OCBSE IN TELEGRAM TO GET FREE BOOKS.Weiss Commerce 2. Business-Concept 3. Types of Human Activities 4. Concept and Characteristics of Business 5. Multiple Objectives of Business 6. Role of Profit in the Business 7. Classification of Business Ac ities 8. Industry: Meaning and Types 9. Commerce 10. Business Risk 2. Forms of Business Organisations 1. Introduction 2. Forms of Private Sector Co-operative Or Formation Company 3 4 5, Important Documer {in the F 6. Choice of Forr i nterpris: 3. Private, Public and Global Enterprises 121 1, Introduction 2. Role of Private Sector vs. Public Sector since Independence . Forms/‘Types of Public Sector Enterprises . Multinational Companies/Global E: 3. 4. 5, Joint Venture 6. Public Private Partnership1 betrodoctor 2 Comcept of Social Respons 3. Social Responsibility Tows 4. Business and F & Business Eth Part B: I 7, Sources of Bu 1. Mea Nature Sou Source Bor & Small Business a 1. Entrepreneu. Concept, Char 2. Process of Entrey 3, Intellectual Property Right trepreneurship 4. Small Business: Introduct _ 5. Role of Small Business in Rural India 6. Government Assistance and Special Schemes for Industries in Rural, Backward and Hilly Areas2, Nature of External ‘Trade/International Business 3, Problems of International Business 4. Reasons for International Business 5, International Business vs, Domestic Business 6. Benefits of International Business (Need for International Business) 7. Mode of Entering into International Business 8. Export-Import Documents 9. Important Terms Used in External Trade 10. World Trade Organisation | Quick Revision ..... saidioetidirk i? asislaniteameiael saa vee 309 Part A: Foundations of Business errr 311 Part B: Finance & Trade Project Work (1-3) . +1353‘Contents as per Latest CBSE Syllabus History of Trade and Commerce Business—Concept Types of Human Activities: Economic and Non-economic Concept and Characteristics of Business Role of Profit in Business Classification of Busine: Industry—Meaning, Types Commerce —Trade, Auxiliaries to T . . . . = Objectives of Business—Economic, Social, Individual . . tivities—Industry, Commerce . . . Business Risk—Nature and Ca INTRODUCTION The chapter is divided i » section: ory of trade and commerce in ancient India. Section I! deal: he con n e of business. 1, HISTORY OF TRADE AND COMMERCE bordered by water in south. India got connected to India has Himalayas in the nc adjoining foreign countries through the network of roads leading to ‘The maritime routes linked the east and west by sea and were used for trade of spices, known as Spice Route. The progress of domestic and international trade in ancient India developed due to flow of ‘Wealth through these routes. Many trade centres and Industrial Belt also started, @PROCBSE‘became -yery popular. Hundi involved a contract which— nty the payment of money. It indicated an unconditional promise, Darshani who received payment. Eacshant Payable to a specific person only. Liability over Whall payment Darshani Hundi made payable Darshani Payable to the presente Muddati Payable over a fixed period to any person. No liability on who receive it Muddati Hundi payable on order following a fixed term. Muddati Drawn against di ved goods. If goods lost in tra holder bears the cost and drawee carries no liability. ‘Development of Indigenous banking system. This played a special role. digenous banks played a special role in lending money and financing domes Domestication of animals also help to generate surplus and saes played a very important role in promotion of trade. It includes : na ey aaa Agents, brokers, distributors for wholesale and retail trade: They helped in expanding trade and brought in huge amount of silver bullion into Asia and large share was in India. (ii) The institutions of Jagat Seths also played an important role during Mughal period and days of east India company. Bankers began to act as Executors and trustees. They charged high rate of interest on foreign trade. (ii) The emergence of credit tran activities. ns and availability of loans enhanced commercial India enjoyed a favourable balance of trade where export exceeded the import. (iv) Indigenous banking system benefitted the manufacturers, traders and merchants with additional capital funds for expansion and growth (vy) Later on, Commercial and Industrial banks also provided b short term and long term loans to trader 1,3 Transport Zand and water transport was popular during ancient time (i) Land Transport: Roads assumed a key role in entire process of growth. The Northern Roadways route had streched from Bengal to Taxila. There were also some trade routes in south spreading east and west. Trade routes were wide and suitable for speed and safety. (ii) Waterway Transport: Maritime trade was another important way of global trade Malabar © © Coast on which Muziris is situated has long history of international trade. Pepper known, ae black gold was traded through this route. It was in search of an alternative route to India for spices that led to discovery of America by Columbus, Coast was so popular that it was even visited by Chinese ships to acquire essential middle east as well as pepper, diamonds, pearls and cotton from India.ijarat, Rajasthan Bhats managed the trade. ntres Mahajan Communities represented their Chief called N inurban areas were: Hakim and Vaid (physicians), Waki rachers), Painters, musicians, Calligraphers, etc. 5 protect the interests of traders some corporations were formed, th Jown rules and regulations of membership, code of conducts, which ey supposed to accept and respect ‘Traders had to pay Octroi duties on imported goods, Trade and Industry a major source of Revenue. (3) Custom duties varied according to the communities, Tariffs varied from pro PG) The ferry tax was another source of income generation, it had to be paid for goods, cattle and carts. ~ 6) Local bodies used to receive tax (6) The guild (head of Mahajans) used to deal directly w ith the market toll on behalf of all the merchants. "(J The guild merchants also acted as custodian of religious interest. They. ; task of building temples and made donations by levying taxes on their met (8) Due to commercial activities big merchants gain power in society. for export of stones. hawar: It was an important export centre for wool and for importa Mithila: Mithila established trading colonies in South China especially in Yanan. (8) Ujjain: Agate, Carnelian, muslin and mallow cloth were exported from Ujjain to different centres. (9) Surat: Textile of Surat were famous for their gold border (zari). Surat's hundis were honoured in far off markets of Egypt and Iran, (10) Kanchi: Here Chinese used to come in foreign ships to purchase pearls, glass and raw stones and in return they sold gold and silk (11) Madura: It was the capital of Pandayas, It attracted foreign merchants particularly Romans for carrying out overseas trade. (12) Kaveripatta: also known as Kaveripatnam, it was scientific in its construction as city provided loading, unloading and strong facilities of merchandise. It was a centre of trade for perfumes, cosmetic, scents, silk, wool, cotton, corals, pearls, gold and precious stones. (13) Tamralipti: It was one of the greatest port connected both by sea and land with west and far east. It was linked by road to Banaras and Taxila. 1.4.3 Major Exports and Imports Major Exports included: Species, wheat, sugar, indigo, opium, sesame oil, cotton, parrots, live animals and animal products like hides, spins, furs, horns, tortoise shells, pearls, sapphire, quartz, crystals, Lapislazuli granites, turquoise and copper, etc Major Imports incl Horses, animal products, chinese silk, flax linen, wine, gold, silver, tin, copper, lead, rubies, coral, glass, amber, ete 1.5 Position of Indian Sub-continent in World Economy (1 AD UPTO 1991) (1) Between Ist and 7th Centuries: India was largest economy of the ancient and Medieval World, Controlling about one third and one forth of the world’s wealth. The country was referred as Swaranbhumi and Swaran deep in writ ngs of many travellers, ifo take roots in India in the mid 18th century. by oar provinces for purchasing raw ‘the condition of tes economy from being an exporter g and buyers of manufactured goods, started. When five year plan was implemented in 19 ue importance was of modern technological and sc nstitutions, space aii at rapid pace, due to fence and these efforts Indian economy could r formation, Rise in population, huge exper ources and finally "Asaresult, India relied heavily on borrowings ! ¥ liberalisation in 199) ‘economy is one of the fastest gro Incomes, savings, investment opportu population ensures growth for deca in the world, ased domestic ¢o1 are likely to grow at <Chapter 1 Nature and Purpose of Susiness: Make in India is ar encourage national The major object sectors of the econo! 1, Autome 3. Aviatior 5. Chemical: 7. Defence 1 9, Electronic Syst 11. Information 1 12. Leather 14. Mining 16. Pharmaceutical: 18. Railway 5 20. Roads and Highwa 22. Textiles and garmen’ 24. Tourism and Ho: 2. BUSINESS—CONCEPT All human beings, wherever they are, are required to perform some or the other activity {0 satisfy their needs. They pursue different occupations to earn a livelihood and to get some Psychological satisfaction. Activities which human beings undertake are known as human aapeople with the object of earning money J with production, exchange and dis hould be expectation of moj ‘are undertaken by ix These activities are concer? "The purpose ‘of economic activ n of wealth or asset s and services. ‘used for further creatio sxamples of Economic Activiti or retailer, working in @ fa Production of go 1 as a doctor, lawyer, Wal actory, practisin, can be divided into three categories: 2. Profession 3, Employment usiness refer: fs to those economic activities which are conmee’refers to an activity in which an individual works regularly f and gets remunerated in return. Those who are employed by others are .as employees. The persons who engage others to work regularly for them are known . The remuneration paid by employer to employee is known as salary or wage. BREE ef exiploymacat: Working in offices, banks, insureace companies, shops, as a ‘manager, clerk, peon, salesman etc. | 1. | Commencement | Business may commence Profession may Employment commences with the decision of commence on on joining duty by entering entrepreneur. completion of a degree into a service agreement. | course and by getting a 3 certificate of practice. Qualification No minimum qualification cribed and Qualification depends on fequired before starting professional the nature of job business. qualification and training required | 3. | Investment Capital requirement Limited capita No capital investment is | depends on the scale of | investment is required. required business 4. | Risk Inbusiness, there is always In profession, thereis In employment, there is no risk and uncertainty little risk present risk involved 5. | Transfer of Transfer of interest is Transfer of Interest is Not possible to