Hsslive XI BUSINESS STUDIES Notes 2019 20 Sanal Signed PDF

PLUS ONE
BUSINESS STUDIES
2019-20
SANIL KUMAR S.
GHSS Ashtamudi (02103), Kollam. Mob.9495055497
PLUS ONE BUSINESS STUDIES
SCHEME OF WORK
Unit
Term Units Periods Weight
in Scores
Term 1 June, July, August, September
19 7
Chapter 1: Business, Trade and Commerce 7
Chapter 2: Forms of Business Organisations. 25 10 10
Chapter 3: Private, Public and Global Enterprises. 17 7
October, November, December

Term 2 7
Chapter 4: Business Services. 24 10 10
Chapter 5: Emerging Modes of Business. 14 5
5
Chapter 6: Social Responsibilities of Business and
17
Business Ethics. 6 6
Chapter 7: Formation of a Company. 7
18 7
Chapter 8: Sources of Business Finance. 19 8
January, February
Term 3 8
Chapter 9: Small Business. 12 4 4
Chapter 10: Internal Trade. 20 9 9
Chapter 11: International Business 23 7 7
80
TE
20
CE
TOTAL 100
(2019-20) Page 1
CHAPTER: I
BUSINESS, TRADE AND COMMERCE
Major Trade Centres in ancient India
The following were the leading trade centres in ancient India:
1. Pataliputra: Known as Patna today. It was not only a commercial town, but also a major
centre for export of stones.
2. Peshawar: It was an important exporting centre for wool and for the import of horses.
3. Taxila: It served as a major centre on the important land route between India and Central
Asia. It was also a city of financial and commercial banks. The city occupied an important
place as a Buddhist centre of learning. The famous Taxila University flourished here.
4. Indraprastha: It was the commercial junction on the royal road where most routes leading
to the east, west, south and north converged.
5. Mathura: It was an emporium of trade and people here subsisted on commerce. Many
routes from South India touched Mathura and Broach.
6. Varanasi: It was well placed as it lay both on the Gangetic route and on the highway that
linked North with the East. It grew as a major centre of textile industry and became famous
for beautiful gold silk cloth and sandalwood workmanship.
7. Mithila: The traders of Mithila crossed the seas by boats, through the Bay of Bengal to the
South China Sea, and traded at ports on the islands of Java, Sumatra and Borneo. Mithila
established trading colonies in South China.
8. Surat: It was the emporium of western trade during the Mughal period. Textiles of Surat
were famous for their gold borders (zari).
9. Kanchi: Today known as Kanchipuram, it was here that the Chinese used to come in foreign
ships to purchase pearls, glass and rare stones and in return they sold gold and silk. 11.
10.Madura: It was the capital of the Pandayas who controlled the pearl fisheries of the Gulf of
Mannar. It attracted foreign merchants, particularly Romans, for carrying out overseas trade.
Major Exports and Imports : Exports consisted of spices, wheat, sugar, indigo,
opium, sesame oil, cotton, parrot, live animals and animal products—hides, skin, furs, horns,
tortoise shells, pearls, sapphires, quartz, crystal, granites, and copper etc.
Imports included horses, animal products, Chinese silk, flax and linen, wine, gold,
silver, tin, copper, lead, rubies, coral, glass etc.
In earlier documents such as Hundi and Chitti were in use for carrying out transactions
in which money passed from hand to hand. Hundi as an instrument of exchange, which was
prominent in the subcontinent. It involved a contract which — (i) warrant the payment of
money, the promise or order which is unconditional (ii) capable of change through transfer by
valid negotiation.
Maritime trade was another important branch of global trade network. Malabar Coast,
on which Muziris is situated, has a long history of international maritime trade going back to
the era of the Roman Empire. Pepper was particularly valued in the Roman Empire and was
known as ‘Black Gold’.
(2019-20) Page 2
Human Activities:
Human activities can be classified into two categories: 1. Economic Activities and
2. Non-Economic Activities.
1. Economic Activities: Activities which are undertaken by people with the object of earning
money are known as economic activities. The purpose of economic activities is to earn money
which is used for further creation of wealth or assets.
Eg. Production of goods in a factory, lawyer, working in a school, doctor, clerk, daily worker
etc…
2. Non-Economic Activities: The activities which are undertaken by an individual with a
motive of getting psychological satisfaction or out of sentiments or out of religious obligation
are known as non-economic activities.
Eg.: Praying, social service, production for self-consumption, charity etc…
Human Activities
Economic Activities Non-Economic Activities
Business Profession Employment
Types of Economic Activities: Economic activities can be divided into three categories:
1. Business 2. Profession 3.Employment
I. Business: Activities which are related to production or purchase and sale or distribution
of goods or service with the main objective of earning profit are comes under
business. It should be on a regular basis.
Eg: Manufacturing, mining, farming, trading, fishing etc..
Characteristics of Business/ Features of Business
1. Economic activity: All business activities are considered as an economic activity
because its main aim is to earn money in the form of profit.
2. Dealing goods or services: Business involves transfer or exchange of goods or
services for value. Goods may be of consumer goods ( for direct use. Eg.clothes, food
item …) or capital goods (like machinery, tools…..).
3. Regularity in dealing: An isolated transaction cannot make a business unit. When
transactions are repeatedly performed, it is considered as business.
4. Profit earning: The first and foremost purpose of business is to earn profit. Profit is the
return on capital employed.
5. Sale, transfer or exchange: Business must involve sale, transfer or exchange of goods
and services directly or indirectly.
6. Uncertainty and business risk: No one can predict the future of a business with
certain. In every business there is a chance of loss or deduction of profit. It is called
business risk.
(2019-20) Page 3
II. Profession: Profession refers to an occupation which requires specialized

