account holder can get a loan. Only current account holder get overdraft
facility.
Rate of Interest
iii The rate of interest is lower than that of It is for a short period.
overdraft.
Duration
iv. It is for a long period. It is for a short period.
Interest Charged
v. Interest is charged on the amount of loan Interest is charged on the amount actually
sanctioned whether withdrawn or not. withdrawn.
Amount
vi. A larger amount is provided as loan. A smaller amount is provided as overdraft.
Separate Account
vii. Separate account needs to be maintained. No separate account is required to be
maintained.
Purpose
viii. Loans are given to meet long term requirements Overdrafts are provided to meet short term
of customers. working capital requirements of the account
holders.
Repayment
ix. The amount taken as loan has to be repaid in Amount of overdraft is adjusted against the
installments or in lump sum on the due date. deposits in the current account.
Security
x. Some valuable assets are to be given as Overdraft is sanctioned against hypothecation
security. of stock.
.4. Commercial Bank and Central Bank.

Ans. :
Sr. No. Commercial Bank Central Bank (RBI)
Function
i. Commercial banks main function is to accept Central banks main function is to regulate
deposits from the public for lending it to money supply in the country.
industry and others.
Printing of Currency
ii. The commercial banks cannot print currency Central banks have the right to print currency
notes. notes.
Acceptance of Deposits
iii. The commercial bank accepts deposits from the The central bank cannot accept deposits from
public the public.
Loans
iv. Commercial banks provide loans to industry The central bank provides loans to commercial
and commerce. banks and government.
Ownership
v. It can be owned and managed by private and/or There is only one central bank in India i.e. RBI.
government agencies.
Number
vi. There are a large number of commercial banks There is only one central bank in India i.e. RBI.
in India.
Monetary Policy
vii. The commercial banks can't frame any Central bank frames monetary and credit
monetary policy. policy.
Monitoring
viii. The commercial bank does not monitor central The central bank monitors commercial banks.
banks.
5. Give a comparative chart of Life Insurance, Fire Insurance and Marine Insurance.
Ans. :
Sr. No. Life Insurance Fire Insurance Marine Insurance
Meaning
i. Life insurance is a contract Fire insurance is a contract Marine insurance is a contract
where, the insurer undertakes where the insurer promises to where the insurer undertakes
to pay a certain sum of money pay compensation to the to pay compensation to the
either on death of the insured insured on the damage or loss insured in case of loss to him
or maturity date, whichever is to the subject matter due to fire due to dangers/perils of the
earlier, for a consideration or any related events against sea.
(premium). the payment of a consideration
(premium).
Who takes it?
ii. An individual can take life Individuals take fire insurance Exporters, importers and
insurance either for his own for their properties shipping companies take
life or for his family members businessmen take fire marine insurance.
or for his employees. insurance for their goods,
properties, business liabilities
etc.
Subject matter
iii. In life insurance, the life of the In fire insurance, the goods In marine insurance, the goods
insured is the subject matter and assets or property of the in ship, cargo and freight is the
insured is the subject matter. subject matter.
Insurable interest
iv. It must exist at the time of the It must exist at both times; at It must exist at the time of
contract. the time of contract and also at loss.
the time of loss.
Period
v. It can be issued for any It is generally issued for a It is for a short period of time
number of years, even until the short period of time like one ranging from one month to a
death of the insured. year. year. Normally, it does not
exceed the period of one year.
Compensation
vi. It is paid either on the death of It is paid when there is a loss It is paid only if there is a loss
the insured or one maturity, due to fire during the term of causing event during the term
whichever is earlier. policy. of the policy.
Principle of Indemnity
vii. It is not applicable to life It applies to fire insurance as It is applicable as the insurer
insurance as human life cannot the insurer compensates for the compensates for any financial
be valued in terms of money actual financial loss and the loss suffered by the insured
for calculating actual loss. insured is brought back to the and the insured is brought
same financial condition that back to the same financial
he was before the event. condition that he was before
the event.
Number of Policies
viii. Insured can take any number Generally, only one policy can Generally, only one insurance
of policies on the same life. be taken. However, double policy is taken. However,
insurance is possible but can't double insurance can be taken
avail extra benefit. in some cases but can't avail
extra benefit.
Beneficiary
ix. The beneficiary can be the The beneficiary is the insured The beneficiary is the insured
insured (if he survives the who has insured the property who has insured the goods
selected term) or he nominee or goods. or/and the shipping company.
or legal heir on the death of
the insured.
Surrendering of Policy
x. The policy can be surrendered This type of policy cannot be This type of policy cannot be
before the expiry of the term surrendered. surrendered.
subject to certain conditions.
6. Bonded Warehouses and Duty Paid Warehouses.

Ans. :
Sr. No. Bonded Warehouse Duty Paid Warehouse
Meaning
i. Imported goods on which duty is not paid are Imported goods on which duty is already paid
stored at bonded warehouse. are stored at duty paid warehouse.
Location
ii. Bonded Warehouse are located within the dock Duty paid Warehouses are located in a port
area. town, outside the dock area.
Markets
iii. The imported goods stored here are mostly for The imported goods stored here are mostly re-
the domestic markets. exported.
Supervision
iv. These warehouses are closely supervised by the These warehouses are supervised by the port
customs authority. authority.
Delivery
v. Goods are delivered on the payment of Import Delivery of goods is done only on payment of
Duty. In case of re-export, the import duty need the rent charges of the warehouse.
not be paid, only rent and service charges are to
be paid.
Purpose
vi. The purpose of storing the goods in a bonded The purpose of storing the goods in a duty paid
warehouse would be that either the importer warehouse would be that the importer does not
may not be in a position to pay the import duty have suitable warehousing facility or he faces
or he may not require immediate delivery of the any problem in the transportation of the goods.
goods.
Ownership
vii. Such warehouses are owned by public Such warehouses may be owned by private or
authorities dock authorities.
7.Give a comparative chart of Road Transport, Rail Transport, Air Transport and Water Transport.
Ans. :
Sr.
Road Transport Rail Transport Air Transport Water Transport
No.
Speed
i. Road transport has Rail transport has Air Transport is the Water Transport is the
limited speed due to relatively higher faster mode of slowest mode of
bad road conditions, speed since it runs on transport transport.
accidents etc. tracks and rarely gets
disturbed
Carrying capacity
ii. It has limited It has huge carrying It has limited It has very huge
carrying capacity capacity carrying capacity. carrying capacity.
Cost of Construction and Maintenance
Iii It require limited The cost of It uses airways It uses waterways
capital investment in construction and which are natural which are natural
terms of construction maintenance of and hence no cost is highway hence there
of roads, vehicles trains, railway tracks involved. However, is no cost involved.
and their and stations is high there is a huge cost However, there is
maintenance. for the construction high cost involved for
and maintenance of construction and
airports and aircrafts. maintenance of ships
and ports.
Distance
iv. Roadways are Railways are Airways are Waterways are
usually are usually recommended for generally suitable for suitable for long
recommended for both short as well as long distances. distances especially
short distance. long distance. across countries and
continents.
Transport Charges
v. Transport charges Transport charges Transport Charges Transport charges are
are not fixed but are are relatively low & are very high. lowest.
high due to increased are fixed according
fuel prices. to the distance
Door-to-Door Service
vi. It provides door-to- It does not provide It does not provide It does not provide
door services. door-to-door services door-to-door service door-to door services.
Means of Transport
vii. It includes modes It includes means It uses aircrafts, It uses mean such as
such as animals; such as passenger helicopters, jets etc. boats, big ships,
motor cycles; three and goods trains. liners, tankers etc.
and four wheelers.
Suitability
viii. It is suitable for It is suitable for It is suitable for It is suitable for
transporting the transporting heavy transport perishable, transporting very
goods in relatively goods in large light and high value heavy goods in large
smaller quantities for quantity over long goods to any part of quantity to any part of
short distances. distances. the world the world.
Safety
ix. It provides limited Goods are kept in It provides safety as Goods are safe as
safety to goods from locked wagons goods are specially they are specially
sun, rain, wind etc. which provides packed. packed and kept in
complete protection cargo section.
against sun, wind,
rain etc.
Accidents
x. Chances of accidents Chances of accidents Chances of accidents Chances of accidents
are high due to poor are less as the are lesser due to well are less in waterways.
road conditions and railways are maintained However, it involves
negligent drivers. managed efficiently infrastructure and heavy losses of life as
Loss of goods and due to one way expert pilots. But if well as goods in case
life will be limited in tracks & good signal the accident happens of accidents/mishaps,
case of accidents as systems. It involves the loss is huge. due to huge carrying
carrying capacity is heavy losses of life a capacity.
limited. well as goods in case
of accident, due to

huge carrying
capacity.
Ownership
xi. Ownership is in the Ownership is in the It is owned both by It is owned by private
hands of private hands of the private as well as sector as well as
parties. government public sector. public sector.
True of False
1. Overdraft facility is given to saving account holders.
Ans. : This statement is FALSE.[Overdraft facility is given to current account holders]
Reasons. :
 A savings account is to promote the habit of savings amongst the individuals. Here, the people earn
interest on the amount saved, which is paid by the bank.
 If people require additional funds, they can opt for a loan.
 Overdraft facility refers to when the customer is allowed to withdraw more than the balance amount in
the bank. Such facility is generally requested by the business class; who every now they may require
funds to conduct operations.
 A current account is usually operated by the business class, corporate, companies, etc.
Thus, Overdraft facility is given to current account holders.
2. Current account is suitable for salaried people.

Ans. : This statement is FALSE.[Savings account is suitable for salaried people]
Reasons :
 A current is usually operated by the business class, corporate, companies, etc. as it enable them to
conduct business transaction by providing huge amounts.
 In current account, there are no limits on the deposits and withdrawals made from the account i.e. it
can be done as per the requirement of the account holder.
 A current account also provides overdraft facility to such businessmen.
 Savings account on the other hand, promotes saving habit among people. This account restricts the
number of withdrawals in order to encourage savings.
 Savings account provides interest on the amount deposited in the account. Current account, on the
other hand, doesn't provide interest on amount deposited.
Thus, savings account is more suitable for people having fixed and regular income like salaried people
whereas; a current account is more suitable for businessmen.
3. Cash can be withdrawn from ATM at any time.

Ans. : The Statement is TRUE.
Reasons :
 ATMs or automated teller machines are electronic devices that enable the customers of banks to
conduct financial transactions without the help of the bank staff.
 The customer can operate the ATMs on his own to withdraw or deposit cash.
 ATMs can also be used by the customer to get information about the account without visiting the
branch. The customer can do this with the help of an ATM card.
 ATMs operate 24 hours and hence provide customers with easy access to their bank accounts.
Thus, a customer can withdraw cash from ATM at any time.
4. The principle of indemnity applies to life insurance.

Ans. : This statement is FALSE. [The principle of indemnity does not apply to life insurance]
Reasons :
 Indemnity means guarantee or protection provided against any damage, loss or injury.
 It provides an assurance to the insured by the insurer to make good the loss that the insured has
suffered.
 The insured will be put in the same position he was immediately before the loss or damage he has
suffered due to happening of any uncertain event.
 This principle applies to all insurance contracts except life insurance contract.

This is because, in case of a life insurance contract, the insurer has to pay the full sum assured in the
event of death of an individual as the value of human life cannot be measured in terms of money.
Thus, life insurance contract is a contract of assurance and not a contract of indemnity.
5. Insured must have insurable interest in the subject matter at the time of taking the policy.
Reasons :
 Insurable interest means the insured should suffer financial losses if any harm or damage happens to
the property and he benefits if the insured object is safe.
 Person taking the insurance must have insurable interest in the subject matter he is going to insure.
 All the contracts of insurance follow this principle. If there is no insurable interest then the contract of
insurance becomes invalid.
 Ownership of the property at the time of taking the policy as well at time of making the claim is
essential in order for the insurer to have insurable interest in the property.
 A person has insurable interest in his own life and property. A wife has insurable interest in the life of
her husband. A businessman has insurable interest in the goods and property of his business.
Thus, for an insurance contract to be valid the insured should have an insurable interest in the subject
matter at the time of taking the policy.
6. An individual must always try to minimize the loss by fire as far as possible.
Reasons :
 When two parties enter into a contract, certain principles have to be strictly followed. One such
principle is principle mitigation of loss.
 The principle of mitigation of loss states that the insured should take all possible steps to minimize the
loss to his insured property on the happening of uncertain events like fire outbreak, blast etc. as if the
property/goods is not insured.
 The insurer should be active and take all the necessary steps to prevent damage or loss in case of any
unforeseen events.
 For e.g. in case of fire, it is the responsibility of the insured to call the fire brigade and use fire
extinguishers to reduce the damage. He must not remain inactive and watch his house burn, because it
is insured.
7. Post offices provide money remittance services.

Reasons :
Post offices provide various money remittances services to individuals and business organizations. The
different types of money remittance services are :
 Money Order : It is an order of payment for a pre-specified amount of money. It is issued by the post
office to the person in whose name the money orders sent through the agency of the post office.
 Instant Money Order : It is an on-line service for transfer of money provided by the Indian Post
office. It is an instant, convenient, reliable and affordable web based transfer of money through Post
offices in India.
 International Money Transfer : It is system of electronically transferring money from foreign
countries to India. It is a very quick and easy way of international money transfer.
 Money Gram : It is a fast, simple and convenient method or receive money from abroad.
 Money Order Videsh : It facilitates remittance of money of foreign countries as well as receiving
remittances from foreign countries through the medium of post office.
 Electronic International Money Order Services : This service was lunched to provide an easy and
convenient way for remitting money between Indian and UAE.
 Foreign Exchange Services : India Post has a network of more than 1,55,000 post offices making it
possible to provide forex services in an efficient and economical manner.
8. Duty paid warehouses help to provide storage for perishable commodities.

Ans. : This statement is FLASE.(Cold storage warehouse help to provide storage for perishable commodities)
Reasons :

 Duty-paid warehouses are the warehouses where imported goods on which import duty is already paid
are stored.
 The owner may store the goods in duty paid warehouse if he faces any problems or delay in
transportation or if he wants to re-export the goods.
 However, to store perishable goods, cold storage facilities will be required which are provided by Cold
Storage Warehouses.
 Such warehouses refrigerate the goods and thus store hem at very low temperatures. This helps to
preserve the goods and makes it possible to use them in the future.
Thus, the above statement is false.
9. Air transport is suitable for short distances.

Ans. : This statement is FALSE.(Air transport is suitable for long distances)
Reasons :
 Air transport means transporting goods and passengers through airways.
 Different types of aircrafts are used for air transport like passenger aircraft, cargo aircraft, helicopters
etc.
 The main benefit of air transport is its speed and time saving transportation.
 Along with the said benefit, they are the costliest means of transport.
 In other words, they would prove to be very expensive if the distance is short. Rather for short
distances, the usage of rail or road transport can be preferred.
Hence, air transport is not suitable for short distances.
10. Water transport is the costliest means of transport.

Ans. : This statement is FALSE.[Water transport is the one of the cheaper means of transport]
 Water transport is the process of movement of people and goods through waterways.
 Means of water transport are boats, steamers, ships, launches etc.
 Rivers, canals and oceans are used for water transport.
 The cost of maintaining and constructing waterways is very low as most of them are naturally made.
 Moreover, the expenditure on steam and fuel in case of water transport is comparatively less.
Hence, water transport is the one of the cheaper means of transport.
11. Rail transport means transport of people and goods along railways or rail lines through trains.
Ans. : This statement is FALSE. [Rail transport cannot provide door-to-door services].
Reasons :
 Rail transport means transport of people and goods along railways or rail lines through trains.
 It is a convenient mode of transport for long distance travel. It is also suitable for carrying heavy goods
in large quantities over long distance.
 However, railways operate as per a fixed schedule and require specific railway tracks with proper
infrastructure in order to operate.
 Thus, they can only reach places having railway tracks and railway stations.
 Door-to-door services can be provided only by Road Transport. It is a flexible mode of transport as
loading and unloading is possible at all destinations.
This type of facility is not possible in Rail Transport and thus, rail transport cannot provide door-to-door
services.

XII Commerce : Organization of Commerce & Management: Emerging Modes of Business
3 Emerging Modes of Business
Introduction
There are many businesses today that have shifted to or expanded into e-business or e-commerce. Amazon, Flipkart,
Snapdeal, ebay, OLX are some of the sites that come to our mind when we hear of e-business or e-commerce.
In the modern business scenario, the word "e" majorly stands for electronic i.e. anything that relates with the use of
internet. The way of doing business has changed over the time. The revolution began in the late 1990's when some
companies offered to carry out transactions over the internet.
The terms 'e-business' and 'e-commerce' are different. E-commerce is a branch of e-business. Today, most businesses
connect with suppliers and manufacturers in other countries via internet.
In this chapter, you will learn about e-business as a whole and how transactions take place via internet.
"e-Business"
Origin of e-Business :
 The term e-business i.e. electronic business is derived from the terms "e-mail" and "e-commerce".
 The term "e-business" was coined by IBM's marketing and Internet teams in late 90's. The purpose was to provide
the buyers a platform on the internet to buy and sell goods.
 e-commerce was a revolutionary idea that crystallized into a successful concept and further led to the emergence of
e-business.
 The introduction of e-business created a new competition for the traditional businesses.
 The decade 2000 - 2010 has been a significant period for the emergence of e-business.
Concept of e-Business :
 e-business means using the internet to connect people and processes. It also includes providing service to
customers and collaborating with business partners across the globe.
 e-business connects, adapts and integrates IT-system, hence companies are able to manage their business more
efficiently.
 The major benefits of e-business are cost reduction and productivity improvement.
 e-business facilitates better communication between business houses and makes purchasing easier for large
organizations.
 e-business includes transactions between consumers, manufacturers, suppliers and the government.
 The scope of e-business is not just limited to online shopping; it also includes online stock, transactions and the use
of software.
"e-commerce"
 "Electronic-commerce" or "e-commerce" can be defined as the use of Internet to conduct business transactions.
 e-commerce helps the buyers and sellers to connect over the internet and trade with each other.
 Any form of business transaction conducted electronically is e-commerce. e-commerce is a kind of industry where
the buying and selling of products / services is conducted over electronic systems such as the Internet and other
computer networks.
 e-commerce is a sub branch or a part of e-business.
Difference between "e-commerce" and "e-business"

e-commerce e-business
e-commerce refers to ordering, buying & selling of e-business include manufacturing buying, selling and
products and services by using the internet. managing the entire business over the internet.
For e.g. : For e.g. :
Online Shopping : Buying and selling goods on the fibre2fashion.com is an example of e-business where

Internet through websites. ebay, Amazon etc. are the organizations dealing in fabrics and related products
most popular examples of e-commerce. connect with each other and carry out online
Internet Banking : Through e-commerce, it is now transactions.
possible to perform banking activities without visiting a moneycontrol.com is another website where you can
bank branch. connect with brokers, buy and sell stocks, and also
compare share prices of different companies.
Types of e-business Transactions

Q.1. Explain in brief the different types of e-business transactions.
Ans. : e-business means using the internet to connect people and processes for doing business. it also including
providing service to customers and collaborating with business partners across the globe. The various types
of e-business transactions are as follows :
i. Consumer to Consumer (C to C) :
 C to C transactions are transactions where consumers buy and sell goods and services from and to other
consumers.
 There are no middlemen involved in this mode of business.
 The most notable examples of the C to C platform are eBay, Quicker and OLX.
 Such websites provide the consumers, options to display information and images of their products
online.
 Consumers who want to buy goods can browse through the website and select the goods as per their
needs and budget.
 They can also make the payment through the internet. This process has been made secured through
advanced technology like Pay Net and Pay Pal.
 Consumers can also rate their products online and show their liking/disliking for a particular product.
 There are also consumer groups and forums that have been formed online for protecting the interests of
the consumers and redressal of consumer complaints.
ii. Business to Consumer (B to C) :

 B to C transactions are transactions between business firms and consumers.
 A lot of business firms have realized the importance of having an online presence and have listed their
products online.
 They also conduct various online marketing activities to promote their products and services.
 Customers are able to avail the products at discounted rates through this mode and the transactions are
also processed at a much faster pace.
 The most notable examples of the B to C platform are flipkart and amazon.
FYI :
 Online Banking is also a form of B to C mode of business where the banks provide service to their
customers such as transfer of money, online payment of bills etc.
 The process of withdrawal of funds from the bank has also been made simple with the introduction of
Automated Teller Machines (ATN). The growth of ATM's in India has been exceptional and money
people also refer ATM'a as 'All Time Money."
iii. Business to Business (B to B) :

 B to B transactions are transaction between business firms.
 Business firms depend on other business firms for a variety of services such as supplying spare parts,
raw materials; providing value added services like catering or providing like catering or providing
manpower etc.
FYI :
 Naukri.com allows other business firms who are in search of manpower to access the resumes
uploaded on its website.
 Fibre2fashion.com is a B to B platform where business firms connect with one another and buy and
sell items required by their company.
 Though Linkedin.com, the business firms advertise themselves and get customers. This platform
allows one to expand their business. It also helps companies hire the right candidates with the help of
 their Linkedin Talent Solutions Specialist.
Q.2. What are the advantages and disadvantages of e-business?

Ans. : e-business means using the internet to connect people and processes for doing business. It also includes
providing service to customers and collaborating with business partners across the globe. The internet and
the emergence of e-business has provided entrepreneurs with many new advantages. However, it has few
limitations too.
Advantages of e-Business :
The advantages of e-business are as follows [Mnemonic: B - AVENGERS2]
i. Flexible Business Hours :

 The internet is accessible 24  7. This means that buyers and sellers can conduct transactions at any time
as opposed to the regular trading hoarse of traditional business models.
ii. Availability of Wide Range of Products :

 Consumers have access to a broader range of products and services from which they can select the
products as per their choice.
 For e.g. : Flipkart.com,amazon.in etc. offer a wide range of services and products to select from.
iii. Very Low Start Up Cost :

 The initial investment for starting an e-business is generally lower than cost associated with starting the
same business using a traditional model.
iv. Quick and Easy Communication:

 Through e-business, it is easier and faster for the business organizations to communicatewith their
suppliers and their customers as there is no face-to face interaction.
v. No Physical Space:
 e-business does not require physical space for operation.
 It requires highly qualified technical professionals.
vi. Government Support :

 e-business gets a lot of support from the government.
vii. Establishes Strong Relationship:

 e-business enables strong relationship building between suppliers and consumers as there isdirect contact
between both the parties.
viii. Renders a Global Platform :

 e-business providesthe business organizations with the opportunity to transact with buyers across the
globe. It connects the consumers and the business organizations anywhere from the world through
internet.
ix. Easy Set Up :

 It is very easy to set up e-business as compared to traditional business.
x. Sound Communication :
 e-business provides a platform for sound and direct communication between suppliers and consumers.
Disadvantages of e-business :
The disadvantages of e-business are as follows: [Mnemonic: TIP - GRIP]
i. High Transaction Risk:
 There are many internet frauds that are committed through hacking etc.
 There is a possibility of misuse of the buyer's bank details and this makes buyers insecure to perform
onlinetransactions and payments.
ii No Face-to-Face Interaction :
 The absence of face-to-face interaction with the sellers makes the buyers insecure at times.
iii. Personal Touch of Seller :

 Since the transaction is online, the personal touch of the seller is missing and this may makethe buyer
insecure.
iv. Government Interference :

 Sometimes government monitoring can lead to interference in the business.
v. Ineffective Return Policies:

 Usually, all the online shopping sites come with a money back/product return policy. However, they do
not work as effectively and spontaneously, in case of dissatisfaction of the customer.
vil. Lack of Personal Inspection :

 Since the buyer cannot touch and fest the product before purchasing, many consumers avoid Online
transactions.
Steps involved in Online Transactions :

Q.3. Explain in brief the steps involved in Online Transactions.
Ans. : Online transactions occur when a process of buying and selling takes place through the internet. Transactions
between the buyer and seller that are carried out and completed with the help of internet are called online
business transactions.
Steps of Online Transaction :

There are three stages involved to ensure successful completion of online transaction. The task of an
onlinetransaction starts from the initial contact phase and often ends after the goods/services are delivered.
 Pre purchase/Sale :
This is a stage of prodproduct demonstration where the products/services are displayed over the internet
and information about the same is given for the perusal of the potential customer. Products are advertized
on the internet in this stage.
 Purchase/Sale:
At this stage, the buyer selects the products/services, finalizes with the seller the price of the product and
makes the payment.
 Delivery Stage:
This is the final stage where the goods bought are delivered to the consumer.
Steps involved in Online Transaction :

The steps Involved in online transaction are as follows :
i. Registration:
 Registration is required for making online transactions.
 A buyer who is trying to make an online purchase has to first
register himself with the website of the online vendor by filling up
a registration form
 The registration form has basic details like name, email ID,
password, etc.
 For security reasons, the buyer's 'Account' and his 'Shopping Cart'
are password protected.
ii. Placing an Order :

 The online buyer browses through the online store and selectsthe
goods displayed in the website.
 The shopping cart gives a record of all the items selected by the buyer to be purchased, the number of
units or quantity desired to be bought per item selected and the price for each item.
 The buyer then proceeds to the payment option after selecting ail the products.

iii. Payment :
 The buyer is then required to make the payment to authenticate the purchase.
 He can do so with the help of various payment mechanisms viz. Cash on Delivery, Cheque, Net Banking
Transfer, Credit or Debit cards, Digital Cash.
Cash on Delivery:
In this mode of payment, the buyer makes cash payment when the goods are Physically delivered to him
Cheque:
In this mode of payment, the buyer sends the cheque to the seller and after the realization of the cheque, the
goods are delivered to the buyer.
Credit or Debit Cards :

Here the payment is made through the buyer's credit/debit card.
The buyer has to share the details of his credit / debit card on the payment gateway tomake the payment.
After the payment is received by the seller, the seller dispatches the goods to the buyer.
Credit / Debit cards are also known as plastic money'.
Net Banking Transfer :

Here, the payment is transferred from the buyer's account to the seller's account to the seller's account
electronically i.e. through the internet.
After the payment is received by the seller, the seller dispatches the goods to the buyer.
Digital Cash:
Digital Cash is a form of electronic currency that exists only in cyberspace and has no realphysical
properties.
Here the money in buyer's bank account is converted into a code that is saved on amicrochip, a smart card or
on the hard drive of his computer.
When he makes a purchase, he needs to mention that particular code to the website andthereafter the
transaction is duly processed.
It is accepted by all leading e-commerce websites.

The digital cash numbers are unique and it is highly secure and anonymous.
For e.g.: The railway smart card is used to buy tickets. It provides a faster way of buyingrailway tickets
without standing in long queues.
Conclusion :
 In traditional businesses, buyers and sellers need to travel, negotiate, convince each other etc.
 Online transactions are easier, quicker and result oriented than traditional business.
 However, in online transactions, information is provided with the terms and conditions andthe buyer
reads these terms and conditions and then makes the payment.
 Online transactions save time for both, buyer and seller and therefore, they are easier, quicker and result
oriented as compared to traditional businesses.
Q.4. What is Net Banking Transfer?

Ans. :  Net Banking is derived from the term 'Internet banking'.
 It is also known as e-banking or online banking.
 It is an electronic facility of transferring funds through the internet.
 It allows customers to conduct financial transactions on a secure website. With bank-to-banktransfers, a
customer can easily transfer money between his accounts and other financialinstitutions.
 Funds are transferred through an exchange of electronic signals between financialinstitutions, rather than
an exchange of cash, cheque or other instruments.
 When a customer wants to make a purchase online, he is required to transfer the agreedamount to the
online vendor's account.
 After the payment is received by the seller, the seller dispatches the goods to the buyer.
Uses of Net Banking Transfer :

Net banking transfer can be used for the following purposes :
 To make online payments for purchases made on a website; where the money is transferred from buyer's
account to seller's account electronically.
 Conduct thetransfer of funds each month from current account to the mutual fund account.
 Instruct the bank to automatically pay certain monthly bills from the account, such as auto loan,
electricity bills, telephone bills, etc.
 Nowadays, in India, the tax refund is deposited directly into the customer's account through net banking.
Payment Mechanism
Q.5. Explain the concept of payment mechanism and the working of a Payment Gateway.
OR
Write a short note on: Payment Mechanism.
OR
What is a Payment Gateway?
OR
State the working of Payment Gateway.
Ans. : Payment Mechanism :
 Generally, in e-business transactions, payments are made online.
 There is no physical exchange of cash across a counter, as possible in retail outlets or stores.
 The procedures and steps involved while making an online payment is known as 'Payment Mechanism'.
 Payments are made with the help of an e-commerce application service provider called 'Payment
Gateway'.
 Payments can be made through debit cards, credit cards or by direct transfers from bankaccounts through
the net banking facility.
 These options for payment are offered by most payment gateways.
 A payment gateway authorizes payments made online by the buyer.
 A payment gateway is the virtual equivalent of a physical point of sale terminal located inoutlets.
Working of a Payment Gateway:

Any buyer who uses the payment gateway goes through the following steps:
i. Place an Order :
 After selecting the desired goods, the customer confirms the order by clicking on the 'Submit' button on
the merchant's website.
ii. Mode of Payment:

 The customer is then asked to select the mode of payment i.e. either debit/credit card or NetBanking.
 The customer is then required to enter his credit/debit or Net Banking details, as he proceedsfor payment.
 Once the details are entered, the customers web browser encrypts the information
.
iv. Information sent to the Payment Gateway :
 The merchant, or the e-business website, then forwards the transaction details to their payment gateway.
 At this point, again information is coded.
iv. Information sent to the Payment Processor :

 The payment gateway forwards the transaction information to the payment processor used by the credit
card issuing bank.
 On the payment processor, the customer is required to enter a PIN or password.
v. Information sent to the Card Association:

 The payment processor forwards the transaction information to the card associate.
(e.g.: Visa/Master Card/American Express).

vi. Information sent to the Card Issuing Bank :

 The card issuing bank authorizes the payment and sends the authorization back to the merchant's website
(via the same process).
 Once theauthorization is received, the sale is approved.
viii. Duration :
 The entire process does not take more than 2-3 minutes, depending upon the speed of theinternet
connection
ix. Internet ConnectivityIssues:

 If the internet connection fails at any step of the process, then the appropriate procedure isadopted.
 In other words, If the connection fails after payment but before the order is finalized, thenthe payment is
credited back to the card account within a stipulated time.
Q.6. Write a short note on; Payment Processor.

Ans. :  Payment Processors are the link between payment gateway and the Card Associations such as Visa
MasterCard/Amex.
 The provide e-payment processing services for merchants who accept online payments.
 Payment Processors provide the merchants with a simple, secure and cost effectivemechanism for online
payments.
 They provide multi method services with the help of different connectivity mechanisms.
 The task of the payment processor is to collect the card information from the paymentgateway and
forward it to the card association.
 Once the payment is authorized, they again collect the information from the card association and give it
back to the payment gateway.
 'Paynet' and'Paypal' are the well known payment processors.
Security and Safety of Business Transactions

Q.7. Why should business transactions be secured?
Ans. :  When a customer makes an online payment, he is required to provide his personal details likehis name,
phone number, debit/credit card number, password, etc.
 This information is confidential and is likely to be misused if leaked /hacked
 Many criminal organizations and hackers exploit the vulnerabilities of the internet forfinancial gain
 Hackers thrive on outsmarting computer security systems and steal data for illegal purposes.
 Most hackers target corporate and government computer systems.
 Due to all such reasons, it is obligatory for websites to have secured payment methods.
 One such secure e-commerce application is a payment gateway.
 A payment gateway ensures that a person's information is secure.
 This is done by a process called encryption.
 Encryption ensures complete security as it converts the readable information into coded text that can
only be read by the merchant company.
 One of the most well-known methods of encryption is the "Secure Sockets Layers" (SSL).
 The introduction of Secure Sockets Layers (SSL) and secure HyperText Transfer Protocol(secure-HTTP/
s-HTTP) have made the online transactions relatively safe and consumers candisclose information on the
websites without being worried about the security of the information.
 Both the above protocols have been certifed by the internet Engineering Task Force (IETF) asstandards.
Q.8. Write a short note on: Secure Socket Layer (SSL).

Ans. :  Secure Socket Layers (551) was developed by the company Netscape in the nineties fortransmitting
private documents over the Internet.
 SSL is a standard security technology for establishing an encrypted link, or a secure connection, between
a server and a client.
 SSL allows sensitive information such as credit card number, social security numbers and login
credentials to be transmitted securely.
 The encryption is done using mathematical programmes or protocols which use logical reasoning

 SSL is the most widely deployed security protocol used today. SSL is used in today's modern e-
commerce enabled /online workflow and service society in the following ways:
 To secure online credit card transactions.
 To secure system logins and any sensitive information exchanged online.
 To secure webmai and applications like Outlook Web Access, Exchange and office Communications
server.
 To secure the connection between an email client such as Microsoft Outlook and an email server such as
Microsoft Exchange.
 To secure the transfer of files over https and FTP(s) services such as website owners updating new pages
to their websites or transferring large files.
 To secure network logins.
Any website which uses SSL security has URL as https://www.xyz.com rather thanhttp://www.xyz.com
Further as a proof that the website is secured by SSL, the SSL logo is placed at the bottom left of the website.
FYI
 In addition to SSL, there is another protocol known as Secure HTTP, which is an extension of the
Hyper Transfer Text Protocol (HTTP).
 This provides security in transmitting individual messages. Each s-HTTP file is either encryptedor has
a digital certificate or both.
 A major difference between both systems is that s-HTTP allows the client to send a certificate to
authenticate the user whereas in case of using SSL, only the server can be authenticated.
 s-HTTP is more likely to be used when the server represents a bonk and requiresauthentication from
the user that is more secure thon o user ID or password.
 Both SSL and s-HTTP have been approved by the internet Engineering Task Force (IETF) as
standards.
Outsourcing: Concept, Need and Scope

\
Q.9. What is Outsourcing? Illustrate with one example.