transfer the Interest possible with some not possible service contract formalities. | 6. | Main Objective The main objective of The main objective of |The main objective of | business is to earn profit. | professions to provide | employment is to eam | service income in the form of | salary by satisfying the | employer. Z | Code of Conduct | Theres noprescribed code Code of conduct The terms and conditions | of conduct for business. _is prescribed by of service contract are | | the professional applicable on employee. associations, | It involves production, Itinvolves rendering of | tt involves performing the purchase and sale or personalised services of | work as assigned by the ‘exchange of goods and specialised nature, employer. TRelerdforblsinessle | Reward or profession 8 roa oa Eaietpro | sales fees alt NY{an activity is economic or non-economic, it depends on the motive d: The same activity can be economic if it results in earning money and: vity because he or she gets salary for te then it is non-economic as he or she will not get mom It is satisfaction of teaching one’s own child. In the sameMoney income is not expected from these m activities. ‘The purpose of these activities is The purpose of these activities is creation of wealth psychological satisfaction ‘The outcome of these ac The outcome of these activities is mental production of goods and services, satisfaction of persons who undertake | them, Business, Profession, Employment. Family-oriented activities, religious, social Service and patriotic activities. HUMAN ACTIVITIES } Non-economic Activities. Fig. 4, CONCEPT AND CHARACTERISTICS OF BUSINESS Business is a wide term. It includes all occupations in which people are busy in earning income either by production or purchase and sale or exchange of goods and services to satisfy the needs of other people with the main objective of earning profit, Definitions by Different Authors fi —Peterson and Plowman lofthose processes whichare engaged in the removal of hindrances of persons (Trade), ssurances) and time (Warehousing) in the exchange (Banking) of co eh —James Stephenson business is no longer dealing only with goods or services. It cannot be only. It has become an integral part of society. In modern times, businesss or services. The production of goods or imiption is not business. A farmer cultivating crop for himself and jy on only is not doing business. But the farmer he is cultivating crop imilarly, buying goods to gift to someone elseif Another important feature aff sell or exchange goods or services on a lar basis. Buying ors Ge once or twice is not business. One single transaction of sale does nati , For example, ifa person sells his house to buy a new house, he is not do | buys and sells houses on a regular basis to earn commission, ines. Regularity of occurrence of a business transai ‘The main purpose of business is earning profit. If the pra ansaction, then it cannot be considered as business Cal o businessman ¢ strike in iiiienacs own factory etc. All on there is always an element of risk involved.1. Rama bought a readymade dress for @ 5,000. Her friend liked the design of dress very much, so Rama sold the same dress to her friend for & 5,500 and made a profit of £500. After completing her studies Rama opened a shop of selling readymade dresses for girls. (a) Can transaction between Rama and her friend be termed as business? (b) State the features related to ‘a. (c) Can the sale of dresses on her shop be called as business? Ans. (a) No. (b) “Regular Basis” (c) Yes, as it is done on Regular Basis. 5. MULTIPLE OBJECTIVES OF BUSINESS Objectives are the end towards which the activities of the business a the goals established to guide the efforts of the company. As far as possible a businessman must set e directed. These are up specific objectives. Objectives should not be set up in general terms. For example, the specific objective of the firm can be “Increase in sale by 10% in one year time,” whereas general objective can be “Increase in sale” The businessmen always have multiple objectives. They cannot follow only one objective. All objectives are important but the most important objective of every business is earning profit. Earning profit is very important and the prime objective of every business but it cannot be the sole or only objective of business. ‘The business objectives may be classified broadly into three categories. These are: Economic Objectives Meow Social Objectives Human or Personal Objectivesorganisation must grow and expand their activities, Thy ‘is measured by the growth rate and growth is measured j br number of products, number of employees ete, lof Desired Quality of Products: Customers pre! i are of satisfactory quality and are available ata reasonable price, Toda mnscious customer and he expects value for money. Quality may m ees products. For example, for consumer goods such as refriger the quality may mean durability and for products like pressure cooke ‘quality may mean safety. For products like pulses, spices, medicines ete q ‘purity. To survive in the market for a long run and to maintain theg businessmen must supply products with right quality at right price. y nce of Unfair Trade Practices: Anti-social or unfair trade pra ting, adulteration, hoarding, overchargi rating in ad ‘the uses of products is also an unfair trade practice these practices a businessman will not only lose h id law. The punishment be in the form of usinessman must have social objective to avoid th iety accepts reputation but it fine or imprisonment practices for earning pi nt Generation: Unemployme »blem for everyiga fe employment opportun help in overcoming developing countries. The business employs p By employing people at work a businessman helps in flo creating employment opportunities, a businessman handicapped, disabled and poor people. This will ‘The employees must be imparted training edge and can fulfil the demands of the job.acial service projects, tion: Industrialisation thas led to a major problem of pollution. The ror drain their waste in lakes, rivers etc. which pollutes water, The smoke ng out of the chimneys of industries pollutes the environment. As the businessman has added to the spreading of pollution, so it becomes the moral duty of the businessman to come forward and help in solving the problem of pollution. ‘The businessman must adopt environment-friendly techniques of production and should drain the waste materials in such a way that these do not pollute the environment. 5.3 Human or Personal Objectives Human or individual objectives are related to employees of the organisation. Employees are valuable resources who contribute significantly to the success in business. To get maximum from employees and to keep the employees motivated, the business must take care of their employees by pursuing the individual objectives. ‘The common individual objectives are: (i) Providing good working conditions. | (ii) Payment of competitive and satisfactory wages and salaries (iii) Personal growth and development of employee by imparting training to employees and keep updating their knowledge. (iv) Peer recognition and respect by encouraging emplo in decision-making. to take initiative and participating (¥) Providing special benefits such as housing facility, medical facility, free education of children ete. | BUSINESS OBJECTIVES a ee 4 ' Social Objectives: Personal Objectives sT ach + Supply of Desired + Good Working C aualy of Products| + Competitive Salary Avoiding Unter Trode | + Personal Growth Practices + Peer Recognition | ammunity Service + Avoidance of Pollution +s Employment | | + Special BenefitsPH bie iT hal cannot survive for along time ¥ a businessman which ep i ‘of the businessman and his business is expanded only when it is earning suf apart of it can always be reinvested for exp ctel f profit is ‘operations of the business, Retention of pr dependable and a cheaper n source of fund is more source (ban etc.) Because when busing financial institutions F and pay high rate of interest, whe nes it has to mortgage its assets ly use it for expansion and Reward for Bearing al of Efficiency or an Inde managed efficiently or not. Prof erformance of] the business. Higher profits indicate t! gementandlo te inefficiency of management. ‘Ih profit {for Bearing the Risk. Profit is considere ard paid toa busi the risk, Businessman invests 1 ss only with fl man to bear the ich other, Theh tation or Goodwill. A profit earning company always) et as compared to companies which are running in an creating a goodwill of the company in the market te increase in the profit. The companies with hij credit more easily. Even efficient emploeel s ; ! (iv) Reward for risk bearing 7. CLASSIFICATION OF BUSINESS ACTIVITIES Business activities can be classified on various bases. The common basis of classification is ‘on the basis of function. Classification on the Basis of Function: All business activities can be classified into two broad categories. These are: = Industry im Commerce BUSINESS ACTIVITIES | arse vines tT call { \ © Industry Commerce | ‘ { 1 ee x ada ‘dete Wade Industry Industry Indust f Baracive | = enking : sty | petal fey Ewpor Me} Sankng and Finance Insurance <4 wholesale bt import be Insurance Advertsing ja} Envepot cvertisng Fig. 5 RY: MEANING AND TYPES 3 refers to an activity which converts raw material into useful products. Industry related to production and processing as well as activities related to rearing andFee raeysnateril for other indi s fustry, The industries involved in the activities of rearing ng organisms ie. birds, plants, animals etc. are known as Genetic poultry ucts which are extracted and prod their raw materials and produce finished products. For oa Industry but steel m: fone in Secondary IndiPP eprsiicefnsheap eee For example, crude oili ee products such as petroleum, diesel, kerosene oil, ete ae nas Synthetic Industry. In Synthetic Industry, two or more materials are mixed to manufacture some new product. For example, various chemicals are mixed to produce soap, paints, cosmetics etc. (iii) Processing Industry. In Processing Industry, the raw material is processed through various stages of production and then finished goods are manufactured. For example, Textile Industry, Iron and Steel Industry, Sugar Industry ete. (iv) Assembly Industry. In Assembly Industry, the various finished products are combined to produce a new finished product. For example, manufacturing of computers, television, ‘watches, automobiles, cars etc. 8,2B Construction Industries ‘These industries are concerned with the construction of buildings, dams, roads ete. These industries use the products of manufacturing industries such as cement, iron and steel, lime etc. ‘The unique feature of these industries is that their products cannot be transferred or shifted to the market. They are constructed and remain at a fixed site only. {_inousTAY ¥ Secondary Industry Fe] was Fox 1 atte and Bad | > | anatyical_ | | Gonstiucton, ‘orhmnunicaton a {insurance} be Fating yritetic. ) <4 > {Tiber 6‘consumer. There will be no use of producing goods unless ay ‘consumer. Goods are produced at one place and consumery fare not aware of what kind of goods are produced by th ia large quantity and demanded by consumers in a small g drances of place, hindrances of knowledge, hindran ‘Commerce performs the following functior oving the Hindrance of Persons. A |: ariety of goods Epersons called producers. ‘These goods are produced for a Beipumers: There is no direct relation between producers ent of commerce creates a link between producers and consum of goods or services from the producer to consumer and hen producers and consumers, the Hindrance of Place. Goods are produced at one} ers. The transport segment of commerce helps pe s from the place of production to the Thus transport is essential for buyingasta 5 So there is a time gap between the production and yy ae ‘consumption. The goods need Halpin Removing the See tobe keptsafe and fresh during this time gap. Warehousing Lig ei neneing a” segment of commerce helps in iit y a removing the problem of time gap. The goods can be kept safely in the warehouses till they are demanded in the market Various types of warehouses are constructed and according to the requirement goods are kept in these warehouses. For example, perishable goods are kept in cold storage houses, inflammable goods in fireproof warehouses etc 4. Helps in Removing the Hindrance of Exchange. The goods and services produced by the ‘manufacturer are sold to buyer in exchange of money. The common medium of exchange is circulated by the banking branch of commerce. The banks help the buyers and the sellers in making and collecting payments. Now businessmen can send money from one place to the other in the form of bank draft, cheques etc. Banks are also financing businessmen by s are helping in External Trade also by issuing granting them loan, credit facility etc. E letter of credit and by providing foreign currency. 5. Helps in Removing the 11 isk. There are different types of risks which a businessman has to face. The insurance branch of commerce helps in removing the hindrance of risk by providing protection and compensation to the insured. Insurance companies _ agree to undertake to make good the loss suffered by the businessmen. The common types “of risks covered by an insurance company are damage of goods during transit, storage, by | fire, ood, rain etc in Removing the Hindrance of Knowledge. Generally the consumer and buyer about the new goods produced by the manufacturer as there is no direct n between the manufacturer and the ultimate consumer. The advertisement new products and their utility. For example, everyone knows that i-9 is or of computer because of advertisement.§ to buying and selling of goods or services within th i It is also known as Home Trade. Under internal trade, goo jlesale Trade. It refers to buying and selling of goods and services in ‘wholesalers buy goods directly from the manufacturer and sell these g lers, Generally a wholes ler is specialised in one line of pea He m services in small quant r buys goods from the wholesaler and sells these goods to the ultimate con retailer has to maintain a variety of good to buying and selling of goods and servi ; also known as trade between two or more Extetnal trade enables the businessmen to ‘Way. The external trade involves completic om clearance etc. External trade is of the following types: paying of ee from a foreign country. Import afte ged as compared to import of consumer goods, —~in s ‘known as i of goods more easy. These activities are known ass sector or tertiary sector of commerce. These help in arise in production and distribution of goods. ‘The and Communication, Transport refers to the movement of goods from one place another. The production of goods takes place at one place whereas these are demanded in different parts of the country. The obstacle of place is removed by the transport. for example, ‘tea is produced in Assam and Darjeeling but is consumed in all the parts of the country. This is made possible only because of transport. Transport is also helpful in movement of raw materials and other resources to the industries and factories. Labour is also moved from one place to the other with the help of transport. ‘Along with transport, communication is also an important service. Communication helps in exchange of information between producers, consumers and traders, The common communication services are postal service, telephone service, fax, Internet etc. 2. Banking and Finance. Banks and financial institutions provide credit facility, loan ete, to provide finance for smooth flow of business activities. Banks help the businessmen to overcome the problem of funds. Along with provision of funds, the commercial banks provide many other facilities such as collection and deposit of cheques, issue of bank draft, discounting of bills of exchange etc. The banks also provide the facility of overdraft, cash credit limit, arrangement and payment in foreign currency in case of foreign trade. 3. Insurance. Businessmen have to bear various types of risks. Insurance provides protection from some kinds of risk such as risk of loss due to fire, theft, accident ete. The insurance company provides protection to employees also a Businessmen have to pay a nominal amount of premium and in return they get compensation ast the risk of accident while working. for the loss from the insurance company. 4) Warehousing. Usually there is a time gap between the production and consumption of 1ods. Goods are not consumed immediately when these are produced, For example, wheat, of storage. Warehouses are constructed keeping in mind the nature of goods. facilitate the availability of goods whenever required.VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKSupon the nature and size of business. The degree ofrisk depends upon n ‘example, a business involved in fashion items bears more risk as compared si nvolved in standardised goods. Similarly, a business operating at large scale bears more ~__tiskas compared to small-scale business houses, | 4. Profits the reward for bearing the risk. Businessmen earn profit because they are bearing _ tisk. “No risk no gain’—larger the risk more is the profit. An entrepreneur bears risk with the expectations of earning profit. ( warure OF BUSINESS RISK | a) Se Arise Due to r IsanEssential Degreeof Risk —_Profitis the Uncertainty part of Every Depends upon Reward for pusinges Nature and Size Bearing of Business the Risk Fig. 8 10.2 Causes of Business Risk ‘The common causes of risk are 1, Natural Causes. Nature is an independent phenomenon and human beings have no control ‘over it. Natural calamities like earthquake, flood, drought, famine ete. affect a business a lot and can result in heavy losses. The natural causes are such type of uncertain factors that haman. beings cannot make any prepa 2, Human Causes. Human causes are related to a chance of loss due to human being or ~~ “employees of the organisation. The dishonesty of employees can bring heavy losses for business e.g, the employees may leak a business secret to a competitor and may commit id also. tion against. may be careless and may mishandle the machinery and resources which can. losses by wastage of resources.se are related to a chance of loss du onsin the market, there can be ch sfeustomers. There can be change in the degree on the earnings of the business. Even chang ‘yeas a lot For example, in 1971, when Janata gover ; ‘Company and many other foreign companies were sent} : It in damage of assets are considered; result in machinery being 0 ult in damage of assets such All the causes which resul ,, change in technology may y, mechanical defects may also res ‘to employee etc. Quick Revision of busine: is concerned with ee: Commerce is a branch 1d Auxiliaries to trade (@¢ jof goods and services. It compr's e of Trad jous Banking system ecially to thee ‘oday various trade 6¢VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS Chapter. 1 Nature and Purpase of Busin ws Economic and Non-economic activities. The activities undertaken with the main aim of eamning money and creation of wealth are known as Economic Activities 2g, working in a factory, running a shop ete. Non-economic activities refer to activities undertaken with the main motive of getting psychological satisfactian e.g,, social service, charity, visiting temple, doing household work etc 1m Types of Economic Activities. The Economic Activities can be classified in three categories These are (a) Business. It refers to activities concerned with the production or purchase and sale of goods or supply of services with the main objective of earning profit (0) Profession. Profession includes those activities which require special knowledge and skill to be applied by individuals in their occupations (c) Employment. it refers to occupations in which people work for others regularly with the main aim of getting remuneration m@ Concept and Characteristics of Business. Business is an economic activity which involves production, or purchase of goods for sale, transfer or exchange of goods for earning profit. The main characteristics of business are ()_ An economic activity (ii) Production or procurement of goods and services (ii) Sale or exchange of goods and services for satisfaction of human needs (iv) Dealing in goods or services on regular basis ()_ Profit earning (vi) Uncertainty of return/risk @ Business as an Economic Activity. The business is considered as an economic activity because of the following reasons (a) Profit motive (b) Creation of utility (©) Exchange of goods and services. 