knowledge, skill and training. Those engaged in professions are known as professionals.
Eg.: Lawyer, Doctor, Engineer, CA…
Features:
a. A profession requires specialized knowledge, training and skill. Eg. A Doctor
must possess MBBS, Lawyer possess LLB etc.
b. The membership of the professional body is a must. Eg. CA must obtain
membership from ICAI, Doctor obtain membership from Medical Council of
India, Lawyer from Bar Council …..
c. They charge fee in return of their services.
d. Every professional must follow certain rules and regulations enforced by the
professional body. It is known as code of conduct.
III. Employment: Employment refers to that type of economic activity in which people
engage in some work for others regularly and get salary/wages in return of their
services.
Eg.: officer, clerk, factory worker, government servants ….
Features:
a. There must exist employer-employee relationship.
b. There must be a service contract between employer and employee.
c. Employees get salary or wages for their services.
d. Regularity in service.
Comparison or Distinction between Business, Profession and Employment
Basis Business Profession Employment

1. Commencement Decision of entrepreneur Membership of Appointment letter
professional body
2. Nature of work Production or purchase Rendering expert Performing the job
and sale of goods or service assigned by the employer
services
3. Qualifications No minimum qualification Professional Prescribed by the
qualification and employer
training
4. Capital Depends on the nature Limited capital No capital
&size of business
5. Risk High risk Less risk No risk
6. Transfer of interest Possible Not possible Not possible
7. Objective/Return Profit Fees Salary
8.Code of conduct No code of conduct Laid down by the Laid down by the
professional body employer.
(2019-20) Page 4
Objectives of Business:
1. Earning Profit: Business activities are primarily undertaken to earn profit. Profit is an
indicator of the performance of the business during its operation period.
2. Market standing: It refers to capture the market share. The business can survive only
if there is demand for its goods and services. So it must aim at satisfaction and winning
of customers.
3. Innovation: To innovate means to introduce something new into the market. It
includes new products, new method of production, new method of distribution etc.
Eg. Introduction of lap top, changes in mobile phone, conversion of traditional
photography to digital, direct marketing etc.
4. Productivity: It is ascertained by comparing the value of output with the value of
inputs. Every business must aim at greater productivity through the best use of
available resources.
5. Efficient utilization of physical and financial resources: Any business require
physical resources like plants, machines, materials… and financial resources. The
business enterprise must aim at acquiring these resources according to their
requirements and use them efficiently.
6. Manager performance and development: Business need managers to conduct and
coordinate business activity, therefore improve managers performance and
development is an important objective of every business.
7. Improve workers performance and attitude: Every enterprise must aim at
improving its workers performance. It should also try to ensure a positive attitude on
the part of workers.
8. Social responsibility: Social responsibility refers to the obligation of business firms to
contribute resources for solving social problems and work in a socially desirable