OR
Write a short note on: Outsourcing.
Ans. :  Outsourcing is the process of contracting a business function or any specific business activity to
specialized agencies.
 Outsourcing benefits the company in two ways :
It reduces the cost of the company; and
It uses the expertise of the firm which is specialized in providing that particular kind of services.
 Most companies outsource their non-core areas.
 For e.g. many corporate organizations, hospitals etc, outsource their housekeeping, security and catering
services.
 The company enters into a formal agreement with the agency.
 The manpower required to perform the activity are the employees of the agency.
 The agency charges the company for their services and in turn pays wages to their employees.
 The need for outsourcing has arisen due to the increasing global competition.
 Moreover, the competition in the market compels the companies to focus on their main product; thereby
improving the quality of their goods.
 Due to this, the companies are outsourcing their non-core areas to those firms who arespecialized / have
expertise in those non-core areas.
 For e.g.: Many corporate organizations provide transport facilities (home pickup and homedrop) to their
employees. These services are not provided by the company directly. Thecompany enters into a contract
with a transport agency which provides vehicles and driversto the company for providing the pickup and
drop facilities to their employees. The companymakes payment to the transport agency and the transport
agency is then responsible formaking the payment to the drivers and for the maintenance of the vehicles.
In this case, neither the drivers are employed with the company, nor the vehicles are owned by the
company.

Q.10. What are the advantages and disadvantages of Outsourcing?

Ans. : Outsourcing is the process of contracting a business function or any specific business activity tospecialized
agencies. Most companies outsource their non-core areas.
Advantages of Outsourcing:
The advantages of outsourcing are as follows: [Mnemonic: COME RISE)
i. Overall Cost Advantage :
 Outsourcing eludes the need to hire individuals in-house; hence recruitment and operationalcosts can be
minimized to a great extent.
 Outsourcing helps an organization save on time, effort and training costs.
ii. Emphasis on Core Process Rather than the Supporting Ones:

Outsourcing the supportingprocesses gives the organization more time to strengthen its core business process
and process and focus on improving the quality of its product/services.
 Pvt. Ltd. has to furnish details about its expenses and incomeclaims. It does this by outsourcing the
work to anothercompany known as Ernst and Young. American TowerCorporation Pvt. Ltd. save on
its time and use this timeto concentrate on acquisitions and construction, which is its core business.
iii. Low Manpower Cost:

 Manpower through outsourcing is usually available at a lower cost.
iv. Access to Professional, Expert and High-quality Services:

 Most of the times, tasks are outsourced to vendors who specialize in their field.
 They have specific equipment and technical expertise to perform the task effectively, fasterand with
better quality output.
v. Investment Requirements are Reduced :

 The organization can save on investing in the latest technology, software and infrastructureand let the
outsourcing partner handle the entire infrastructure.
vi. Increased Efficiency and Productivity:

 The organization experiences increased efficiency and productivity in non-core business processes.
vii. Knowledge Sharing :

 Outsourcing enables the organizations to share knowledge and best practices with each other.
viii. Stimulates Entrepreneurship, Employment and Exports :

 Outsourcing stimulates Entrepreneurship, Employment and Exports in the country from where
outsourcing is done.
Disadvantages of Outsourcing :
The disadvantages of outsourcing are as follows :[Mnemonic: LCD - ID]
i. Lack of Customer Focus :
 An outsourced vendor may be catering to the needs of multiple organization at a time in such situations,
vendors may lack complete focus on a individual organization's tasks.
ii. Threat to Security and Confidentiality :

 When an organization outsources, it involves a risk of exposing confidential company information to a
third-party.
 There is always a threat of the misuse of the company's information by the contractor.
iii. Dissatisfactory Services :

 Some of the common problem areas with outsourcing include stretched delivery time and sub-standard
quality.
 Many organizations may find it difficult to manage the contractor as compared to managing process
within the organization.

iv. Ethical Issues :

 Some organizations ignore ethical issues related to outsourcing.
v. Other Disadvantages :
 Include misunderstanding of the contract, lack of communication, poor quality and delayed services
amongst others.

1. In e-business, payments have to be made …………………
(A) In Cash (B) On Credit (C) Online
2. The term e-business is derived from the terms …………………… and e-commerce.
(A) E-mail (B) E-pay (C) Cash
3. e-commerce is the …………… aspect of e-business.

(A) Manufacturing (B) Trading (C) Marketing
4. The transactions under ………………. are between business firms and consumers.
(A) C to C (B) B to C (C) B to B
5. ……………… process allows buyers and sellers to display information about their goods on the web.
(A) C to C (B) B to C (C) B to B
6. www.flipkart.com is involved in ………………. e-business transactions.

(A) C to C (B)B to C (C) B to B
7. For online transaction, …………… is required.

(A) Trading (B) Registration (C) Business
8. The online shopper can pick and drop the things in the ……………
(A) Shopping Mall (B) Shopping Cart (C) Shopping Bag
9. An electronic facility of transferring funds through the internet is ………. transfer

(A) Cash (B) Net Banking (C) Credit.
10. Credit or Debit cards are popularly known as ' ………….. money'.
(A) Paper (B) Plastic (C) Polymer
11. …………….. is a form of electronic currency that exists only in cyberspace.

(A) Digital Cash (B) Credit Cards (C) Net Banking
12. In bigger shops situated in shopping malls or branded stores, there is a ………… terminal.
(A) SSL (B) POS (C) HTTP
FYI :
 Point of Sale (POS) terminal is an electronic device used to process card payments at the
wholesale/retail locations.
13. Visa/MasterCard/Amex are examples of ………………..

(A) Card Issuing Bank (B) Payment Processor (C) Card Association
14. The e-business website/merchant website forwards the information to the ……………….
(A) Payment Processor (B) Payment Gateway (C) Card Association
15. …………. is the virtual equivalent of physical point of sale.

(A) Payment Gateway (B) Payment Processor (C) Card issuing Bank

16. Between a Website and Payment Processor there is a ……………

(A) Payment Gateway (B) Credit Card Association (C) Credit Card Issuing Bank
17. Coding of information in an online transaction begins at ……………

(A) Payment Processor (B) Payment Gateway (C) E-business Website
18. The encryption of data is done using ………… programmers/protocols which us logical reasoning.
(A) Scientific (B) Mathematical (C) Statistical
19. URL of a secured website begins with ……………….

(A) http:// (B) shttp:// (C) https://
*20. The process of contracting a business function to someone else is called as ………………
(A) E-business (B) Outsourcing (C) Trading
*21. Wedding Planner is an example of ………………

(A) Corporate organization (B) Outsourcing (C) Buying and Selling of Goods.
22. Generally companies outsource their ………….. areas.

(A) Core (B) Non-core (C) Semi-core
Match the Pairs

Group "A" Group "B"

i. e-business a. Recurring Deposit Account
ii. B to C b. Hyper Tax Transfer Protocol
iii. ATM c. Electronic Business
iv. Payment Gateway d. Electronic Business
v. HTTP e. Hyper Transfer Protocol
f. Business to Consumer
g. Business to Business
h. Authorizes payments made online
i. Outsourcing
j. Automated Teller Machine
Ans. : (i-d), (ii-f), (iii-j), (iv-h), (v-b).
One Word
III. Write the word or phrase or term which can substitute each one of the following :
1. The term derived from the terms email and e-commerce.
2. Name the term which is used by even common man effectively while collecting the needed information
quickly.
3. The sub-branch of e-business.
4. Name the electronic facility of transferring funds through the internet.
5. Name of form of electronic currency that exists only in cyberspace.
6. Name the service provider which is used for payments through web.
7. A well-known Payment Processor.
8. SSL stands for.
9. s-HTTP stands for.
10. Name the modern process of constracting a business function to someone else.
11. This process helps in knowledge sharing between organizations.

Ans.
1. e-business 2. Internet
3. e-commerce 4. Net Banking
5. Digital Cash 6. Payment Gateway
7. Payment 8. Secure Sockets Layers
9. Secure Hyper Tax Transfer Protocol 10. Outsourcing
11. Outsourcing
Distinguish Between
IV Distinguish between: Traditional Business and e-business
OR
Explain the difference between the traditional and online buying and selling process.
Ans. :
Sr. No. Traditional Business e-business
Concept
i. In traditional business, an organizational entity Any business conducted using electronic media
(mostly through of as a store, restaurant or is called e-business.
agency) is designed to offer consumer goods or
services.
Access to Goods/Services
ii. Consumers can visit only a few traditional Consumer have access to countless Web
outlets per day. retailers at the same time.
Access to Information
Iii In this form of business, consumers can get Consumers have access to an unprecedented
limited product information. amount of product information, not just from
manufacturer's websites but also from online
reviews written by previous consumers,
employees, and organizations.
Prince Comparison
iv. Prince comparison can be done for limited It is possible to check the price offered by
products in the traditional form of business. hundreds of online merchants.
Skills required
v. In traditional form of retailing, salesmanship Online retailers rely on different skill sets to
and negotiation skills are of utmost importance. effectively market their products such as
Internet pop-ups, email blast (e-mail to large
groups of people), googleadwords etc.
Face-to Face Interaction
vi. It is possible to have face-to-face interaction in There is a very low possibility of face-to-face
this form of business. interaction in this form of business.
Area Covered
vii. Role of middlemen is indispensable in There is direct communication between the
traditional business. buyer and the seller on the internet, which
eliminates the role of the middlemen in e-
business.
Space
viii. Physical space required in traditional business Online Business does not require too much
is more as compared to online business. physical space.
True of False
1. The term e-business is derived from the terms e-mail and e-commerce.
Reasons. :

 email is the system through which messages, images, videos, etc. can be exchanged through the
medium of internet. It is a means of communication between individuals or firms.
 e-commerce refers to the ordering, buying and selling of goods and/or services online.
 e-commerce is the trading part of e-business.
 The concept of e-business mainly emerged in order to provide the buyers a platform on theinternet to
buy and sell their goods.
 e-business refers to the "web-enabling" of the existing business processes to conducttransactions via
internet.
 It is to be noted that, a business can be termed as an e-business even if it doesn't perform trading
activities over the internet.
 The business can be termed as e-business even if it uses the internet for communicating viae-mails
within the staff or with the suppliers or the creditors/debtors.
Thus, the term 'e-business' is derived from the terms 'e-mails' and e-commerce'.
2. e-business allows you to work across the globe in any field.

Reasons :
 e-business means using the internet to connect people and processes.
 It involves web-enabling in the existing business so that the transactions can be conducted over the
internet.
 Since e-business uses internet, it is not restricted to any physical space and thus the entireworld
becomes the market and the goods can be sold to any person in any corner of the word.
 e-business helps in developing closer and more responsive relationships with partners, employees and
suppliers.
 Example of e-business is Online Ticketing (like booking of air tickets, movie tickets, traintickets, play
tickets, tickets to sporting events, etc. online).
 Online ticketing eliminates the need to queue up at ticket counters by connecting the buyersand sellers
globally for many fields.
Thus, e-business allows you to work across the globe in any field.
3. It is easy to set up e-business as compared to traditional business.

Reasons:
 Unlike a host of procedural requirements for setting up an industry, e-business is relativelyeasy to start.
 The initial investment for starting up an e-business is generally lower than the costsassociated with
starting an equivalent business using a traditional model.
 Online sellers are able to reduce their overheads as they don't need expensive shop fronts, too many
employees or large inventory on hand.\
 e-business does not require physical space. It requires qualified technical professionals.
Thus, it is easy to set up e-business as compared to traditional business.
4. In online transactions, 'Account, and "Shopping cart' are password protected.

Reasons:
 A buyer who wants to make an online purchase will be first required to register himself withthe
website or the online vendor by filling up a registration form.
 The registration form includes filling of basic information like name and e-mail ID of the user, etc.
Thereafter, the website automatically creates a user ID and password for the buyer.
 As the buyer proceeds, he is required to fill in more information viz, account details, address,
debit/credit card number, etc.
 Therefore, the 'account' and 'shopping cart is required to be password protected to ensurethat the
personal information is not misused by the hackers.
 When the account is protected by a password, only the buyer can login using his user ID andpassword
i.e. all his personal information remains safe and secured.
Thus, in online transactions, 'account and 'shopping cart' are password protected.

5. Credit cards are used for cash payments.

Ans. : This statement is FALSE. (Credit cards are used for making credit payments)
Reasons:
 Credit cards are also known as Plastic money. These are generally issued by banks to their customers.
 Credit cards can be used for making online payments as there is no physical exchange of cash over the
internet. Credit cards are also used at restaurants, retail outlets or stores.
 The payment made through credit card is usually authorized by the card issuing bank by way of a fully
secured payment mechanism.
 Unlike when using debit cards, where the amount gets debited from the account; here the payment is
made by the card issuing bank on the customers behalf. The bank generally gives a month's credit
period to the cardholder to pay the credit amount.
 The card holder can later make the payment to the bank either in full or in installments.
 The advantage of credit card is the person can use his card even if he does not have money in his
pocket or in his bank account. They are the replacement for currency notes.
Therefore, credit cards are used for making credit payments and not cash payments.

XII Commerce : Organization of Commerce & Management: Social Responsibility of Business
4 Social Responsibility of Business
Social Responsibility – Need, Meaning, Definition and Concept :

Why is Social Responsibility needed?
 A business operates within the society. It uses various resources like land, water, capital etc. from the society
required for conducting business. Thus, we can say that, business is a part of the society in which it operates.
 Apart from these resources, business also needs employees and consumers, who conduct various operations.
They also form a part of the society.
 A business unit should conduct all activities in such a manner that it does not harm any section of the society.
In other words, it must protect and promote the interest of the society.
Meaning of Social Responsibility:

Social Responsibility refers to all the duties and obligations which a business organization needs to undertake for the
welfare of the society.
Definition of Social Responsibility:

As per Koontz and O’Donnell “The personal obligations of the people as they act in the own interest to assure that
the rights and legitimate interests of others are not ignored”.
As per the International Seminar on the Social Responsibilities of Business held in New Delhi in 1965 – “Social
responsibility towards the customers, workers, shareholders and the community.”
Concept of Social Responsibility:
 Traditionally the concept of social responsibility included undertaking philanthropic activities (activities which
include caring for, nourishing, developing and enhancing others) and helping the disadvantaged sections of the
society.
 As per the modern concept, social responsibility covers a wider area.
 It involves the consideration of:
Ethical behaviour (includes avoiding questionable practices);
Legal compliance (include obeying all laws viz. Consumer Laws / Environmental Laws);
Economic activities (includes minimizing costs and maximizing revenues) and
Philanthropic activities (includes supporting the community to educate the people and work towards the
betterment of the society).
Corporate Social Responsibility :

Q.1. Write a short note on: Corporate Social Responsibility.

Ans.: Corporate Social Responsibility (CSR) is an initiative undertaken by the corporate sector to take responsibility
for the impact its organization's activities will have on the environment and society.
 As per Lord Holmes and Richard Watts, CSR is “The continuing commitment by business to behave
ethically and contribute to economic development while improving the quality of life of workforce and
their families as well as the local community and society at large.”
 Company’s goals are of 2 types viz. tangible and intangible.
Tangible goals are to earn more profits and expand business activities.
Intangible goals are to work for the welfare of the society without expecting any monetary incentive.
 All companies have two points agenda:
To improve quality (to improve the management of people and process).
To improve quantitatively (to have a positive impact on the various sections of the society).
 International Standard Organization (ISO) has also developed guidelines for adopting and spreading social
responsibility. It is termed as ‘ISO 26000’ and it was published in 2010. These guidelines encourage
voluntary commitments for responsibilities and also methods to evaluate the same.
 CSR is beneficial to the business in the following ways:
Improved relations with investors and community;
Better access to capital;
Strong Financial Performance;
Improves profitability through operational efficiency;
Improves the goodwill and reputation of the company;
Enhance employee-employer relation and
Improves innovation and productivity.
Cases (Need) for Social Responsibility :

Q. 2. Explain different cases for Social Responsibilities.
Ans.:A business operates within the society i.e. it uses various factors and resources from the society that are required
for conducting business. It is thus, required to maintain a balance between profit-making and its duty towards
the society. In other words, the business unit should perform its due towards the welfare of society.
The below points explains the need for social responsibility: [Mnemonic: 3G - PURPLE – CUT]
i. Growth of Consumer Movement:
 Consumer movement is a movement organized by the consumers against business malpractices.
 This movement protects consumers from unfair trade practices.
 It is the responsibility of the organization to provide best quality products at a reasonable price.
 This movement has made different organizations perform their social responsibilities well.
ii. Government Control:

 The government allows the business firms to operate in the society and conduct the operations.
 However, the firm should ensure that they don’t resort to any harmful practice; which would affect the
society.
 Thus, the government has enacted several laws such as The Consumer Protection Act, Good Adulteration
Act etc. to ensure that business fulfill their moral and social responsibilities.
 Government, through these laws, attempts to create a favourable atmosphere which promotes economic
and industrial growth.
iii. Globalization:
 Through New Economic policy, 1991, lots of companies entered the Indian market and similarly, many
Indian companies were granted permission of going abroad and sell the products/service.
 International trade barriers among different countries have also reduced; which has resulted in the creation
of global markets for goods and services.
 Various countries like Japan, England and Germany have adopted good social practices and are influencing
and motivating other countries to do the same.
iv. Environment Protection:

 Business depend on the society of a variety of natural resources and infrastructural facilities like roads,
power, water supply, etc. So, it becomes their responsibility to use them appropriately.
 They should not cause pollution or create an ecological imbalance.

 They should adopt eco-friendly practices.
v. Optimum Utilization of Resources:

 Large business organizations have huge resources, in terms of finance, manpower, expertise, talent etc.
 They are, however, expected to utilize these resources appropriately and avoid wastage.
 The surplus resources can be used for the welfare of the society.
vi. Role of Media:

 Media of a country has a strong influence on its people.
 In modern times, the reach of media has increased through internet and other technologies.
 It has become powerful in creating awareness regarding malpractices.
Hence, it has become mandatory for the organizations to fulfill its social responsibilities.
vii. Projecting Favourable Public Image:

 Any business which fulfilled its social responsibilities well, will produce for itself a good reputation in the
market.
 This helps in earning a sound public image.
 In other words, an organization who cares for its employees, customers and society will earn respect and
gain support from public.
viii. Long Term Self Interest:

 If any business organization does not fulfill their social responsibilities, it may be difficult for them to
survive in the long run.
 It not taken care of, then:
employees may lack motivation;
investors and shareholders will not be interested in investing further in the business and customers may not
keen to buy the products of such companies.
ix. Changing Expectations of Society:

 The world is changing rapidly.
 People are aware of their rights and their overall knowledge has also increased.
 As a result, a change is seen in their expectations and social demands.
 Corporate sector should positively respond to these demands and expectations; as they exist and grow with
the support of the society. They should not undertake activities that are harmful for the society.
x. Complexities of Social Problems:

 The world is facingcomplex problems whichare increasing every day.
 The government isburdened with socialproblems like child labour,inadequate facilities tothe poor, flood
andearthquakeaffected people, etc and haslimited resources to dealwith them all.
 So, the government seekshelp from organizations tosolve the problems.
xi. Trade Unions Pressure:

 There have been changes in the mindset of the employees over the past few years.
 They are now becoming aware of their rights and privileges.
 Poor management of rights and privileges may result in conflicts between the employees and
the management.
 Hence, to avoid such conflicts, the management should understand and fulfill theirresponsibilities towards
the employees.
xii. Concept of Trusteeship:

 A business organization operates within the society and thus, forms a part of the society.
 Activities which are not good for public are not good for the business too.
 Business is a social Venture and businessmen are like the trustees of the society. This is the
concept of Trusteeship.
 The principle of Trusteeship says, “A business must be held in trust, legally and morally for
the benefit of the people”.

Responsibility towards different Interest Groups :

Q.3. Explain the responsibilities of a business unit towards Owners.
Ans.:The owners are the shareholders of the business organization. The central idea of conductingbusiness is to earn
profits which further results in the prosperity and growth of its owners. Onlya profit making business will be in
a position to perform social responsibilities.
Following are the responsibilities of a business organization towards its owners.
[Mnemonic: PC2 – FREE ME2]
i.Periodic Information and Creating Confidence:
 It is the responsibility of a business organization to provide complete, correct and accurateinformation
about its financial performance to its owners.
 Companies can disclose such information through publishing reports, circulars, statement of account etc.
ii. Creating Goodwill:

 It is the responsibility of the management to develop and maintain a good public image of the organization.
 Sound reputation of the company helps in creating respect and trust in the
 It creates a good impression of the firm in the market, labour market and also amongst consumers.
iii. Careful Use of Capital:

 The management of a business organization is responsible for making careful use of its capitalresources.
 Proper consideration should be given to the risk factors involved in the various policies of thecompany.
 Moreover, the management of the company should ensure safety of the capital.
iv. Fair Practices on Stock Exchange:

 Business organization should not indulge in any unfair trade practices related to the stockexchange.
 It should not misuse any confidential information or provide any wrong information in orderto artificially
increase the prices of the shares.
 In simple words, the interests of the owners should always be protected.
v. Reasonable Profit:
 The main objective of any business organization is to earn profits and achieve growth.
 It should focus on this basic aim and bring financial stability to the business.
vi. Exploiting Business Opportunities:

 Business organizations must be prepared to undertake every possible opportunity as suchbusiness firms
have advantage over other business firms.
 They should be alert in spotting such opportunities as it is vital for the success of everybusiness.
vii.Expansion and Diversification:

 Apart from making profits, growth and development of the business is also essential forsurvival.
 The organization should always be ready to undertake research and development in order togrow the
business.
 This will enable the business to earn higher returns for its owners.
viii. Minimizing Wastage:

 Business organizations can maximize profits by reducing wastage.
 Management should thus pay attention to all the areas of the business to ensure that there isoptimum use of
resources.
 Financial losses should also be avoided.
ix. Effective Use of Shareholders’ Funds:

 Business organizations are expected to use the shareholders’ funds in the best possiblemanner.
 All the assets of the business should be utilized effectively
 In other words, improper and unproductive use of the owne’s funds should be strictlyavoided.
 Business organizations are expected to utilize their resources in an optimum manner
 of the business.

x. Efficient Business:
 Business organizations are expected to utilize their resources in an optimum manner.
 Effective use of resources will result in increasing the efficiency, productivity and profitability of the
business.
Q.4. What are the social responsibilities of Business organization towards the Investors?
Ans.:Investor can be anyone who provides finance to the company. The investor may be a bank, theventure may be
a bank, the venture capitalists, financial institutions, etc. They form the creditors of the company as the
company is liable to repay them.
Following are the responsibilities of a business organization towards its Investors:[Mnemonic: IIT'S HP]
i. Return on Investment:
 Investors invest with the sole intention of earning returns. Also, they duly accept the risk factors attached
to the investment.
 The business should recognize this and ensure that the investors get fair returns on their investment on a
regular basis in the form of interest.
 Following points should be noted with respect to the responsibilities towards investors:
Fair return on investment;
Safety of investment and
Steady appreciation of business.
ii. Proper Disclosure of Information:

 Investors possess the right to get factual information and should also be providedregular reports, circulars
and statements of profits.
 Moreover, such accurate disclosure enables the prospective investors to take rightinvestment decisions.
iii. To Maintain Transparency:

 Investors provide working capital to run the business uninterruptedly.
 Therefore, it becomes the responsibility of the business unit to maintain completetransparency in its
operations.
iv. To Maintain Solvency and Prestige:

 Business organizations should maintain sound financial position and solvency to ensure thatinvestors get
satisfactory returns on their investment.
 For this purpose, they should undertake continuous research and innovation programmes toenable the
growth and expansion of the company.
 This will in turn, provide optimum returns to the investors.
v. Handling Grievances:
 Investors are important as they invest in the business of the company.
 Their grievances should be handled promptly i.e. all the queries of the investors should besatisfactorily
answered.
 This can be done by introducing a proper procedure to handle such queries.
vi. Proper Conduct of Meetings:

 As investors provide capital, it becomes the organization's responsibility to provide them theinformation
about the business.
 For this purpose, organization should conduct regular meetings by sending appropriatenotice to the
investors.
 If the company is facing any crisis, the investors should be told about it and they should alsobe made aware
about the factors causing any failure or losses to business.
Q.5. Explain the responsibilities of business towards employees.

Ans.: Employees form the lifeline of the business organizations. Without them, production beimpossible. In other
words, employees are the one who ensure the proper functioning andutilization of all the other factors of
production.
They form the asset of a business organization and hence, it becomes the responsibility of the organization to
retain them.
Following are the responsibilities of a business organization towards its Employees.

i. Promotion and Career Opportunities:
 Providing adequate career opportunities to the talented employees helpsin increasing theirmorale.
 By knowing the qualifications, skills and experience required for promotion; the employees get motivated
and put in more efforts.
The comnany should also provide training to help the employees develop their personality.
ii. Job Security:

 It is very important to ensure that the employees feel that their job is secured.
 The companies which employ people on temporary basis for a long duration affect the employee's morale
and dignity.
 Job security, on the other hand, provides mental peace to employees and increases their efficiency,
motivation and loyalty towards the organization.
 Therefore, a company should ensure that they frame rules regarding confirmation of the employees’
services and should strictly adhere to those rules.
iii. Protect Health and Provide Safety Measures:

 It is the organization'sresponsibility to ensure soundhealth of the employees byproviding hygienic
workingconditions.
 Certain safety measures theorganization may implementare:
Providing canteen facilities,
medical facilities and propersanitation;
Maintenance of machines and promises to avoid accidents;
Control pollution,
Safety equipments like gloves, industrial helmets, goggles, masks etc. to ensure their safety.
iv. Fair Remuneration and Allowance:

 Adequate and fair remuneration is the basic right of every employee.
 Incentives like bonus, overtime allowance, medical allowance etc. should also be provided to the
employees.
 However, the amount should be given based on the nature of work.
 For this purpose, the company must chalk out proper wage plan which includes increments and regular
revision of wages.
v. Proper Grievances Procedure:

 The business organization should address all the grievances of the employees, for which a proper
procedure should be chalked out.
 It should properly investigate all complaints and take corrective actions to resolve the grievances as soon
as possible.
vi. Education and Training:

 In order to keep the employees informed and updated about their fields of work, propereducation and
training should be provided.
 For thispurpose, the organization may conduct ‘Induction Training’, ‘Refresher Training’, etc.
 This helps in building confidence of the employees and also increases their efficiency.
vii. Good Working Conditions:

 A business organization should provide safe and good working conditions to its employees.
 This includes provision of adequate lighting, ventilation, drinking water etc.
 Moreover, working hours should be fixed properly with adequate time for lunch breaks etc.
 All this, in turn helps in increasing the efficiency of the employees.
viii. Recognition of Trade Unions:

 in order to maintain industrial peace, the organization should positively allow the formation of trade unions
and not attempt to suppress them.

 With the help of such unions, problems between the employees and management can besorted by peaceful
talks and negotiations.
ix. Workers’ Participation in Management:

 Allowing workers to participate in management helps improve the relationship between employees and
management. This creates a sense of belonging amongst the employees andboosts their morale.
 Various schemes like common suggestion system to save costs, quality circles, profit sharing, co-
partnershipetc, encourage workers to participate in the management of the business.
Q.6. Which responsibilities are expected to be fulfilled by business unit towards Consumers?
Ans.: Consumers are the most important aspect of any business. Although consumers are considered as the king of
the market, there have been various situations where they are exploited. This happens as consumers
lackinformation. But the businessmen should borne one thing in mindthat their existence is only due
toconsumers. Hence, business organizations should work towards the welfare of the consumers
Following are the responsibilities of a business organization towards its consumers:
[Mnemonic: P2EPSI – ADS]
i. Good Quality Products:
 It is the responsibility of an organization to provide quality goods and services to its consumers.
 For this purpose, it has to ensure the usage of best quality raw materials and techniques of production.
 Getting the products certified by the International Standard Organization (ISO) is also a latesttrend. This
certification gives confidence and assurance to the consumers about the qualitythe products.
ii. Charging Fair Prices:

 It is the moral and social responsibility of any business organization to charge the consumersfairly. In other
words, they should not be cheated by overpricing the products.
 It is required that Maximum Retail Price (MRP) inclusive of all taxes should be printed on every product
and the retailers should not sell products at a price higher than the MRP.
iii. Avoid Consumer Exploitation:

 Business organizations should not resort to any unfair trade practices which aim at exploitation of
consumers.
 Also, they should not take undue advantage of situations or create artificial scarcity ofproducts.
iv. Services Regarding Products:

 Business organizations are responsible for providing services to consumers on the productssold.
 They are expected to provide the following services:
Regular supply of goods at the right time and at the right place;
Sufficient quantity of products as per the demands;
 Variety of goods to the consumers;
The goods must meet the needs of consumers of different classes, taste, purchasing poweretc;
Quick and efficient after-sales-service should be provided especially in case of consumer durable products
like televisions, computers, etc. and
Free repair, maintenance and guidance about how to use the product.
v. Consumer Safety:
 Business organization should always give priority to the health and safety of its consumers. For which, it
should not market the product/servicethat is not safe.
 Moreover, proper warnings should be issued regarding anyunsafe products.
 The organization should alert the consumers, in case any imitated or unsafe product is beingmarketed.
FYI:
 Cigarette and alcohol companies are not allowed to market their products as these products are unsafe for
consumption. On every cigarette packet, it is mandatory to mention that “Smoking Kills” or “Smoking Leads
to Cancer” along with a pictorial representation of tar-filled lungs.
vi. Correct Information:

 Business organization is expected to provide correct information to the consumers regarding the content,

sage, ways of maintaining the product, side effects of the products, date of manufacturing, date of expiry,
M.R.P. etc.
 Such information can be conveyed through advertising, packaging and labeling, printedleaflets etc.
 lt becomes more important in case of certain new products or products which requiretechnical knowledge
for their proper usage.
 This will ensure that the consumers do not use the product in an improper mner which maycause injury or
damage.
vii. Advertising Ethics:

 Business organization should not spread any misleading or false information about itsproduct/s through
advertisements.
 Advertisements should convey the real facts and information about the product.
 Any kind of vulgar advertisements should be avoided as consumers appreciate honestadvertising.
viii.Research and Development:

 Business organization shouldundertake research activities tocreate new production anddistribution
techniques.
 It should continuously thrive to improve the quality of products and reduce the cost of production. This
enables the organization to sell products atlower prices to the consumers.
ix. Customer Service Cell:

 Business organization should provide quick and effective service for any customer grievancesand must
address all customer complaints without any delays.
 The organization must also welcome suggestions from consumers for any modifications inthe product/s.
For e.g.: On the packaging of most of the products, a customer care number and an e-mail id is given,
wherein a consumer can call and enquire about a product or can lodge a complaint. Most companies have
well organized customer care service centres like Vodafone, Idea, Airtel etc.
Q.7. State the responsibilities of business towards Government.

Ans.: For setting up a business unit, government's permission is a must. This is considered crucial as the government
is responsible for the successful running of the country. Government formulates various policies so as to
provide a favourable environment for the organizations to develop. It also provides various incentives to
encourage industrialization. Thus, it becomes theresponsibility of the business organizations to support the
government.
Following are the responsibilities of a business organization towards government:
[Mneumonic: E – TRIP]
i. Earning Foreign Exchange:
 Business organization that operates on a large scale is capable of entering into export tradeand thereby
helping the country earn foreign exchange.
 Suchearnings enable the government to import capital goods and technical know-how.
ii. Timely payment of Taxes:

 It is the duty of the organization to pay taxes imposed by the government on a timely basis.
 The government, in turn uses these funds for the development of infrastructure andprovision of other
welfare facilities.
 Moreover, the organization is expected to disclose all the necessary information accuratelyand should not
manipulate with the amount of tax and pay less tax.
iii. Respecting Rules and Regulations:

 The government has made various rules and regulations for setting up of business, itsoperations, etc. A
business organization is expected to follow them at all time.
 Suggestions can be made to the government for making necessary changes in the regulationsif it is in the
interest of the society.
iv. Implementation of Socio-economic Program:

 Government declares various policies from time to time with the intention of achievingeconomic, social
and industrial development of the society.
 Business organizations are expected to help the government with the implementation ofsuch policies.
 The support may be in the form of expert advice, providing funds, etc.
v. Political Stability:
 In order to maintain political stability, business organizations should not support any groupsor individuals
intending to create political disturbances.
 Political stability is essential for economic growth and national security of a country.
 A stable government brings more returns and peace in a democratic society.
Q.8. Explain the responsibilities of a business unit towards community, public at large.
Ans.: Business organizations use the resources available in the society. They have certain obligationsand duties
towards the society as they are a part of the society.
The responsibilities of a business unit towards community, public at large is as follows:
[Mnemonic: P3ARIS2]
i. Providing Employment Opportunities:
 Business organization should generate employment for the young and educated people ofthe society
through diversification and expansion programmes.
ii. To Prevent Pollution:

 Business operations result in air, water and noise pollution.
 Exhaust gases pollute air, harmful chemicals contaminate water and sound of machineslead to noise
pollution.
 Business organizations should try to control all these type of pollution.
iii. Providing Help at the Time of Natural Calamities:

 The business organizationsare expected to come forwardand provide assistance in caseof natural calamities
likefloods, earthquakes etc.
 They can provide assistance by providing medical help, food, water or providing shelter to people affected
by such calamities.
iv. Protest Anti-Social Activities:

 The business organizations should not promote or get involved in any anti-social activities likesmuggling,
offering bribes, any association with underworld etc.
v. Better and Maximum Use of Resources:

 Business organizations use the natural resources present in the society.
 As the resources (like raw materials, fuels, iron ore etc.) are scarce, it becomes theresponsibility of the
organizations to use them responsibly.
vi. Location of Industries:

 Business organizations should set up their manufacturing units in industrial zones or lessdeveloped areas.
 This will reduce the effect of pollution in residential areas.
 Moreover, it will result in reduction of congestion in cities.
 Job opportunities can also be created in less developed areas thereby developing suchregions.
vii. Raising Standard of Living of the Society:

 A business organizationcontributes towards improvingthe standard of living of the society. This is because,
onceany business is set up, it leadsto overall development of thenearby areas
 It leads to construction andmaintenance of roads, creating public gardens, public library, charitable
hospitals etc.
 A business organization can help by creating awareness about certain inappropriate traditions of the society
through advertising.
 It can also work to change the outlook of the society by unique advertising.
viii. Help the Weaker Sections of Society:

 The business organizations are expected to contribute and provide assistance to the weaker sections of the
society and must work towards theirupliftment.
 They can assist by providing free medical facilities, financial assistance, reserving jobs for weaker sections
or give donations to institutions thatprovide such facilities.
Business Ethics :
Meaning of Ethics:
 The word ethics is derived from the Greek word ‘ethos’ which means character.
 It is a branch of social science which deals with the concepts of right and wrong, good and bad, fair and unfair,
just and unjust, legal and illegal, proper and improper in respect tohuman behavior.
 In other words, ethics are rules or standards that govern the conduct of a person or memberof a profession.
Meaning of Business Ethics:

 Business ethics deal with morality in business environment.
 It is also known as Corporate Ethics.
 It is the behaviour that a business is expected to adhere to in its daily business dealings.
 It is a critical, structured examination of how people and institutions should behave in theworld of commerce.
 A business is a part of the society. Hence, it has to follow certain rules created by the societyregarding the types
of activities a business should do. The extent to which a business followsthese rules decides the level of business
ethics.
Definitions of Business Ethics:

 According to Wheeler, “Business ethics is an art or science of maintaining harmoniousrelationship with society,
its various groups and institutions as well as recognizing the moralresponsibility for right or wrong conduct of
business”.
 As per Dr. C. B. Manaria, “Business integrity so far as his conduct or behavior is concerned in all fields of
business as well as towards the society and other business.”
Concept of Business Ethics:

The basic concepts of Business Ethics include- Honesty, Integrity and Fairness.
 Honesty refers to the truthful advertising and reasonable cost for quality goods and services.
 Integrity includes basic ethics of dependability and transparency. It covers issues such as social and
environmental responsibility.
 Fairness includes treating everyone in commercial interactions equally and fairly. Business activities should be
profitable. However, profits should not be made by deceiving othermembers.
 Business organizations have recognized the importance of these concepts. By following these concepts, the
business organizations can create goodwill and earn economical gains in the long run.
Q.9. What is Business Ethics? What are the elements of Business Ethics?
OR
Write a short note on: Element and business ethics.
Ans.:Business ethics, also known as Corporate Ethics is the behaviour that business is expected to adhere to in its
daily business dealings. It is a critical, structured examination of how people and institutions should behave in
the world of commerce.
Business ethics constitutes the following elements:
i. Trustworthiness:
 Every business organization should work to maintain trustworthiness.
 It is important to maintain client's confidence in the company's abilities.
 The client should have belief in the company's reliability and quality. (Performance of socialresponsibility
is essential for all businesses that are a pant af the society).
 A business runs on character, fairness, truth, honour and ability.
ii. Honest Service Delivery:

 In order to create goodwill in the society, the business organization should be honest aboutits abilities.
 It should not make any promises thatit cannot fulfill and should be clear with the clientsabout what it can
do.
 The organization should leave each and every client happy and satisfied / well served uponcompletion of
each project.

iii. Confidentiality:
 A business organization is expected to follow high levels of confidentiality and shouldn’t disclose any
information about the customers or any confidential records to outsiders.
 Similarly, it should not use any wrongful means to get any information from its competitorsregarding any
formula or methods of production.
iv. Openness:
 In order to follow good business ethics, business unit should have an open mind.
 For this purpose, the company may encourage feedback & opinions from clients and otherteam members
regularly.
 Even in case of some disagreement, it should treat the opinions and ideas of others withprofessional respect
and courtesy.
v. Other Common Business Ethics:

 A large part of the society is constituted of common man whose purchasing ability is low. Hence, a
business organization should take into consideration their likes, dislikes andeconomical positions and
provide goods/services accordingly.
 The manufacturer should offer proper warranty and guarantee, which the consumers shouldbelieve in.
 Business organizations should follow ethics in advertising as well. They should not cross the limit of
decency and their advertisements should not contain undue criticism of thecompetitors.
Q.10. Write a short note on: Features of Business Ethics.