1 Objectives of Business. Business objectives can be classified into three categories. These are: (i) Economic Objectives: (@) Survival (b) Profit (c) Growth, (ii) Social Objectives: (a) Supply of desired quality of products (b) Avoidance of unfair trade practices (c) Employment generation (d) Social service (e) Avoidance of pollution.al Industry refers to an economic activity which is cone 0 useful goods. Industry can be of two types: 1 It refers to all those activities which are concerned with extract Ges and rearing and breeding of living beings. Primary Industry is onvert raw materials into finis ary Industry. It refers to industries which scondary Industry can be of two types: anufacturing Industry 9) Construction Industry. ry Industry. (a) Transp’ (0) Advertisement It includes all the activities relate: ‘is considered as the backbone of industry ns which are given below: Removing Hindrance of Pers in Removing Hindrance of Place i Removing Hindrance of Time Removing Hindrance of Exchange i noving Hindrance of Risk ing Hindrance of Knowledge. joods and services various hindranceTrade. It refers to sale, transfer or exchange of goods within a are two types of internal trade: Wholesale trade, Retail trade. It refers to sale, transfer or exchange of goods beyond the geographical n its of. a country External trade is of three types: Export, Import, Entrepot es to Trade. Activities which help in smooth fiow of goods and services in the market ‘are known as auxiliaries to trade. These are also referred as service sector. The common _auixiliaries to trade are: Transport, Banking, Insurance, Warehousing and Advertising, ‘@ Business Risk. It refers to probability of losses due to unforeseen circumstances and events. Nature of Business Risk (@) Arises due to uncertainties (b) Essential part of every business (c) Degree of risk depends upon nature and size of business (d)_Profitis the reward for bearing the risk @ Causes of Business Risk (@) Natural Causes (b) Human Causes (©) Economic Causes (@) Physical Causes(d) Profit with Service | { da new Branch in Bangalore. It is fulfilling (b) Profit (d) Innovation he type of manufacturing industry in which basic raw material is bre ‘to produce finish goods: rc (@) Analytical Processing about new products to custo fo the service which provides knowledse (@) Transportation (b) Banking (e) Insurance ee 5. On which date th ~ a) 15th August 2014 Be) 25th September 2014 bee Buying and selling of goods with in the a¢ © @) External Trade (@) Wholesale Trade one 7. Earthquake comes under which type of risk (a) Natural cause risk ( (b) Synthetic (d) Assembly ye ‘Make in India’ project(d) None of the above \ ble on expiry of a fixed period of time to any person is called saa viics Muddati Hundi (b) Firman Jog Muddati Hundi ©) ‘Sah Jog Hundi (d) Jokhmi Muddati Hundi 414. Which of the following is not a Business Activity. {a) Buying or Selling of House by a property dealer {b) Buying or Selling of cars by a car dealer (6) Selling an old house to buy a new hou: (d) None of the above 48. The service of Commerce which provide protection to Businessman is called (@) insurance (b) Advertisement (c) Banking (d) Trade 16. Ethics are most important in (a) Business (b) Employment (c) Profession (d) All of the above 47. Economic aetivity which can be carried on without any minimum qualification is {a) Business (b) Profession (c) Employment (d) None of the above 18. Reward for profession is called ; (a) Profit ©) Salary (d) All of the above "48. ABC Ltd, is charging very low price which is just covering their cost so that it can remain in _ competitive market. ABC Ltd. is achieving which organisational objective (a) Survivalnary industry. Sita. is planting trees on the roadside. Which objectiveig essmen earn profit? ean profit for: (i) Growth (iv) Rewareom Racine ‘Ans. Traders act as link between consumers and producers. Traders remove hindrance of persons by making goods available to consumer from producers. @.18. Name the tertiary industry which removes hindrance of knowledge. Ans. Advertising, Q.19. What term is used to refer to physical arrangement of machines and equipment needed to manufacture a product? Ans. Plant Layout Q. 20. What is the basis of differentiating between economic and non-economic activi the following activities as economic or non-ec (2) A property dealer selling house for commi (b) Ahousewife doing household work at home nomic: ion (c) A teacher teaching in t hoo! (a) A person offering prayer in the churct Ans. The main difference be f ‘economic activities is the end resule ot that activity. If the end resi ling money vit ig onomic activity and if end result is psychological satisfaction th it is non-ece ai @) Economic activi (6) Non-economi (©) Economic (@) Non-econom Q.21, Name the economic activities in which following people are involved. ~ @ Bhuvan, who is practising as chartered accountant fii) Piyush running a shop to sell autospare parts Gil) Rishab working as manager in a bank ns. (i) Business ic activity showing a risk element and carried on profit. in which two countries are involved. hich goods are imported from one country for the pur(b) False d) False traits of business, profession and gas ¥f his employer. Ses mablle phones on behalf of his emplo ‘academic and other qualifications. : minimum nic a ; ells toys for children ou! he HO sell the laptop on OLX.com and then pur sachin sold ‘Gelighted to make his first business deal. Whil« purchase of any more than t egree with this statement? Give reasons to support statement. Like eating is essential for survival ol ‘must for survival of any business, But a peling the Hindrance of Persons jeving the Hindrance of Place Helps in Removing the Hindrance of Exchange Helps in Removing the Hindrance of Risk FE Helps in Removing the Hindrance of Knowledge. (Explanation on Page No. 30, 31) Q.4. “Business is an institution organised and operated to provide goods and services under the incentive of private gain.” Discuss ‘Ans, Yes Itis right to call business 2s an institution to provide goods and services for earning profit because of certain characteristics of busi (Explain characteristics, Refe) No. 22-23) @.5. Why does a businessman willingly undertake business risk? Ans. Abusinessman willingly undertake 4 in the business activities because for bearing, the tisk businessman gets the reward of earning profit. Risk is the price paid for getting profit The businessman willingly bears 1 suse it brings profit which is the main motive of every business. The higher the risk, the move is the profit, Generally the projects with which more risks are involved generate m fit as compared to less risky proj Q.6. Name the service which is related to the following cases ) The service which helps in removing hindrance of knowledge (i) The service which helps in removing hindrance of exchange The service which helps in removing hindrance of place e service which helps in removing hindrance of time e which helps in removing hindrance of risk. (ii) Banking (iv) WarehousingVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS tevidea written and duly registered agreement, and and out-fashioned designs. e between: running a bakery and Manjusha cooking food at home, Farming and Mining snomic activity active industry 4 profes ‘prepares chocolates for supply to a local bakery. id why?ay Rakesh Traders, Rakesh and Nishent both act ke an each other. Firm soon started earning good profits. Rakesh’s ‘suggested them to spend some money on social responsibilities. They then decided to goods to schools which were financially weak. (a) Can the transaction between Rakesh and Nishant be termed as business transaction? ~ Give reason. (b) Can the transaction between M/s Rakesh Traders and other persons be termed as ‘business transactions? Give your reason. (©) Which feature of partnership form of business is mentioned above? {d) According to you which value motivated the partners to donate sports goods? Give any ‘one suitable value. Ans. (@) No (b) Yes (c) Mutual agency (d) Value of Charity Q.15, Nikhil wants to start a wholesale business of stationery items. But he is hesitating as it will involve hindrances related to finding consumers, moving goods from place of production to market, storing goods because of time gap between production and consumption, risk of theft, fire, accidents, procurement of capital to finance above activities, providing information to the consumers about products ete He approaches his friend Anant to discuss his problem. Anant, who himself imports the electric appliances for the purpose of exporting them to other countries, advises Nikhil to carry on with his plan and explains to him various functions performed by the second limb of business ive. Commerce. Anant elaborates on various advantages of ‘trade’ and ‘auxiliaries to trade’ . After getting convinced by the advice given by Anant, Nikhil starts the business named Nikhil Ltd. and finds no major problems at all in converting his desire into abusiness venture.Nikhil gets his company registered under the Companies Act 2013 (2) Name the part of commerce which exclusively helps in the process of trading the goods and services. _ (b) Name the type of trade under which Anant was doing his business. (ce) Name the service which helps Nikhil to remove the hindrance of storing the stationery ‘items.ecupation in which people work for others and get remunerated int bo cannot be classified as an objective of busi2. Why is business considered an economic activity? [Refer to Page No. 18] 3. Explain the concept of business. [Refer to Page No. 21] ‘4. How would you classify business activities? [Refer to Page No. 27] 5. What are various types of industries? [Refer to Page No. 28) 6. Explain any two business activities which are auxiliaries to trade. Ans. Transport, Banking, insu 7. Whats the role of profit in business? L sfer to Page No. 26) 8. What is business risk? What is its nature? Refer to Page No. 34-35] 9. List any five major commercial cities of ancient India? ‘Ans. Patliputra, Peshawara, Surat, Mathure and Ujain 10. What is Hundi? Ans. AHundi is a negotiable instrument evolved during medieval period in order to facilitate trade and credit transactions, ‘Nl. List the major exports and imports in ancient India. [Refer to Page No. 18 Topic 1.4.3) What were the different types of Hundi in use by traders in ancient times? [Refer to Page No. 12) understand by maritime trade? i ‘a type of global trade which took place through sea route, FirstVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS }examples the various types of industries. the activities relating to commerce Refer to P, 5. _ need multiple objective? Explain any five such obese °F to Page its causes > Page Hk : 6. Explain the concept of business risk andrf “4, Write a note ‘on manufacturing industry. "8. Define Business. 6, What is meant by Industry? ~ 7. What is meant by Primary Industry? 8. What is the peculiar feature of Construction Industry? 9, State any three major exports of India. 10. State any three major imports of India. Short Answer Type Questions 1. Describe the concept of Business in modern context. 2. Define Business. Distinguish it from profession and employment. 3. Explain the social objectives of business. 4, Explain the Role of Profit in the Business. §. Draw a chart showing the classification of Business Activities. 