manner.
Make in India:
‘Make in India’ is an initiative launched by the Government of India on 25
September 2014, to encourage national, as well as multinational companies to
manufacture their products in India. The major objectives behind the ‘Make in India’
initiative are job creation and skill enhancement in 25 sectors of the economy, which are
as follows: Automobile, Biotechnology, Defence Manufacturing, Food Processing Media
and Entertainment, Pharmaceuticals, Renewable Energy, Textiles and Garments
Wellness, Automobile Components, Chemicals, Electrical Machinery, Information
Technology and Business Process Management , Mining, Port and Shipping, Roads and
Highways, Thermal power, Aviation, Construction, Electronic Systems, Leather, Oil and
Gas , Railways, Space and Astronomy and Tourism and Hospitality.
(2019-20) Page 5
Business Risk
The term ‘business risks’ refers to the possibility of inadequate profits or even
losses due to uncertainties or unexpected events.
Business enterprises constantly face two types of risk : Speculative and pure.
Speculative risks involve both the possibility of gain, as well as, thepossibility of loss.
Eg.: Change in market conditions.
Pure risks involve only the possibility of loss or no loss. Eg.: Chance of fire.
Nature of Business Risks:
(i) Business risks arise due to uncertainties.

(ii) Risk is an essential part of every business.
(iii) Degree of risk depends mainly upon the nature and size of business.
(iv) Profit is the reward for risk taking.
Causes of Business Risk:
I. Natural causes: It includes heavy rain, famine, earthquake, fire, drought, Tsunami
etc.
II. Human causes: It includes theft, strike, lockout, negligence and carelessness, riots
etc.
III. Economic causes: It includes change in demand and price, market conditions,
competitions, trade depression etc.
IV. Political causes: It includes changes in government policies regarding expert-
import, taxation, licensing policy, ideology of political parties etc.
V. Management causes: It include poor planning, absence of research and
development, mismanagement etc.
Methods of Dealing with Risks

Although no business enterprise can escape the presence of risk, there are
many methods a business enterprise can use to deal with risk situations. For
instance, the enterprise may (a) decide not to enter into too risky transaction
(b) take preventive measures, like firefighting devices, to reduce risk (c) take
insurance policy to transfer risk to insurance company (d) assume risk by making
provisions in the current earnings or (e) share risks with other enterprises as
manufacturers and wholesalers.
Role of profit in Business: Profit is known as the economic barometer of
business. Profit has an important role in business. They are:
1. It is a source of income for business man.
2. It is the reward for risk taking.
3. Survival of business: A business cannot have existence for long without making
profit. A business which sustains losses year after year will have to be shut down.
4. It is a source of income for the growth and development of business.
5. It build up the reputation of business.
(2019-20) Page 6
Classification of business activities:

Structure of Business
Basis of size Basis of Ownership Basis of function
Small Medium Large Public Private Joint Industry Commerce

Scale Scale Scale Sector Sector Sector
Departmental undertaking Sole proprietor ship

Public corporations Partnership
Govt. companies HUF
Joint Stock Company
Co-operative society
On the basis of Function