Ans.: Business ethics, also known as Corporate Ethics is the behaviour that business is expected to adhere to in its
daily business dealings. It is a critical, structured examination of how people and institutions should behave in
the world of commerce.
The features of business ethics are as follows:

i. Code of Conduct:
 Business ethics is a code of conduct which a businessman should follow while conducting business
activities.
 It is a code of conduct which is evolved in order to regulate the activities of the business forthe benefit of
the society and other business units.
ii. Relative Term:

 Business ethics is a relative term.
 It may differ from country to country.
iii. Protection of various Sections of Society:

 Business ethics aims at protecting the interest of all the sections of society.
 It helps in creating a healthy and competitive business atmosphere.
 This moreover helps in contributing towards the welfare of the society.
iv. Applicable to all types of Businesses:

 Business ethics should be followed by all the business units irrespective of their size or type.
 It is applicable to small, medium& large scale organizations, sole trading firm, partnership firm, co-
operative society, public limited companies, etc.
v. Promote various Principles:

 Business ethics promote the principle of honesty, sincerity, fairness and justice in businessdealings.
 ltlies importance on the provision of fair treatment to customers, workers, suppliers,
shareholders,competitors, government and community at large.
vi. Define Boundaries:

 Business ethics define the social, cultural, economic, legal limits for doing business.
 The businessmen are required to work within these limits.

vii. Decision Making:

 Business ethics specify the conditions within which the organization has to operate.
 Such conditions help the business organization to take proper decision, which further help in framing
business policies.
Q.11. What are the code of Business Ethics.

Ans.: Code of Business ethics:
Do’s:
 Pay taxes and other charges regularly.
 Pay fair wages, allowances and other monetary incentives to workers.
 Ensure safety and security of product.
 Supply quality goods as per expectations of consumers at reasonable prices.
 Give due respect and honour basic rights of consumers.
 Use part of profit for the society.
Dont’s:
 Do not destroy healthy competition.
 Do not cheat or exploit customers.
 Do not create monopoly.
 Do not resort to hoardings or black marketing.
 Do not create secret or unreasonable profit.
Avoid:
 Avoid unfair competition.
 Avoid concentration of economic power.
 Avoid agreement with fellow businessmen for controlling production, distribution, pricingetc.
Accept:
 Principle of “Service first and Profit next”.
 Truth in business is that “A customer is the king”.
 Make your business just, fair, human, efficient and dynamic.
Business and Environmental Protection :

Q.12. How do business organization create pollution.
OR
Write a short note on: Effect of business environment.
Ans.: Business units cause environmental pollution with their activities. Extraction of resources,excessive use of
natural resources, release of toxic wastes etc., all harm the environment. Following are the ways in which
business affects the environment adversely:
Following are the ways in which business affects the environment adversely:
i. Air Pollution:
 Development of industries results in air pollution.
 It is caused by:
different harmful gases that are released by chemical industries.
excessive smoke released in the environment due to burning of coal and using vehicles;
excessive use of pesticides;
coal mines and cement industries; etc.
 Thus, emergence of large number of industries has resulted in increase of smoke emissionsand toxic fumes
into the atmosphere.
ii. Sound Pollution:

 Increased industrialization, transportation etc., cause sound pollution.
 Industries cause large scale noise pollution during manufacturing processes like welding, drilling,
machinery etc., which significantly affects not only the people working but also thepeople staying in the
surrounding areas.

iii. Water Pollution:

 Industries also release harmful chemicals into the water bodies creating pollution.
 Harmful chemicals, fertilizers, pesticides, refineries, garment industries and distilleriescreatepollution in
the water.
 Water pollution can occur if the business unit discharges substances into surface waters orgroundwater
without prior treatment or by accident.
iv. Electronic Garbage:

 Electronic garbage or e-wasteincludes discarded electrical orelectronic devices.
 It is created from mobiles,laptops, T.V. Sets and otherelectronic equipments.
 They contain harmful components like lead, cadmium,chromium etc.
Q.13. What steps should be followed by business to the protect environment?

Ans.:Activities of business have an impact on the society.
 Thus, it becomes the responsibility of the business units to protect the environment.
 Guidelines should be framed in a way that they satisfy not only the industrialist but also
theenvironmentalist.
 Due care should be taken that while framing guidelines, the progress of the business unitsshould not suffer.
 The following steps could help business organization and environment co-exist together withharmony as
both are relevant to our daily life.
 Business organizations should:
Invest in long term, renewable energy projects and water conservation.
Contribute their resources like time and money to provide environmental friendly productsand services.
Follow highest possible standards for sustainable packaging.
Adopt energy efficient technology and bring fundamental changes in operation of business.
Enhance the use of renewable energy and reduce carbon emission.
Q.14. What types of guidelines should be followed by business to protect environment?

Ans.: Business organizations with their activities can cause an increase in pollution and degradation of environment.
For the purpose of environmental protection, it is necessary to frame broad guidelines for businesses to follow.
Environmental management techniques and certain measures can be adopted for the same. The guidelines for
any business to follow while protecting the environment are as follows:[Mnemonic: US - REAM]
i. Use of Interactive Tools:
 Business organizations can use interactive tools, to minimize the harmful effects on the environment.
 They can replace toxic substances with less harmful ones to reduce the negative impact on the
environment.
 They can design the products in such a way that they can be multifunctional or can be reused.
 Business units should measure the carbon footprint of the product and set it in a standard and consistent
way. Ifpossible, can heavy processes should be minimized.
ii. Planning Stage:

 Every business organization should make a consideration about environmental aspects at the planning
stage itself.
 While making a plan, the policy to conserve the environment should be well co-ordinated and balanced.
iii. Development Design Stage:

 In order to avoid wastage of resources, every business organization should concentrate oractivities that
minimize the use of material and water resources.
 Also, consideration should be given to activities that reduce chemical emission.
 Activities which result in energy savings or zero emission should be undertaken.
iv. Use of 4 “R’s”:

 The concept of 4 R’s means: Refuse, Reduce, Reuse and Recycle.
 According to this concept, the first step is that a business unit should refuse the usage of any materials
which cause pollution.
 If that is not possible, then it should try to reduce the usage.
 Then try to Reuse and Recycle the materials used so as to reduce wastage.
 Business organization should also attempt to recycle its own waste material.
 WRAP (Waste and Resources Action Programme) should be followed.
 For e.g.: In some states like California, USA recycling of materials is mandatory.
v. Environmental Management Systems (EMS):

 EMS is a document developed by a business organization which helps in assessing theenvironmental
impact of the activities of the business and thereby improving its efficiency.
 It helps a company achieve its environmental goals.
 This system is mandatory in USA.
 ISO 14001-2004 is an environmental management standard. The main purpose of setting up of this
standard is to ensure that all organizations undertake measures to protect the environment, prevent
environmental pollution and improve its environmental performance.
 The recently introduced ISO 14005-2010 EMS includes the use of environmental performance evaluation
and ISO 14006-2011 EMS provides guidelines for incorporating eco-design in business organizations.
vi. Assess Current Environment impact:

 Business organizations should assess whether their conduct due to the current productiontechnique,
wastage disposal, etc. is causing harm to the environment or not.
 Continuous assessment helps business organizations to make small, simple and manageablechanges in the
process of production.
vii. Manufacturing Stage:

 In the manufacturing stage, steps should be taken to minimize the consumption of energyduring
transportation of products.
 Efforts should be made to replace manufacturing models with newer, more energy efficientor lesser
polluting models.
Q.15. Write short notes on:

i. Advantages of protecting business environment.
Ans.: A business unit which undertakes steps to protect the environment not only helps to reduce the negative impact
on the environment but also helps in preserving natural resources.
Protection of environment benefits business in the following ways:
a. Saves Cost:
 Making a business environment friendly not only benefits the environment but can also helpthe business to
save money.
b. Customer Support:
 Promoting environmentally friendly methods can set the business apart from competitorsand attract new
customers.
 Business organization following green practices creates a good image for itself and getssupport from the
customers.
c. Awareness among Employees:

 A business organization which gives importance about its role in environmental protectionalso creates
awareness about environment amongst the employees.
d. Green Economy:
 The business organization which follows good practices helps in keeping the environmentgreen and
preserve natural resources.
e. Government Support:
 Business organizations which show interest and take actions to protect the environment mayget benefits
from the government while dealing with regulations, obtaining industrial licensesand environmental
clearances.
ii. Relationship of Business and Environment.

Ans: Relationship of business and environment is contradictory in nature. It can be explained asfollows:
 Business organizations undertake activities with the basic objective of earning profits.
 They have always been dependent on the environment for extraction and management ofresources.
Business units use resources like raw materials and other natural resources likewater, land etc.
 Business units, through their operations create an imbalance in nature by generation ofwastage and by-
products. Rapid industrialization also results in degradation of theenvironment; which increases the risk to
the environment.
 Business organizations should learn from nature and so must ensure that their activities donot create an
imbalance to the original state of nature.
 They should be committed to protect and preserve the environment. They are expected toperform activities
that aim for the benefit of the environment and human beings. It involvesapplication and adoption of
policies with the intent of conserving natural resources.

1. Businessmen are ------ of the society.
(A) representatives (B) members (C)trustee
2. In modern business environment, ------ provides more opportunities and challenges.

(A) privatization (B) globalization (C) specialization
3. Business organization should try to make ------ utilizations of resources.

(A) minimum (B)maximum (C)optimum
4. Business is a ------ activity.

(A) socio-economic (B) service (C) profit making
5. Business is a ------ activity.

(A) good (B) bad (C)poor
6. Location of industries should be in ------ zones.

(A) residential (B)industrial (C) commercial
7. For economic growth and national security, ------ stability is required.

(A)political (B)social (C) natural
8. Business organization is a part of ------.

(A)industry (B)government (C) society
9. To make timely payment of proper taxes is the responsibility of organization towards ------ .
(A) shareholders (B) customers (C) government
10. Ultimate goal of business must be satisfaction of ------.

(A)shareholders (B) consumers (C) owners
11. To maintain industrial peace is the responsibility of organization towards ------.

(A) customers (B)employees (C) society
12. Business organization should protect health and provide safety measures to ------.
(A) employees (B)shareholders (C) customers
13. To maintain safety of investment is responsibility of business towards ------.

(A) community (B) investors (C) employees
14. Business organization can maximize profitability by ------ wastage.

(A) ignoring (B)utilizing (C)minimizing

15. Business organizations should provide periodic information to ------.

(A) customers (B) owners (C)employees
16. Business organizations should adopt the responsibilities to pay ------to their employees.
(A) low wages (B) fair wages (C) fair cost
17. Business organizations should supply goods of ------ quality.

(A) inferior (B)substandard (C) good
18. Business organizations should supply goods of ------ quality to their consumers.
(A) inferior (B) superior (C) medium
19. Business ethics refers to the system of ------ principles.

(A) economic (B) social (C) moral
20. Business ethics is ------ structured examination of behaviour of people.

(A) a moral (B) a critical (C) an economical
21. Business organization should not create ------ profit.

(A) reasonable (B) secret (C) maximum
22. Business organization should avoid creation of ------.

(A) trade unions (B) consumer's cell (C) monopoly
23. Environmental management system is mandatory in ------.

(A) India (B) USA (C) China
24. Environmental Management System which provides guidelines for incorporating eco-design is ------.
(A) ISO 14001-2004 (B) ISO 14005-2010 (C) ISO 14006-2011
25. The first step in 4 R's is ------.

(A) Reduce (B) Refuse (C) Reuse
One Word :
III. Write a word or phrase or a term which can substitute each one of the following:
1. Duties, obligations of business directed towards the welfare to society.
2. Indian philosopher who had promoted concept of social responsibility in ancient times.
3. The newest management strategy about social obligations of business.
4. Movement of consumers against business malpractices.
5. An activity motivated by profit.
6. The name of employee's organization protecting their rights.
7. Creditors who provide finance to business organization
8. Getting good quality products is the basic right of this group of society.
9. Running efficient business is the responsibility of business towards this group.
10. Providing fair returns on investment is the responsibility of organization towards this group.
11. Qualities like justice, co-operation, sympathy observed by business in its course of business.
12. Document development by business organization in order to assess their environmental impactand improve
efficiency.
13. The services provided by a seller to the consumer even after the sale of the product.
14. A set of principles of right conduct. ]
15. Rules of standards dealing with morality in business environment.
16. Corporate ethics which is a form of applied ethics.
17. An element of business ethics in which, opinions and feedback from clients are considered.
18. The critical, structured examination of how people and institutions behave in the world ofcommerce.
19. An element of business ethics in which the business is expected not to disclose a customer'sinformation to others.
20. Moral principles to be followed in the daily business activities by businessmen.

21. Wastage created from mobile phones, T.V. Sets, Laptops etc.
Ans.:
1. Social responsibility 2. Chanakya
3. Corporate Social Responsibility 4. Consumer movement
5. Business 6. Trade Union
7. Investors 8. Consumers
9. Owners 10. Investors
11. Social values 12. Environmental Management System (EMS)
13. After Sales Service 14. Business Ethics
15. Business Ethics 16. Business Ethics / Professional Ethics
17. Openness 18. Business Ethics
19. Confidentiality 20. Business Ethics
21. E-waste
Distinguish Between :
IV. Distinguish between: Traditional Social Responsibility and Corporate Social Responsibility.
Sr. No. Traditional Social Responsibility Corporate Social Responsibility
Meaining
1. It refers to the contribution madeby the It refers to the continuous commitment of the
business out of its profits tohelp poor and business to contribute to the social and
disadvantagedsections of the society. economic development of the society.
Evolution
2. It evolved in ancient India and inPre- It is a concept which evolved post World
Christian Era. War.
Concept
3. It has a philanthropic concept withmain It has a much wider scope as it covers
emphasis on welfare ofpeople. philanthropic, ethical, legal and economic
aspects.
True or False :
1. A business unit is a part of society.
Ans.: This statement is TRUE.
Reasons:
 A business organization uses various resources from the society to conduct its operations.
 It uses resources like land, water, capital, minerals, etc. for producing goods and services.
 Besides these, it also depends on human resources like employees, Investors and customersto carry out its
operations who are also a part of the society.
 It operates within the society and is dependent on the society for its survival.
 It should therefore, operate in such a manner that it does not harm any section of thesociety.
Business unit is, therefore, a part of the society.
2. Commercial organizations have different types of social responsibilities.

OR
Business organization has social responsibilities towards different groups of society.
Ans.: This statement sTRUE.
Reasons:
 A business organization functions within the society and hence it would need the support ofvarious
sections of society.
 Since the organization uses the various factors and resources from the society; It is liable torepay for the
same in some or the other form.
 The organization has responsibility towards its consumers (by providing them superior qualitygoods); the
government (by paying timely and proper tax); its employees (by paying them fairremuneration); the
environment (by keeping the environment eco-friendly), etc.
 Here we can see that the organization can't exist in the long run with the sole aim of earning profit. It must
fulfill the above responsibilities as well.
Thus, commercial organizations have different types of social responsibilities.
3. Expectations of society and public towards business are changing.

Ans: This statement is TRUE.
Reasons:
 The world is changing and expanding very fast due to globalization.
 Society and public have become more knowledgeable and aware of their rights.
 Their expectations from business organizations have increased. They expect the businessunits to be
socially responsible.
 Due to such changing needs, business organizations should make necessary changes and tryto meet the
demands of the society.
 In order to do that, business organizations should perform their activities in such a manner that they should
not harm any section of the society, rather, they should protect and contribute to the interest of the society.
4. Tangible goals of earning profit are the sole objective of business.

Ans.: This statement is FALSE.[Earning profit is the main objective of business but not the sole objective.]
Reasons:
 A business unit is dependent on the society for its survival.
 It uses natural resources from the society like raw materials, air, water, land etc forproducing goods and
services. It is also dependent on various constituents of the society likeconsumers, investors, employees etc
for running its business effectively.
 It earns profit with the help of various sections of the society.
 Therefore, it is the responsibility of business organizations to perform their business activitiesin such a
manner that they will not harm any section of the society. Rather, they shouldprotect and contribute to the
interest of the society.
 A business can ensure that it is protecting the interest of the society by performing activitiessuch as,
providing fair wages to employees; good quality goods and services to customers,paying taxes regularly to
the government etc.
Profit making is, thus, not the sole aim of any business.
5. Business organization can use natural resources the way they want.
Ans: This statement is FALSE.[Business organization has to use the natural resources carefully andprotect the
environment.]
Reasons:
 Business organizations require various resources such as land, water, raw materials etc. forperforming their
activities.
 All such resources are owned by the society.
 Most of the resources are non-renewable like fossil fuels, minerals, etc.
 Business organizations should optimally use such resources and try to minimize wastages.
 They should perform their activities in such a manner that they would not cause damage toany section of
the society.
Thus, they should be very cautious about using natural resources.
6. Business organization can participate in solving complex social problems.

Reasons:
 The problems of society are increasing day-by-day and are becoming more complex in therecent times.
 Government is burdened with social, economic and political problems and has limitedresources to deal
with such problems.
 Business organizations do possess management skills and ample resources like finance, manpower, etc.
 They can thus help the government in dealing with social problems like child labour,education, providing
health care facilities to the weaker sections of the society etc.
 Additionally, business organizations can assist the government in times of natural calamitieslike floods,
earthquakes, cyclones, drought etc.
 They can also provide help in creating awareness in the society regarding issues like pollution,population
control, environment protection etc.
7. Management should avoid workers’ participation while making decisions.

Ans: This statement is FALSE.[Management should involve workers while making decisions]
Reasons:
 Employees are an important part of any business organization.
 Their support and participation decides the success and failures of the business to a great extent.
 Allowing workers to participate in management improves the relationship betweenemployees and
management.
 It creates a sense of belonging amongst the employees and raises their morale.
 Various schemes like common suggestion system to save costs, quality circles, profit sharing, co-
partnership etc. encourage workers participation in the management of the business.
Thus, the management should involve workers while making decisions
8. Business should not disclose their records to investors.

This statement is FALSE.[Business organization has to be transparent and must provide accurate information
to its investors]
Reasons:
 Investors are persons who provide short term and long term finance to the company. Theyget interest on
the money that is invested in the business.
 Investors include banks, financial institutions, individuals etc.
 Investors invest their money into the business and are willing to take risks.
 It hence becomes the responsibility of the business organization to gain confidence of theinvestors by
providing them with full and factual information.
 Regular information can be provided through reports and circulars.
 Such information will allow the existing as well as prospective investors to take the rightdecision for future
investments.
Thus, business organization needs to be transparent and must provide accurate information toits investors.
9. Providing career opportunities to employees is the responsibility of the business.

Ans: This statement is TRUE.
Reasons:
 Employees are an important part of any business and should be treated with dignity andrespect.
 It is also required to maintain mutual confidence and trust amongst employees as it helps inachieving
success.
 Employees perform more efficiently when motivated and encouraged for better performance.
 As a part of the social responsibility towards employees, business organizations should offer adequate
opportunities to the qualified, skilled and talented employees for improving their career prospects.
 Details regarding the qualifications, skills and experience required for promotion should be provided to the
employees.
 This helps in keeping up the morale of the employees and keeps them motivated to put in more efforts.
10. Role of media exerts major influence on business organization.

Reasons:
 Media plays an important role in connecting and influencing people.
 Mass media like television, newspapers, internet etc. distribute information to a largenumber of people
efficiently.
 They also create awareness in the society regarding any unfair trade practices or wrongpolicies fallowed by
any business unit.
 Media has the power to speak against wrong business policies or practices and raise voiceagainst any
business malpractices or exploitation of customers.
 Media can influence masses in the society thus, putting an indirect pressure on businessorganizations to
fulfill their social responsibilities.
Thus, it is rightly said that, role of media exerts major influence on business organization.
11. Ethics is a branch of politics.

Ans.: This statement is FALSE.[Ethics is a branch of social science.]
Reasons:
 The word ethics is derived from the Greek word ‘ethos’ which means character.
 It is a system of moral values. It is a concept which deals with the concepts of right and rong, good and
bad, fair and unfair, just and unjust, legal and illegal, proper and improper inrespect to human behaviour.
 Business ethics, also known as Corporate Ethics is the behaviour that a business is expectedadhere to in its
daily business dealings. It deals with morality in business environment.
 Business ethics is self imposed. It promotes social values of honesty, sincerity, fairness andjustice in all the
dealings of the business.
 It is an art and scienceof maintaining balanced relationships in the society.
Thus, it is a branch of social science and not politics.
12. Business organization cannot contribute to raise standard of living of society.

Ans.: This statement is FALSE. [Business organizations can contribute in many ways to raisethe standard of living
of the society]
Reasons:
 Business is a part of the society and is highly dependent on the society for its growth and survival.
 Business organizations provide employment opportunities to people in the society and thuscontribute
financially in raising the standard of living.
 Additionally, they also contribute indirectly by improving infrastructure facilities like construction and
maintenance of roads, railways, waterways, creating public gardens orlibraries or hospitals etc.
 Business organizations also undertake activities like creating awareness in society regardingeducation,
preventing child marriages, population control etc. thereby uplifting the society.
 They provide financial and medical assistance to weaker and underprivileged sections of the society.
Thus, business organizations contribute in many ways to raise the standard of living of the society.
13. Business ethics are applicable to all business organizations.
Reasons:
 Business ethics is a code of conduct that a business is expected to adhere to in its dailybusiness dealings. It
deals with morality in business environment.
 These are rules or standards that govern the conduct of a person or members of a profession.
 They are based on the concepts of honesty, integrity and fairness, which apply to all businessorganizations
as every business is a part of society.
 It is applicable to all organizations irrespective of size i.e. large scale, medium scale or smallscale all
organizations need to follow business ethics.
 It is also applicable to all types of organizations such as partnership firms, sole traders or apublic company.
14. Introducing environment management techniques benefit business organizations.

Reasons:
 Environment management technique refers to the techniques adopted by an organization toprotect the
environment in a systematic manner.
 These techniques also help to improve the organizational efficiency.
 It helps to save money and reduce costs of the organization through minimization of wastage.
 Business organizations undertaking initiatives to protect the environment earn goodwill inthe market and
get support from the customers.
 They can create awareness among employees regarding environmental protection.
 Moreover, the business organizations who take steps to protect the environment get supportand benefits
from the government.
15. Business ethics can be considered as a tool for social development.

Reasons:
 Business ethics is a code of conduct that a business is expected to adhere to in its dailybusiness dealings. It
deals with morality in business environment.
 It involves fair treatment of the different sections of the society like the employees, consumers,
government and the community at large.
 Business ethics is self imposed and promotes social values of honesty, sincerity, fairness andjustice in all
the dealings of the business.
 Following business ethics creates a very healthy and competitive atmosphere for doingbusiness.
 It results in welfare of the society and induces social security. It also enhances the values of thesociety.
Thus, ethics can be considered as a tool for social development.
_______________________________________________________________________________________
16. Business organization is not liable to control pollution.
Ans.: This statement is FALSE. [Business organization is responsible to control pollution level]
Reasons:
 Business organizations are always dependent on the environment for extraction andmanagement of
resources. They use natural resources like raw materials, water, land etc.
 Business organizations through their operations create an imbalance in nature by generationof wastage and
by-products.
 Various business activities result in air, water and noise pollution and degradation of theenvironment.
 Pollution is caused due to rapid industrialization, use of technology, e-waste, increased use of
transportation etc.
 Business organizations are thus expected to perform activities that aim for the benefit of environment and
human beings. It involves application and adoption of policies with the intent of conserving natural
resources.

XII Commerce : Organization of Commerce & Management: Consumer Protection
5 Consumer Protection
Introduction :
A transaction between a Seller and a Buyer was supposed to be a simple process of exchange. But, unfortunately, the
supposed procedure was not followed; instead sellers made more money using Unfair Trade Practices. They exploited
consumers in several ways viz. hoarding, overpricing, supplying sub-standard quality products, forming cartels,
adulteration, etc. Many-a-times, consumers lacked awareness of their rights, due to which, sellers took advantage of
them. Hence, the need of Consumer protection was felt.
Who is a Consumer?
 The word ‘consumer’, is derived from the Latin word ‘Consumere’ which means 'to eat anddrink’.
 Any person who consumes or uses any commodity or service available to him either fromnatural resources or
through the market is known as a Consumer.
 He acquires goods and services for his direct use or ownership.
 A consumer can be an individual, a group or an organization.
 A consumer can either pay to consume goods and services or hire services for a consideration.
 Consumer is regarded as the king of the market as without them, products would not have ademand thereby
leaving no motive for production of goods and services.
Importance of Consumer Protection :

Q.1. What do you mean by Consumer Protection? Explain its importance.
Ans.: Meaning of Consumer Protection:
Consumer protection aims at safeguarding the interests of consumers by making them awareabout their powers
and rights through a legal framework so that they can fight againstexploitation.
Importance of Consumer Protection:

The importance of consumer protection is explained as follows: [Mnemonic: UNLIST - ILU]
i. Unorganized Consumers:
 Producers and manufacturers are in a superior position as they are united, whereas,consumers are neither
united nor organized.
 Individually it is difficult for consumers to fight against the exploitation of powerful traders.
Thus, it becomes easy to exploit consumers
ii. Nature of Products:

 Poor and illiterate consumers fail to understand the complicated production processes ofmodern products
and thus, are unable to judge the quality or safety of such products.
 The sellers take advantage of this situation and further exploit them.
 These consumers also sometime hesitate in taking legal help, even if they realize that theyare being
cheated.
iii. Lack of Information:

 In today's modern complex world, there is a vast distance between the producers andconsumers.
 Since there is no direct contact between the producers and consumers, it becomes difficultor the consumers
to get reliable information about the product before making any purchase.
 The consumers have to rely on advertisements or trial and error method. Both the situationscan lead to
exploitation of consumers.
iv. Ignorance of Consumers:

 The consumers are ignorant about their rights, market condition, price levels, product detailsetc.
 As a result of their ignorance, consumers may not realize that they are being cheated. Lack of such
information leads to the exploitation of consumers.
 For e.g. A seller may sell a product which he has received as a free sample.
v. Seller Dominant Market:

 In a market dominated by sellers, the consumers’ choice as well as their welfare is given lastpreference.
 The transactions undertaken are finalized in favour of seller, middlemen and manufactures, as they are the
ones who control the market.
 For e.g. In case of shortage of goods in the market, the sellers would prefer selling the goo
 at high prices. Here, the consumers will have no option but to buy the goods at the price. Here, the
consumers will have no opinion but to buy the goods at the price quoted by the sellers.
vi. Tendency of Consumers:

 Consumers get attracted to products which are offered at cheap prices, discounts or withfree gifts etc.
 Sellers may take advantage of this tendency of consumers and exploit them by selling low quality products
or they inflate the price of goods and thereafter display high discounts.
 products or they are the ones who control the market.
vii. Increase in Consumption Rate:

 Due to the increase in population, improved standard of living and the tendency of peoplelead comfortable
lives, there is an increase in the demand and consumption rate of various products.
 To meet this increased demand,companies undertake mass production, or manufacturingvarieties of
products etc.
 This results in increased prices, unfair trade practices etc.
 Consumers get confused in suchsituations and are often subject to exploitation.
viii. Lack of Participation of Consumers:

 Organizations do not allow consumer’s participation in the decision making process.
 Certain decisions, although affecting the consumer’s interest directly, are taken without any involvement of
consumers.
 For e.g. Decisions relating to charges of daily necessities like public transport, cooking gas, telephone,
electricity etc. are taken without consulting the consumers or any consumerorganizations.
ix. To Restrict Unfair Trade Practices:

 When consumers realize the importance and start taking support of the Consumer Protection Act, 1986 to
fight against the exploitation and resolve the grievances, it will pressurize the manufacturers, middlemen
and traders to restrain from any malpractices and unfair tradepractices.
 This will in turn protect the interest of consumers.
Rights of Consumers:
Q.2. What do you mean by Consumer? Explain various rights of consumer.
Ans.: Meaning of Consumer:
Any person who consumes or uses any commodity or service available to him either fromnatural resources or
through the market is known as a Consumer.
Rights of Consumers: [Mnemonic: PS - SHE is RICH]

 On 15th March, 1962, the then President of U.S.A. declared some of the rights of theconsumer (Right to
safety, Right to information, Right to choose, Right to be heard). Sincethen, this day is observed as
“Consumer Rights Day”.
 Later on, other rights were added to these four by the International Organization ofConsumers’ Union.
 The Consumer Protection Act passed by the Indian Government in the year 1986incorporates these rights
of the consumers.
 It later added two more rights viz. ‘Right to protect against unfair trade practices’ in 1993 and ‘Right to
protect against spurious goods’ in 2002 by passing the Amendment Act.
i. Right to Education:
 Through this right, the consumers are well informed about their rights, market practices andthe remedies
available to them.
 Consumer education makes consumers aware about the unfair trade practices and ways inwhich they can
protect themselves.
 The Government, Media as well as NGO's can play a major role in educating consumers.
 For e.g. Jago Grahak Jago Campaign.
ii. Right to Safety:

 This right safeguards the consumers against marketing of those goods / services which areof hazardous to
their life and property.
 In other words, the trader hasto ensure that the goods soldwill not cause any damage toconsumers’ life and
property.
 The manufacturer has to giveclear instructions to consumerson how to use the goods andalso the risk
involved in case thegoods sold are hazardous in nature.
 Post selling, if the manufacturer realizes that the product is unsafe, he must recall thedefective product
from the market or implement necessary modifications to make theproduct safe; and compensate the
consumer in case of any damages caused by the product.
 For e.g. Chemists should not sell medicines after the expiry date or a hotel owner should notserve food
that is stale.
iii. Right to be Heard:

 Through this right, the consumers are enabled to express their views about the product /service bought.
 Here, if the consumers feel that they have been cheated, they can file a complaint about theproduct/service
at the appropriate forums so that they receive due consideration.
 For e.g. If an advertisement on TV promises free home delivery of an article but at the time of delivery,
the company refuses to deliver the product without payment of delivery charges then the consumer has a
right to file a suit against the seller for providing misleading information through the advertisement.
iv. Right to protect against Spurious Goods:

 This right protects the consumers against marketing of spurious (fake / bogus) and hazardous goods; which
are harmful to the health or pose adanger to life.
 This right has been added to the Consumer Protection Act by theAmendment Act, 2002.
v.Right to protect against Unfair Trade Practices:

 This right protects the consumers against any unfair trade practices like wrongmeasurements, artificial
shortages, overpricing, selling sub-standard goods, etc.
 This right was incorporated by the Amendment Act, 1993.
vi. Right to Redressal:

 Thisright enables a consumer to seek redressal for his complaints against unfair tradepractices /
exploitation. Only the right to be heard is not sufficient, thus the “Right toRedressal” has been recognized
to give due justice.
 This right provides a legal platform for attending and redressing the complaints of theconsumers so that
they get a fair settlement for their grievances.
 The redressal is done through the Consumer Protection Act, 1986 under which the DistrictForum, State
Commission and National Commission are established.
vii. Right to Information:

 This right gives every consumerthe right to get appropriateinformation about the quality,quantity,purity,
price,ingredients,manufacturingdate, expiry date, etc. of theproduct purchased.
 The right also stresses toprovide proper instructions on
 how to use the product and therisk involved in using it.
 Also, it ensures that theelectronic products are sold witha proper user manual.
 Moreover, this right assures the safety ofboth, the consumer as well as the product, and italso helps the
consumer in selecting the right product.
viii. Right to Choose:

 This right assures the consumer the right to select a product or service as per his need andbudget out of a
variety of products at a competitive price.
 The right also restricts monopolistic tendencies in the market so that no sellers can compelthe consumers to
buy a particular product/service.
 Many-a-times, sellers make use of pressure tactics for selling poor quality products. However, thefinal
decision lies with the buyer as the seller can just suggest to buy but can’t force the buyer.
ix. Right to Healthy Environment:

 A consumer has a right to live in a clean and healthy environment.
 If any company, during its manufacturing process, is creating any type of pollution in theenvironment, then
the society has the right to object.
 A ‘Public Interest Litigation’ can be filed against such companies to stop the degradation of the
environment.
Consumer Responsibilities :
Q.3. State the responsibilities of Consumers.
OR
Write a short note on: Responsibilities of Consumers.
Ans.: Any person who consumes or uses any commodity or services available to him either from natural resources
orthrough the market is known as a Consumer.
It is the responsibility of the consumer to be an active member in the consumer movementwhile exercising the
rights.
Stated below are the responsibilities of consumers: [Mnemonic: C2AS2T]

i. Critical Awareness:
 It means a consumer should be alert while purchasing goods and services and ask questionsabout the use of
product; the price and the quality of goods and services provided by the seller.
 The consumer should assess the value for money, value for people and value for environmentbefore
purchasing a product/service.
ii. Environmental Concern:

 A consumer should be alert and aware about the effects of his consumption on theenvironment.
 It is his responsibility to conserve and protect the environment for both, the present as wellas future
generations.
 He should ensure that the products and services he consumes are produced in a manner thatdoes not harm
the environment.
 Also, their usage and disposal should be done in an eco-friendly manner.
iii. Action:
 A consumer should be assertive and act to ensure that he gets a fair deal so as to protecthimself from
exploitation. However, in this process, he should not compromise on his cultureand customs.
 If he feels that he is dealt with in an unfair manner, he should take necessary actions.
iv. Social Concern:

 A consumer should be socially aware about the impact his consumption has on the othercitizens of the
society, especially the disadvantaged and powerless groups, whether it is inthe local, regional or
international community.
 He must ensure that the products and services he uses are not produced in an environment that will harm
others.
v. Sustainable Consumption:
 It is the responsibility of the consumer to identify the requirement of goods /services firstand then make a
purchase, so that the scarce natural resources are not wasted.
vi. Working Together:

 A consumer should be responsible for the protection and welfare of all the other consumers. He should
promote and protect the interests of all the consumers.
 They must be organized and united for the welfare of all consumers at large.