6. Explain the difference between Industry, Commerce and Trade 7. Discuss the causes of Business Risk. 8. Describe different types of Hundis. ‘9. Explain any three major trade centres in India. (hy India was called ‘Swarndweep’?VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS ‘setup business organization? WriteVISIT. @PROCBSE IN TELEGRAM TO GET FREE BOOKS FORMS OF BUSINESS ORGANISATIONS Contents as per Latest CBSE Syllabus _ a Sole Proprietorship—Concept, a Hindu Undivided Family Bus’ w Partnership—Concept, Ty! of Partnership, Registration of a Partnership Firm, Partnership Deed and Types of Partners = Cooperative Societies—Con = Company—Concept, Merits a Company—Concept = Formation of Company—Staa Company = Choice of Form of Business Organisation Private, Public and One Person its to be used in Formation of a 1. INTRODUCTION A business enterprise is an organisati activity. Every business enterprise is a separate and distinct unit of business, on which is engaged in some business or commercial Every business entity adopts some form of business organisation to carry out business activities. Business enterprises may be classified into three broad categories: 1. Private sector enterprises 2. Public sector enterprises 3. Joint sector enterprises. Private Sector Enterprises. ‘The business enterprises which are owned, controlled and managed by private individuals are known as private sector enterprises. ‘These enterprises work with the main motive of earning profit, eg., Reliance India Limited, Tata Company, Birla Company, Wipro etc. @PROCBSEVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS 2. Public Sector Enterprises. The business enterprises which are owned, controlled and mang. by the central and state government are known as public sector enterprises. These enter, y work with the main motive of service, e.g., SAIL (Steel Authority of India Limited), GAIL (% Authority of India Limited), LIC, ete. | 3. Joint Sector Enterprises. The business enterprises which are owned, controlled managed jointly by private entrepreneur and government. In these enterprises day-to-day management lies in the hands of private entrepreneurs whereas governm, control and supervision by its members in Board of Directors, e.g., Maruti Udyog ig) Cochin Refineries etc. 2. FORMS OF PRIVATE SECTOR ENTERPRISES The private sector enterprises can function and run by adopting any of the following form. m Sole Proprietorship = Joint Hindu Family Business = Partnership m Co-operative Society m Company. Sole - ner 2.1 Sole Proprietorship — i _ Owner A business owned, managed and controlled by a single individual is known as a sd proprietorship organisation. Definitions by Different Authors i Sole trader business is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk and for the management of business. JL Hansen, The sole proprietorship is the form of business organisation at the head of which stands an individuals oné who is responsible, who directs its operations and who alone runs the risk of failure. —LH. Honeys ‘® Asole proprietor is a person who carries on business exclusively by and for himself. He is not only the ‘owner of the capital of the undertaking, but is usually the organiser and manager and takes all the profits" responsibility for losses. —James Stephenso", _® The sole proprietor is the supreme judge of all matters pertaining to his business subject only to genet taws of land and to such special legislation as may affect his particular line of business, Kimball and Kinbl | 2.2 Features of Sole Proprietorship The main features of sole proprietorship firm are mentioned below: 1. ones Ownership. The sole proprietorship firm is owned bya single individual only: al capital is supplied by the single individual from his own wealth or from borrowed fu" EVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS atimited Liability: In sole proprietorship firm the rietor is personally liable forall the debts of the fusiness. In case of business losses, if the business assets are not sufficient to meet all business liabilities the proprietor may have to sell his personal property to pay off the liabilities. y Individual Risk Bearing and Profit Recipient. In cole proprietorship firm whole risk is borne by a single individual only. The sole beneficiary of all the reward is one individual only. Likey » if there are Josses, he/she alone has to bear them. Thus he/she alone bears the risk of business. One-man Control. The proprietor is the sole owner of the firm and has full control over it. The ownership and management lies in the hand: f one person only. Some persons or manager may be employed to help the owner but ultimate control lies with the sole trader himself. 10 Separate L 1 Entity. A sole proprietorship has no legal identity its owner. Law makes no differ owner exist together. parate from that of tween the owner and the enterprise. Business and the Lack of Business Continuity. Since busines and owner are one so death, insolvency, incapacity, ailment etc. will have direct effect on the business. . Small-size. The sole proprietorship firms operate on a very small scale. As all the funds are arranged by one person, total management and control lies with one person only. A sole trader can arrange limited funds and has limited managerial ability. Therefore the scale of ‘operation is generally limited. Fi X = oi —— ATURES OF SOLE PROPRIETORSHIP | Sass Sa S Single Ownership. = <— |» Formation and Closure Unlimited Liability = <— : Individual Risk Bearing | and Profit Recipient _ "one-man Control = <—~| - No Separate |» Legal EntityVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS Pot A snore of Business 2.3 Merkts/Advantages of Sole Proprietorship Firm 2.4 Disadvantages/Demerits of Sole Proprietorship Firm - Limited Life of a Business. The survival and continuity of sole proprietorship firmd The merits of sole proprietorship are as follows: Quick Decision. In sole proprietorship firm all the decisions are taken by the himself. He is not supposed to consult any one and waste time. By quick decisions, imry ome can be taken which bring flexibility of operation. There are no delays and busi can quickly adapt itself to the changing environment. Confidentiality. The — sole Proprietor is not expected to share his secrets with others.” There is no legal compulsion for a sole proprietor to publish his accounts. all the decisions are taken by the pi So it becomes easy for hi 5 maintain secrecy and get be aes (| competitive strength | Pe > Sense of Direct Incentive. In sole | is a proprietorship firm there is | direct. relation between the E#s¥ to Formand Dissolve <—' efforts and reward which Fig. 2 es and proprietor gets extra income means if proprietor puts extra efforts then profit inc So proprietor is always motivated to work extra to get extra reward. Sense of Accomplishment. There is a personal satisfaction involved in working for ones ‘The success in business not only contributes to self satisfaction, but also instills int individual a sense of accomplishment and confidence. tion is easy to form, No kg jon. It is not governed by a specific law. The sole proprietor can close the business whenever he desires without any kg formality. It can be closed by paying back its debts. 4 Easy to Form and Dissolve. A sole proprietorship orga formalities are involved in setting up this type of organi Sole proprietorship firm suffers from certain limitations which are: Limited Resources. In sole proprietorship firm finance is supplied by the proprietor from his wealth or from borrowings. There is a limit to the credit raising capacity of 4S") Person. This reduces the scope for business growth. ‘The funds are not sufficient for med scale or large-scale business, 3 upon one person only. If the proprietor falls il or becomes ii then the oa come to an end, ies insolvent tl ea VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS Chapter: 2 Forms of SF pasate ie Business Organisations ~ heavy losses the proprietor will not only lose his personal property to pay back his debts, Limited Managerial Skill. In sole pro single individual. A single individual canno\ t be expert i rson but not ry ‘pert in all the fields, sere Agi gate eae manager. It is difficult to find all the sillsieien ce ‘as eee th Proprietor generally cannot afford to appoint specialised and exert employees. The proprietor is overburdened with too many aria tenita . i eae iio Stet ia ( DISADVANTAGES/DEMERITS OF SOLE \___PROPRIETORSHiP FIRM Limited Resources <1 [> Limited Life of a Business Unlimited Liability L. Limited Managerial Skill Fig.3 CONCLUSION © Sole proprietorship is a suitable form of business for small-scale enterprises. The sole proprietorship is suitable for enterprises which require personal attention and limited capital such as local grocery shops, small bakery shops, tailoring shops, health clinic, doctor's clinic, lawyers offices, ete. the name ‘Daily needs’ in a local market. He 1. Manoj is running a general store under Jf, Without any interference from others and takes all decisions about business himse get all the profit as a reward for bearing the full risk. In the context of above case. (i) Identify and define the form of business organisation in which Manoj has formed his business. (ii) State any four features of that form. . (i) Sole proprietorship (ii) Features of Sole Proprietorship (Refer to Page 56, 57) / few years back. Due to continuous losses in + Sti Ri ted a confectionery business ‘ Haeliestie decide to close the business. He owes @lacs to supplier firm seat had eon takins goods on eredit His business fands are insufficent 'o Spit e debts. Can: : ie rae erik funds from the personal assets of Sti Ram as his business in supplier recover eee assets are insufficient to repay the debts, why O° MO Yes, supplier can recover his debts from persovl 9° of sole proprietor. proprietor due to feature 0! ity. prop! Ram as he is a sole @PROCBSE f unlimited liabilitVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS GERUEENSEY Var: A rouroauurs OF osm ess 2.5 Hindu Undivided Family (Joint Hindu Family) ‘The business carried out by the members of a Hindu undivided family is known a Hindu Family Business. This kind of business is not governed by Industrial or Company Act but it is Boverned by | Hindu Succession Act, which exists under Hindu law. ‘There are two conditions for existence of Joint Hindu Family Business. These are: = Minimum two male members must be there in the family. a Existence of some ancestral property. || ‘The ancestral property is inherited by the male members of Hindu undivided family. 1 members who share the ancestral property and who are entitled to geta share in the profit of Jo Hindu Family business are known as Coparceners. | 2.6 Features of Hindu Undivided Family / 1. Formation. For the formation of Joint Hindu Family business, there should be atleast two members in the family FEATURES OF HINDU. UNDIVIDED FAMILY and ancestral property to be inherited by them. Business does not require any Formation — agreement as membership is by birth. It is governed by Hindu Succession Act 1956. 2. Liability. The liability of Karta is Control i unlimited whereas liability of all other members of Joint Hindu Family Business is limited up to their share in the business. The Karta’s liability is Fig. 4 unlimited so his personal assets can also be used for paying back the debts of the business, right to take decisions in the management of Joint Hindu Family Business. Minor Members. In Joint Hindu Family Business a child becomes a member by bill 0) i a . there is no restriction for a minor to become a member of the business,VISIT @PROCBSE IN TELEGRAM 0.58 DEMTES OS Sators Ee NOTE Gender Equality in Joint Hindu Family Business (On Dec. 2004 a bill was passed in Parliament to amend the Hi women are given equal rights in Joint Hindu Family Business. This bill was passed to remove the discrimination as contained in Sec. 6 of the Hindu Succession Act, 1956 by giving equal rights to daughters as the sons have. Now as per Mitakashara as well as Dayabhaga female can become co-partners as well ike male members of Joint Hindu Family. indu Succession Act. In this Amendment 1, Mr. Sumit Grover owns an ancestral house in Goa. On the advise of his friend, he converted it into a hotel after renovation. The hotel was running smoothly and revenue from the hotel helped to increase his income. On his death the property (hotel) was inherited by his three sons. Eldest son - Raj, Second-Sameer and Youngest son-Rahul who continued the business as Joint Hindu Family Business. (i) Name the law which govern the Joint Hindu Family Business. i) Who among the three brothers has right to control the business, (iii) What will be liability of three brothers. Ans. (i) Hindu Succession Act 1956 (ii) Eldest son Raj has right to control the business as he will be called as Karta. (iii) Raj, £e., Karta will have unlimited liability. Sameer and Rahul will have Limited Liability. 