It may be classified into two broad categories:
A. Industry B. Commerce
A. Industry: Industry involves production or processing of goods used for consumption
or for further production.
Types of Industry:
Primary Secondary Tertiary
Extractive Genetic Manufacturing Construction
Analytical Synthetical Processing Assembling
a. Primary Industry; Primary industries are associated with extraction of natural resources
and reproduction of living organisms like plants, animals and birds. It is classified into
two:
1. Extractive industry: Which engage in extraction of something from natural sources or
from nature. The products extracted are wither directly consumed or are used as raw
materials for further production. Eg. Fishing, mining, oil exploration etc.
2. Genetic industries: They are engaged in activities like rearing or breeding of animals,
birds and plants. Eg. Agriculture, dairy farming for milk, poultry farming for egg and
meat, Floriculture for flowers pisciculture for fish etc.
b. Secondary Industries: It deals with materials extracted at the primary stage. These
industries either process the material or produce goods. It is further classified in to
two;
(2019-20) Page 7
1. Manufacturing industries: They engage in converting raw materials into finished

goods. The products manufactured may either be consumer goods or capital goods.
Eg. Producing steal, make furniture, making butter etc.
It may be divided into following categories:
a. Analytical industry: In it the main products or rawmaterial is divided into various sub
products. Eg. Petroleum industry.
b. Synthetic Industry: In it one main product is made from various raw materials. Eg. Soap,
paint …
c. Processing Industry: In it different stages are involved in transferring raw material in to
finished goods. Eg. Textile industry.
d. Assembling Industry: In it different parts of the products are purchased from te market
and assembled to make a complete product. Eg. Cycle industry.
2. Construction industries; They engaged in construction of dams, bridged, airports etc.
The products of these industries are immovable, labour intensive and which are used
mostly for public welfare.
c. Tertiary industries; They concern with providing services that support the primary
industries and secondary industries. Eg. Transport, banking, insurance etc.
B. Commerce: All activities ensuring the free flow of goods from the producer to the
consumer comes under commerce. It is defined as “those activities involving the
removal of hindrances in the process of exchange of goods” Commerce includes trade
and aids to trade.
Commerce = Trade + Aids to trade
Trade: It refers to the sale, exchange or transfer of goods on a continuous and

regular basis. A person who engaged trading activities are known as trader.
 The hindrance of person is removed by trade.
Types of Trade
Internal/home/domestic trade External/Foreign/International trade
Whole sale Retail Export Import Entrepot
1. Home trade: When trade taken place within the boundaries of a country
a. Wholesale trade: Buying goods in bulk and sell them in the smaller quantities to
retailer.
b. Retail trade: Buying goods in small quantity from wholesaler or producer and sell
them to consumers.
(2019-20) Page 8
2. Foreign Trade: When trade taken place beyond the boundaries of a nation is called
external trade.
a. Export: When goods are sold to a foreign country.
b. Import: When goods are purchased from a foreign country
c. Entrepot : When goods are imported for export to other countries.
Aids to trade: Activities which assist trade are called aids to trade or auxiliaries to
trade. It includes banking, transportation, communication, insurance, advertising,
warehousing, packaging etc.
 Banking Service: Business activities cannot be undertaken unless funds are available
for its various needs. Banking services provides finance facility to business and thus it
removes the hindrances of finance.
 Transport and Communication: Production of goods generally takes place in
particular locations. But these goods are required for consumption in different part of
the country. Various modes of transport and communication facilities helps in the
movement of goods and removes the hindrance of place in the exchange of goods.
 Insurance: Business involves various types of risks. Insurance provide protection in
all these situations. Thus the hindrance of risk is removed through insurance.
 Advertising: It is practically impossible for producers and traders to contact each
other and every customer. For sales promotion, information about the product must
reach potential buyers. Advertising helps in this situation. The hindrance of
knowledge or information is removed through advertising.
 Warehousing: Usually goods are not sold or consumed immediately after production.
They are held in stock to be available as and when required. The function of storage is
called warehousing and it removes the hindrance of time in the exchange process.
(2019-20) Page 9
Starting a Business- Basic Factors:

Some of the basic factors, which must be considered by anybody who is to start the
business, are as follows:
1. Selection of line of business: It means nature and type of business to be undertaken.