Q.4. What care should a consumer take before, while and after buying of a product orservice?
Ans.: A consumer should act responsibly and take active part in protecting oneself. He should bealert and active
while purchasing goods / services.
The steps that a consumer should takebefore, while and after buying a product or a service are as follows:
i. Before Buying:
 Plan in advance.
 Enquire about the past performance of product/service.
 Enquire about past performance of product/seller/service provider.
ii. While Buying:

 Ask for demonstration regarding how to operate/use the product/service.
 Enquire about after-sales service and ensure availability, phone number, address and e-mailof service
centre.
 Read and know the contents of guarantee/warranty card.
 Insist on approved sale bill with serial number, address, phone number etc.
 Obtain guarantee/warranty card and get it signed/sealed by the dealer.
iii. After Buying:

 Use products as per instructions given in user manual.
 Keep bills and guarantee card safely.
 In case of fault, inform dealer and service centre. Consumers shouldn’t tryproduct on their own.
 Seek immediate redressal of deficiency in product.
Ways and Means of Consumer Protection :

Q.5. What are the various ways and means that can be adopted forConsumer Protection?
Ans.: There are various legislations set up to protect the consumers. But the judiciary system alonecannot restrict
consumer exploitation and hence many other ways and means are set up forconsumer protection.
They are explained as follows: [Mnemonic: PF2- CAMP]

i. Public Interest Litigation (Janahit Yachika):
 Public Interest Litigation is alitigation for the protection ofthe public interest.
 Under this scheme, any personcan approach the court of laweven if it doesn’t involve anyindividual
interest.
 Public Interest Litigation gives a right to the members of the public to file a suit in the HighCourt.
 its aim is to provide legal remedy to any unrepresented groups of the society.
FYI:
 A PIL filed by Prof. Pratibha Nathani claimed that films without certificationfrom the “Censor Board
forFilmCertification” shouldn’t be broadcasted asthey can have a bad impact on children.
ii. Redressal Forums:

 Consumer Dispute Redressal Forums such as District Forum, State Commission and National Commission
have been established by the State and Central Government Agencies under theConsumer Protection Act,
1986.
 The government has set up these agencies with the main aim of protecting the consumers’ rights and for
speedy redressal of their complaints in an inexpensive manner. The SupremeCourt of India is the final
court of appeal.
iii. Consumer Welfare Fund:

 The Department of Revenues has set up the Consumer Welfare Fund to provide financialassistance to
voluntary consumer movement, with particular emphasis on rural areas.
 The money from the fund is used for consumer education, complaint handing, counselling guidance etc.
iv. Consumer Organizations:

 Many consumer organizations are set up to help consumers in their fight for rights throughprotests,
campaigning, lobbying etc.
 They are mainly formed in order to strengthen the consumer movement.
 For e.g. Mumbai Grahak Panchayat – Mumbai.
v. Lok Adalat:
 It is also known as People'sCourt. It is held by the Stateauthority, District authority,Supreme Court Legal
ServiceCommittee, High. Court LegalService Committee or TalukaLegal Service to settle disputesof the
consumers throughcompromise.
 The cases which are pending incourts and which can be settled through compromise are transferred to the
Lok Adalat if:
both the parties agree or;
one of the parties makes an application and the court see’s a chance of compromise.
 No court fees are charged here.
 If the matter cannot be resolved in the Lok Adalat, it is returned to the regular court.
 Resolution of a dispute by the Lok Adalat gets statutory recognition.
 Regular Lok Adalats are held by some organizations like Railways, Electricity Boards,Telephone
Exchanges, Insurance companies etc.
vi. Legislative Measures:

 The Government of India has passed various Acts like Sale of Goods Act, Bureau of IndianStandards Act,
1866, Drug Control Act, 1950, Prevention of Food Adulteration Act, 1954,Essential Commodities Act
1955, The Standards of Weights and Measures Act, Monopoliesand Restrictive Trade and Restrictive
Trade Practices Act, 1969 etc.
 However, since these Acts could not provide protection in the real sense, an elaboratelegislation came into
existence i.e. The Consumer Protection Act, 1986.
 This Act enables a consumer to file a suit against any manufacturer or seller in case theconsumer suffers
any loss or damage due to the use of the product or service.
vii. Awareness Programmes:

 Several measures are undertaken by the government to increase the awareness of consumer rights among
people.
 Various publicity measures like advertisements, use of journals, brochures, posters, televisionchannels, All
India Radio, FM, etc are used to convey the message of consumer protection,consumer courts etc.
 The society observes 15th March as World Consumer Rights Day and 24th December asNational Consumer
Day (of India).
 For e.g. Jaago Grahak Jaago Campaign.
Consumer Awareness and Legal Redressal :

Why is Consumer Protection Act, 1986 (CPA) required?
 CPA was enacted to protect the interests of consumers in India.
 The Act provides quasi judiciary machinery for redressing consumer grievances. (Quasijudiciary
machinery represents a separate body appointed for the resolution of disputes,which has rights equivalent
to the court of law).
 CPA is a social welfare legislation, which makes provisions for the establishment of consumercouncils and
other authorities for settlement of consumer disputes and related matters.
 The main objective of this Act is to provide simple, speedy and inexpensive settlements of the consumer
disputes, for which it provides a three tier quasi-judicial consumer disputesredressal machinery at district,
state and national level.
 The consumer redressal courts established under this Act have simple procedures to avoid necessary delay
in dealing with consumer complaints, such as damage caused by unfair trade practices, unsatisfactory
services, defective products, unsafe products etc.
 However, no complaints can be filed for products/services which have been received free ofcharge by the
consumers.
 The order given by the court in case of any disputes is legally binding on both the parties.

Q.6. Write short notes on:

Ans.:
i. District Forum.
District Forum is the consumer redressal forum established by the State Government within thevarious districts
in the state.
a. Composition:
 President: A person who is or has been or is qualified to be a District Judge.
 Members: Two other members, one of whom shall bea woman.
b. Qualifications of Members:
 They should not be less than 35 years of age.
 They should possess a Bachelors Degree from a recognized university.
 They should be persons of ability, integrity and standing and have adequate knowledge.
 Theyshould have an experience of at least 10 years in dealing with problems related toeconomics, law,
commerce, accountancy, industries, public affairs or administration.
c. Appointment:
 The appointment of the President and the members is made by the State government basedon the
recommendation of the Selection Committee.
d. Duration:
 Every member of the District Forum shall hold office for a term of 5 years or up to the age of65, whichever
is earlier.
 On the basis of the recommendation of the Selection Committee, the members are eligiblefor
reappointment up to the age of 65 years.
e. Jurisdiction of the District Forum:

As per the provisions of the Consumer Protection Act, 1986, the District Forum shall have thebelow
jurisdiction:
 Cases in which the value of the goods or services and the compensation, if any, does notexceed Rs. 20
lakh.
 It can exercise its jurisdiction within the limits of its district.
 Establishment of a district forum in each state is a mandatory provision, especially when theworkload
exceeds minimum 150 cases per month for 6 months.
ii. State Commission.

State Commission is set up by the state government. It is also known as State ConsumerDisputes Redressal
Commission.
a. Composition: A State Commission includes the following positions:

 President: A person who is or has been a judge of a High Court is appointed by the stategovernment, after
consultation with the Chief Justice of the High Court.
 Members: Minimum two other members, one of whom shall be a woman.
 They should have an experienceof at least 10 years in dealing with problems related toeconomics, law,
c. Duration:
 Every member of the State Commission shall hold office for a term of 5 years or up to the ageof 67 years,
whichever is earlier.
 However, members are eligible for reappointment based on the recommendation of theSelection
Committee.
d. Jurisdiction:
As per the provisions of the Consumer Protection Act, 1986, the State Commission shall havethe below
jurisdiction:
 Monetary: A state commission can entertain complaints where the value of the goods or services and
compensation, if any, claimed exceeds Rs. 20 Lakh but does not exceed Rs. 1 crore.
 Appellate: A person who is unsatisfied with the order of the District Forum can appeal againstthe order to
the State Commission.
 Supervisory or Revisional: State Commission may call for the records and pass orders in any consumer
dispute which is pending before the District Forum or has been decided by anyDistrict Forum within the
State.
e. Transfer of Cases:
 On the application of the complainant or of its own motions, the National Commission can transfer any
pending case from one District Forum to another or from one State Commissionto another State
Commission.
 Such a decision is taken in the interest of justice.
f. Appeal against Order of State Commission:

 Any person who does not agree with the order of the State Commission can appeal to theNational
Commission within 30 days.
iii. National Commission.

The National Commission is also known as National Consumer Redressal Commission. It isestablished by
the Central Government by notification.
a. Composition:
 President: A person who is or has been a judge of the Supreme Court is appointed as thePresident of the
Commission after consultation with Chief Justice.
 Members: At least four members one of whom shall be a woman.
 They should have an experience of at least 10 years in dealing with problems related toeconomics, law,
c. Duration:
 Every member shall hold office for a term of five years or up to the age of 70 years,whichever is earlier.
 However, members are eligible for reappointment for another term of 5 years or up to the ageof 70 years,
whichever is earlier, based on the recommendation of the Selection Committee.
d. Jurisdiction:
As per theprovisions of the Consumer Protection Act, 1986, the National Commission shallhave the below
jurisdiction:
 Monetary: National Commission can entertain cases where the value of goods and servicesand
compensation, if any, exceeds Rs. 1 Crore.
 Appellate: The person unsatisfied with the-orders of State Commission can appeal againstsuch order to
National Commission within 30 days.
 Supervisory or Revisional: National Commission may call for the records and pass orders in any consumer
dispute which is pending before or has been decided by any State Commissionwithin the country.
e. Improper Jurisdiction of the State Commission:

The National Commission can also hold the jurisdiction, if is of the opinion that the StateCommission has
passed a judgment which is:
 Outside the powers of the State Commission as prescribed by the law, or
 Failure of the State Commission in exercising its jurisdiction, or

 In case, there exists any material irregularity in the order passed.
Role of Consumer Organizations and NGOS :

Q.7. Write a short note on: Role of NGO’s in Consumer Protection.
Ans.: NGO’s (Non-Governmental Organizations) are non profit, non political, independent groupsworking for a
fixed purpose.
 They work for various social causes, of which, Consumer Protection is one such cause. Theirworking for
consumer protection can also be addressed as Consumer Organizations.
 These organizations are formed by a group of people who work voluntarily for the cause ofproviding
protection to the consumers against hazardous products, misleading advertisement,pollution etc.
 The main objective of NGO’s is to establish consumer rights. They create awareness amongpeople about
their rights as a consumer and also advice consumers on how to take legalaction in case of any loss
suffered by them.
 NGO’s do not have statutory powers but they play a vital role in conveying the concerns ofthe consumers
to the government.
 They form a strong support network for the consumers so that they can fight anymalpractices or
exploitation by the hands of the manufacturer or seller in a better manner.
 Few examples of NGO’s are:
Consumer Guidance Society of India.
Association of Consumers Action on Safety and Health.
Consumer Education and Research Centre.
Mumbai Grahak Panchayat.
 The functions performed by NGO’s are as follows:
 Creating Awareness: They undertake various programmes for creating awareness aboutconsumer rights
and the legal framework for consumer protection in order to educate thegeneral public.
 Consumer Guidance: They guide consumers in taking legal action in case of damage.
 Consumer Representative: An NGO can represent a consumer in front of the government.
 Comparative Testing: They arrange for comparative testing of similar consumer productsthrough their own
resources or through reliable laboratories and publish the test resultsfor the information of the general
public.
 Provide Updates to Consumers: They keep the consumers informed about updates bypublishing periodicals
and journals.
 Recommendations to Government: They make suggestions and recommendations togovernment authorities
while making policies.
 Interest of General Public: Some NGO’s file cases in the court of law in the, interest of thegeneral public.
Multiple Ghoice Questions :

I. Select the proper option from the options given below and rewrite the completed sentences:
1. In the modern competitive market, consumer is regarded as the ------.
(A) king (B) agency (C) superintendent
2. A person who ------ is known as a consumer.

(A)produces goods / services
(B) buys goods /services for resale
(C) buys goods / services for direct consumption
3. An ancient Indian Text which gives information about consumer protection is ------.
(A) Rigveda (B) Mahabharata (C) Arthashastra
4. Right to ------ restricts monopolistic tendencies in the market.

(A) information (B) choose (C) safety
5. Amendments were introduced to Consumer Protection Act in the year 1993 and ------.
(A) 1998 (B)2000 (C) 2002

6. The right to ------ protects the consumers against the marketing of goods and serviceswhich are hazardous
to life and health.
(A) information (B) safety (C) education
7. The right to protect against unfair trade practices was incorporated into the ConsumerProtection Act by the
------.
(A) The Amendment Act, 1993
(B) The Amendment Act, 2002
(C) Consumer Protection Act, 1986
8. The Consumer Protection Act was passed in the year ------.

(A) 1920 (B) 1956 (C) 1986
9. The Government has established ------ to settle the consumer disputes by compromise.
(A) Lok Adalat (B) District Forum (C) Supreme Court
10. Consumer Dispute Redressal Forums have been established by the State and CentralGovernment Agencies
under the ------
(A) Drug Control Act, 1950
(B) Consumer Protection Act, 1986
(C) Prevention of Food Adulteration Act, 1954
11. ------ is the final court of appeal.

(A) High Court (B) State Commission (C) National Commission
12. Consumer movement is ------ in nature.

(A) political (B) religious (C) social
13. The National Consumer Day of India is observed on ------.

(A) 10th January (B) 15thMarch (C) 24th December
14. ------ existed in pre-independent India as a measure to protect the consumers.

(A) Drug Control Act
(B) Bureau of Indian Standards Act
(C) Prevention of Food Adulteration Act
15. Under the Consumer Protection Act, 1986, there is a ------quasi-judicial consumer redressalmachinery for
solving the complaints of the consumers.
(A) two-tier (B) five-tier (C) three-tier
16. A District Forum can entertain the claims up to Rs. ------.

(A) 10 lakh (B) 20 lakh (C)1 crore
17. State Consumer Dispute Redressal Commission is popularly known as ------.

(A) National Commission (B) State Commission (C) District Forum
18. The President of State Commission is

(A) District Court Judge (B) Supreme Court Judge (C) High Court Judge
19. Any person who does not agree with the decision of State Commission can appeal to the ------.
(A) Supreme Court (B) High Court (C) National Commission
20. National Commission has ------ members in addition to the president.

(A) 2 (B) 3 (C) 4
21. The tenure of Central Consumer Protection Council is------ years.

(A) five (B) four (C) three
22. National Commission is established by ------.

(A) State Government (B) Central Government (C) ZillaParishad
23. The maximum period of membership of the District Forum is ------ years.
(A) two (B) three (C) five
24. As per the qualifications for members, the age of a member of the District Forum should not beless than ---
--- years.
(A) 65 (B) 67 (C) 35
25. ------ establishes the District Forum.

(A) State Government (B) Central Government (C) Supreme Court
One Word :
III. Write a word or phrase or a term which can substitute each one of the following:
1. A person who consumes or uses any commodity or service available to him either from naturalresources or
through market.
2. The market where the customer’s choice and welfare gets last preference.
3. The right of a consumer which allows him to express his views.
4. The right of a consumer which creates an awareness in him about his rights.
5. A consumers' right to live in a healthy and clean environment.
6. The right of a consumer to get justice.
7. The right of a consumer to get instructions about the use of a product.
8. This right restricts sellers from compelling consumers to buy a particular product or service.
9. The concept that the consumer should only consume as per his requirements.
10. The court established by Government to settle consumer disputes by mutual compromise.
11. The responsibility that states that consumers should protect the environment for the presentany future
generations.
12. The scheme under which any person can approach the court of law even if it does not involveany individual
interest.
13. Fund to provide financial assistance to voluntary consumer movement which is set up by theDepartment of
Revenues.
14. A consumer dispute redressal agency that handles claims up to 20 Lakh.
15. A consumer dispute redressal agency that handles the claims above Rs. 20 Lakh up to Rs. 1 Crore.
16. The redressal agency formed at the state level.
17. The redressal agency formed at the national level.
18. State the name of the commission which settles ‘claims of consumers’ for more than Rs. 1 crore.
OR
A consumer dispute redressal agency that handles claims more than Rs. 1 crore.
19. Non-profit and non-political independent groups workingfor a definite cause.
Ans.:
1. Consumer 2. Seller dominant market
3. Right to be Heard 4. Right to Education
5. Right to Healthy Environment 6. Right to Redressal
7. Right to Information 8. Right to Choose
9. Sustainable Consumption 10. Lok Adalat
11. Environmental concern 12. Pubic Interest Litigation
13. Consumer Welfare Fund 14. District Forum
15. State Commission 16. State Commission
17. National Commission 18. National Commission
19. Non-governmental Organizations (NGO’s)

IV. Give a comparative chart of District Forum, State Commission and National Commission.
Ans.:
Sr.No. District Forum State Commission National Commission
Meaning
1. It is a consumer dispute It is a consumer disputeredressal It is a consumer dispute redressal
redressal forum forum working atstate level. forum working atnational level.
working at district level.
Establishment
2. It is established by theState It is established by theState It is established by the
Government. Government. Central Government.
Composition
3. It consists of aPresident (who It consists of a President(who is It consists of a President(who is
is has been or is qualified or has been ajudge of a High or has been a judge of the
tobe a District Judge) Courtisappointed by the SupremeCourt is appointed as
andminimum two state;government,consultation thePresidentof theCommission
otherMembers (one of with the ChiefJustice of the High after consultation with Chief
whomshall be a woman). Court)and minimum Justice) and minimum
twomembers (one of whomshall fourmembers (one of whomshall
be a woman). be a woman).
Monetary Jurisdiction
4. Cases where the value of Cases where value of Cases where the value
goods/services goods/services and the ofgoods/services and
andcompensationclaimed, if compensation claimed, if any, is thecompensation claimed, ifany,
any, is lessthan Rs. 20 Lakh. more than Rs. 20 Lakh and less is more 1 Crore.
than than Rs. Crore.
Duration
5. Member shall holdoffice for Member shall hold officefor Member shall hold officefor
term of 5years or up to the term of 5 years or up tothe age of term of 5 years or up tothe age of
age of65 years, whichever 67 years,whichever is earlier. 70 yearswhichever is earlier.
isearlier.
Nature of Complaints
6. Original cases withinthe local Original cases and Original cases and
limits of adistrict are appealsagainst the order appealsagainst the order of
entertained. ofDistrict Forum within StateCommissionentertained.
thegeographical limits of stateare
entertained.
Area Covered
7. It covers a particular district. It covers a particular state. It covers the entirecountry.
True or False :
1. Even though consumer is regarded as the king of the market, in reality he is exploited by the
manufacturers and sellers.
Ans.: This staterment is TRUE.
Reasons:
 The manufacturers and sellers being united are in a superior position as compared to the buyers.
 This is because, the consumers are spread across a wide area and thus it is not possible forthem to unite
and oppose exploitation.
 Ignorance of consumers about their rights, market conditions, price levels and product detailslead to
consumer exploitation.
 The tendency of consumers to get attracted to cheap prices, discounts schemes etc. alsomake consumers
vulnerable to exploitation.
 Many more reasons such as lack of information, seller dominant markets, lack of participationetc. all
result in exploitation of consumers in spite of consumers being regarded as the king ofthe market.
2. A consumer should play an active part while purchasing goods / services.

Reasons:
 A consumer should be assertive and act to ensure that he gets a fair deal.
 It is the responsibility of a consumer to protect himself from exploitation.
 However, he should not compromise on his culture and customs to get a fair deal.
 Consumer should take necessary steps to ensure that his grievances are addressed.
 If the consumer feels that he is dealt with in an unfair manner, he should take necessaryactions and not
remain passive.
Thus, it is rightly said that a consumer should play an active part while purchasing goods /services
3. Consumer, being the king of the market, does not have any responsibilities.
Ans.: This statement is FALSE.[Even though the consumer is the king of the market, he still has toundertake certain
responsibilities]
Reasons:
As a consumer, he has to shoulder the following responsibilities:
 He should be aware about the price and quality of goods and services that he purchases forconsumption.
 A consumer should be assertive and take action to ensure that he is not exploited.
 He should be aware about the impact of his consumption of goods and services on the othercitizens
especially the disadvantaged and powerless groups.
 He should be aware about the effects of his consumption on the environment. He shouldensure that his use
of products does not harm the environment.
 He should buy and use the products only as per his requirements.
 A consumer is responsible to promote and protect the interests of all the consumers.
4. Consumer Movement is a political movement.

Ans.: This statement is FALSE.[Consumer movement is neither political nor religious, but a socialmovement]
Reasons:
 The sellers are in a superior position ascompared to the buyers. This is because, theconsumers are spread
across a wide area and so it is not possible for them to unite andoppose exploitation.
 Many-a-times, they are not even aware about their rights and responsibilities as a consumer. However, it is
necessary to protect the consumers.
 Due to this, consumer movement came into picture. In a consumer movement, consumers come together to
 fight for their rights and protect themselves from any unfair trade practices or any exploitation by the
manufacturers /sellers.
 It aims at informing the consumers about their rights as consumers and the legal frameworkavailable for
their protection.
 The consumer organizations that work towards creating awareness among the consumersare non-political
and non-profit organizations. They work purely with the aim of consumerwelfare.
Thus, the above statement is false
5. In India, Consumer Protection Act is not required.

Ans.: This statement is FALSE.[In India, Consumer Protection Act is required]
Reasons:
 Manufactures / sellers exploit consumers in many ways like charging high prices, supplyingsub-standard
quality goods, etc.
 In India, consumers are unaware about their rights. Along with this, they are not even united, as they are
spread across a wide area and thus can’t oppose exploitation.
 Besides, their participation in making decisions which affects them is also lacking. Due to allsuch reasons,
consumers get exploited.

 Besides, the consumers didn’t have a common law to fight against the exploitation.
 Hence, Government introduced Consumer Protection Act; which specifies the rights andpowers of
consumers. The Consumer Protection Act also provides a mechanism to file acomplaint.
Therefore, Consumer Protection Act is required in India.
6. Order issued by District Forum on a complaint is final.
Ans.: This statement is FALSE.[The order issued by the District Forum on a complaint can be appealed in State and
National Commission]
Reasons:
 The Consumer Protection Act has set up a three tier quasi-judicial consumer redressalmachinery at
district, state and national level.
 A District Forum is a consumer redressal agency established by the state government in eachdistrict to
settle the disputes of consumers and manufacturers/ sellers at district level.
 The District Forum has jurisdiction over a particular district and can entertain complaintswhere the value
of goods and services and compensation, if any, does not exceed Rs. 20 Lakh.
 The order given by the District Forum is legally binding on both the parties.
 However, if a person is not satisfied with the order of the District Forum, he can then appealagainst such
an order to the State Commission within 30 days of the order.
 Also, the State Commission can call for the records and pass orders in any consumer dispute,that is
pending before the District Forum or has been decided by the District Forum withinthe state.
Thus, order issued by District Forum on a complaint is not final
7. The Consumer Protection Act was passed in the interest of the sellers.
This statement is FALSE.[The Consumer Protection Act was passed in the interest of theconsumers]
Reasons:
 TheConsumer Protection Act was enacted by the Government in 1986 with the aim toprotect the
consumers’ interest.
 It recognizes the rights of consumers and intends to protect them from various malpracticesand
exploitation by the manufacturers and sellers.
 The Act has created a quasi-judicial machinery at district, state and national level to entertainconsumer
complaints and give them compensation for any damage. Provisions have been made for setting up of
Consumer Protection Councils at the central and state levels to protect the rights of the consumers.
 The consumer protection councils established under this Act have simple, speedy andinexpensive
procedures to avoid unnecessary delay in dealing with consumer complains.
 The consumer redressal courts hear grievances of censurers regarding damages caused byunfair trade
practices, unsatisfactory services, defective products, unsafe products etc. and arranges for the redressal of
these grievances after due investigations.
 The order given by the consumer courts in case of any disputes is legally binding on both the parties.
Thus, the Consumer Protection Act ensures that the consumer's interests are protected.
8. The Government alone is fighting for consumer protection.
Ans.: This statement is FALSE.[The government, along with many Consumer Organizations undNGO’s are working
towards providing protection to consumers.]
Reasons:
 India has large number of consumers who are uninformed and unorganized. Also there is no unityamong
consumers. They are not aware about their rights and responsibilities as a consumer.
 Powerful manufacturers and sellers can easily exploit such consumers.
 The government has passed various Acts and also set up various systems to protect theinterests of the
consumers. However, these Acts could not provide protection to consumersin a complete manner.
 Also the consumers had no knowledge about the procedures to be followed to file a caseunder these Acts.
 The government thus enacted the Consumer Protection Act in 1986 to prevent theexploitation of
consumers and started creating awareness about the Act.
 The Consumer Organizations along with the government participate actively in creatingawareness among
 consumers and support them to file their complaints.
 Various mediums such as audio visual media, hoardings etc are used to promote the Act.
 Additionally, NGO’s function through protests, campaigns, lobbying etc. to provide support to consumers.
XII Commerce : Organization of Commerce & Management Principles of Management
6 Principles of Management
Management:
Management is a process of getting work done by co-ordinating and organizing resourceseffectively and efficiently to
achieve the desired goal.
Principles:
 Principle can be defined as “A basic generalization that is accepted as true and that can be used as a basis of
reasoning or conduct”.
 Principles are the basic rules that can be used as guidelines for making decisions.
 Since principles are only guidelines, it is advisable that they shouldn’t be followed blindly.
Principles of Management:
 Management is universal in nature and is a responsible task; and hence it cannot be done in arandom manner.
 It needs a scientific approach.
 Hence, the manager has to apply certain principles while managing a task.
 Principles of management provide guidance to the managers for taking managerial decisionsand performing the
managerial functions more effectively.
Nature of Principles of Management :

Q.1. What is the nature of Principles of Management?
OR
Write a short note on: Nature of Principles of Management.
Ans.: Principles of management are the statements of fundamental truth which provide guidance tothe managers for
taking managerial decisions and performing the managerial functions moreeffectively.
These provide the managers a basis for decision making.
The nature of principles of management is as follows: [Mnemonic: CAR-FIN]

i. Cause and Effect Relationship:
Principles of management help the managers in identifying the cause or the reason for aparticular effect.
 For e.g.Roping a celebrity / an athlete to do an advertisement for the company’s product orservice
(cause), increases the company’s sales and also increases its share value in the market(effect).
ii.
Aims at Influencing Human Behaviour:
 Management involves achieving the goals of the company througha group of people.
 In other words, management cannot be done in isolation.
 Management principles are formed in a waythat they can be used to influence people.
 The principles control and direct them to achieve the goals of the organization.
 For e.g. The manager treats all the team members fairly and takes into account everyindividual’s style of
working. He provides them the resources they need to carry out theirwork.
 Moreover, he even tries to bring out the creativity. This behaviour of the manager influencesthe
employees by giving them the space they need and motivate them to achieve goals.
iii. Relative in Nature:

 Principles of management are relative in nature i.e. applied in different ways in differentsituations.
 They are not absolute like the principles of science.
 They can be changed or modified as per the changing demand of the situation.
iv. Flexible in Nature:

 Principles of management are not rigid in nature i.e. they can be changed according to the situation.
 Flexibility is required as different organizations come across different situations and circumstances.
 In other words, management principles can be changed or modified to meet the requirement of the various
businesses in different situations.
v. Hold Equal Importance:

 All the principles of management areequally important in order to obtain fruitful results.
 Even if one principle is not followed by the manager, it may affect the working of the organization.
 All the principles should be simultaneously followed to achieve goals.
vi. Universal in Nature:

 Principles of management are universally applicable i.e. applied everywhere.
 They are applicable:
in all types of business situations
in all types of organizations (large or small),
to all levels of management (top level, middle level and lower level)
 For e.g. Sound management is not only required in large institutions/organizations like HDFCBank,
Reliance Ltd. etc. but its need arises even when managing a small eatery like the pani-puri stall at
Chowpatty.
Significance of Principles of Management :

Q.2. Write a short note on: Significance of Principles of Management.
OR
What is the significance of Principles of Management?
OR
Write a short note on: Needs of Principles of Management.
OR
Write a short note on: Importance of Principles of Management.
OR
State the importance of Principles of Management.
Ans.: Principles of management are the statements of fundamental truth which provide guidance tothe managers for
taking managerial decisions and performing the managerial functions more effectively.
The significance of principles of management is as given below: [Mnemonic: CSR – I2D]
i. Helps to Co-ordinate and Control:
 Principles of management help the managers to co-ordinate the activities of differentdepartments and
exercise a control over them.
 This certainly increases the control of the manager over the departmental activities.
 Through this, the goals of the organization can be achieved easily.
ii. Understanding Social Responsibility:

 Business organizations are a part of the society and in the modern world, they areexpected to contribute to
thebetterment of the society.
 This is necessary as each and every business enterprise gets its resources from thesociety.
 Profit making should not be the sole objective of businessorganizations.
 Principles of management help the managers to understand the responsibilitytowards the society.
 They direct the managers tofulfill this responsibility.
iii. Research and Development:

 Principles of management are dynamic and futuristic in nature.
 They change as per the changing demands of modern business environment.
 Principles have changed over the years to suit the modern business needs.
 As business changes, need for research and development increases.
 Therefore, the principles encourage research and development in an organization.
iv. Helps to lmprove Understanding:

 Principles of management help the manager in understanding the organization.
 The study of the principles helps him improve his understanding of the situations andproblems.
 It also facilitates finding effective solutions to the problems the organization is facing.

v. Helps in Increasing Efficiency:

 Management deals with managing people, i.e. the human resource.
 By applying the principles of management, the manager effectively handles employees,co-ordinates
activities of various departments, etc. thereby reducing wastage.
 All these activities contribute in increasing the efficiency of both, the employees as well asthe
organization.
vi. Helps to Develop the Objective Approach:

 Principles of management help managers to develop an objective approach while makingdecisions.
 Through this, manager can identify the problem and resolve it by considering the relevantfacts, logical
implications and viewpoints pertaining to an issue.
 This helps the manager to come up with unbiased solution to a problem.
 The objective approach builds confidence in managers.
Henry Fayol’sPrinciples of Management :

Q.3. DiscussHenry Fayol's 14 Principles of Management.
OR
Explain the Principles of Modern Management.
Ans.: Henry Fayol was a French mining engineer who later worked as a director of the mines andafter conducting
many experiments, he developed the 14 principles of management. HenryFayol has made significant
contributions to management and is therefore known as “The Fatherof Modern Management”. The
management principles are explained in his famous book “General and Industrial Administration.”
Stated below are the principles laid down by Fayol:
i. Principle of Division of Work:
 As per this principle, the total work should be divided into smallsub-parts and the divided work should be
assigned to different employees depending on their skills, interest and capacities.
 According to Fayol, when a sub-part of work is assigned to an employee, his productivityincreases leading
to specialization.
 For e.g.At any Dominos Pizza outlet, you can see that there are two counters. At one counter, orders are
taken and at the other billing work is done. The order is then passed to the kitchen staff. The cook prepares
the pizza and sends it back to the counter. Here, if we see, each one is assigned a task as per the skill and
capacity. Due to this division of work, the task of delivering the pizza is completed faster and more
efficiently.
ii. Principle of Authority and Responsibility:

 When a task is assigned to a person, he should be given the authority to make the decisionsrelated to that
task.
 This is required so that the taskcan be completed properly.
 At the same time, the personwho has been assigned the taskalso needs to take responsibilityfor the
completion of the task.
 In other words, authority andresponsibility always go hand-in-hand and if a manager has been given the
authority tocomplete a task within a given time, it is the responsibility of the manager, to complete thattask
within that particular time.
iii.
Principle of Discipline:
 As per Fayol, Discipline is the most essential attribute in an organization.
 Employees must obey and respect the rules of the organization.
 Discipline helps in achieving organizational goals.
 Sound discipline is a result of effective leadership.
 The rules and regulations of the organization should be clearly understood by the managersand employees
in order to ensure proper discipline.
 Few examples with regards to discipline are:
 In schools, teachers are not supposed to dress casually and have to report on time.
 Companies have a register and/or a biometric login, which employees have to update at thebeginning and
at the end of the day.

iv. Principle of Unity of Command:
One man one boss One man many bosses

(Right method) (Wrong method)
 The principle of unity of command emphasizes that is organization, every employeeshould receive orders
from only one superior (manager).
 This is applicable at all levels of management.
 If an employee is given orders by more than one superior, he will be confused and this will inturn affect his
performance.
 Instead, if the employee gets orders from only one superior, he will be able to perform thetasks effectively
and efficiently.
 For e.g.In the police department, a constable will take orders from the sub-inspector andthe sub-inspector
from the inspector and so on.
v. Principle of Unity of Direction:

 This principle states that a group working with the same objective should be directed by asingle person and
everyone in the group should follow one plan.
 In unity of command, the principle states that one person should get instructions from onesuperior, but the
Unity of direction speaks about a group or team.
 For e.g. The sales target of a company is 500 units. This will be the target of the entire sales team. In this
case, the sales manager should make one plan for achieving the target and each sales executive should
follow the directions of the sales manager. All sales executives shouldwork as per the plan made by the
sales manager.
vi. Principle of Subordination of Individual Interest to General Interest:

 As per this principle, the interestof the organization should begiven more importance than theinterest of an
individual.
 A manager shouldalwaysconsider the interest of a wholegroup than that of a singleperson.
 Similarly, the employee should also give importance to the organization’s interest first andthen to his own
interest.
 If the organization makes progress, it will eventually lead to the progress of the employee.
vii. Principle of Remuneration:

 As per this principle, the employees should be paid fair wages based on their skill, expertiseknowledge,
tenure, experience etc.
 This is needed as employees show better productivity and perform more efficiently whenthey are paid fair
remuneration.
 Moreover, this keeps them motivated and satisfied with the job.
viii. Principle of Centralization:

 Centralization refers to the concentration of power or authority.
 Generally, in small organizations the power/authority usually lies with an individual/a group of individuals.
 However, centralization becomes difficult in large organizations as there the power/authority needs to be
decentralized i.e., authority is given to different people like departmental heads,managers, etc. who are
responsible for the tasks assigned.
 As per this principle, there should be a proper balance between the centralization and decentralization of
authority and should be done on the basis of the size of theorganization, nature of the business etc.

ix. Principle of Scalar Chain:

 As per the principle of scalar chain, the communication system in an organization flows in anorderly
manner i.e. from top level to middle level and then to lower level and vice versa.
 For e.g. Communication from the departmental head to the supervisor and further from the supervisor to
the foreman and from the foreman to the workers. Similar flow of communication is also followed when
the information is to be passed in the reverse orderi.e., from the workers to the departmental head.
 However, this process is time consuming and there exists a chance that the exact messagemay not reach the
end person in the chain.
 Hence, sometimes cross communication (communication which is not as per the chain)should be allowed.
 This deviation from the standard process is known as ‘Gang Plank’; which helps in avoidingdelays. But, it
should be executed with prior and proper permission from respective authorities.
Time Consuming CommunicationTime saving with the permission of the boss

(Scalar Chain) (Gang Plank)
x. Principle of Order:
 As per this principle, manpower and material should be placed properly, in their right place atthe right
time.
 In other words, all the material of the organization should have a proper place and themanpower should be
appointed for the right job at the right time.
 This in turn, ensures proper utilization of physical and human resources.
xi. Principle of Equity:

 As per this principle, all the employees should be treated equally and in a fair manner.
 The principle further explains that managers should not discriminate between employees andshould be
kind and fair to all their subordinates.
 The work should be divided equally between the subordinates to the extent possible and there should be no
difference in the wages paid to the employees at the same level eventhough, they are in different
departments.
xii. Principle of Stability of Tenure:

 As per this principle, when managers are selecting employees for a job, they should give them assurance
for stability of their tenurewith the organization.
 This would give them afeeling of job security.
 Through this, the employee will take responsibility of the task assigned end put in his maximum efforts.
 Also, employees will get a sense of belonging towards the organization.
xiii. Principle of Initiative:

 Initiative means thinking of new ideas or taking the first step.
 As per this principle, workers should be encouraged to come up with new ideas andsuggestions as it
motivates them to perform better.
 Also involvement of employees in the process of decision making, makes them feel responsible for the
successful implementation of the decision.
 Thus, participation of workers in the process of decision making is favorable for both, theemployees as
well as the organization.

xiv. Principle of Esprit de corpse:

 Esprit de corpse means ‘union is strength’.
 As per this principle, manager should encourage the spirit of team work and unity among histeam
members.
 Through team work and unity, the goals of the organization can be achieved easily.
F.W.Taylor’s Scientific Management :

Q.4. What is Scientific Management? Explain the principles of scientific management indetail.
OR
Explain the concept of Scientific Management and discuss in detail the principles statedby F. W. Taylor.
Ans.: Meaning of Scientific Management:

 The concept of scientific management was introduced by Frederick Winslow Taylor(F.W.Taylor).
 He was an American mechanical engineer who experimented in the Midvale Steel Company,in the USA.
 He used a scientific approach towards management and hence he is known as the ‘Father ofScientific
Management’.
 Taylor conducted scientific experiments based on which he formed the principles ofmanagement.
 His principles are used in decision-making and solving management problems.
 He believed that management problems should be solved scientifically with the help ofexperiments rather
than thumb rules or trial and error methods.
Taylor's principles are based on the following four areas:
 Observation and analysis of each task.
 Determination of the standard of work.
 Selecting and training people to perform the jobs.
 Ensuring that the work is done in the most efficient manner.
Principles of Scientific Management:

The Principles of Scientific Management are as follows: [Mnemonic: PM’S CD]
i. Maximum Prosperity for Employer and Employees:
 Scientific management aims at giving maximum prosperity to the employer and theemployees.
 For this, the below mentioned points need to be considered:
Each employee should be given proper opportunity to attain his highest efficiency.
The employees should give maximum output.
There should be optimum utilization of resources.
ii. Mental Revolution:

 This principle requires complete change in the attitude of the management and employeeswith regards to
their relations.
 The below points should be considered for this change of attitude:
The manager should create suitable working conditions for the employees.
All the problems should be solved scientifically.
The employees should perform their jobs carefully and with devotion.
The employees should use the resources optimally.
Management should provide fair remuneration to the employees and boost their morale.
 This principle will help in achieving organizational goals, increase in production, creatingdiscipline in the
organization and creating a sense of belonging among the employees.
iii. Development of Science for each part of man’s job:

 This principle states that a manager should use scientific method to determine every activityperformed by
the employee.
 This can be done based on the following points:
Calculate the time required for each job by observing the employee.
Determine the amount of work an employee can perform in a day.
Find the best way to do a particular job.
Use systematic method for determining the job by using techniques like data collection,
analysis of data and then drawing conclusions.

iv. Scientific selection, training and development of workers:

 As per this principle, selection of an employee is a crucial task before the manager andtherefore, the
selection procedure of an employee should be perfect and systematic.
 This can be done with the help of the following points:
The procedure of selection should be scientific and not based on the judgment of a singleperson.
The physical, mental, technical or other qualities required for the job should be clearlydefined. This makes
the selection easier.
The employees should be selected on the basis of tests or interviews.
 The employees should be trained at regular intervals as training makes employees capable to survive in the
job.
 Managers should provide opportunities for development of workers having better capabilities.
 Manager should develop employees in such a way that employees show maximum efficiency.
v. Co-operation between Management and Employees:

 The relation between the management and employees should be harmonious, as properco-operation
between them will result in the achievement of organizational goals.
 Below points should be noted in this regard:
In the organization, emphasis should be given to co-operation between management andworkers and not to
individualism.
The goals can be achieved effectively only by co-operation.
 The interest of the management and the workers should be the same i.e. they shouldharmonize.
vi. Division of Responsibility:

 While dividing the work, there should also be division of responsibility between the managersand
employees.
 This can be done in the following ways:
The roles of different levels of managers and employees should be determined properly.
Managers should be given the responsibility of planning whereas employees should concentrate on the
execution.
 Employees can give their best performance with the help of this principle.
Q.5. What are the techniques of scientific management according to F.W. Taylor?
Ans.: The techniques of scientific management, as given by F. W. Taylor, help the manager to effectively implement
the principles of scientific management. These techniques are discussed below:
i. Time Study:
 This technique is used to calculate the time taken by an employee to complete a specific job.
 Time study is based on the average speed of a worker.
 The manager thereafter conducts a detailed study on every part of the total work and basedon this, the time
taken to perform the job is calculated.
 This will help not only in identifying the standard time to perform a task but also in decidingthe
remuneration to be paid to the worker.
ii. Motion Study:

 Motion study involves a close study of the body movements i.e. hands, legs and other bodyparts.
 The manager is required to observe such body movements of the workers and try toeliminate the ones that
are not required, or he may combine some actions in the process.
 This study increases the efficiency and the productivity of the employees.
iii. Functional Foremanship:

 As per this technique, a single worker is supervised by multiple foremen.
 While performing a job, a worker has to perform various small tasks.
While performing these small tasks, he should get guidance from different superiors and histasks should be
monitored by different supervisors.
 According to Taylor, work can be done accurately by this technique.
 However, this technique is the exact opposite of Fayol’s principle of ‘Unity of command’.

 As per Fayol’s principle, one subordinate can have only one superior and as per Taylor’sprinciple, one
subordinate can have many superiors.
iv. Standardization:
This technique implies two main things:
 Selecting the standard tools and equipments for production:
Management must ensure that they provide good quality of tools and equipments for production.
The superior and uniformquality of tools helps the workers to perform the assigned taskeffectively and
efficiently.
 Maintaining standard working conditions at the work place:
Management has to provide good working conditions at the workplace to get the best out oftheir
employees.
Employees work efficiently and put in their best efforts, if the working conditions arefavorable.
v. Different Piece Rate Plan:

 As per this technique, the workers are required to be paid based on their performance.
 In this method, a standard is fixed for production and those who produce above the standard get rewarded
with incentives and those performing below the standard get paid less as apenalty.
 As per Taylor, this technique encourages the employees to perform well and motivates thosewho have
underperformed to improve their performance.
vi. Other Techniques:

 Some other techniques have also been suggested by Taylor such as, use of instruction cards,strict rules of
discipline, use of charts, graphs, slides etc.
 These techniques are also used to develop better relations between employers andemployees.

I.Select the proper option from those given below and rewrite the complete sentences:
1. Management principles influence ------.
(A) Human Behaviour (B) Organization (C) Government
2. Management principles are ------ in nature.

(A) Static (B) Limited (C) Universal
3. A ‘Principle ------.
(A) Is a commandment to be followed
(B) Can be used as a guideline
(C) Can be interpreted in any way
4. Principles of management helpin developing the

(A) Subjective (B) Objective (C) Directive
5. Principles of management encourage ------ in an organization.

(A) Social responsibility (B) Research and Development (C) Both (a) and (b)
6. Concentration of power and authority is stated in the principle of ------.

(A) Centralization (B) Remuneration (C) Equity
7. According to the principle of ------, all employees should be given same treatment.
(A) Authority (B) Discipline (C) Equity
8. 14 principles of management are developed by ------.

(A) F.W. Taylor (B) Henry Fayol (C) Peter Drucker
9. Principle of ------ avoids conflicts in the organization.

(A) Scalar Chain (B) Equity (C) Centralization
10. ------ is the principle of specialization.

(A) Division of Work (B) Centralization (C) Discipline
11. The Principle of ------ states that there should be a fixed place for everything and every person.
(A) Equity (B) Order (C) Discipline
12. Management motivates the employees to ------.

(A) Work Hard (B) Take Initiative (C) Earn More
13. Management creates ------.

(A) Team Spirit (B) Groupism (C) Concentration of Power
14 . The book “General an Industrial Administration” is written by ------.

(A) Henry Fayol (B) F.W. Taylor (C) George Terry
15. Gang Plank is associated with the Principle of ------.

(A) Discipline (B) Order (C) Scalar Chain
16. According to Fayol, the most essential thing in an organization is ------.

(A) Centralization (B) A sense of togetherness (C) Discipline
17. Technique of study of ------ concentrates in the body movements of the worker.
(A) Motion (B) Time (C) Organization
18. E.W. Taylor is called as the father of ------ Management.

(A) Modern (B) Scientific (C) Technical
19. Principle that focus on complete change in the attitude of the employees is known as the principle of ------.
(A) Attitude Change (B) Scientific Management (C) Mental Revolution
20. The technique that is the exact opposite of Fayol’s principle of ‘Unity of Command’ is the technique of ------.
(A) Standardization
(B) Motion Study
(C)Functional Foremanship
21. Discriminating workers based on their efficiency is ------.

(A) Functional foremanship (B) Time study (C) Standardization
22. A manager can decide the remuneration to be paid to the worker based on ------.
(A) Motion Study (B) Time study (C) Standardization
One Word :
III. Write a word or phrase or term which can substitute each of the following:
1. The statements of fundamental truth of management.
2. In this principle, managers determine the cause or reason for a particular effect.
3. Father of Modern Management.
4. The principle of management which says unity is strength
5. The principle of management that says the work should be divided in parts.
OR
The principle of management which advocates that work should be divided into small sub-parts.
6. The principle of management explaining the importance of fair payment to workers.
7. The principle of management that states that manager should assure job security to theemployee.
8. State the name of the expert who put 14 Principles of Management.
9. The principle of management related to justice and kindness.
10. State the principle of management which emphasizes on ‘one superior for one employee’.
11. State the principle of management which refers to concentration of power or authority.
12 The principle of scientific management which explains the use of scientific method todetermine the activity
performed by the employee.
13. Father of scientific management.
14. The Principles of scientific management which talks about the change in the attitude of theemployees.
Ans.:
1. Principles of Management 2. Cause and effect Relationship
3. Henry Fayol 4. Principle of Esprit de Corpse
5. Principle of Division of work 6. Principle of Remuneration
7. Principle of Stability of Tenure 8. Henry Fayol
9. Principle of Equity 10. Principle of Unity of Command
11. Principle of Centralization
12. Development of science for each part of a man's job
13. Frederick Winslow Taylor
14. Mental Revolution
IV. Distinguish between: Unity of Command and Unity of Direction.
Sr.No. Unity of Command Unity of Direction

Meaning
1. Unity of command states that anemployee Unity of Direction states that each group inthe
should receive orders fromonly one superior, organization should have the sameobjective. Each
else the employeemay get confused and thus group should have anindependent plan and they
may notbe able to perform efficiently. should follow onemanager and work in the same
direction.
Reference
2. Unity of Command speaks about therelation Unity of Direction refers to a group workingwith
between a single employeeand his superior the same objectives to work in the samedirection.
(boss).
Motive
3. The motive of this principle is toavoid any The motive of this principle is to ensure thatall
confusion in the mind ofthe employee and to members in a team are working in thesame
facilitate theemployee to work with clarity. direction.
Basis
4. This principle is based on the idea ofone This principle is based on the idea of singleplan and
employee one superior (boss). single manager for one team.
True or False :
1. Principles of management are applicable to all types of organizations.
Reasons:
 Principles of Management are universal in nature.
 They provide guidance to the managers for taking managerial decisions and performing themanagerial
functions more effectively.
 Different organizations have different requirements and different types of problems and issues that need to
be handled.
 Management principles can be changed or modified to meet the requirement of the variousbusinesses in
different situations.
 Management principles also provide the managers with a basis for decision making.
Therefore, Management principles are universal in nature and applicable in all situations.
______________________________________________________________________________________________
2. Principles of management are rigid.
Ans.: This statement is FALSE. [Management principles are flexible in nature.
Reasons:
 Management principles are the unwritten rules that the managers follow while takingdecisions.
 They provide guidelines for decision-making.
 But at the same time, they are not followed as it is, like law.
 Management principles can be changed or modified to meet the requirement of variousbusinesses in
different situations.
Therefore, management principles are flexible in nature and not rigid.
______________________________________________________________________________________
3. Principle of Unity of Command and Unity of Direction are the same.
Ans.: This statement is FALSE. [They both are quite different in meaning and also in theirapplications]
Reasons:
 Unity of command speaks about the relation between a single employee and his superrior(boss).
 On the other hand, unity of direction refers to a group working with the same objective towork in the same
direction.
 Unity of command states that an employee should receive orders from only one superior,else the employee
may get confused and thus may not be able to perform efficiently.
 Whereas, unity of direction states that each group in the organization should have the same objective. Each
group should have an independent plan and they should follow one manager and work in the same
direction.

XII Commerce : Organization of Commerce & Management: Functions of Management
7 Functions of Management
Management :
Meaning of Management:
 Management is a dynamic, universal, flexible and continuous process.
 It consists of various functions, elements and activities.
 It is the process of achieving organizational goals by working with people.
Management Functions/Process :
Meaning:
 Management process consists ofseveral functions such as planning,organizing, staffing, directing,co-ordinating
and controlling.
 These functions are different fromorganizational functions such asproduction, marketing, finance etc.
 These functions are performed bymanagers functioning at all levels.
 If all the functions are carried outeffectively, then the desired goal ofthe enterprise can be achieved.
Definitions of Management Functions:

 According to George Terry, “there are four fundamental functions of managementi.e. planning, organizing,
actuating and controlling”.
 According to Henry Fayol, “To manage is to forecast and plan, to organize, to command andto control”.
 Luther Gullick has given a keyword to explain the functions of management: ‘POSDCORB’, where P stands for
Planning, O for Organizing, S for Staffing, D for Directing, Co for Co-ordination, R for Reporting and B for
Budgeting.
Planning :
Meaning of Planning:
 Planning is the basic and foremost function of management.
 All the other functions of management are dependent on the planning function.
 Planning involves setting objectives and developing appropriate course of action to achieve its objectives.
 It also helps to visualize the problems of the business and keeps the management preparedwith possible solutions.
 In other words, planning is to think logically about ways and means to accomplishpre-determined goals.
 Planning requires taking decisions, as it involves making a choice from alternative courses ofaction. Hence, it is
rightly said, “Well Plan is half done”.
Definitions of Planning:
 According to Koontz and O’Donnell, “Planning is deciding in advance what to do, how to do it, when to do it and
who is to do it. Planning bridges the gap between where we are now andwhere we want to go. It makes possible
things to occur which would not otherwise occur”.

 According to George Terry, “Planning is the selection and relating of facts and the making and using of
assumptions regarding the future in the visualization and formulation ofpurposed activities believed necessary to
achieve desired results.”
 According to James Stoner,“Planning is the process of establishing goalsand a suitablecourse of action for
achieving those goals”.
Q.1. What is Planning? Explain its nature.

Ans.: Planning is the basic and foremost function of management, It is the process of establishinggoals and a suitable
course of action for achieving those goals.
The nature of planning is as follows: [Mnemonic: D – EPIC2 – F2OG]

i. Dynamic Function:
 Planning is future oriented and hence unpredictable in nature.
 Plansshould, therefore, be flexible and practical to meet the changing businessrequirements.
Thus, planning is said to be a dynamic function of management.
ii. Efficiency:
 The basic objective of planning is to ensure optimum utilization of available resources (viz.men, money,
materials, methods and machines) and define a pre-determined path to carryout business operations.
 Through properplanning, the organization can achieve its objectives at the minimum possiblecost and can
also ensure reduced wastage.
 To sum up, an efficient plan saves time, efforts and money.
iii. Primary Function:

 Planning is the basic/ fundamental function of management.
 All other managerial functions are dependent on it and are carried out within the frame work of the plan
drawn.
 An effective plan helps in achieving the goals in a given period of time and in a desiredmanner.
 For e.g.You wish to celebrate your birthday which is in the coming month. For making the idea a
successful one, you will have to well in advance start planning for it by making a list of people you wish to
invite, short-list a few restaurants, etc. Post making the plan, you will startarranging stuffs as per the plan
drawn.
iv. Intellectual Process:

 A manager has to use his sound judgment, creative thinking, imagination, intelligence and foresight to
make a good plan.
 He has to make plans based on goals, facts and considered estimation.
Thus, the process of planning involves intellectual thinking.
 For e.g.: A school is planning to organize a two-day trip to Panchgani for primary school children. The
school is planning the said trip in winter. Therefore, the members in the organizing team need to take into
account the climatic conditions, emergency situations, first aid availability, etc. before planning the trip.
Theywill chalk out a plan based on these factors.
v. Continuous Process:
 Planning is a never-ending process.
 Plans are usually prepared for specific period of time and at the end of that period, they arethoroughly
reviewed.
 Once old targets are achieved, new targets are set and again the planning process begins.
vi. Planning is the Basis of Control:

 Planning and controlling are the two sides of the same coin i.e. they both are interrelated and inseparable
from each other.
 Planning precedes controlling and controlling succeeds planning. In simple words, planning islooking
ahead while controlling is to look back.
 Without a proper plan, control cannot be exercised and without proper control, planningbecomes a
meaningless activity.
 Thus, we can conclude that planning is the basis of control.
 For e.g.The audits that banks conduct on a regular basis is a form of a control technique. Itchecks whether
the company is maintaining necessary work standards and also theemployees are qualified enough to do
their job. It also checks if the work is being done as perplan made.
vii. Pervasive Function:

 Planning is required at all levels of management as well as in all departments of theorganization.
 However, its scope differs at different levels of management:
 Top level management: Undertakes planning for the organization as a whole.
 Middle level management: Specifically plans at departmental level.
 Lower level management: Implementation of the departmental plans by planning day-to-dayactivities.
viii.Future Oriented:
 Planning is essentially preparing for future events.
 A good planner will predict future trends and problems. He will analyze them and prepareappropriate
solutions.
 Future prediction is required as both, future uncertainties as well as opportunities, may affect the plan
drawn.
ix. Involves Options and Decision Making:

 A manager, while making a plan, is required to analyze several alternatives.
 Generally, there is more than one alternative available to a problem
 or a situation. However there can be only one best option among the various alternatives.
 The manager has to decide and select the best alternative, depending upon the needs andresources in the
organization.
x. Goal-oriented:
 Planning must be done in such a manner that the goals are achieved quickly and economically.
 It should act like a road map that leads to the goal.
 An organization pre-determines its goal and then makes a concrete plan to achieve its goal.
Q.2. What do you understand by the term “Planning” and give its importance.
Ans.: Planning is the basic and foremost function of management.
It isthe process of establishing goals and a suitable course of action for achieving those goals.
The importance of planning is as follows: [Mnemonic: COMEDIC ICU]

i. Provides Clear Objectives:
 The primary step of planning is setting objectives/goals for the organization.
 Planning helps in making the objectives clear and specific.
 When the objectives are clearly defined, it helps in the selection of the most appropriatecourse of action
from the available alternatives.
ii. Optimum Utilization of Resources:

 Resources, being scarce in nature, should be used optimally by the organization.
 Planning facilitates in appropriate allocation of resources; which ultimately helps in wastagereduction.
iii. Improves Morale of Employees:

 Effective planning brings order and discipline in the organization.
 A proper plan helps the employees know in advance what is expected of them and how toachieve the
targets that have been set. This further encourages them to perform well.
 Planning creates a healthy attitude among employees towards the work environment, whichindirectly helps
in boosting their morale and efficiency.
 For e.g.: XYZ Bank holds a meeting whenever it introduces a new process. In the meeting, employees
who are supposed to be the part of the meeting are called. There it provides a picture of the new process
with regards to its implications, the benefits of introduction,etc. Post discussing, a plan is chalked out
where deadlines are set and the employeesknow what is expected ofthem and their morale increases as they
know their actions will bring positive results.

iv. Increases Efficiency:

 Efficiency in planning refers to planning of a particular task in a way that it gets completed in lesser time
and in an appropriate manner.
 Through effective planning, the organization can ensure optimum utilization of resources.
 Thus, effective planning helps bring in efficiency.
v.Provides Direction:
 Planning gives direction to achieve the desired goals.
 It assists in the smooth and orderly functioning of activities.
 Planning, thus, helps in giving proper direction to the employees so that the work can bedone at the right
place and right time to achieve success.
 For e.g.: An event manager plans an event that he has to organize for a charitable function toraise money
for blind children. He plans it in such a way that the people working under himknow exactly what they
have to do, which chief guest they have to invite and how they have to send the invitation. The employees
know who to contact for decoration and lighting, etc
In other words, each and every detail is taken care by his staff. His plans have given a proper direction to
his employees.
vi. Integrated Process:

 Top level Management sets a goal for the organization and for achieving that goal, planning is done for all
the departments.
 As the departments are inter-connected in terms of working, their plans need to be integrated with one
another to achieve the desired objective.
vii.
Facilitates Controlling:
 Controllingis monitoring of goals that have been set in the planning phase.
 In simple terms, it refers to comparing the actual performance with the estimatedperformance.
 Planning identifies the goals to be achieved whereas controlling measures the actual performance against
the goals.
 While working, if any deviation is observed, the management can take immediate correctivemeasures.
 For e.g.: POR, an international accounting firm, plans for the future project by establishing a budget
indicating the labour hours required to perform specific services for each client. The firm implements its
plans by hiring staff for servicing each client and projecting the labour hours required. After the work is
performed, actual labour hours used to complete the work are compared with the budgeted labour hours.
This analysis is then used to evaluate whether employees were able to work within the projected time or
not. Planning here provided a basefor controlling.
viii.Encourages Innovation:
 Innovation means to renew or to create.
 While planning a future course of action, the managers may grab the opportunity ofsuggesting innovative
ideas for improving the performance.
 The execution of such innovative ideas leads to the further growth and prosperity of both,the employees as
well as organization.
ix. Facilitates Co-ordination:

 Planning involves setting of pre-determined goals.
 For achieving those goals, all the departments need to integrate their efforts and work in thesame direction.
 For such integration to happen, proper co-ordination among all the departments is required.
 Hence, it is rightly said that co-ordination is the essence of management and planning is its base.
x. Reduces Risk & Uncertainty:

 Planning helps in predicting uncertainties.
 Uncertainties can be caused due to change in technology, fashion & taste of people,government rules &
regulations etc.
 With the help of planning, a business organization can reduce risks as it involves anticipationof future
events.

 For e.g.: While writing exam, you tend to carry extra pens with you. Why? If a pen stopsworking or if the
ink gets over, you have a quick replacement; saving your time and helpingyou complete your paper on
time. This is an example of planning for future contingencies.
Organizing :
Meaning of Organizing:
 Organizing, the second function of management, refers to the process of bringing togetherphysical, financial &
human resources and developing productive relationship amongst themfor achievement of organizational goals.
 Organizing helps in creating an organizational structure i.e. through the organizing process, various positions to be
created in a company are identified and the organization structure is made.
 Organizing can be described from two perspectives:
Organization
As a Process As a Structure
a.Identification & Division a. Functional Organization
b. Linking Departments b. Divisional Organization
c. Defining Authority &Responsibility c. Line Organization
d. Establishing Relations d. Line & Staff Organization
Definitions of Organizing:
 According to Theo Haiman,“Organizing is the process of defining and grouping the activitiesof the enterprise
and establishing the authority relationships among them.”
 According to Louis Allen,“Organizing is the process of identifying and grouping the work tobe performed,
defining and delegating responsibility and authority and establishingrelationships for the purpose of enabling
people to work most effectively together inaccomplishing objectives.”
 According to McFarland,“Organization is an identifiable group of people contributing theirefforts towards
attainment of goals.”
Q.3. What is Organizing? Explain the nature of organizing.

Ans.: Organizing refers to the process of bringing together physical, financial & human resources anddeveloping
productive relationship amongst them for achievement of organizational goals.
The nature of organizing is as follows:

i. Process:
 Organizing is a step by step process where every step is important and each step is to beperformed by the
top level administrators. It includes the following eight steps:
Fixing the common objectives;
ldentify all the activities;
Grouping of associated activities;
Defining the responsibilities,
Delegating authority to staff members;
Establishing relationship between superior and subordinates;
Provision of requirements such as machines, materials, money for achieving the objectives;
and
Co-ordinating all the activities.
ii. Division of Work:

 Division of work is assigning responsibility for each organizational activity to a particularindividual or a
group of individuals according to their specialization and expertise.
 When work is divided among the employees, it increases their efficiency and effectiveness.

iii. Co-ordination:
 Organizational goal cannot be achieved in isolation i.e. by a single person. In other words,efforts of all the
employees are required.
 Hence, sound co-ordination between these employees is a must.
 Organizing establishes the required co-ordination among various departments so that the desired goals are
effectively achieved.
 It further helps in maintaining good relations among employees and ensures mutual co-operation among
individuals.
iv. Goal Oriented:

 Organizing as a function of management is goal oriented.
 It helps in achieving the individual goals of the employees with overall objectives of theenterprise.
v. Group of Individuals:
 Goal of organization is divided into goals of department. These goals are further divided intogoals of
employees of the respective department.
 In other words, organizing intends to divide the organizationalgoal among various groups.
 These groups, in turn, help in achieving organizations goals.
vi. Integration:
 Through organizing, the work is divided among employees and each employees is assigned aparticular
task.
 As and when each employee completes the assigned task, the organizational goal as a wholeis achieved.
 The organizing function focuses on the integration of work initially divided among the employees.
vii. Continuity:
 Organizing is a continuous process, where a group of people work towards a common goal.
 It does not end even after goals have been achieved. This is because, when one task iscompleted, another
goal is set by the organization.
Thus, organizing is a never ending process.
vii. Decision Making:

 Organizing involves decision making. Decisions can relate to the work allotment, employeesengagement in
a particular task, resource allotment & its usage, etc.
 All such decisions are taken by the top level management.
 Now, it becomes the manager’s responsibility to get the work done from its subordinates inthe most
efficient and effective manner.
ix.
Authority and Responsibility:
 Authority and responsibilitygoes hand-in-hand.
 If a manager is given a particulartask to perform, he becomesresponsible in completing that.
 He can discharge theresponsibilities only when he isgiven proper authority to takeright decisions at the
right time.
Thus, organizing helps in bringing balance between authority and responsibility.
 For e.g.: The teacher has a responsibility towards teaching the class. She will be heldresponsible if the
students don’t perform we in examinations. Similarly, if anyonemisbehaves, the teacher also has the
authority to keep student out of class / be firm with him/her. She has also been given the authority to teach
in her own style and methods.
Q.4. Define Organizing and explain its importance as a management function.

OR
What is organizing? Explain its significance.
Ans.: Organizing refers to the process of bringing together physical, financial & human resources anddeveloping
productive relationship amongst them for achievement of organizational goals.
The importance of organizing is as follows: [Mnemonic: GD - SURFACES]
i. Facilitates Growth:
 Organizing helps to bring in efficiency in the proper working of the organization.
 An organization’s growth is dependent on how efficiently and smoothly the employees of theorganization
work.
 Efficiency can be brought about by proper harmonization between authority andresponsibility, by
clarifying the work of the managers, by focusing on specialization, etc.
All this leads to growth and expansion of organization.
ii. Well Defined Jobs:

 Through organizing, jobs can be well defined.
 This is because; the organizing process helps in placing the right men in the right job.
 They do so by selecting qualified, skilled and experienced people for-various departments.
 This helps in clarifying the role and task of every person.
iii. Specialization:
 Organizing helps to bring in division of labour. Here, the tasks are divided among individualsand groups.
 As the employees keep on performing the task repeatedly, they attain efficiency; whichultimately results in
specialization.
 Specialization ensures that maximum work is completed in minimum possible time.
 For e.g.: In an IT company like Hurix or NIIT, there are specialized people and groups, who are assigned
different tasks viz. the content writers take care of content development, the programmers and integrators
write the program codes, etc. As this job is done repeatedly by the employees, they get better in their work,
which helps them complete their work fasterand that too with efficiency.
iv. Optimum Utilization of Resources:

 While organizing, the principle of division of labour and specialization is thoroughly applied.
 This function further stresses to make optimum use of available resources.
 Through this, the organization can ensure reduced wastages & mistakes; avoid overlapping of work, etc.
 For e.g.: The class had a few projects to complete on ‘Using Renewable Sources of Energy tolessen the
impact of Global Warming’. Accordingly, the class was divided into groups. Thework was divided, as per
the skill and liking of the group member.
It was divided as follows:
Good at art - drawing and sketching; Good with computer-aided tasks taking print outs,typing, etc; Good
with language - creating content for the project; Good with craft – theycome up with innovative ideas that
can be implemented like using paper and other stationerymaterials to create a globe and miniature models
of various sources of reusable energy, etc.
Here, we can see that, if every student’s ability is used optimally, then there will be lesswastage of time
and material. Also, the end product will turn out to be a good one.
v. Responsibility:
 Organizing helps in fixing the responsibility of the employees of the organization.
 Here, the employee is assigned some responsibility of a specific task; for which he is alsogiven the
authority of taking decisions with regard to that particular task.
 Now if the task is not completed properly, the employee will be held responsible.
vi.Dynamic Function:
 The process of organizing clearly defines therole and responsibilities of a manager.
 The manager have the authority as well as responsibility to carry out the task assigned.
 The manager can use his skill, talent, knowledge etc. and implement new processes like introducing
techniques of production etc. to achieve the organizational goals.
Thus, organizing is a dynamic function.
vii. Proper Authority:

 Organizing clearly defines the roles, responsibilities and authority giving power of each andevery position
in the organization.
 One is allowed to take decisions only to the extent of his authority defined in the jobdescription.
 The managers should be clearly made aware of how they are expected to exercise theirauthority.
 This will ensure that there is no misuse of the power and position.