2.7 Partnership Partnership is a popular form of business for small-scale and medium-scale business. As the size of the business grows, one person is not enough to carry on managerial activities. Therefore, two or more persons form partnership to carry on business. This form of business starts to overcome the problem of Sole Proprietorship. 2.8 Meaning and Definitions Partnership is an association of two or more persons who agree to jointly pursue a business activity. They pool their managerial and financial resources for the purpose. Definitions by Different Authors © Partnership is the relation between two or more persons who have agreed to share the profits of the business'carried on by all or any of them acting for all. —The Indian Partnership Act, 1932 Partnership may be defined as the relation between the persons who agree to carry on a business in ‘common with a view to private gain. LH. Haney A partnership firm Is a group of men who have joined capital or services for the prosecuting of oa r a —Kimi _ enterprise, Ki “® Partnership has two or more members, each of whom is responsible for the partnership. Each of the Partners may bind the others for debts of the partnership. - —William R: Spriegel @PROCBSE )}2.9 Features of Partnership 2 VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS ‘The features of partnership firm are explained below: Formation. The partnership firm of Business is governed by the Indian Partnershj 1932. It comes into existence by legal agreement between the partners (Partnership deed In this agreement the terms and conditions of partners, the ratio of sharing of profits losses are specified. 1 ‘The partners must enter into an | FEATURES OF PARTNERSHIP agreement for carrying a lawful a) business, run with the motive of | carning profit. So if two people be join together for charitable | purpose is not partnership, and a | Formation even two people joining together for unlawful activities, such as Risk Bearing « robbery, stealing, gambling ete. is also not partnership. Ls! Liability. ‘The liability of all the members of a partnership fi Continulty .—| is unlimited. The partners individually and collectively lial Ls to pay back the debts of the At the time of loss if the & Mutual Agency Relationship a assets are not sufficient to pa back the debts then the creditor Fig.5 can have claim over the personal property of the partners also. Risk Bearing. The partners of the partnership firm share the profits of the firm in ther# specified in the agreement. In case no ratio is specified in the agreement then the profil FP 8 F i divided equally among all the members 4 Decision Making. All the partners are allowed to manage the partnership firm. They specify the work area of each partner in the partnership deed also. Generally day- management is carried on by one or two partners whereas for crucial decisions, partners are consulted. Contin y. The partnership firm continues till all the partners desire to continue it it comes to an end at the retirement or death of any one partner. Even after reti death also the partnership firm can continue ifall the remaining partners agree. 1 ™ they settle the claim of outgoing partner and then continue with the business- Number of Partners: The minimum number of partners to form a partnership 7 {wo and maximum as per Section 464 of Companies Act 2013 is 100 subject to! by, the government. At present as per Rule 10 of Companies snumber prescribed by government ic 50VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS 7, Mutual Agency Relationship. Every partner is the owner as well as the agent of the firm and agent of other partners. The acts of one partner are binding on other artners. Each partner is entitled to take part in the management and enter into contract wath outsiders ‘The contract signed by any one partner is binding on other partners. Partnershi business can be carried on by all the partners or by any of them acting on behalf of the other. 2.10 Merits/Advantages of Partnership A partnership firm has the following merits: 1. Easy to Form. It is very easy to form a partnership firm, as no legal formalities ( See oeaan ) are required to be completed. Even registration of partnership firm is not compulsory according to Partnership Act. cat EasytoForm <—| 2. BalancedDecision Making. Inpartnership sora the partners candivide the work according [pamueeeeelmy to their skill and knowledge. The division of 1S work leads to specialisation and efficiency jicoebisk sharing se in management and other activities of the a ae secrey <4 <_ 3. Larger Financial Resources. In Fig. partnership firm all the partners contribute some amount of capital, As a result, the financial resources of partnership firm are larger than the sole proprietorship firm or Joint Hindu Family Business. 4, Risk Sharing, In sole proprietorship firm only one person has to bear the risk whereas in partnership firm all the partners share the risk in the same ratio as they share the profit. The sharing of risk motivates partners to undertake riskier projects and earn more profit. ip firm is not required to publish its accounts. Therefore the affairs On the other hand, all the activities of partnership they take all the major decisions, so there are no 5. Secrecy. The partnershi of the partnership firm remain secret. firm are carried on by the partners. Only chances of leakage of trade secrets. 2.11 Demerits/Disadvantages of Partnership A partnership firm suffers from the foll 1. Unlimited Liability. The liability of partners will not only lose their business propert property also to get their accounts settled. 2. Limited Resources. There is restriction on ufficient for large scale enterprise. As lowing demerits or drawbacks: all the partners is unlimited. In case of losses the ty but creditors can claim over their personal number of partners and hence contribution in i shij terms of capital investment is nots! a result partnership face problems of expansion beyond a specified size. @PROCBSEFane Pa¥18ITo@RROGBSEHSNEFELEGRAM TO GET FREE BOOKS 3. Conflicts, The partners in partnership firm come from different backgrounds, g families, therefore, they may have differences of opinion. If partners adopt a rigiq then it may lead to conflict among the partners. 4, Lack of Continuity. The existence of partnership firm gets affected by the death, insoj,. | or incapacity of any one partner. Even a partner can demand dissolution of the fine time he desires so. - Lack of Public Confidence. The DEMERITS/DISADVANTAGES 0 w public has less trust and faith in partnership firm because the Unlimited Liability <—} accounts and annual reports of partnership firm are not sd published. So people do not have trust in their dealings. Conflicts <— 6. Risk of Mutual Agency. The contract signed by any one partner t— is binding on the other partners due to principle of mutual agency. Lack of Public Confidence <— A dishonest partner may enter into contract for personal benefit. Li» Risk In that case all the partners will have to suffer the loss. Fig.7 2.12 Types of Partnership Firms ‘Types of Partnership on the Basis of Duration (Time Periods): 1. Partnership at Will. The partnership formed for an indefinite period is knov#) partnership at will. This type of partnership exists at the will of the partners and co! an end whenever partners desire so. Any one partner can give notice of dissolution partnership will come to an end. 4 2, Fixed Period Partnership. The partnership formed for a specific period of tims years or 5 years etc., is known as fixed period partnership. ‘This type of partne automatically gets terminated on expiry of that specified time period. 3. Particular Partnership. The partnership which is formed to carry on a particular known as particular partnership. This type of partnership comes to an end aul0™ on completion of that venture. For example, if two persons jointly get @ conte i construction of a bridge then these two persons may form a partnership to © bridge. When brid; ip aut Ige gets construct i Ship aul comestownend. ed and is ready then the partnership ‘Types of Partnership Based on the Liability of Members: : On the basis of liability of members there are two types of partuersh ‘These 4VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS General Partnership. The partnership in which liability of all the members is unlimited js known as general partnership which means if the assets of the firm are not enough then creditors can settle their accounts by having claim over the personal property of the partners. Each partner of general partnership firm can actively participate in the activities of the firm. In India, all the partnerships are general partnership firms. 2, Limited Liability Partnership. The partnership firm in which liability of all the partners except one partner is limited to the extent of their share in the partnership firm is known as Limited Partnership. In India, Limited partnership was introduced by enacted Limited Partnership Act, 2008. ‘The main features of limited partnership are: (i) The liability of at least one partner must be unlimited. (ii) The liability of all other partners can be limited to the extent of their capital contribution in the partnership firm. (iii) The partners with limited liability are called special partners or limited partners. (iv) The special partner is not allowed to participate in the management of the firm. (v) The special partner has the right to inspect the accounts. (vi) The special partner can withdraw his partnership, whenever he desires so. (vii) The death, insolvency or incapacity of special partner does not affect the existence of partnership firm. ES TYPES OF PARTNERSHIP) neta sriniarelemnin > Based on Liability © Partnership: . Genera CF sod rc | Sc | (ru = Lis Fig.8 Partnership 2.13 Types of Partners In partnership firm there can be following types of partners: nets 1. Active Partner. The active partner participates in the management of the firm. His Hab is unlimited and he contributes capital in the firm. He gets share in the profit or loss of the company, z (@PROCBSEpart: A FAIS @RBAGBSEIN TELEGRAM TO GET FREE BOOKS = Sleeping or Dormant Partner. The partner who does not participate in the managemeny the firm. ‘These partners are bound by the activities of other active partners. These patin, contribute capital and get share in the profit or Joss of the firm. The liability of sleep, partner is unlimited. Secret Partner. Secret partner is one whose association or relation with the firm is , known to outsiders. He contributes capital, participates actively in the management, } liability is also unlimited. Nominal Partners. The nominal par -apital, do not participa share in the profit or los: fit of the firm. He is liable to outsiders tners are not the real partners of the firm. The, te in the management, do not hy partners do not contribute any ¢ of the firm. The nominal party unlimited liability, do not get any only lends his name and reputation for the benet we given to the firm, believing he is a partner in that firm. the debts which outsiders ha {ners ‘The person who accepts that he is a partner in th {is known as nominal partner by estoppe because of his reputation. For example,| es fora loan. Mr. A, who is not th There are two types of nominal f (a) Nominal partner by estoppe partnership firm by his own words or conduc He is liable for the debts hich the firm Mr.X, as the active partner of partnership firm, appl partner requests the financier to give loan to firm as he is also a partner in that firm the Mr. A will be considered as a nominal partner by estoppel. Ifthe partnership firm failst pay back the loan then financier can claim the loan from Mr. A the partner who does not call himself as a partnerit (b) Nominal partner by holding out partner in the firm, then bi the firm but who does not object when others call him as a p is called partner by holding out. For example, Mr. X applies for Mr. A show’ no objection to the statement of Mr. X the a loan saying that Mr4 is also a partner in the firm and Mr. A will be called Nominal Partner by holding out, He will be liable to pay back debts which the company got by using his name. 2.14 Minor Partner ‘The Partnership Act, 1932 does not permit a minor to become a partner in the partnershif firm. The minor can only be admitted to the benefits of the existing firm. Minor partners do not contribute any capital. These partners are not allowed to partici in the management of the firm. The minor partner is liable to outsiders. He does not get share in the loss, he gets only share in the profit. ls attaining the age of majority the minor has to give a public notice stating whether will remain as a partner in the firm or not. Ifhe does not giv ice withi L period then he will be d pve aay nol Hh # Saree e deemed to become an active partner in the firm. On attaining the y his liability will becor imi i : me unlimited and he will get share in the profit and loss’ the company, he will also be allow. ici trom lowed to participate in the management, Jike any other 2°VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS pes 2 ‘Types of Partners eo { Capital [sing 7 | Te Contribution Management Shain Prony Liability ‘Active Partner Contributes Participates in | Gets share in profit | Ur ited liability { | : capital management &losses © sleeping of Dormant Contributes Does not | Gets share in profit “Unlimited lability | Partner capital participate in or losses | aa management | | Secret Partner Contributes | Secretly participates Gets share in profit | Unlimited lability : capital in management or losses | Nominal Partner Does not Does not participate Does not get share Liable forthe debt | G@)Partner by estoppel contribute capital in management in profit or losses which partnership (0) Partner by holding firm acquired by “out using their name 2.15 Formation of Partnership Firm ‘A partnership firm is formed when two or more persons enter into an agreement to form a partnership firm. This agreement can be oral or written. To avoid disputes in future it is always advisable to have a written agreement. After signing the agreement the partnership firm comes into existence. It is not compulsory to get the firm registered but partners of the firm prefer to get the firm registered because a registered firm gets some benefits which unregistered firms do not get. Partnership Deed. The document containing the terms and conditions of the partnership agreement is known as Partnership Deed. It is a stamped paper on which the rules, regulations and terms and conditions of partnership are written, It also contains the rights and duties of the partnership firm. The common contents of Partnership Deed are: 1. Name of the firm 2. Names and addresses of the partners 3. Nature of business the firm will carry on 4. Place of business (address of offices) 5, Capital contributed by each partner 6. Profit sharing ratio of partners 7. The rights and duties of the partners for the management of the business 8. ‘The mode of maintaining accounts 9. The rate of interest payable to partners on their capital 10. The rate of interest to be paid by partners on amount withdrawn by them 11, The amount of salary payable to partners 12, Provision regarding retirement and dissolution 13. Methods of solving disputes 14, Whether interest is payable on the loan provided by partners etc. PROCBSE)VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS % Part: A Foundations of Business : Registration of Partnership Firm. Legally, it is not compulsory for a partnership firm get itself registered but then also partners prefer to get the firm registered because an unregisten, firm suffers from the following serious problems: a Consequences of Non Registration: m A partner of an unregistered firm cannot file a case against the partnership firm, m A partner of an unregistered firm cannot file a case against any other partner of th unregistered firm. a An unregistered firm cannot file a suit against any third party or outsider for recovery g daim. m The unregistered firm cannot file a case against any of the partners. The Procedure for Registration of the Partnership Firm. A partnership firm can registered any time, that is at the time of formation or later on whenever partners desire to Be it registered. To get the firm registered the partners have to apply to the registrar in a prescribe; form along with the registration fees. Along with application the following information must supplied. m Name of the firm The principal place of the business of the firm (Address of the Head Office) 2 The name of any other place where firm will be carrying on the business (Address ofthe Branch Office) Date of admission of the partners in the firm m Names and permanent addresses of all the partners w Duration of the firm. ‘The application must be signed by all the partners. The registrar will verify the above-sid information and if satisfied with the authenticity of the information he will issue a certificate d registration. The certificate of registration is an evidence of existence of firm and firm gets benelit of a registered firm. After registration, if any changes are made in the information submitted with registrar then the same change must be communicated to the registrar. 1. A, B and C are partners in a firm manufacturing autoparts, Their firm is 1%! registered. In order to increase the earnings of the firm, B decided to use low qual! raw materials without the knowledge of A and C. As a result many accidents ¥** reported by the consumers and a case has been filed against the firm. (a) Is this wrong act of B is binding on the A and C? (b) State the feature related to this. () Can consumers file case on unregistered firm? (4) Can A and C file case on B?Division of profit L | decided in partnership deed. only. Differ VISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS ‘Ans. (a) Yes, the wrong act of B is binding on A and C. (b) Mutual Agency (c) Yes, outsiders can file a case on unregistered firm. (d) No, partners of unregistered firm can not file a case on each other. 2, X,Y, Z have mutually decided to set up small factory in rural area. They decided to hide the association of X with the factory to outsiders, and Y will not take part in day take active part to day activities of business due to his health issues. However, Z wi inall activities. Whenever they have problems in getting credit or financial help they use the name of their friend ‘P’ with his consent. Briefly explain the various types of partners, mentioned in the above paragraph. Ans. X- Secret Partner Y- Sleeping/Dormant Partner Z - Active Partner P - Nominal Partner Difference between Partnership and Sole Proprietorship ___ Basis Partnership Sole Proprietorship Governed by Partnership firm is governed by Partnership There is no separate Act | Act, 1932. governing sole proprietorship. _| | | Minimum—2, Maximum —20 in ordinary Only one member, that is owner. business and 10 in banking business. No Agreement. Number of members _Basis of Formation Agreement called partnership deed. Partners jointly bear the risk Only proprietor bears all the risks. | Small finance as only one person, that is proprietor contributes capital. Larger finance as compared to sole trader 5. | Finance because all the partners contribute capital Quick decision as proprietor need not consult anyone. 6. | Decision making ‘All the partners must be consulted for taking decisions. So decisions can be delayed. _ All the profit is for proprietor | Profit is divided among the partners as ymily Business een S| sence between Partnership and Joint Hindu Fat Hindu Family Business | Partnership one rot — A 7 ya * Partnership firm is governed by | Join Hindu Family Business is | governed by Hindu Succession Act Partnership Act, 1932. | Minimum—2, Maximum 20 in ordinary | Minimum—2 and (ing business. Maximum=no limit business and 10 in ba 2. | Number of members 3. | Male/Female ‘A female can be an active partner in of Joint Hindu Family Business. partnership firm. i ly | ‘Only Karta manages and controls the Joint Hindu Family Business. [s female cannot be an active member ye and control the | 4. | Management All the partners manag partnership fi 8. | Liabilit it he partners is unlimited. | Liability of only Karta's unlimited. All eae bala see other members have limited liability. _} PROCBSEVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS Part: A Foundations of Business Division of Profit | Profits divided among allthe partners | Equal share in profit forllthe |_ in the ratio decided in partnership deed. |_ members. f t 4 Minor cannot be a partner. Minor can be a member of Joint Hingy | | Family Business. L 3. CO-OPERATIVE ORGANISATION (WORKING TOGETHER AND WITH OTHERS FOR A COMMON PURPOSE) A cooperative form of business is a different form of business enterprise. In this form the main motive is not earning profit but the main motive of co-operative organisation is mutual help It works with the principle of each for all and all for each. The cooperative society or organisation is a voluntary association of persons who joj, together for mutual help. A minimum of 10 persons are required to form a co-operative socey The registration of co-operative