 For e.g.A school teacher is not allowed to physically harm the students in a class. Now, the teacher in case
of mischievous behaviour of a student can’t harm him/her; but only guide and council the student.
viii. Innovation and Creativity:

 When the roles and responsibilities are clearly defined, an employee knows exactly what is he supposed to
do and how the task is to be performed.
 In order to accomplish the task efficiently, he will not only put in his best efforts but alsocome up with
innovative ideas.
 To discharge his responsibilities, he will be given authority to take decision relating to his task. Due to
which, he will be able to implement his innovative ideas.
ix. Effective Administration:

 While organizing, the principle of division of labour and specialization is thoroughly applied.
 The organization employs right men for the right job and at the right time.
 Due to which, the organization can bring in specialization. Also, the goals can be easily achieved.
 This leads to efficient and effective administration.
x. Job Satisfaction:
 Organizing aims at clearly defining jobs. Thus, employees are well in advance made awareabout what and
how much is expected from them.
 Proper description of the job helps the employees get clarity about the task to be performed.
 This increases the job and mental satisfaction of the employees.
Staffing :
Meaning of Staffing:
 After planning and organizing, the next function in the management process is to fill thevarious positions in an
organization. This function is known as Staffing.
 The basic principle of staffing is ‘right man for the right job’.
 It begins with planning for the number and type of employees required and includes variousother functions like
acquiring, recruitment, selection, training, development, remunerating,retaining people, promotion, compensation
and performance appraisal of workers.
Definitions of Staffing:
 As per TheoHaimann,“The staffing function pertains to recruitment, selection, development,training and
compensation of subordinate managers.”
 As per S.Benjamin,“Staffing is a process involved in identifying, assessing, placing, evaluatingand directing
individuals at work.”
 According to McFarland,“Staffing is the function by which managers build an organizationthrough the
recruitment, selection and development of individuals as capable employees.”
Q.5. Explain the nature of Staffing.

Ans.: Staffing is a process wherein employees are acquired, recruited, selected, trained, developed, remunerated,
promoted, compensated so that the right people are placed for the right job andthat too at the right time.
The nature of staffing is as follows: [Mnemonic: My FRESH CAR]

i. Motivation:
 Besides recruiting employees,staffing also provides training,promotion, appraisal, rewards(monetary as as
non-monetary) etc.
 The employees are moreover encouraged to attend various seminars which help them grownot only
professionally but also on a personal level.
 This motivates the employees to complete the assigned tasks on time.
ii. Managerial Function:

 Staffing is an important managerial function as all other functions depend on it.
 Human resource, being the most vital resource, is completely responsible for the growth ofthe
organization.
Thus, proper recruitment becomes important.
iii. Right Men at the Right Job:

 Staffing aims at placing right men at the right job and that too at a right time.
 In any organization, there is a need for people to perform work.
 Staffing function fulfills this requirement by finding the appropriate candidates.
 It can be done effectively through proper recruitment procedures and then finally selectingthe most suitable
applicant as per requirements and conditions of job.
iv. Efficient Management of Personnel:

 Staffing function involves recruitment, selection, placement, training and development,promotion,
appraisal, rewards (monetary as well as non-monetary) etc.
 Human resources can be efficiently managed by a proper process, which in turn motivatesthem.
This leads to the efficient management of personnel.
v. Social Responsibility:
 Staffing deals with people.
 It takes care of the selection, recruitment, training, remuneration, etc.of the employees.
Therefore, it becomes the social responsibility of the recruiters to take care of the employees and have a non-
partial attitude towards them.
vi. Related with Human Resource Management:

 Unlike planning, organizing etc. which is related to paper work, staffing involves interactionwith people,
employees and managers of the enterprise.
 Staffing function also deals with the human feelings. The manager in order to get the workdone efficiently
needs to properly manage the human resource.
Thus, staffing is said to be related with the human resource management.
v. Social Responsibility:
 Staffing deals with people.
 It takes care of selection, recruitment, training, remuneration, etc. of the employees.
Therefore, it becomes the social responsibility of the recruiters to take care of the employees and have a non-
partial attitude towards them.
vi. Related with Human Resource Management:

 Unlike planning, organizing etc. which is related to paper work, staffing involves interaction with people,
employees and managers of the enterprise.
 Staffing function also deals with the human feelings. The manager in order to get the work done efficiently
needs to properly manage the human resource.
Thus, staffing is said to be related with the human resource management.
vii. Continuous Process:

 Staffing is a never ending process.
 This is because, after employees are recruited, the organization has to provide training toimprove their
performance.
 As per the level of performance, the employees are then given increments, incentives andpromotion.
 Also, the employees may be given more training, either to develop new skills or to performthe same task
better.
 Moreover, as the organization grows through diversification or expansion, it would requiremore
manpower.
Thus, it is correctly said that staffing is a continuous activity.
viii.Pervasive Activity:
 Staffing is a pervasive function.
 It is carried out by all levels of managers i.e. from top level managers to lower level managers.
 It is required in all types of organizations where business activities are carried out.

ix. Result Oriented:

 Since staffing function provides training to its employees and also aims at recruiting right people for the
right job as per their specialization, qualifications and experience, it helps in achieving the organizational
goals efficiently.
Thus, it is said that staffing is result oriented.
Q.6. What do you mean by staffing and give its importance?

Ans.: Staffing is a process wherein employees are acquired, recruited, selected, trained, developed, remunerated,
promoted, compensated so that the right people are placed for the right job and that too at the right time.
The importance of staffing is as follows: [Mnemonic: H2ER PEBBLE]
i. Maintains Harmony:
 Staffing helps in bringing peace and harmony in the organization by conducting regularappraisals and
promotions; the standards for which are set and communicated to theemployees beforehand.
 The procedure of appraisal and promotions are carried out in a fair manner i.e. without anypartiality.
ii. Human Resource Development:

 Skilled and experienced staff is regarded as an asset of a business organization.
 Staffing contributes in the development of staff by giving them proper training.
 It also helps to inculcate corporate culture in the staff which in turn ensures smoothfunctioning of the
business.
iii. Improves Efficiency:

 Staffing helps in improving the organizational productivity by introducing training anddevelopment
programmes for the employees.
 This helps in bringing in efficiency.
iv. Optimum Utilization of Human Resources:

 Staffing function ensures utilization of human resources, effectively and efficiently.
 This can be done with the help of varioustraining and development programmes.
 This not only leads to progress of the organization but also improves the performance of theemployees in
the organization.
v. Provides Job Satisfaction:

 With proper training and development programmes, employees feel worthy and competentto perform their
roles to the best of their abilities.
 This helps the employees complete their tasks with ease; which results in increased morale.
 This brings in job satisfaction and they feel assured of their better career.
vi. Essential Contribution:

 Staffing has a long term impact on any organization.
 In other words, staffing is not only done considering the present business scenario but it alsohas to take
into account the future contingencies.
 It is therefore important, that selection of the employees is done after analyzing if they wouldbe able to
meet those contingencies.
vii. Better Performance:

 Staffing function helps in developing competence among employees so that they canperform better than
other employees to meet the challenges of their job.
viii. Builds Relationship:

 Through recruiting, promotionsand appraisals, good relationscan be built between managersand
subordinates and alsobetween employees.
 Good relations are a key toimproved communication andbetter co-ordination ofmanagerial activities in
anorganization.
ix. Long Term Effect:

 The recruitment, selection andtraining process is consideredimportant as it helps in buildinga quality staff.
 The success or failure of anorganization majorly dependson its employees.

 If disloyal and unskilled peopleare recruited, then theorganization’s reputation mayget damaged.
Thus, staffing has a long termeffect on the organization.
x. Effective Managerial Function:

 Human resource is the most important asset for any organization.
 Without human beings, other functions cannot be carried out.
 Staffing deals with the human resource of an organization.
 Therefore, it is considered as an effective managerial function.
Directing :
Meaning of Directing:
 Directing is the process of instructing, guiding, supervising and inspiring employees to achievethe objectives of
the organization. It is the process of getting the work done in actual.
 Directing is said to be the heart of management process. Other functions of management such as planning,
organizing, staffing do not have any relevance if direction function is notperformed.
 It is a continuous process. It is initiated at the top level and flows to the lower level in the hierarchy of the
management. A few philosophers call Direction as “Life Spark of anenterprise”.
Definitions of Directing:
 As per Haimann, “Directing consists of process or technique by which instruction can beissued and operations
can be carried out as originally planned.”
 As per Earnest Dale, “Directing is what has to be done and in what manner through dictating the procedures and
policies for accomplishing performance standards.”
 As per Urwick and Brech, “Directing is the guidance, the inspiration, the leadership of those men and women
that constitute the real case of responsibilities of management”.
Q.7. What is Directing? Explain the nature of Directing.

Ans.: Directing is the process of instructing, guiding, supervising and inspiring employees to achieve the objectives
of the organization. It is the process of getting the work done in actual.
The nature of directing is as follows:

i. Pervasive Function:
 Directing function is a pervasive function as it is needed at all levels of management.
 Every manager gives guidance and instructions to his subordinates.
 All the employees, from top level to lower level, perform the function of directing.
 Directing takes place wherever superior-subordinate relationship exists. However, the scope of directing
differs at different levels.
ii. Executive Function:

 Direction function is executed at all levels and is carried out by all managers throughout thefunctioning of
an organization.
 Here, a subordinate receives orders and instructions from his superior only.
iii. Human Factor:

 Just like staffing, directing is also related with human factor.
 It doesn’t deal with machines, money, materials and methods.
 As human beings are unpredictable and may react differently to the same situation, amanager has to use
tactful ways of guiding and instructing his subordinates.
iv. Continuous Process:

 A manager has to constantly give directions and motivate his subordinates till the completionof the
assigned task.
 Even after one objective is achieved, the process does not end as new objectives are set fornew tasks.
 Therefore, directing is a continuing activity in the process of management.

v. Creative Activity:
 Directing involves a manager’s skill to come up with innovative techniques to motivate andinstruct.
 He cannot follow a routine method.
 Human beings like interesting things/new techniques.
 Thus, directing involves creativity and innovation.
vi. Delegate Function:

 A manager’s duty is to delegate work to his subordinates.
 He has to do it carefully as human behaviour is unpredictable.
 The manager’s behaviour has to be such that the subordinate’s performance leads to thesuccessful
achievement of organizational goals.
vii. Directing flows from top to bottom:

 Directing is initiated at the top level and flows to the lower level in the hierarchy of themanagement.
 It means that every manager can direct his immediate subordinate and take instructions fromhis immediate
superior.
viii. Facilitates Co-ordination:

 Co-ordination means maintaining a balance between all the activities of an organization.
 This is possible only when a manager gives proper directions to his subordinates andmotivates them to
follow those directions to achieve organizational goals.
ix. Dual Objective:

 The directing function of management performs dual functions.
 Firstly, it helps getting the work done from sub-ordinates through proper guidance andsupervision.
 Secondly, managers can prove their leadership and managerial skills: by directing thesubordinates.
x. Psychological Factor:
 Since directing involves, dealing with human beings, a manager must be careful while guidingand
instructing his subordinates.
 The subordinates shouldn’t get hurt and insulted while being given orders.
Here the manager’s soft skills and creativity come in the picture.
Q.8. Explain the importance of Directing as management function.

Ans.: Directing is the process of instructing, guiding, supervising and inspiring employees to achievethe objectives of
the organization. It is the process of getting the work done in actual.
The importance of directing is as follows: [Mnemonic: IIM AT PEACE]
i. Integrated Efforts:
 Through direction, the efforts of one department can be related and integrated with otherdepartments. This
ultimately helps the organization to achieve its goals.
 In other words, the organizational goal cannot be achieved in isolation i.e. involvement of allthe employees
is a must.
ii. Exploring Potential of Individuals:

 It is manager’s duty to identify the talents of the employees working under him.
 Here, his leadership qualities and sound judgment will help him explore the hidden potentialof his
subordinates; thereby, getting the best out of each individual.
 This in turn will help the manager achieve the targets on time.
iii. Means of Motivation:

 The use of motivational techniques helps the manager to improve the performance of hissubordinates.
 The employees canalso be motivated by providing monetary or non-monetary incentives.
 When employees are motivated, they perform at the best of their abilities which ultimatelyresults in
efficiency and growth of both, the individuals as well as the enterprise.
iv. Initiates Actions:

 Directing is the initial step in implementation of task.
 In other words, it is from this function that actual action takes place.
 Subordinates understand their task and act according to the instructions given.
v. Team Work:
 Direction function promotes team work among the employees.
 The combined effort of all the employees brings in growth and success.
 By giving proper guidance, instructions and motivation to the employees, managers can playan important
role of encouraging team work among the employees to achieve organizationalgoals.
vi. Provides Stability and Balance:

 An organization’s value is based on its stability and the balance it maintains in times ofuncertainties and
losses.
 Directing can achieve this stability with effective leadership, communication, supervision andmotivation to
employees.
vii. Efficient Utilization of Resources:

 Through directing function, the resources of the organization can be properly utilized.
Proper guidance and instructions to the subordinates and motivating them in the rightmanner reduces
wastage, duplication of efforts, overlapping of performances etc.
 This moreover helps in increasing efficiency of the subordinates which leads to growth of theorganization.
viii. Adopting Changes:

 Every organization at some point has to undergo certain kind of change.
 It may be change in structure, technology, methods of production, management policies,guidelines etc.
 However, people do not like changes as they are habituated to the old ways of working.
 A positive environment has to be created for the acceptance of these changes.
 Hence, it is the role of manager to communicate the changes very clearly to the subordinatesand ensure
smooth implementation of the same.
ix. Co-operation:
 It is difficult to achieve organizational goals without co-operation, teamwork and efficiency.
 Directing helps to bring in co-operation and team work among the employees by guidingthem properly.
 Co-operation should be there between ‘different departments’ and ‘among the employees within the
department’ for the betterment of the organization.
x. Increase Efficiency:
 Sound Direction helps in increasing efficiency among the employees by adopting newtechniques and
methods which improves the quality of work and reduce wastage.
Co-ordinating :
“If everyone is moving forward together, then success takes care of itself”- Henry Ford
Meaning of Co-ordination:
 Co-ordination is the integration of the efforts of the group members of different departmentsto ensure unity of
action for the achievement of common goals.
 It is a hidden force which binds all other functions of management.
 It is needed at all levels of management.
 It is a process for developing harmony among individual efforts to achieve organizationalgoals.
 Through co-ordination, managers can avoid misdirection & wastage and improve theperformance of the
organization.
 A manager has to put special efforts for achieving co-ordination as it does not ariseautomatically or on its own.
Definitions of Co-ordination:
 As per Mooney and Reelay, “Co-ordination is orderly arrangement of group efforts toprovide unity of action in
the pursuit of common goals.”

 As per Henry Fayol, “Co-ordination is an act to harmonize all the activities of a concern so asto facilitate its
working and its success.”
 As per Koontz and O’Donnell, “Co-ordination is the essence of management for theachievement of harmony of
individual efforts towards the accomplishment of group goals.”
Q.9. Explain the characteristics of Co-ordination.

Ans.: Co-ordination is the integration of the efforts of the group members of different departmentsto ensure unity of
action for the achievement of common goals. It is a hidden force which bindsall other functions of
management.
The characteristics of co-ordination are as follows: [Mnemonic: T - CAP-PRICE]

i. Team Work:
 Achieving any goal requires a combined effort of the individuals working on it.
 Therefore, team work is vital for co-ordinating a particular task.
ii. Co-ordination is different from Co-operation:

 Co-operation is a much broader concept than co-ordination.
 The main objective of co-ordination is the synchronization of efforts of individuals so that noeffort remains
ineffective.
 The basic objective of the co-operation on the other hand, is to help each other and protectthe interest of
members arising from threats.
iii. Continuous Activity:

 Co-ordination is not a one-time function but a continuous process
 It begins at the planning stage and continues till controlling function of management
iv. Dynamic Process:

 Co-ordination is a dynamic process as management functions themselves are dynamic innature and keep
on changing over a period of time.
 These changes should be co-ordinated and implemented immediately so as to achieveorganizational goals.
v. Pervasive function:
 Co-ordination is a pervasive function.
 It is needed at all levels of management and in all the departments.
 Also, its need is felt in all sizes and types of organizations.
vi. Responsibility:
 Various activities are performed at different levels in different departments.
 It is the responsibility of managers to co-ordinate all these activitiesamong themselves andalso with his
subordinates.
vii. Integration:
 Co-ordination is the result of group effort and not an individual effort.
 While performing various activities, integrated efforts of all employees are required toachieve
organizational success.
vii. Common Objectives:

 In an organization, the common objective is to achieve the targets in a pre-determined timeperiod.
 This common objective can be achieved through proper co-ordination between all thedepartments and
employees of the departments.
ix. Essence of Management:

 Co-ordination is regarded as the essence of management as it is required in every function ofmanagement.
 The basic responsibility of the manager is to co-ordinate with the subordinates for achievingthe objectives.
 Co-ordination is needed in between top level & middle level management and also betweenmiddle level
management and the lower level subordinates.

x. Synchronization of Efforts:
 For achieving organizational goals, every manager tries to synchronize the efforts of hissubordinates with
each other.
 They do this through their various functions so that positive contribution can be made byevery individual
towards the achievement of organizational goals.
Q.10. Why is Co-ordinating function important as a management function?

OR
State the importance of Co-ordination.
Ans.: Co-ordination is the integration of the efforts of the group members of different departmentsto ensure unity of
action for the achievement of common goals. It is a hidden force which bindsall other functions of
management.
Importance of co-ordinating can be explained with the help of the following points:
i. Integrated Group Efforts:
 Co-ordination leads to integrated group efforts.
 It leads to team work and promotes team spirit among employees through proper guidance,motivation and
direction from the manager.
 This helps to reduce conflicts and encourage subordinates to work towards the achievement of
organizational goals.
ii. Creative Force:

 Co-ordination helps in achieving the desired results by synchronizing the activities of eachand every
employee. It forms a creative force.
 Combined efforts of all the employees can help an organization achieve its objectives as wellas to
overcome its limitations.
iii. Unity of Direction:

 Various tasks are assigned to various departments.
 Even though the tasks at department level are different, the employees still work to achievethe common
organizational goal set.
 For this to happen smoothly, proper co-ordination between various departments is a must.
Thus, co-ordination gives proper direction to all the departments.
iv. Facilitates Motivation:

 Co-ordination encourages employees by giving them opportunities to take initiatives, to showtheir
creativity and to perform better which in turn motivates them.
 Employees also get monetary as well as non-monetary incentives from the organization;which helps them
perform better.
v. Optimum Utilization of Resources:

 Co-ordination ensures proper utilization of both, human as well as non-human resources thatare available
in the organization.
 Optimum use of resources also helps to minimize wastage.
vi. Achievement of Objectives:

 Co-ordination is the integration of the work done by each employee.
 It ensures smooth functioning of the organization by reducing wastage, delays and otherorganizational
problems.
 This in turn, helps in achieving the objectives of the enterprise.
vii. Improves Relations:

 In an organization, every department is dependent on other department/s for carrying out itstasks.
Here, co-ordination not only helps to achieve targets, but also improves inter-departmental relations.
viii. Higher Efficiency:

 Efficiency can be measured in terms of returns and cost.
 Higher efficiency can be obtained by minimizing cost and expecting higher returns. This ispossible by
proper utilization of resources. Sound co-ordination helps the organization tobring in a balance between
returns and cost.
Hence, co-ordination leads to higher efficiency.
ix. Improves Goodwill:

 Higher sales, high returns and low cost leads to better prices of shares in the market.
 This helps the organization to-build a good image and earn goodwill.
x. Specialization:
 Different departments in the organization are lead by the specialized professionals in theirparticular fields.
For e.g.: MBA in finance heads theFinanceDepartment,MBA in Marketing heads the Marketing
Department, etc.
 Effective co-ordination among these professionals is a must.
 As they help the organization in achieving the planned targets of the enterprise.
Controlling :
Meaning of Controlling:
 Controlling is the last and indispensable function of management.
 It means ensuring that activities in an organization are performed as per the plans.
 It also ensures that an organization’s resources are being used effectively and efficiently for achievement of pre-
determined goals.
 The controlling functionidentifies the deviation of the actual performance from the standards, analyses the causes
of such deviations and enables corrective action.
 In the traditional times, control was used mainly when errors were detected. However, in themodern times,
controlling includes foreseeing the action and taking preventive measures atthe right time.
Control Process includes:

 Fixation of Standards.
 Measurement of Actual Performance.
 Comparison of Actual Performance with Standards.
 Analyzing the Reason for Deviation.
 Taking Corrective Action.
Definitions of Controlling:
 As per Philip Kotler, “Control is the process of taking steps to bring actual results anddesired results close
together.”
 As per Harold Koontz, “Controlling is the measurement and correction of performance inorder to make sure that
enterprise objectives and the plans devised to attain them areaccomplished.”
 As per Donnell, “Just as a navigator continually takes reading to ensure whether he is relativeto planned action, so
should a business manager continually take reading to assure himselfthat his enterprise is on right course.”
Q.11. What do you mean by Controlling and explain its nature?

Ans.: The controlling function identifies the deviation of the actual performance from the standards,analyses the
causes of such deviations and enables corrective actions.
The nature of controlling is as follows: [Mnemonic: CA DO ACCEPT]

i. Creativity:
 Managers should be creative and innovative in their thinking.
 They should adopt modern controlling techniques for achieving their targets.
ii. Acts as a Guide:

 The information system of an organization isdesigned on the basis of the control system.
 Every manager has full information about the performance standards expected in order tomeet the
objectives.
 The information system provides guidance in case of deviation and helps in the attainment ofobjectives.
 A manager can guide his subordinates based on the knowledge he has and thus act as theirguide.
iii. Delegation of Authority:

 Controlling essentially requires corrective action to be taken, if there are any deviations fromthe plan in the
actual activities.
 In order to take corrective action, the managers should have the authority to get the thingsdone.
 Therefore, controlling requires delegation of authority
iv. Future Oriented:

 Control is future oriented.
 It measures current performance and helps in taking corrective action by providing guidelines.
 This ensures future performance as per plans.
v. Action Oriented:
 Controlling aims at taking an action for improvement of performance and to take correctivemeasures
against any deviation.
 This helps in achieving the pre-set goals.
Hence, controlling is an action-oriented process
vi. Planning is the Basis of Controlling:

 Controlling is a process of examining and checking the performance as per the plan.
 Hence, we see that targets are set in the planning stage itself.
 It is rightly said that, planning becomes the base of controlling. In other words, withoutplanning,
controlling is not possible.
vii. Continuous Process:

 Controlling is not a one-time exercise.
 It involves a continuous review of performance and is needed at each and every stage so thatthe
performance can be compared with standards.
viii. End Function:

 When the performance of a particular task matches the pre-set plans, the task is said to becompleted.
 In otherwords, the performance has to undergo the controlling function for its successfulcompletion.
Therefore, controlling is the end function of management.
ix. All Pervasive:

 Controlling is all pervasive.
 It is required in every functional area, at all levels of management and in each unit ordepartment.
x. Tools of Management:
 Management uses various tools and techniques to control the organizational activities.
They are as follows:
 Financial Control:
It includes budgetary control, break-even analysis, control through costing, internal audit,responsibility
accounting etc.
 Operating Control:
It includes quality control, techniques for quality control, quality control through quality circleetc.
 Inventory control:
It includes ABC analysis, Time-Event Network analysis, Economic Order Quantity, Program
Evaluation and Review Technique (PERT)/ Critical Path Method (CPM) etc.
Q.12. Explain the importance of Controlling.

Ans.: The controlling function identifies the deviation of the actual performance from the standards,analyses the
causes of such deviations and enables corrective actions.

The importance of controlling is as follows: [Mnemonic: O PEACE COME]

i. Ensures Order and Discipline:
 Through controlling, regular checks are conducted on the activities of the employees.
 This creates an atmosphere of order and discipline in the organization.
ii. Psychological Pressure:

 Control creates a psychological pressure on the employees to perform better.
 Each employee is assigned a target.
 Every individual is aware that his performance will be evaluated and hence he is likely todeliver his best.
iii. Organizational Efficiency and Effectiveness:

 An organization is known to be effective when its goals are met with minimum wastage.
 Efficiency refers to optimum use of the available resources.
Hence, controlling ensures organizational efficiency and effectiveness.
iv. Accuracy of Standards:

 Many-a-times, it may happen that the set targets are not found accurate.
 Controlling not just checks if the set goal is duly achieved or not, but it also checks whetherthe standards
set are proper.
 In case of discrepancy or due to changing business environment, the standards may even berevised.
v. Facilitates Co-ordination:
 The managers are accountable not only for their own tasks but also for the work that is doneby their
subordinates.
 Simultaneously, they need to co-ordinate with managers of different departments to ensuresmooth
functioning.
 This in turn facilitates in eliminating deviations in their respective departments.
vi. Efficient use of Resources:

 Through various control techniques, a manager seeks to reduce wastage and spoilage of resources.
 Each activity is performed in accordance with pre-determined standards.
 This ensures that resources are used in the most effective and efficient manner.
vii. Corporate Image:

 Controlling function helps to earn goodwill and build a corporate image of the organization.
 Through controlling, overall performance of the organization is measured in terms of plannedstandards and
actual performance.
 Thereafter, deviations are detected and corrective measures are applied. This is done so thatthe
organizational goals can be achieved.
 This enables the organization to prosper.
viii. Fulfilling Organizational Goals:

 The controlling function measures progress towards the organizational goals, points out thedeviations, if
any, and indicates corrective action.
 It thus, enables the achievement of organizational goals.
ix. Managerial Responsibility:

 Managerial responsibility begins at the top level and flows to the lower level.
 It is created through assigning of various activities by the managers to their subordinates.
 Managers assign tasks to their subordinates and control them.
x. Improving Employee Motivation:

 Through proper controlling, the employees can be made aware well in advance, what isexpected from them
and what are the standards of performance.
 Once the desired goals are achieved, they are appraised and rewarded with monetary andnon monetary
incentives. This motivates them to perform better.


I. Select the proper option from those given below and rewrite the complete sentences:
1. Planning is ------.
(A) An Advanced Function
(B) A Basic Function
(C) An End Function
2. Deciding in advance as what is to be done, when it is to be done and who is to do it is ------ function of
management.
(A) planning (B) organizing (C) controlling.
3. The process of management starts with ------ function.

(A) Planning (B) Controlling (C) Co-ordinating
4. Planning helps in improving employee’s ------.

(A) salary (B) morale (C) knowledge
5. Planning is a ------ function.

(A) pervasive (B) limited (C) controlled.
6. In the keyword ‘POSDCORB’, the first ‘O’ and ‘B’ stands for ------.
(A) Opportunity and Business
(B)Organizing and Business
(C) Organizing and Budgeting
7. ------ is a management function.

(A) Marketing (B) Organizing (C) Finance
8. If planning is considered as a root of a plant, then its fruit is ------.

(A) organizing (B) directing (C) controlling
9. Division of work is involved in ------ function.

(A) planning (B) organizing (C) directing
10. Physical, financial and human resources brought together to develop productive relationships is ------
function.
(A) an organizing
(B) a directing
(C) a staffing
11. ------ is the principle of specialization.

(A) Division of work
(B) Centralization
(C) Discipline
12. Establishing a relationship amongst activities is ------.

(A) planning (B) organizing (C) co-ordinating
13. Staffing function is a ------ activity.

(A)basic (B) continuous (C) neutral
14. Staffing is concerned with ------.

(A) physical factor
(B) financial factor
(C) human factor
15. Staffing has a ------ term effect on the working of the organization.
(A) medium (B) long (C) short
16. Directing is initiated at ------ level.

(A) top (B) middle (C) lower
17. Directing is the responsibility of ------ at all levels.

(A) manager (B) worker (C) people
18. Through direction, the superiors are able to ------ the subordinates to work.
(A) Help (B) Guide (C) Benefit
19. Motivating an employee is a part of ------.

(A) controlling (B) directing (C) co-ordinating
20. Directing follows from ------.

(A) both ways (B) subordinate to his superior (C) superior to his subordinate
21. Aprocess to establish harmony among different activities to achieve desired result is ------.
(A) controlling
(B) co-ordinating
(C) co-operation
22. Unification, integration, synchronization of the efforts of group members so as to achieve common goals is
a ------ function.
(A) Planning (B) Organizing (C) Co-ordination
23. ------ is a hidden force which binds all the other functions of management.
(A) Directing (B) Controlling (C) Co-ordination
24. Management means to ------.

(A) order (B) co-ordinate (C) help
25. The last function in managerial process is ------.

(A) co-ordinating (B) controlling (C) motivating
26. Controlling measures the ------ of actual performance from the standard performance andhelps in
correction action.
(A) action (B) deviation (C) objective
27. Financial Control technique includes ------.

(A) Budgetary Control
(B) Quality Control
(C)Time - Event Network Analysis
One Word :
III. Write a phrase or a term which can substitute each one of the following:.
1. One of the functions of management is considered as a base for all functions.
2. A management function which is decided in advance as to what to do, how to do it, when to doit and who
is to doit.
3. A detailed programme for completing a task in the future.
4. The function of management that deals with setting targets.
5. The function of management which helps in foreseeing uncertainties.

6. The first and basic function of management.

7. The function of management, which identifies and divides the work of the organization.
8. A function of management that brings physical, financial and human resources together for better
productivity.
9. The function of management which lays down structure of duties and responsibilities ofmanagerial
personnel.
10. A function where right people are given right jobs.
11. A function where recruitment, selection, training, development etc. is done for the people.
12. Afunction directly related to human beings.
13. A function which helps in the development of human resource by giving them proper training.
14. A process where managers instruct, guide and communicate with employees.
15. A function which provides instructions from top level management to the lower level.
16. The managerial function related with instructing, guiding and inspiring people in theorganization to
achieve the goals.
17. A function rightly treated as essence of management.
18. An orderly arrangement of group efforts to provide unity of action to achieve common goals.
19. A function which brings unity of action in the organization by avoiding misdirection andwastages and
helps in improving the performance of the organization.
20. The function of management which involves harmonization and balancing of group efforts.
21. A function of management that ensures that actual activities match up to the plannedactivities.
22. A process where standards are set, actual performance is measured and corrective action istaken.
23. An end function where the performance is evaluated in accordance with plan.
24. A function without which planning is meaningless.
25. A management function concerned ascertaining whether the activities are carried out as perplan and take
corrective action.
26. A process of taking steps to bringing actual results and desired results closer together.
Ans.:
1.Planning
2.Planning
3.Planning
4.Planning
5.Planning
6.Planning
7.Organizing
8.Organizing
9.Organizing
10.Staffing
11.Staffing
12.Staffing
13. Staffing
14. Directing
15.Directing
16. Directing
17. Co-ordination
18.Co-ordination
19. Co-ordination
20. Co-ordination
21.Controlling
22. Controlling
23. Controlling
24.Controlling
25. Controlling
26. Controlling

Planning Organizing Staffing Directing Co-ordinating Controlling
Ans.:
Meaning
Planning is deciding in Organizing is the Staffing is the process Directing is concerned Co-ordination is the Controlling function
advance what to do, process of bringing of recruitment, with instructing, unification, finds out how far
how to do, who should together physical, selection, guiding, supervising, integration, actual performance
do it, when and where financial and human development, training, communicating, synchronization of the deviates from
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to do it. It requires resources and promotion etc. motivating and efforts of group standards, analyses the
taking decisions since developing productive inspiring people in the members so as to causes of such
it involves making a relationship amongst organization to provide unity of action deviations and helps to
Distinguish between :
choice from them for achievement achieve its objectives. in the search of take corrective actions.
alternative courses of of organizational common goals.
action. goals.
Objective/Purpose
The main objective is The main objective is The main objective is The main objective is The main objective is The main objective is
to set targets and to identify and bring to select right person to give direction to the to ensure unity of to ensure that the
choose the best together all the for right kind of job subordinates and to get efforts of the targets should be
alternatives among the resources. and at right time. the work done in the employees and smooth achieved as per plans.
various alternatives to right manner. functioning of the
achieve the targets. enterprise.
XII Commerce : Organization of Commerce & Management:
7.22
Order of Function
It is the basic and It is the second This function of Direction is always It is considered as an It is an end function of
foremost function of function of management comes needed. It follows important element of management. It
management. Planning management. It comes next to organizing as organizing and organizing and follows follows all other
is the starting point of after planning. human resources are staffing. planning. functions.
management process required for
and all other functions organization. It is the
of management are third function of
dependent on planning management.
function.
Area of Function
It includes setting It includes It includes activities It includes motivating, It is an integration of It includes the Fixation
targets, classifying identification and like recruitment, guiding, inspiring, several activities of Standards and the
alternate course of grouping of training, appraisals, communicating, performed by all the measurement of actual
action and selecting interrelated activities. promotions, transfers instructing etc. levels of management performance against
the best plan of action. etc. that are important for the standards set.
IV. Give a comparative chart of Planning, Organizing, Staffing, Directing, C-ordinating and Controlling
CS Shubham Modi
the working of an
organization.
Functions of Management
Planning Organizing Staffing Directing Co-ordinating Controlling
Factors
Internal as well Internal as well Mainly internal Internal factors Internal factors Internal as well
asexternal factors asexternal factors factorsaretakenintocon (human)are mostly aremostly concerned asexternal factors
areconsidered while areconsidered for siderationwhilestaffing concernedwith withco-ordination. areconcerned for
settinggoals/objectives makingarrangementof . directing. takingcorrective
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. resources. action.
Resources
Planning The main objective is It is concerned It is related to Co-ordination is All the resources
ismadeaccording to to identify and bring withhuman resources. givingdirections to anintegrated effort arerelated with
resourcesneeded for together all the employeesfor the relatedwith human controllingin order to
achieving thetargets. resources. usage of otherrelated resources. achieve thedesired
resources. targets.
XII Commerce : Organization of Commerce & Management:
7.23
Nature
It is continuous in It occurs till the time It is a continuous It is continuous in It needs continuity It is a process
nature.In other words, allthe resources activityas it deals not natureas it is needed sinceit is a process of whichbegins once the
planningis a never arecollected together. only with the till thegoals are co-ordinating human actualgoals of the
ending activity. processofrecruitment achieved. beings. enterpriseare achieved.
but
alsoinvolvestraining,a
ppraisal,
motivation,etc.
Level of Management
Top level management Both top and Middle level Middlemanagement Co-ordination is Top and middle
isresponsible for middlelevel managers managersare usuallyprovides neededat all levels that levelmanagers are
planningthe activities areresponsiblefororgan responsible direction to is fromtop to middle responsible for
of theorganization. izing the resourcesof forselection, theemployees in order level andfrom middle controlling activities.
the organization. recruitment, training, toachieve the to lowerlevel to
CS Shubham Modi
promotion etc. organizational goals. achieve thegoals.
Functions of Management
True or False :
1. Planning bridges the gap between where we are and where we want to go.
Reasons:
 Planning, the basic and foremost function of management, is the process of establishing goals and a
suitable course of action for achieving those goals.
Thus, planning is done to achieve the desired objectives of the business.
 It is future oriented i.e. it requires predicting the future and analyzing it for deciding thecourse of action to
achieve the goals set.
 It helps to direct human efforts into action. Due to which, the work becomes meaningful andactivities more
orderly.
 In simple words, it is deciding in advance what is to be done, when, where, how and by whom it is to be
done. It includes the selection of objectives, policies, procedures and programmes fromamong various
alternatives.
 Only through planning, a manager can give proper direction to his employees so that work can be done in
the right direction and results can be achieved.
 Planning facilitates the achievement of objectives by focusing attention on them. It requites the clear
definition of objectives so that most appropriate alternative courses of action arechosen.
Planning thus, bridges the gap between where we are and where we want to go.
2. Planning function alone can help to achieve organizational objectives.