society is compulsory and the capital of cooperative organisation is contributed by the members only in the form of share capital. The cooperative organisation ca, raise loan also from the banks. Definitions by Different Authors © “Co-operative organisation is a society which has its objectives for the promotion of economic interest of its members in accordance with cooperative principles.” —The Indian Cooperative Societies Act, 190 | & “Cooperative is a form of organisation wherein persons voluntarily associate together as human beings on | the basis of equality for the promotion of the economic interest of themselves.” H.C. Calvert © “A cooperative organisation is an association of persons usually of limited means, who have voluntary joined together to achieve a common economic end, through the formation of democratically controled business organisation, making equitable contribution to the capital required and accepting 2 fair share risks and benefits of the undertakings.” — International Labour Organisation (LO) 3.1 Features of Co-operative Organisations fEaTuRES OF CO-OPERATIVE ORGANISATIONS The common features of = — cooperative societies are given below: ek a Voluntary Association <—| 1. Voluntary Association, The cooperative society is a voluntary Giese association of persons. Any ae person can join the cooperative een society if he/she has common interest. For example, any farmer can join the agricultural society Se or any consumer can join the consumer society. The members can leave the society whenever they desire so by giving a notice. Service MotiveVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS Chapter: 2 Forms of Business Organisations ‘There is no restriction on entry or exit of members. They can join or leave the cooperative organisation of their own will and wish. The membership is open to all the members. irrespective of their caste, creed and religion. 2, Legal Status. It is compulsory for a cooperative society to get itself registered under the Cooperative Societies Act. After registration, the cooperative organisation gets a separate legal entity, which means the cooperative society is considered separate from its members. It can buy and sell property in its own name and can enter into contract in its own name. The death, insolvency and incapacity of any member does not affect the existence of cooperative society. 3. Limited Liability. The liability of members of cooperative society is limited to the extent of amount contributed by them as capital. 4, Control: In cooperative society the power to take decision lies in the hands of an elected managing committee. The committee is elected through voting by members. 5, Service Motive. The main motive of cooperative society is to provide service to its members and not to earn profit. Earning profit is the secondary motive and not the main motive of cooperative organisation. 6. Equal Voting Rights. The cooperative societies work with democratic principle of “one man-one vote” All the members get only one voting right irrespective of capital contributed by them. The rich members by taking more shares cannot dictate their terms. A person who has 1000 shares and a person who has 10 shares will get one voting right only. 3.2 Merits of Cooperative Organisations ‘The advantages of cooperative organisation are: 1. Equality in Voting Status. The cooperative societies work with the democratic system. They are based on the principle of one-man-one-vote. Alll members have equal rights and equal chance to participate in the management irrespective of capital contributed by them. 2. Limited Liability. The liability of members of cooperative organisation is limited to the extent of their capital contribution in the cooperative organisation. At the time of losses the creditors cannot have claim over the personal property of members. 3. Stable Existence. The cooperative society hasa separate egal existence. The death, insolvency or incapacity of any member does not affect the existence of society. ‘The cooperative organisation has a stable and continuous life and exists for a long period of time. 4. Economical Functioning. The operation of a cooperative organisation is quite economical. ‘As most of the activities are performed by the members themselves and while purchasing goods or raw materials middlemen are eliminated so they can get the raw materials and goods at low cost. The cooperative organisations do not maintain large stocks. Due to cash trading there are no bad debts. There is saving in advertising and selling expenses also. 5, Support from Government. The cooperative organisations get various benefits from the government. The government provides various ‘concessions and rebate in taxes. These @PROCBSE3.3 Demerits Disadvan Orpamhutiome cam get tw materials ete. sabtadiend rates. Government offers founs at lower rate of teterest and on easy terms and Conditions to cooperative organisations Easy to Form. of cooperative rocess. Only restrict religion. The persons cooperative on Cooperative societies s awbacks. Limited Capital he DEMERITS/DISADVANTAGES OF cooperative organisation is COOPERATIVE ORGANISATIONS formed by the people who have limited resources and there is Limited Capital Artificial Person Registration « > Perpetual Succession ‘Common Seal <+ |<» Transferability of Shares ‘Separation of all ership and Control be Limited Liability Fig. 13 any. oss is run in the name of the comp: a company to get itself registered under the o company can come into existence. has continuous existence independent of its members. jaw can bring an end to its existence. The death, not affect the existence of company Menibes nber does ver, ‘The life of the compa"! goes on fore edure of winding up. mpany cannot sign, therefore, ‘The activities of the company are cart If of the company can use common § t which does ™ there is need to bind the company. Any document binding on the company. PROCBSEVISIT @PROCBSE IN TELEGRAM TO GET FREE BOOKS Chapter: 2 Forms of Business Organisations ,. Transferability of Shares. The capital of the company is divided into shares. The shares of the company are freely transferable by its members. A sharcholder is free to withdraw his membership from the company by selling his shares, The shares of private limited companies cannot be easily transferred. i 7, Separation of Ownership and Control. The company form of business is owned by the shareholders. These shareholders elect their representatives who are called directors of the company. The directors manage and control the activities of the company by appointing professional experts, 8, Limited | pility. The liability of members of the company is limited to the extent of their share capital contribution in the company. For example, if a person has purchased 1000 shares of value 10 each, then his liability is limited upto & 10,000 only. 3.7 Merits/Advantages of Joint Stock Company ‘The important advantages of joint stock company are: 1. Lit share capital contribution in the company, ‘Ihe limited liability attracts many people to bility, ‘The liability of members of the company is limited to the extent of their invest their money in company form of business, as in case of loss the creditors cannot have claim over the personal property of the members ‘Transfer of Interest. The shares of MERITS/ADVANTAGES OF JOINT STOCK COMPANY the company can be easily bought and sold in the market. If the owner of shares is in need of cash, he can Lined ‘abil easily sell the shares and get cash. The M1 Ses Ea ee - Transfer of transferability of shares brings } te atronetes i y of investment, At any time liquidity of investn , eae the share investment can be converted Beery | into cash a e same amount can into cash and the san " ye be used to buy the shares of other > io company. | 4 en) Efficient 3. Perpetual Existence. The company Management ~~ ! form of business enjoys perpetual Large Amount succession, As it has separate > “of Capital existence, it is formed by law and can Bie end by legal procedure of winding up only. The death, insolvency and incapacity company. 4, Growth and Expansion. In com expansion. The company has large financial ‘They can easily use large amount of accrued or retained. of any member does not affect the existence of pany form of business there is more scope for growth and | resources and their rate of profit is also high. profit for expansion and growth.3.8 Demerits/Disadvantages of a Company Efficient ene @PROCBSE IN TELEGRAM TO GET FREE BOOKS ; Management, Company form of business has huge funds at its disposal. 1 afford to hire professi i vibes ete eh professional experts to perform managerial and other activities of the organi ‘The expert and specialised people improve the efficiency and working of the company. Large Amount of Capital. The biggest advantage of company form of business is that jt collect a large amount of capital by issuing of shares to general public. The people having sn. savings can also buy the shares of company because the value ofa share is very small. Apart share capital, the company can collect funds by raising loans from financial institutions ang issue of debentures and other securities. ‘The following are main limitations of a company organisation: Complexity in Formation. The formation of (7 5 company involves a lengthy and complicated procedure. Many legal formalities have to be completed, many documents have ‘Complexity in to be prepared and submitted. Various correo permissions have to be obtained. To perform these activities experts are hired, who charge ii ve . — Impersonal Work high fees, Even registration fees have to be "personal | DEMERITS/DISADVANTAGES OF A COMPANY EE paid to the registrar. Lack of Secrecy: As per companies act 1956, |» ee | the company is required to provide lot of _ i Delay in. information to the office of the registrar of Decisions <—] companies. Such information is available to ere _ : i general public also. So it is therefore difficult >. ardgonent iy to maintain complete secrecy about the 5 operations of company. canon Impersonal Work Environment. Company is not managed by owners but it is managed by the professional managers. These managers get salary for their services so there is no dit relation between the efforts and reward. The increase in company’s profit will not increas¢ Fig. 15 income of managers. Hence there is lack of motivation and incentive to perform efficie! Numerous Regulations. The company form of business has to comply with various! formalities at different stages and there is penalty if the company fails to meet any of) formalities. A company has to file return and annual reports with the registrar. This! interference in day-to-day operations results in lack of secrecy and a lot of time and mot is spent. Delay in Decisions. In company organisation all the important decisions are taken in board meeting or after consulting various persons. And once decisions are taken, theseh™ to be communicated to every one which is again a lengthy process as a large number Of ef @PROCBSE