Ans.: This statement is FALSE.[In order to achieve organizational objectives, all the functions of management are
required]
Reasons:
 Planning, the basic and foremost function of management, is the process of establishing goalsand a suitable
course of action for achieving those goals.
 It determines when, how and who is going to perform the specific task.
 Although planning is the fundamental and important function of management, it needs to be supported by
other functions of management such as organizing, staffing, directing, co-ordinating and controlling.
 The process of management consists of various functions which are common to all types oforganization.
These functions are overlapping in nature and are highly inseparable.
 The objectives of an origination can be achieved by the effective contributions of all themanagement
functions.
Thus, along with planning, other functions of management are also important.
3. Organizing is the process of defining and grouping the activities of the organization.
Reasons:
 According to Theo Haiman, “Organizing is the process of defining and grouping the activitiesof the
enterprise and establishing the authority relationships among them.”
 Organizing brings together physical, financial and human resources, thereby developing a productive
relationship amongst them for the achievement of organizational goals.
 It helps in defining the jobs properly which clarifies the role and task of every person.
 It also helps in grouping the related activities to form departments, divisions or sections.
 Organizing also creates a proper balance between authority and responsibility to enable the managers to
perform their duties and activities effectively to achieve the desired goals of theorganization.
Thus, organizing is the process of defining and grouping the activities of the organization.
4. Division of work is not required in organizing function.

Ans.: This statement is FALSE. [Division of work is required in organizing function]
Reasons:
 Organizational goals cannot be achieved in isolation i.e. efforts of all the employees as awhole is needed.
 Through organizing, the manager defines, departmentalizes and assigns the differentactivities to different
employees.
 In order to avoid wastage of time and resources, the entire work is divided into functions andsub-functions
and accordingly responsibilities are given. This is division of work.
 Tasks are assigned to employees based on their specialization.
 Thus,division of work leads to specialization as the activities of every employee in theorganization are
limited to the performance of a single task.
Division of work is therefore, an important part of organization as it results in an increase in theefficiency and
effectiveness of the performance of the employees and the organization as awhole.
5. Organizing gives job satisfaction to employees.

Reasons:
 In the process of organizing, right men can be put on right job by selecting qualified, skilledand
experienced people for various departments.
 This helps in defining the jobs, positions and authority properly and it also clarifies the roleand task of
every person. This further leads to division of work in an organization.
 Specialization is achieved through this division of work which leads to efficient and effective
administration.
 Specialization and clarity of authority help in increasing mental satisfaction and therebyimproves a sense
of security among employees.
Thus, the process of organizing provides job satisfaction to employees.
6. Staffing includes human resource management.

Reasons:
 Human resources are the foundation of any business. The staffing function deals with the human element
of management since the basic principle of staffing is putting the rightperson into right job.
 Managing the human resource is an important task as the organization's performance depends upon how
well this function is performed. If right kinds of employees are notavailable, it will lead to wastage of
materials, time, effort and energy, resulting in lowerproductivity.
 Staffing is related to human resource management. In simple terms, it is not related with paper work as in
the case of planning, organizing etc. rather it is related mainly with selectionof people, employees and
managers of the enterprise.
 Human resource perform various activities in the different functional areas like production,marketing,
finance etc. and utilize the other resources of the organization.
Thus, staffing includes human resource management. Staffing is an inbuilt part of humanresource management
as it is the process of selecting, recruiting, training and development ofpeople.
7. Staffing is just to determine the number of people required in the organization.

Ans.: This statement is FALSE. [Staffing means not only determining the number of people required, but also
ascertaining their training process, remuneration scale, appraisal process, etc.]
Reasons:
 The function of Staffing deals with people or human resource of an organization.
 It is not just to determine the number of people required in the organization but includesvarious other
functions such as acquiring, recruitment, selection, training, development,compensation, remuneration,
retention, promotion and performance appraisal of workers.
 Due to the resignations of existing employees and the requirements for new positions fromvarious
departments, staffing needs to be performed on à continuous basis.
 Since right men have to be selected for the right job, staffing should be done effectively through proper
recruitment procedures. Then the final selection of the most suitableapplicant as per requirements and
conditions of job should be done.
 Staffing function also makes proper utilization of human resource or employees selected with the help of
training and development programmes.
Hence, the above statement is false.
8. Staffing is a one-time process as people have to be appointed once.

Ans.: This statement is FALSE. [Staffing is a continuous process]
Reasons:
 Staffing involves dealing with the human resources and handling all issues related to theemployees in an
organization.
 It is the process through which competent employees are selected, trained, developed,rewarded and
 Staffing is required to be done in case of establishing a new business or expanding theexisting business or
if any employee in the organization has left or if he has been transferred,promoted or retired from the job.
Thus, staffing is a continuous process due to the recruitments, selection, transfers and promotions etc. of the
employees.
9. Every action in the organization is initiated through directing.

Reasons:
 Directing is an important managerial function. A manager has to perform this function along with
planning, organizing, staffing, co-ordinating and controlling while carrying out his dutiesin the
organization.
 Directing is said to be the heart of the management process. Other functions like planning, organizing and
staffing have no relevance without directing because it is through directionthat the work actually begins.
 Through directing, the employees are instructed, guided, supervised and inspired to achievethe
organizational goals.
 To sum up, whatever plans are made, can be put into action only when the actual workstarts. And the
actual work starts through proper direction.
Therefore, every action in the organization is initiated through directing.
10. Directing is not required at all in the management of the organization.

Ans.: This statement is FALSE.[Directing is required at every stage in the management of anorganization]
Reasons:
 In an Organization, people are employed to perform different jobs. However the actual workof getting the
job done comes under the directing function.
 Managers direct the sub-ordinates by guiding and motivating them throughout thecompletion of the task.
 Directing flows from the top level to the lower level.
 In the absence of direction, sub-ordinates will not know what they have to do and how theyhave to perform
a certain task. This may lead to wastage and duplication of work.
Thus, directing is required at every stage in the management process.
11. Directing function is not directly related with human factor.

Ans.: This statement is FALSE. [Directing function is directly related to human factor]
Reasons:
 Unlike other factors of production such as machines, money, materials and methods, directing function is
related to human beings.
 Since human factor is complicated and human behaviour is unpredictable, direction functionbecones
important for any organization.
 Through directing, the manager instructs, guides, motivates and leads employees to achieveorganizational
goals.
 In the process of directing, a manager gets an opportunity to prove his leadership andmanagerial skills.
Hehas to take care while instructing that he does not hurt the sentiments of any subordinate.
Directing is mainly about getting the work done from the employees and therefore is directlyrelated with the
human factor.
12. Co-ordination is same as co-operation.

Ans.: This statement is FALSE.[Co-ordination is different from co-operation]
Reasons:
 Co-ordination is a much broader concept than co-operation. It is the unification, integration and
synchronization of efforts of group members to ensure unity of action for theachievement of common
goals.
 Co-operation, on the other hand, is the willingness of group members to help each other toattain the
common objective.
 Co-ordination establishes formal and informal relationships in the organization whereas co-operation
establishes only informal relationships.
 Co-ordination is an orderly arrangement of group efforts to provide unified action to pursue goals. A
manager puts in special efforts to co-ordinate activities as it is does not happen on its own.
 Co-operation, on the other hand, is voluntary contribution of individuals or group ofindividuals to achieve
common interests.
Therefore, co-ordination and co-operation are not the same.
13. Co-ordination is the essence of management.

Reasons:
 Co-ordination is the unification and integration of the various efforts of the group members.
 It is a hidden force that binds all the other functions of management.
 It is an integration of the several activities performed by different departments for theworking of an
organization.
 Through co-ordination, a manager can synchronize individual efforts to achieve organizational goals.
 Co-ordination begins from the planning stage and ends at controlling.
 Co-ordination improves relations between different departments and levels in anorganization as all the
departments are inter-dependent.
Thus it can be said that, co-ordination is the essence of management as it is required whileperforming all the
management functions.
14. Co-ordination is needed at all the levels of management.

Reasons:
 Co-ordination is required at all levels of management due to the mutually dependent natureof activities of
various departments.
 In simple words, the plans made by the top level managers have to be co-ordinatedeffectively with the
middle and lower level of managers to ensure the smooth functioning ofthe enterprise.
 Moreover, the efforts of various departments such as finance, purchase, production and saleshave to be
well co-ordinated for achieving organizational objectives harmoniously because allthe activities of
different departments are inter-linked.
 In the absence of co-ordination, there will be overlapping and chaos and the desired goalswill not be
achieved.
15. Co-ordination is similar to staffing.

Ans.: This statement is FALSE. [Co-ordination and staffing are different]
Reasons:
 Co-ordination and Staffing are two separate functions of management.
 Co-ordination is the unification,integration and synchronization of the efforts of the groupmembers to
ensure unity of action for the achievement of common goals. It is a hidden forcewhich binds all the other
functions of management.
 Staffing, on the other hand, is ‘putting the right people on the right job’. It begins with employees planning
and includes various other functions like recruitment, selection, training, development, remunerating,
retaining people, promotion, compensation and performanceappraisal of workers.
 Co-ordination is required in all the management functions viz. it is required for Planning,Organizing,
Staffing, Directing and Controlling activities.
 The need of staffing arises in the initial period and also from time to time for replacement of employees
who resign. It is also required at the stages of expansion and diversification oforganizational activities.
Thus, Co-ordination and Staffing are two management functions that are interdependenthowever, are not
similar.
16. Controlling is an indispensable function of management.

OR
Controlling is necessary for management.
Reasons:

 Controlling is an important function of management. Management functions begin withplanning and end
with controlling.
 Control is a process of examining and checking the performance as per the plan made.
 Controlling measures the deviation of actual performance from the standard performanceand helps in
taking corrective action.
 It is an ongoing and dynamic function of management i.e. it involves a continuous review ofperformance.
 Controlling makes the optimum use of resources.
 An effective control system keeps a vigilant check on the changes that take place in theorganisation and
helps to review and revise the standards in light of such changes.
Thus, Controlling is an indispensable function of management.
17. Planning and controlling are interdependent and interlinked activities.

Reasons:
 Planning and controlling are inseparable functions of management.
 Once plans are prepared, controlling function becomes essential so as to measure theprogress and quality
of a pre-set task.
 If any deviation is observed, the controlling function initiates corrective actions. This is doneto ensure that
the performance is as per plans.
 It can be observed that, planning is looking ahead and controlling is looking back.
 Controlling has no meaning without planning and vice versa.
Thus, planning and controlling are interrelated and interdependent activities.
18. Functions of management has no role to play in success or failure of an organization.

Ans.: This statement is FALSE. [Functions of management play a major role in the success or failure ofan
organization]
Reasons:
 Management is a dynamic, universal, flexible and continuous process consisting of various functions such
as planning, organizing, staffing, directing, co-ordinating and controllingthrough which goals of the
organization can be achieved.
 Planning is the basic and foremost function of management. It involves deciding in advance what to do,
how to do, who should do it, when and where to do it. It requires taking decisionssince it involves making
a choice from alternative courses of action.
 Organizing is the process of bringing together physical, financial and human resources.
 The next function in the management process is to recruit people for the various positionscreated in the
organization. This is done by the staffing function.
 The next step is directing, which is concerned with instructing, guiding, supervising andinspiring people in
the organization to achieve its objectives.
 Co-ordination is the process of achieving harmony among individual efforts so thatorganizational goals can
be achieved.
 Controlling, the last function of management, is a process where standards are set, actualperformance is
measured, deviations are identified and corrective action is taken.
Thus, all the management functions play an important role in an organization as they all are interconnected and
interdependent.
19. Corrective action is not possible through controlling.

Ans.: This statement is FALSE.[Corrective action is possible through controlling]
Reasons:
An organization has limited resources and hence they have to be used efficiently. In the course of production,
sometimes resources are not used optimally and also targets are not achieved as per plans.
 In such a situation, the organization has to take the help of the controlling function. Controlling function
identifies the deviation of the actual performance from the standards,analyses the causes of such deviations
and helps to take corrective action.
 It also provides guidelines for future performance so that, such errors are not repeated.
 Some of the corrective measures could be improving techniques, training employees, cuttingdown
unnecessary processes, etc.
Thus, corrective action is possible through controlling.
XII Commerce : Organization of Commerce & Management: Entrepreneurship Development
8 Entrepreneurship Development
Entrepreneur E.
Introduction:
 Entrepreneurs play a vital role in the development of a country. This is because, a nation'seconomic growth is
largely dependent on its entrepreneurs.
 Before Independence, India's industrial base was poor Le they were facing issues likeshortage of raw materials,
lack of capital, competition, marketing problems, etc.
 Post-independence, the government realized the need for rapid industrialization. It thus,introduced industrial
policies, established entrepreneurship development institutions andadvisory bodies. One of the policies that was
framed was the Industrial Policy Resolution, 1948.
Meaning of Entrepreneur:
 The word Entrepreneur is derived from the French word, 'entreprende' which means to 'undertake'.
 An Entrepreneur has the skills to identify an opportunity or come up with a new idea. Heknows how to make profit
by utilizing that idea or opportunity. He has the initiative to take an idea forward, execute it, bear the risk and earn
profit.
 He acts as a leader by playing multiple roles viz of a owner, producer, co-ordinator, market creator, decision
maker, key planner, risk taker and innovator.
 Any businessman can be called an entrepreneur.
 He makes profit through his business.
Definitions of Entrepreneur:
 In the 18 Century, Richard Cantilon an Irishman, who lived in France, used the word "entrepreneur" for the first
time.
 Oxford English Dictionary defines an entrepreneur as "the director or manager who is successful in setting a
business. He is the one who provides the fourth factor of production, enterprise."
 The New Encyclopedia Britannica defines an entrepreneur as "An individual who bears the risk of operating a
business in the face of uncertainty about future conditions."
 As per Centilon, "An entrepreneur is a person who buys factor services at certain prices with a view to selling its
product at uncertain prices."
 As per Joseph A. Schumpeter, The process of development and continuous phenomenon which is actively
promoted by the escort services of a change agent who provides economic leadership. This change agent is called
an entrepreneur."
Entrepreneur's Role
Entrepreneurs support the growth and development of a country in the following ways :
 By organizing resources such as land, labour and capital to provide goods and services. Thus, they are referred to
as the fourth 'factor of production'.
 By improving the quality of goods.
 By improving the infrastructural facilities of the county.
 By supporting the development of rural and backward areas by setting up industries there.
 Increasing the productivity by using latest production techniques.
 By generating employment opportunities for various sections of the society.
 By contributing towards raising the standard of living.
 By undertaking export businesses and earn foreign currency for the country.
FYI :
 Business Tycoons:
This table shows the names of some of the top entrepreneurs of all times.

Walt Disney - Co-founder of the Walt Disney Company. Kumar Mangalam Birla - Chairman of theAditya Birla
Group.
Steve Jobs-Co-founder of Apple inc Jeff Bezos-Founder and CEO of Amazon
Azim Premji - Chairman of Wipro Technologies Narayan Murthy - Founder of Infosys
Mark Zuckerberg-Co-founder of Facebook Larry Page and Sergey Brin -Founders of google.com
Bill Gates Founder of Microsoft Corp. Ratan Tata - Chairman of the Tata Group of Companies.
Dhirubhai Ambani - Founder of the Raliance Industries. Adi Godrej - Chairman of Godrej Group.
Jamnala Bajaj - Founder of Bajaj Group V.G. Siddhartha - Founder of Café Coffee Day.
Entrepreneurship
Meaning of Entrepreneurship:
Entrepreneurship is the function of innovating something for the purpose of economic benefit. It is done by taking
risks, organizing and co-ordinating resources.
Definitions of Entrepreneurship "

 As per B. Higgins, "Entrepreneurship means the functions of seeking investment and production opportunity,
organizing an enterprise to undertake a new production process, raising capital, hiring labour, arranging the supply
of raw materials, funding site, introducing a new technique and commodities, discovering new sources of raw
materials and selecting top managers of day-to-day operations of the enterprise."
 As per A.H. Cole, "Entrepreneurship is the purposeful activity of an individual or a group of associated
individuals, undertaken to initiate, maintain or aggrandize profit by production or distribution of economic goods
and services."
 As per B.C. Tandon, "Entrepreneurship is the ability to create something new, organizing and co-ordinating and
undertaking risk and handling economic uncertainty."
Entrepreneurship Development
 Entrepreneurship Development is nothing but a process of helping an entrepreneur build his enterprise by means of
enhancing his skills through different activities.
Enterprise
 Enterprise is defined as a framework within which the decisions concerning what to produce, how much to
produce, when to produce and how to produce are taken into concern by the entrepreneur.
 In simple words, it is an organization which is involved in some or the other economic activity.
How are the three terms related with each other ?
Entrepreneur Entrepreneurship Enterprise
As entrepreneur is the Entrepreneurship is the An enterprise is a set-up

person who conceptualizes function performed by the established by an
an idea and makes profit entrepreneur like entrepreneur where all
by executing it. He is also innovating something to economic activities take
known as the organizer. gain economic benefit, place.
etc. Here, the entrepreneur
Here, the entrepreneur develops the products by
carries out the economic carrying out different
activities from start to end. functions.

Function and Need of an Entrepreneur

Q.1. Explain the functions and need of an Entrepreneur. Also state the entrepreneurial functions
enumerated by economist Kilby peter.
Ans. : An entrepreneur is the one who has the skills to indentify an opportunity or come up with a new idea and
knows how to make profit by utilizing that idea or opportunity. He has the initiative to take an idea
forward; execute it ; bear the risk and earn profit.
Functions and need of an Entrepreneur :

The functions and of an entrepreneur are stated below: [Mnemonic: D2IG - ROAD]
i. Determination of Objectives :
 an entrepreneur has to clearly set the aims and objectives of the enterprise.
 Along with this, he also needs to ensure that they are flexible in nature so that he can change them as
the situation demands.
ii. Taking Decisions :

 An entrepreneur has to take wise business decisions as it can impact the future of the company.
 To ensure success, he needs to back up his decision by a proper plan.
FYI :
 Dhirubhai Ambani had dreamed of making phone calls affordable to every Indian.
 In the year 2003, his son, Anil Ambani achieved this dream through the project Reliance India
Mobile by offering cheapest call rates at 40 paise per minute from reliance in addition to many other
offers.
iii. Innovation :
 In layman's language, innovation refers to renew or to create.
 Innovation may include: introducing a new effective process; or
 introducing a new product; or a new way of doing the same thing.
 The entrepreneur has to be an innovator and he must try & create new ways to make the enterprise
more profitable.
iv. Good Relations :

 In today's modern business culture, the entrepreneur has to maintain sound relation with the
customers, employees, subordinates, etc.
 This is important as the success of an enterprise largely depends on the way it maintains the relation
with others.
v. Risk Bearer :
 Risk and uncertainty are a part of any business activity.
 There are two kinds of risks involved in business viz. Insurable and Non-Insurable.
 The insurable risks can be handled by insurance policies.
 However, the entrepreneur must manage the non-insurable risks effectively by using adequate skills
and good judgment.
vi. Organizing Funds :

 Finance is the life line of any enterprise, without which its survival is endangered. Thus, the
entrepreneur must ensure that sufficient funds are available to that the enterprise functions smoothly.
 For this, he has to maintain good relations with the existing and potential investors.
vii. Acquiring New Technology :

 Only one thing stays constant i.e. 'CHANGE'.
 Technology changes rapidly.
 An entrepreneur has to be aware of the new and latest technology in the market so that he can upgrade
the machinery and equipments of the enterprise. This is also important from the viewpoint of
competition.

 For e.g. Now-a-days, many builders have started providing very unique feature of "Home
Automation" to its clients. Usually home automation includes centralized control of lighting, HVAC
(heating, ventilation of air conditioning), appliances, security locks of gates and door and other
systems Its main aim is to provide improved convenience, comfort, energy efficiency and security.
viii. Development of Market:

 The entrepreneur after understanding the need of the consumers, should try to launch the desired
products so as to suffice their demand.
 Along with this, he must also try to develop a market of his own by launching new and different
products at regular intervals.
Functions of entrepreneurs as per Economist Kilby Peter :

Kilby Peter was an economist who has enumerated 13 functions of an entrepreneur which areimportant for
the success of any enterprise They are stated as below :
 Perception of market opportunities.
 Gaining command over scarce resources.
 Marketing of products and responding to the competition.
 Dealing with the public bureaucracy.
 Managing human resources of the firm.
 Management of consumer and supplier relations.
 Financial management.
 Managing production.
 Acquiring and overseeing- assembly of factory.
 Industrial engineering.
 Upgrading process and product quality.
 Introduction of new production techniques and products.
Characteristics of an Entrepreneur
Q.2. Define Entrepreneur. Explain the characteristics of an entrepreneur.
Ans. : An Entrepreneur is the one who has the skills to identity an opportunity or come up with a newidea and
who knows how to make profit by utilizing that idea or opportunity. He has theinitiative to take an idea
forward, execute it bear the risk and earn profit.
Characteristics of an Entrepreneur :
An entrepreneur can be identified by certain characteristics which are common in mostentrepreneurs.Some
entrepreneurs however, have some unique and special characteristics. The common characteristics that can
be identified easily are as follows : [Mnemonic: MHT TAPS]
i. Mental Abilities (Intelligent) :
 Mental abilities refer to the combination of intelligence and creative thinking.
 This is needed to make wise and sound decisions.
 For an entrepreneur to think out-of-the-box, he needs to have creative thinking. Hence, creativity and
innovation go hand-in-hand.
ii. Hard Work :

 In order to achieve success in business, the entrepreneur needs to work hard.
 He has to invest long working hours and handle the main areas of the business independently.
 For e.g. Many well-known entrepreneurs of recent times have come up from rags to richesdue to their
complete dedication and sheer hard work.
 Famous examples are: Howard Schultz, CEO of Starbucks (His father was o truck driver).
Steve Jobs, the CEO of Apple inc. (He wa5 adopted by middle-class family. His parents hadleft him.
He was also a college dropout).
iii. Future Foresight (Predict Future Trends) :

 Entrepreneurs are visionaries.

 They have the ability to predict future market trends and business environment, which helpsthem to
take appropriate decisions and actions at the right time.
iv. Technical Knowledge:

 An entrepreneur should have all the technical information related to his product.
 Accordingly, he must upgrade his machineries and equipments, whenever required so as tomatch the
pace of the changing market situations.
v. High Goals (Ambitious):

 Entrepreneurs are self-motivated and aim very high.
 Their ambitious nature keeps them focused, strong and confident.
 Carrying such attitude, they can set up a prosperous organization.
vi. Highly Optimistic (Positive) :

 An entrepreneur is always optimistic and confident even if the business is making losses.
 Such attitude and thinking not only leads him towards achieving his goals but also keeps theemployees
motivated.
 It helps him overcome any adverse situation.
vii. Good Communication Skills:

 For the effective transfer of information from the sender to the receiver, it is important thatthe
informant on is communicated correctly, clearly and politely.
 An entrepreneur needs goad communication skills to talk with the suppliers, customers,employees;
creditors etc.
 This will in turn help maintain sound relationship with the employees as well as outsiders.
Characteristics of Entrepreneurship
Q.3. Define Entrepreneurship. Explain the characteristics of Entrepreneurship.
Ans. : Entrepreneurship is the function of innovating something for the purpose of economic benefit. It is done by
taking risks, organizing and co-ordinating resources.
Characteristics of Entrepreneurship :
The characteristics of Entrepreneurship are as below: [Mnemonic: MORE CIGS)
i. Managerial Skill and Leadership :
 An entrepreneur should be capable of leading and managing people as he has to run theentire business.
 He also has to keep his employees motivated to get the desired work done from them.
ii. Organization Building :

 In order to build a successful enterprise, the entrepreneur has to bring together variousfactors of
production. While doing so, place, time, form utility etc. need to be considered.
 For e.g. if one intends to set up a steel factory or an oil refinery, the factors that will support the
functioning of the enterprise have to be considered. An oil refinery cannot beestablished in the main
city or a steel plant cannot be set-up in a residential area. The climatic conditions, availability of place,
country regulations, availability of resources politicalenvironment of the locality and the time required
to start up a business have to be taken intoaccount before organization building.
iii. Risk Bearing :

 Every entrepreneurial activity has an element of risk or uncertainty involved in it.
 Risk can neither be insured, nor calculated.
 An entrepreneur is also called a risk bearing agent of production.
 For e.g. There exists a lot of risk in film making business Even after investing and strategizingon a
large scale, there is no assurance that the film will earn profits to the producer and the theaters where it
is screened.
iv. Economic Activity:

 Consumers require various products and/or services to satisty their ever-increasing wants.
 The demanded products and/or services are produced/provided by an entrepreneur, through which, he
makes profit.
 It can be clearly observed that the livelihood of an entrepreneur is majorly dependent on thebusiness.
Hence, it is an economic activity.
v. Creative Activity :
 Creativity forms an important characteristic of entrepreneurship.
 An entrepreneur has to use creative ideas at the time of designing/launching a new product/service.
 Hence, we can say that creativity and innovationgo hand in-hand.
vi. Innovation:
 The process of entrepreneurship is a result of Innovation.
 Innovation is the introduction of completely new combination of various factors of production.
 Here, the entrepreneur introduces a new product/service :
by making use of new production technology;
by discovering new source of supply of raw materials; and
by opening a new market for his product.
 Entrepreneurship also includes researching market trends and having knowledge of changing tastes of
consumers.
 For e.g. The shift from refined white flour (maida) based products to whole wheat products is change
in the market. Many companies conduct surveys to know consumer's tastes and thereafter, creae a
demand for their products. To cite one : 'Maggi' came up with Atta variant for health benefits and later
with multigrain variant.
vii. Gap filling Function :

 The gap-filling function forms the most important feature of entrepreneurship.
 It is the responsibility of the entrepreneur to fill the gap or make up for the deficiencies in the
knowledge of any business function and its practical application.
viii. Skillful Management

 Professional and skilled managers make the process of entrepreneurship a successful activity.
 Good managers know exactly when to create a relaxed atmosphere for the subordinates and when to
entrepreneur should have the ability to identify skilled managers and hire them.
Competencies of Entrepreneurship
Q.4. Discuss the various competencies of Entrepreneurship.
Ans. : Competence is a combination of knowledge, skill, motive, attitude and habits. It is the ability of an
individual to perform a job accurately. Every role/function requires some competencies.
The competencies of an entrepreneur set him apart from others. An entrepreneur can havecertaln inherent
competencies or abilities to perform a job to deliver optimum results. However, he can acquire few
competencies through training, guidance and experienceStated below is the list of competencies that result
in superior performance of entrepreneurs. [Mnemonic: COMP -SPEC-SIP2]
i. Quality Consciousness:
 Successful entrepreneurs always aim for excellence.
 They do not compromise on quality rather, they set very high quality standards forthemselves and
others working with them.
 Good quality helps earn goodwill in the market and also increases profits.
ii. Opportunity Seeker :

 Entrepreneurs study the market on a regular basis to spot opportunities which are beneficialto the
enterprise.
 They grab opportunities that are favorable for the enterprise.
iii. Monitoring/Supervising:
 An entrepreneur has to constantly monitor the activities of the enterprise.

 Regular monitoring ensures that the work is done in the best possible manner.
 Supervising also results in saving time and cost; as mistakes can be corrected at that veryinstant.
iv. Proper Planner :

 An entrepreneur systematically plans his moves for the achievement of his goals.
 In other words, he prepares a future course of action by making realistic plans and executes it properly.
 Proper planning brings success to the entrepreneur.
v. Sound Knowledge :
 An entrepreneur is an eager learner.
 He collects information from various sources such as different types of markets, expert. advices etc.
and conducts his own research to convert his ideas into reality.
vi. Problem Solver :

 Entrepreneur should interpret a problem as a challenge.
 With the help of brainstorming sessions with the management and taking expert advice, the
entrepreneur must adopt the best possible solution.
vii. Efficiency :
 An entrepreneur would always prefer completing work in lesser time and cost.
 Atthe same time, he would also ensure optimum utilization of resources.
 In addition, he may introduce new techniques or processes to make sure that the assigned. work is
completed efficiently.
viii. Committed to Work:

 Entrepreneurs are highly committed to their work.
 A successful entrepreneur will be ready to make every sacrifice to complete his work on time.
ix. Self-Confidence:
 Entrepreneurs are highly confident about their knowledge, skills, abilities, strengths andcompetencies.
 Their self-confidence helps them deal with difficult problems and uncertainties with ease.
x. Initiative:
 Initiative refers to the initial step taken for implementing a new idea or a plan.
 Entrepreneurs keep on trying something new and take steps for executing it.
 This is result of their constant urge of doing something out-of-the box.
xi Positive Attitude :
 An entrepreneur is always optimistic.
 His positive attitude is not affected by failures, Instead, he tries to learn from his mistakes.
 He believes in 'Try and try till you succeed'.
 Through such attitude, he can spread positivity in the organization.
xii. Persuasive:
 An entrepreneur possesses the ability and skill to convince his subordinates and peers to getthe work
done according to his ideas.
 He uses logic and reasoning to convince his team members and others to make them do as he pleases.
Entrepreneurship Development
Why is Entrepreneurship Development required?
Entrepreneurs hove an important role to play in the economic development of the country Theyprovide goods and
services to the people, generate employment, generate the flow of hoarded capital and raise the standard of living.
Looking forward, many individuals today ore planning toset up a business of their own, but don't know how to go
about it. Some may even lack thenecessary entrepreneurial skills.

Realizing the importance of entrepreneurs for the growth of the country, the government is creating a suitable
environment forthe development of entrepreneurship.
Q.5. Explain the process of Entrepreneurship Development.

Ans. : Meaning of Entrepreneurship Development :
 Entrepreneurship Development (ED) refers to the process of undertaking activities to help an
individual become an entrepreneur.
 It is done through structured training and institution building programmers.
 It helps a prospective entrepreneurial to set up his new business enterprise by enhancing his
entrepreneurial skills and knowledge.
 The aim is to enlarge the base of an entrepreneur in order to fasten the pace of new venture being set
up.
 Successful entrepreneurs also help in speeding up the process of employment generation; thereby
ensuring overall economic development.
There are three aspects involved in the process of entrepreneurship development. They are explained
as follows.
i. Training :
 The old school of thought believed that "Entrepreneurs are born and not made".
However, the modern school of thoughtdoes not agree with this belief.
It states that entrepreneurs may be born but, a lot of them can be created with the help of education and
training.
 Training is a scheme of instructions which is planned, systematic, consistent, pervasive and monitored
to measure its effectiveness. It is an integral input of managerial development.
 Training helps in building the skills that are essential in an individual as an entrepreneur.
 In the process of training, an individual is exposed to different experiences. He gets a chance to share
these experiences within and outside the industry. This helps him have different prospects and opens
him mind.
 Individuals get knowledge of marketing of goods, production methods, consumers' education etc.
 With the help of training, individuals get exposure to the latest updates which may directly or
indirectly benefit them.
The advantages of training can be understood as follows :

 Reduces excessive scraps, defective outputs an wastage in the production process.
 Improves the overall efficiency of an entrepreneur.
 Makes an entrepreneur open to use of new technology.
 Encourages team spirit.
 Standardization.
 Reduces fatigue.
 Minimizes industrial accidents.
Some methods of training are lecture method, demonstration method, individual instructions, group
instructions, meetings, conferences, seminars etc.
ii. Entrepreneurship Development Programmers (EDPs) :

 EDP was first introduced in Gujarat in 1970 and was sponsored by the Gujarat Industrial Investment
Corporation.
 An Entrepreneurship Development Program has been defined as - "A program designed to help a
person in strengthening his entrepreneurial motive and in acquiring skills and capabilities necessary for
playing this entrepreneurial role efficiently. "
 EDP does three important things :
It bring out the hidden qualities of an entrepreneur;
It motivates the individual to set up his venture; and
It helps him acquire skills and knowledge through training and guidance to manage and run his
business.
Objectives of EDP's :
 Foster Entrepreneurial Growth in the Country :
Promotion of entrepreneurial development will eventually lead to the development of the country.
Thus, the basic objective of EDP's is to produce more and more number of entrepreneurs.
 Optimum use of Available Resources :

In the process of EDP's aspiring entrepreneurs are trained for minimizing the wastages and developing
an effective and efficient management process.
This will ensure that there is optimum utilization of resources.
 Development of backward regions and improvement of the economic status of the socially
disadvantaged groups :
EDPs train the entrepreneurs to take benefits of subsidies and rebates provided by the government.
This can be done by setting up the industries in the specific zones / areas as specified by the
government.
Setting up of industries in such areas will lead to the development of the backward areas.
 Generation of Employment Opportunities :

EDPs encourage individuals to start new ventures.
When entrepreneurs take the initiative to set up an enterprise, they need manpower to runthe
enterprise.
Thus, more and more employment.
 Widening base for Small and Medium Scale Industries:
EDPs increase the scope for the small and medium scale enterprises.
Aspiring entrepreneurs are encouraged to set up businesses which are included in the small and
medium scale businesses.
This promotes the growth of small and medium scale businesses.
Good to Know :
 Mr. Narendra Modi has framed a new programme called "Skill India" under which individuals
will be trained for various skills that will further help them in their entrepreneurship
development.
 Under this programme, training and guidance will provided for all occupations. such as
carpenters, cobblers, soft skills, management skills, jewellery designing, construction, etc. By
2022, the programme aims to training 40.2 crore people.
iii. Specialized Entrepreneurship Development Agencies :

Various specialized agencies have been set up for the development of an entrepreneur by the State and
Central Governments/ The list of these agencies is given below:
 Small Industries Service Institutes (SISI)
 Small Industries Development Organizations (SIDO)
 National Small Industries Corporation
 Small Industries Extension Training Institute
 Entrepreneurship Development Institute of India
 Institute for Rural Management and Administration
 National Institute for Entrepreneurship and Small Business Development (NIESBUD)
 National Alliance of Young Entrepreneurs (NAYA)
 Maharashtra Centre for Entrepreneurship Development (MCED)
 Xavier Institute of Social Service, Ranchi
 Technical Consultancy Organization.
Entrepreneurial Values
Q.6.What are Entrepreneurial Value ?
Ans. :Values are a set belief system that a person inherits during the process of growing up. A person's value system is
shaped by the people around him and experiences he is exposed to in his life time. Values determine a person's
behaviour and attitude. Attitude and behaviour change with time and situations, but values most often remain the same.
In other words, a person can be judged by the values he has.

A List of Values (LOV) has been prepared by researchers. This list includes nine values that very individual may
possess. However, an individual's values can be understood by analyzing his entrepreneurial behaviour.
The nine values are classified into three dimensions :
Three dimensional classification of the Nine Values
External values : External values : Fun and Excitement Values :

1. Sense of belonging 1. Self-fulfillment 1. Excitement
2. Warm relationship with 2. Sense of accomplishment 2. Fun and enjoyment in life
others 3. Self-respect
3. Being respected
4. Security
i. External Values:
 Entrepreneurs are good at building relationships and networking, which enable them toexpand their
business.
 They cultivate warm relationship with others and have a high sense of belongingness.
 They want people to respect and look up to them.
 Thus, entrepreneurs display high degree of external values as compared to the non entrepreneurs.
ii. Internal Values:

 Entrepreneurs, especially the budding (new) entrepreneurs exhibit high levels of internalvalues.
 They have to display self confidence so that others trust their abilities.
 A sense of accomplishment helps them to carry out their tasks with confidence andefficiency.
 An entrepreneur needs to respect himself, be confident about what he does and how heachieves his
goal.
 These set of internal values make him stand out as against the non-entrepreneurs.
iii Fun & Excitement Values:

 The new or aspiring entrepreneurs will have the fun and enjoyment values low in them asthey are busy
setting up their business. They are serious about their work.
 Non-entrepreneurs also have fun but, at times they are fed up of the monotony in their jobs.
 They range from low to high on the fun and excitement scale.
Entrepreneurial Attitude
Q.7.What do you mean by Entrepreneurial Attitude? Which attitude traits enable anentrepreneur to achieve
success?
Ans. :Meaning of Entrepreneurial Attitude :
Attitude is the general manner of responding, either positively or negatively to a person, placething, or event (object of
the attitude).
Entrepreneurial Attitude is the attitude that an individual displays while recognizing an opportunity. An entrepreneur
will not let an opportunity for business slip through his hands.
Attitude Traits of an Entrepreneur:

The attitude traits that enable an entrepreneur to achieve success are as follow :[Mnemonic: SPEAR B3 EAM2]
i. Should not be afraid of Failures:
 An entrepreneur should be optimistic.
 He should not stop himself from trying new things due to the fear of failure.
 He should learn from every failed attempt.
 A smart entrepreneur takes calculated risks and moves ahead. In the words of Henry Ford; "failure is
the opportunity to begin more intelligently.

ii. Passion for the Business:

 An entrepreneur must be passionate about his work.
 Passion will make the work enjoyable and help him overcome difficulties.
 A passionate entrepreneur persuades clients to do business with him and also his employeesto work for
him.
 Such passion for his work can be seen in his behaviour.
iii. Ego should be Under Control :

 An entrepreneur is supposed to play the role of a motivator and thus, has to keep his ego completely
under his control.
 This is needed as decisions made in an egoistic state will only lead to downfall of the enterprise.
iv. Accept New Challenges Periodically to Pursue Something Important :

 People are resistant to change.
 Therefore, many-a-times the changes which are needed for the growth of the enterprise are ignored.
 These changes can be: accepting new technology or people or new missions, strategies, etc.
Entrepreneurs must be willing to Introduce these changes.
v. Rebound Quickly from Setbacks:

 A failure or loss should not demotivate the entrepreneur.
 He should have the ability to rebound (recover) quickly from setbacks. This is required as upsand
downs are a part of a business.
 He should learn from mistakes and move forward.
vi. Build Trustworthiness and Set an Example:

 Trust is an important trait that an entrepreneur needs to possess.
 Employees will prefer working with him in a culture of honesty and truthfulness even
thougheverything may not be perfect about the organization.
vii. Be Flexible except for Core Values:

 An entrepreneur should never compromise on his core values.
 However, he should be flexible to make changes / adjustments in his business strategies asper the
changing business environment.
 The core values give an enterprise a brand name, which passes on from generation to generation.
vii. Belief in oneself/Self-confidence :

 An entrepreneur even in the time of difficulties, should have immense belief in himself andthe work he
is doing.
 Only then, the organization will succeed.
 This is because, he passes on this confidence to all the people associated with hisorganization, such as
employees, customers, stakeholders, suppliers etc.
ix. Encourage Employees:

 An entrepreneur should always be approachable.
 He must encourage employees to come up with new ideas / suggestions; even if they are conflicting
with the opinion of the entrepreneur.
x. Asset of the Company :

 An entrepreneur is the major asset of the company. Therefore, he must take good care of his health.
 A healthy mind in a healthy body should be his motto.
 Good health will help him perform better and bring success to the enterprise.
xi. Make Decisions on Time:

 An entrepreneur should not delay the process of decision making.
 At the same time, he should avoid taking any hasty decision.
 A well thought decision at the right time helps in building goodwill in the market.

xii. Maintain Strong Work Ethics :

 Employees will always follow the entrepreneur.
 Hence, it is very important that the entrepreneur follows strong work ethics.
 Stong work ethics include sincerity, hard work, motivation, honesty, providing quality, etc.
Entrepreneurial Motivation
Q.8.What is Entrepreneurial motivation? What are the factors of motivation?
Ans.: The word motivation has been derived from the word Motive. Motive can be defined as an inner state of mind
that activates and directs the behaviour towards the desired goal.
Motivation can be of two types viz. Positive motivation and Negative motivation.
Positive motivation is said to happen when a person is motivated towards entrepreneurship by demonstrating the
benefits of becoming an entrepreneur.
On the other hand, negative motivation is said to happen when a person is motivated towards entrepreneurship by
demonstrating the risk associated with it.
Definitions of Motivation: goal

 As per Flippo, "Motivation is the process ofattempting to
influence others to do your willthrough the possibility of
gain or reward."
 As per Dalton E. McFarland, "Motivation refersto the way
in which urges, drives, desiresaspirations, striving or needs
direct control orexplain the behaviour of human beings."
 Motivation can also be defined as the process that inspires a behaviour motive
person to act and continue acting in the way that will get
him closer to his goals.
Elements in the process of motivation
Factors motivating an Entrepreneur:
Factors motivating an entrepreneur can be classified into two types Internal and External.
Internal Factors:
 Strong desire to do something.
 Educational background and technical knowledge.
 Business experience in the same or related line.
External Factors :
 Financial assistance from government and other institutions.
 Demand for the product.
 Availability of raw material, labour and machinery.
 Encouragement from big business houses.
 Profit margin.
Multiple Choice Questions

1. The word 'entrepreneur' is derived from the …………… word 'entrepreneur'.
(A) In cash (B) On credit (C) Online
2. 'Entreprende' means to …………………

(A) Undertake (B) Enterprise (C) Businessman
3. The Oxford English Dictionary defines an entrepreneur as the ………………. of a business.

(A) Secretary (B) Employee (C) Director
4. The term entrepreneur was first used by ………………

(A) J. Schumpeter (B) R. Cantilon (C) A.H. Cole

5. Entrepreneurs are referred to as ………………. 'factor of production'

(A) Fourth (B) Fifth (C) Sixth
6. Enterprise is an organization which is involved in some ……………. activity.

(A) Political (B) Economic (C) Social
7. 13 functions of an entrepreneur were enumerated by ………………

(A) J. Scumpeter (B) R. Cantilon (C) Kilby Peter
8. ……………….. among the employees of the enterprise will have great effect on the success of the
company.
(A) Co-ordination (B) Competition (C) Dispute
9. The mental abilities of an entrepreneur consist of creative thinking and ……………

(A) Intelligence (B) Dullness (C) Pessimistic Attitude
10. …………….. attitude is very important for the success of an enterprise.

(A) Pessimistic (B) Positive (C) Negative
11. ……………… is a pre-requisite to innovation.

(A) Intelligence (B) Positive Attitude (C) Creativity
12. The inner urge of a person to do something is …………..

(A) Initiative (B) Hard Work (C) Creativity
13. Entrepreneur observes and waits for the best opportunity for their enterprise as they have the competency
of being.
(A) Persuasive
(B) Opportunity seeker
(C) Optimistic
14. EDP was first introduced in …………….. in 1970.

(A) Maharashtra (B) Tamil Nadu (C) Gujarat
15. The EDPs are based on the experiments conducted by …………….

(A) McClellands
(B) Kilby Peter
(C) Joseph A. Schumpeter
16. …………… is not an objective of EDP.

(A) Helping Socially disadvantaged groups
(B) Identifying regions
(C) Identifying backward regions
17. Entrepreneurial …………… is measured in terms of the individual's attitude toward opportunity
recognition.
(A) Value (B) Attitude (C) Motivation
18. The basic element of the process of ……………… is motive, behaviour and goal.
(A) Value (B) Motivation (C) Attitude
19. Internal Values include …………….

(A) Excitement and fun and enjoyment in life
(B) Sense of belonging; warm relationships with others
(C) Self fulfillment; sense of accomplishment and self respect

Match the Pairs

1.
Group "A" Group "B"
i. Economic activity a. Self fulfillment

ii. Highly optimistic b. Entrepreneurship
iii. External values c. Passion
iv. Internal values d. A sense of belonging
v. Motivation e. Entrepreneur
f. Positive or negative
g. Benefit
h. Dimension
i. Necessity based
j. Market opportunity
Ans. : (i-b), (ii-e), (iii-d), (iv-a), (v-f).
2.
Group "A" Group "B"
i. Passion a. J. Schumpeter
ii. Motive, goal and behaviour b. Internal Factor of Motivation
iii. Strong desire to do something c. Entrepreneurial Attitude
iv. Profit Margin d. B. Higgins
v. List of Values (LOV) - 9 values e. Elements of motivation
f. Enterprise
g. External Factor of Motivation
h. Entrepreneurship
i. Three dimensions
Ans. : (i-c), (ii-e), (iii-b), (iv-g), (v-i).
One Word
III. Write the word or phrase or term which can substitute each one of the following :
1. An undertaking or adventure involving uncertainty and risk and requiring innovation.
2. A function of creating something new for an economic activity.
3. A person who is an innovator who introduces new combinations of means of production.
4. Uncertainty involved in an activity.
5. An entrepreneur can get the work done according to his ideas by sound arguments and logical reasoning with
the help of this competency.
6. A combination of knowledge, skills, motive, attitude and habits.
7. The process of enhancing entrepreneurial skills and knowledge through structured training and institution-
building programmes.
8. A scheme of instructions which is planned, systematic, consistent, pervasive and monitored to measure its
effectiveness.
9. The process that motivates a person into action and induces him to continue the course of action for the
achievement of goals.
10. The type of motivation when a person performs to earn rewards.
11. The type of motivation when a person acts in the fear of failure of frustration.
Ans. 1. Enterprise 2. Entrepreneurship

3. Entrepreneur 4. Risk

5. Persuasive 6. Competence
7. Entrepreneurship Development 8. Training
9. Motivation 10. Positive Motivation
11. Negative motivation.
Distinguish Between
IV Distinguish between: Entrepreneur and Manager.
OR
Explain the difference between the traditional and online buying and selling process.
Ans. :
Sr. No. Entrepreneur Manager
Motive
i. The main motive of an entrepreneur is to start a The main motive of a manager is to provide his
venture by setting up an enterprise to services to an enterprise owned by someone
implement his ideas. else.
Status
ii. An entrepreneur is the owner of the enterprise. A manager is a paid employee of an enterprise.
Risk-bearing
iii. The entrepreneur has to bear all the risks and A manager does not have to face any risks of
uncertainties associated with the enterprise as the enterprise as he is an employee.
he is the owner.
Qualities & Qualification
iv. The qualities and qualifications required for an The qualities and qualifications required for a
entrepreneur are - hard working, patience, manager are - education, technical skills,
foresight, high thinking, independence etc. specialized managerial knowledge, etc.
Innovation
v. Entrepreneurs are born Innovators. They set Managers only execute the plans prepared by
their own goals and work towards achieving the entrepreneurs. They only help in the process
them. of implementation of the plan.
Benefits
vi. Profit earned is the benefit that an entrepreneur Managers usually earn a fixed salary for the
get, however, there is no certainty that an services offered by them.
entrepreneur will always earn profit.
Decision Making
vii. An enterprise develops as per the ideas of an A manager only makes decisions related to the
entrepreneur. Thus, the decisions of an plans he is working on. He cannot make
enterprise are made by an entrepreneur. decisions for the enterprise.
Specialization
viii. An entrepreneur may not have any A manager is a trained professional and thus,
specialization in his trade but has sufficient has specialization in his field.
knowledge of his business.
True of False
1. An entrepreneur need not be innovative.
Ans. : This statement is FALSE.[An entrepreneur must be an innovator]
Reasons. :
 Innovation means to renew, change or create a more effective process / product / new way of doing
things.
 An entrepreneur has to be an innovator as he has to constantly create new methods of working to make
the enterprise more profitable.
 Through innovation, the entrepreneur can also solve problems more effectively and efficiently.
 Also, in view of changing taste of consumers, the entrepreneur must produce goods and/or services by
conducting research and development. This in turn satisfies the consumers.
Thus, it is rightly said, that an entrepreneur must be an innovator.
2. Training broadens the vision of entrepreneurs.

Reasons :
 Training is a scheme of instructions which is planned, systematic, consistent, pervasive and monitors
to measure its effectiveness.
 The traditional thinking that entrepreneurs are born and not made is changing in the current business
scenario. Through training and educating, efficient entrepreneurs can be nurtured.
 In the process of training, entrepreneurs are provided with suitable opportunities for exchange of
experiences from within and outside the industry.
 The exposure to these experiences helps in broadening the vision of entrepreneurs.
 Entrepreneurs have more scope to visualize situations based on the experiences of others instead of
experiencing the problem themselves.
Thus, training helps in broadening the vision of the entrepreneurs.
3. Attitudes build an entrepreneur.

Reasons:
 Attitude is the general manner of responding, either favorably or unfavourably to a person, place,
thing, or event (object of the attitude).
 Few attitude traits that an entrepreneur must possess are listed below :
Never be afraid of failures i.e. the entrepreneur must be optimistic in nature;
Passionate about his work;
Keep his ego under control and play the role of a motivator;
Ready to accept new challenges to persue something important;
Rebound quickly from setbacks;
Never compromise on the core values;
Making decisions on tome; etc.
 All the above mentioned traits are crucial to be a successful entrepreneur.
Hence, the above statement is true.
4. A successful entrepreneur is a Proper Planner.

Ans. : This statement is TRUE
Reasons:
 An entrepreneur adopts a very systematic approach for the achievement of goals.
 He develops a sound plan by preparing a future course of action, keeping in mind he goals to be
achieved.
 The entrepreneur has to ensure that plan is realistic and is executed properly.
 In simple words, only after proper planning, the entrepreneur can expect success in the goal desired.
Thus, it is said that, a successful entrepreneur needs to be a proper planner.
5. Motivation is an important factor in the development of an entrepreneur.

Reasons:
 Motivation is the process that influences a person to act in a certain way to achieve his goal or fulfill
his needs. It directs an individual's behaviour towards goal achievement.
 Motivation can be of two types viz. Positive motivation and Negative motivation.
 Positive motivation is said to happen when a person is motivated towards entrepreneurship by
demonstrating the benefits of becoming an entrepreneur.
 On the other hand, negative motivation is said to happen when a person is motivated towards
entrepreneurship by demonstrating the risk associated with it.
 Hence, it becomes very important that the entrepreneur is positively motivated. It is needed as then
only, he/she will give maximum efforts to achieve the desired goals.
6. Creativity is not a pre-requisite to Innovation.

Ans. : This statement is FALSE. [Creativity is a pre-requisite to Innovation.]
Reasons:
 Creativity is one of the characteristics essential for an entrepreneur.
 It refers to the ability to bring something new into existence and is a pre-requisite to innovation.
 Innovation and creativity go hand-in-hand i.e. for being innovative; an entrepreneur needs to be
creative.
 New ideas and ways to do things differently come through the creative mind of an individual which are
further brought into existence by imaginative people.

XII Commerce : Organization of Commerce & Management Board Question Paper
BOARD QUESTION PAPER : MARCH 2016

Time : 3 Hours Max. Marks : 80
Note :
i. All questions are compulsory.
ii. Figures to the right indicate full marks for the questions.
iii. Figures to the left indicate question numbers.
iv. Answer to every question must be started on a new page.
I. (A) Select the proper option from the options given below and rewrite the completed sentences: [5][15]
1. The maximum number of partners for a firm carrying on banking business is ………………
(A) 10 (B) 20 (C) 7
2. Door-to-door service is offered by ……………….. transport.
(A) Rail (B) Road (C) Air
3. Business organization is a part of …………..
(A) Industry (B) Government (C) Society
4. In modern competitive market, consumer is regarded as ……………..
(A) King (B) Agency (C) Superintendent
5. Planning is ……………….. function.
(A) Advanced (B) Basic (C) End
(B) Match the correct pairs : [5]
Group "A" Group "B"

i. Co-operative Society a. The Father of Modern Management
ii. 'e' Business b. President of national commission
iii. District Judge c. Not directly related to human beings
iv. F.W. Taylor d. Outsourcing
v. Staffing e. One share one vote
f. President of District forum
g. Father of Scientific Management
h. Electronic Business
i. Right people at right jobs
j. One member one vote
(C) Write a word or a phrase or term which can substitute the following statements : [5]
1. 'One man show' type of business organization.
2. A bank which is known as bankers' bank.
3. Name the modern process of constricting a business function to someone else.
4. Name the employees' organization protecting their rights.
5. Principle of Management that says that any work should be divided into small parts.

Q.2. Distinguish between the following : (Any three) [15]

1. Partnership and Joint Stock Company.
2. Current Account and Fixed Deposit Account.
3. Road Transport and Water Transport.
4. District Forum and State Commission.
5. Planning and Controlling.
Q.3. Write short notes on the following : (Any three) [15]

1. Features of Joint Hindu Family Business.
2. 'e' Business.
3. Significance of Principles of Management.
4. Rights of Consumers.
5. Any 'five' principles of management.
Q.4. State with reasons, whether the following statements are True or False: (Any three) [15]
1. The ownership and management is not separated in a Joint Stock Company.
2. Reserve Bank of India cannot accept deposits from public.
3. Post offices provide money remittance services.
4. Management should avoid workers' participation while making decisions.
5. The Consumer Protection Act was passed in the interest of the sellers.
Q.5. Attempt the following questions : (Any Two) [10]

1. State the features of sole trading concern.
2. State the social responsibilities of business organization towards government.
3. State the working of payment gateway.
4. State the functions of an Entrepreneur.
Q.6. Define Co-operative Society. Explain merits and demerits of Co-operative Society. [10]
OR
Define 'Controlling'. Explain its importance.

BOARD QUESTION PAPER : JULY 2016

Note :
v. All questions are compulsory.
vi. Figures to the right indicate full marks for the questions.
vii. Figures to the left indicate question numbers.
viii. Answer to every question must be started on a new page.
II. (A) Select the proper option from the options given below and rewrite the completed sentences: [5][15]
1. Indian Partnership Act was passed in the year ………………
(A) 1932 (B) 1923 (C) 1942
2. Overdraft facility is given to …………….
(A) Saving account (B) Current account (C) Fixed Deposit Account
3. In e-business, payments have to be made ………………
(A) In Cash (B) On Credit (C) Online
4. Ultimate goal of business must be the satisfaction of …………….
(A) Shareholders (B) Consumers (C) Owners
5. In he modern competitive market, consumer is regarded as the ……………
(A) Agency (B) Superintendent (C) King
Group "A" Group "B"

i. Private company a. One man one boss
ii. Principal of unity of command b. Basic function
iii. Planning c. 12 hours service
iv. ATM d. Maximum 50 members
v. Road transport e. One man many bosses
f. 24 hours service
g. Door-to-door service is possible
h. Unlimited members
i. End function
j. Door-to-door service is not possible
1. The senior most family member of a Joint Hindu family firm.
2. Getting good quality products is the basic right of this group of society.
3. A consumer disputes redressal forum working at state level.
4. Father of Modern Management.
5. A function of management directly related to human beings.


1. Co-operative society and Joint Stock Company.
2. Road transport and Water transport.
4. Co-ordinating and Controlling.
5. Private company and Public company.

1. Advantages of outsourcing.
2. Significance of principles of Management.
3. Features of a Sole Trading Concern.
4. Importance of Directing.
5. Functions of a Warehouse.
1. Co-operative society differs from other forms of commercial organizations.
3. Business organization does not have various types of social responsibilities.
4. 'Lok Adalat' is one of the effective ways to resolve consumer problems.
5. Principles of Management are rigid.

1. State responsibilities of business towards employees.
2. State the functions of an entrepreneur.
3. State he importance of planning.
4. State the rights of consumers.
Q.6. Define a partnership firm. Explain its merits and demerits. [10]
OR
Define Life Insurance. Explain the types of Life Insurance policies.

BOARD QUESTION PAPER : MARCH 2017

Note :
ix. All questions are compulsory.
x. Figures to the right indicate full marks for the questions.
xi. Figures to the left indicate question numbers.
xii. Answer to every question must be started on a new page.
III. (A) Select the proper option from the options given below and rewrite the completed sentences: [5][15]
1. The Karta in a Joint Hindu family business has ……………. liability.
(A) Unlimited (B) Limited (C) Joint
2. Perishable goods are stored in ………………..
(A) Bonded Warehouses (B) Duty Paid Warehouses (C) Cold Storage Warehouses
3. The process of contracting a business function to someone else is called as ………….
(A) E-business (B) Outsourcing (C) Trading
4. Businessmen are …………… of the society.
(A) Representatives (B) Members (C) Trustees
5. Government has established ……………. to settle consumers' disputes by compromise.
(A) Lok Adalat (B) District Forum (C) Supreme Court.
Group "A" Group "B"

i. Co-operative society a. Manager
ii. F.W. Taylor b. 12 hours service
iii. Directing function c. One member one vote
iv. ATM d. Government owned
v. Rail transport e. Father of scientific management
f. 24 hours service
g. Owned by private companies
h. Father of modern management
i. Maximum business secrecy
j. Worker
1. A partner who gives his name to a partnership firm.
2. Getting products of better quality is the basic right of this group of society.
3. A consumer dispute redressal agency that handles claims upto rupees twenty lakhs.
4. The principle of management which advocates that work should be divided into small sub-parts.
5. One of the functions of the management is considered as base for all functions.


1. Sole trading concern and Partnership firm.
2. Savings account and fixed deposit account.
3. District Forum and National Commission.
4. Organising and Directing.
5. Co-operative society and Joint Hindu family firm.

1. Disadvantage of e-business.
2. Any 'five' principles of management
3. Types of partners.
4. Importance of staffing.
5. Role of transport.
1. Maximization of profit is the object of a co-operative society.
2. e-business means using the internet to connect people and processes.
3. Business organizations have various types of social responsibilities.
4. Consumer protection act is not a blessing for the consumers.
5. Principles of management improve the efficiency of employees.

1. State the social responsibilities of a business towards consumers.
2. State the characteristics of Entrepreneurship.
3. State the importance of controlling.
4. State the rights of consumers.
Q.6. Define Joint Stock Company and explain its features. [10]
OR
Define Fire Insurance. Explain the various types of the insurance policy.

BOARD QUESTION PAPER : JULY 2017

Note :
xiii. All questions are compulsory.
xiv. Figures to the right indicate full marks for the questions.
xv. Figures to the left indicate question numbers.
xvi. Answer to every question must be started on a new page.
IV. (A) Select the proper option from the options given below and rewrite the completed sentences: [5][15]
1. Indian Partnership Act was passed in the year …………..
(A) 1932 (B) 1923 (C) 1942
2. Postal services are administered by ……………
(A) Private companies (B) Government of Indian (C) Panchayat
3. Credit or debit cards are popularly known as ' …………... Money'.
(A) Paper (B) Plastic (C) Polymer
4. To maintain industrial peace is the responsibility of organization towards ……………
(A) Customers (B) Employees (C) Society
5. Directing is initiated at …………….. level.
(A) Top (B) Middle (C) lower
Group "A" Group "B"

i. Government company a. Recurring deposit account
ii. Overdraft facilities b. Authorizes payments made online
iii. A.T.M. c. 49% share capital held by Government
iv. Trade Union d. Father of modern management
v. F.W. Taylor e. Job security
f. Current account
g. 51% share capital held by Government
h. Automated Teller Machine
i. Negotiations with management
j. Father of scientific management.
1. "One man show" type of business organization.
2. None profit and non political independent groups working for definite cause.
3. The principle of management explaining the importance of fair returns to workers.
4. The court established by Government to settle consumer disputes by mutual compromise.
5. A function of management where right people are given right job.


1. Sole trading concern and Partnership firm.
2. Savings account and Fixed deposit account.
3. District forum and National commission
4. Private company and Public company.
5. Planning and Organizing.

1. Merits of co-operative society.
2. Features of a joint stock company.
3. Merits and limitations of air transport.
4. Advantages of e-business
5. Elements of business ethics.
1. Maximum number of members in a joint hindu family firm is 20.
3. Business should not disclose their records to investors.
4. Consumer being the king of the market does not have any responsibilities.
5. Principles of management improve the efficiency of employees.

1. State the registration procedure for a partnership firm.
2. State the importance of consumer protection.
3. State any five principles of management.
4. State the factors motivating the entrepreneur.
Q.6. Define commercial bank. Explain its primary functions. [10]

OR
What is organizing? Explain the nature of organizing.

XII Commerce : Organization of Commerce & Management Model Question Paper
MODEL QUESTION PAPER - I

Note :
i. All questions are compulsory.
ii. Figures to the right indicate full marks for the questions.
iii. Figures to the left indicate question numbers.
iv. Answer to every question must be started on a new page.
I. (A) Select the proper option from the options given below and rewrite the completed sentences: [5][15]
1. The Consumer Protection Act was passed in the year ……………….
(A) 1920 (B) 1956 (C) 1986
2. For Partnership Organization minimum …………… number of persons are required.
(A) Two (B) Seven (C) Ten
3. Henry Fayol suggested ………… principles of management.
(A) 12 (B) 14 (C) 16
4. The business organizations should supply goods of …………….. quality.
(A) Low (B) Sub-standard (C) Good
5. Business Services are ……………. in nature.
(A) Homogeneous (B) Heterogeneous (C) Identical
Group "A" Group "B"

i. Private Company a. Maximum Loss
ii. Principal of Mitigation of Loss b. Seek legal remedy in the court.
iii. Payment gateway c. Maximum 100 members
iv. Fair Prices d. To minimize the loss
v. Principle of Unity of Command e. One man many bosses
f. Authorizes payments made at point of sale
g. One man one boss
h. Maximum 50 members
i. Responsibilities towards Consumers
j. Authorizes payments made online
(C) Write an appropriate word or phrase or a term which can substitute each of the following
statements. : [5]
1. An artificial person created by law.
2. The sub branch of e-business.
3. The managerial function related with instructing, guiding and inspiring people in the organization to
achieve the goals.
4. Janahit Yachika is also known as.
5. The function of management which involves harmonization of balancing of group efforts.

1. Partnership Firm and Sole Trading Concern.
2. Commercial Bank and Central Bank.
3. Planning and Controlling.
5. Bonded warehouse & Duty paid warehouses.

1. On-line transactions.
2. Principle of Scalar Chain.
3. Features of a Co-Operative Society.
4. Rights of Consumers.
5. Characteristics of an Entrepreneur.
Q.4. State with reasons, whether the following statements are True of False: (Any three) [15]
1. The maximum number of members in Joint Hindu Family Firm is fifteen.
3. Transportation plays a signification role in the development of business.
4. Business and environmental protection do not go hand in hand.
5. E-payment facility is not available to general public.
Q.5. Write short answers for the following : (Any two) [10]
1. State Henry Fayol's any 'five' principles of management.
2. Discuss the Limitations of Sole Trading Concern.
3. State the Social responsibilities of business towards shareholders.
4. Why is the enactment of the Consumer Protection Act important for consumers ?
Q.6. Define Joint Stock Company. Discuss its features. [10]

OR
What do you understand by directing? Discuss' the significance of directing as a management
function.

MODEL QUESTION PAPER - II

Note :
v. All questions are compulsory.
vi. Figures to the right indicate full marks for the questions.
vii. Figures to the left indicate question numbers.
viii. Answer to every question must be started on a new page.
II. (A) Select the proper option from the options given below and rewrite the completed sentences: [5][15]
1. The Reserve Bank of India is the …………….. bank of India.
(A) Development (B) Central (C) Commercial
2. Businessmen are ……………. of the society.
(A) Representatives (B) Members (C) Trustees
3. The process of management starts with …………………. function.
(A) Planning (B) Controlling (C) Co-ordinating
4. The liability of a Sole trader is …………..
(A) Unlimited (B) Joint (C) Limited
5. The Government has established …………….. to settle the consumer disputes by compromise.
(A) Lok Adalat (B) District Forum (C) Supreme Court.
Group "A" Group "B"

i. HTTP a. Compensation more than Rs. 20 lakh
ii. Indian Partnership Act b. Cheapest means of Transport
iii. State Commission c. Modern Principles of Management
iv. Division of work d. Encryption
v. Air Transport e. 1932
f. Scientific Principles of Management
g. Hyper Text Transfer Protocol
h. 1956
i. Costliest means of Transport
j. Compensation up to Rs. 20 lakh
(C) Write an appropriate word or phrase or a term which can substitute each of the following
statements. : [5]
1. The Father of Modern Management.
2. Wastage created from mobile phones, T.V. Sets, Laptops etc.
3. The person who manages and controls the Joint Hindu Family Business.
4. The term derived from the terms email and e-commerce.
5. A function of management that ensures that actual activities match up to the planned activities.


1. State Commission and National Commission.
2. Co-Operative Society and Joint Stock Company.
3. Life Insurance & Fire Insurance.
4. Planning and Organizing.
5. Rail Transport and Air Transport.

1. Types of Partners.
2. Concept of Business Ethics.
3. Techniques of scientific management.
4. Need of Consumer Movement.
5. Functions of an Entrepreneur.
Q.4. State with reasons, whether the following statements are True of False: (Any three) [15]
1. Duty paid warehouses help to provide storage for perishable commodities.
2. A Sole Trader has weak bargaining power.
3. It is easy to set up e-business as compared to traditional business.
4. Business organizations have no social responsibilities.
5. Transport helps in raising standard of living.
Q.5. Write short answers for the following : (Any two) [10]
1. What is net banking Transfer ?
2. State the responsibilities of consumers.
3. Define Partnership Firm and explain its features.
4. Explain the Principle of Centralization
Q.6. What do you mean by Join Hindu Family Business. Explain its merits and demerits. [10]
OR
What is co-ordination? Explain its importance.

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INDEX

S.N CHAPTER NAME PAGE NO

1 Forms of Business Organization

Sole Trading Concern / Sole Proprietorship :

Definitions of Sole Trading Concern:

Q.1. State the features of a proprietorship.

Unique Academy 1.1 CS Shubham Modi

iv. Profits and Loss Sharing :

v. Suitability for Special Businesses:

vi. Business Secrecy:

vii. Freedom in Selection of Business:

viii.Direct Contact with Customers and Employees:

ix. Government Control:

Q.2. Write a short note on: Merits of Proprietorship.

ii. Quick Decisions :

iii. Lower Costs-

vi. Less Operating Expenses:

ix. Business Secrecy:

x.Limited Government Control:

Q.3. State the Demerits of Proprietorship.

ii. Restricted Expansion:

iii. Unlimited Liability :

iv. Limited Managerial Ability:

vi. Unprofessional Decisions :

vii. Absence of Specialization:

Joint Hindu Family Business:

Unique Academy 1.4 CS Shubham Modi

Definition of Joint Hindu Family Business :

Meaning of Joint Hindu Family Business:

vi. Joint Ownership :

vii. Profits and Loss Sharing:

Unique Academy 1.5 CS Shubham Modi

ii. Credit Standing :

iii. Co-parceners' Liability:

vi. Quick Decisions :

vii. Business Secrecy :

vii. Continuity and Stability:

ii. Lack of Motivation:

iii. Lack of capital :

iv. Lack of Stability:

vi. Limited Managerial Ability:

vii. Restricted Expansion:

Definitions of Partnership Firm :

Q. 7. Explain the features of Partnership Firm :

ii. Joint Ownership :

vii. Profits and Loss Sharing:

viii.Principal Agent Relationship :

Q.8. State the Registration of Partnership and its procedure.

The procedure for registration of a partnership firm is as follow :

Effects of Non Registration for a Partnership Firm :

Benefits of Registration for a Partnership Firm:

Q.10 State the merits of Partnership Firm.

ii. More Financial Resources :

iii. More Manpower Resources :

iv. Good Relations :

vii. Rational Decisions :

ix. Simple Dissolution:

Q.11. What are the demerits of Partnership Firm?

ii. Lack of Capital :

iii. No Separate Legal Status :

iv. Risk of Implied Authority:

vi. Mutual Disputes :