2. Size of the business: Size or scale of operation is another important decision to be taken
at the start of the business.
3. Choice of form of ownership: The business organization may take the form of a sole
proprietorship, partnership or a joint stock company. Each form has its own merits and
demerits.
4. Location of business: Availability of raw meterial, labour, power, water and other various
services are important factors while making a choice of location.
5. Finance: Proper financial planning must be done before selecting form of business.
6. Physical facilities: Availability of physical facilities like buildings, machines, supportive
services …. are very important factor to be considered.
7. Plant layout: It means the physical arrangement of machines and equipment needed to
manufacture a product.
8. Work force: Plans should be made to bout the number of employees, their competence
and how they will be trained and motivated.
9. Tax planning: The founder of the business has to consider in advance the tax liability
under various tax laws and its impact on business.
10. Launching the enterprise: After consider the above factors, the business man can go
ahead with the actual launching of the enterprise.
(2019-20) Page 10
CHAPTER: II
FORMS OF BUSINESS ORGANISATION
There are five forms of business enterprises in the private sector. They are: Sole
proprietorship, Partnership, Hindu Undivided Family Business, Joint Stock Companies and Co-
operative Societies.
SOLE PROPRIETORSHIP:
A business which is owned, managed and controlled by a single person is known as
sole proprietorship. The person who owned this type of business is called sole trader. It is the
most common form of business organization.
Features:
1. One man ownership and control: The proprietor is the sole owner and master of the
business. He is the ultimate controller of the firm.
2. Formation and closure: There are any legal formalities and separate law for
governing the activities of the sole trading concern. Closure of the business can also be
done easily.
3. Lack of business continuity: The sale proprietorship business is owned and
controlled by one person, therefore death, insanity, imprisonment will have effect on
the business and may even cause closure of the business.
4. Unlimited liability: The liability of the sole proprietor is not limited to the capital he
has invested in the organization. In the case of business losses and if the business assets
are not sufficient to meet all its liabilities, the proprietor may have to sell his personal
property to pay off business liabilities.
5. No separate entity for the business: It has any legal existence separate from its
owner.
6. Profit sharing: Since there is only one owner in sole proprietorship, all surpluses goes
to him. Likewise all losses have to be suffered by him alone.
Merits:
1. Quick decision making: Sole trader enjoys considerable degree of freedom in making
business decisions.
2. Secrecy of information: Sole proprietor enables to keep all the information related to
business operations confidential and maintain secrecy.
3. Direct incentive: No sharing of profit provides maximum incentive to the sole trader
to work hard.
4. Sense of accomplishment: There is a personal satisfaction involved in working for
oneself.
5. Ease of formation and closure: It is easy to start and close the business as per the
wish of the owner because there is less legal formalities.
Demerits:
1. Limited resources: Resources of a sole proprietor are limited to his personal savings
and borrowings from others.
2. Limited life of business: Death, insolvency or illness of a proprietor affects the
business and can lead to its closure.
3. Unlimited liability: If the business fails, the creditors can recover their dues not
merely from the business assets, but also from the personal assets of the proprietor.
4. Limited managerial ability: The owner has to possess various managerial skills. But
it is rare to find an individual who possess all these talents.
(2019-20) Page 11
JOINT HINDU FAMILY BUSINESS (J.H.F) / HINDU UNDIVIDED FAMILY BUSINESS (H.U.F)
It refers to a form of organisation wherein the business is owned and carried on by the
members of the Hindu Undivided Family (HUF). It is governed by the Hindu Law. The basis of
membership in the business is birth in a particular family and three successive generations
can be members in the business.
The business is controlled by the head of the family who is the eldest member and is
called karta. All members have equal ownership right over the property of an ancestor and
they are known as co-parceners.
Gender Equality in the Joint Hindu Family a Reality

According to the Hindu Succession (Amendment) Act, 2005, the daughter of a
Coparcener of a Joint Hindu Family shall, by birth, become a coparcener. At the time of
partition of such a ‘Joint Hindu Family’ the coparcenary property shall be equally divided to
all the coparceners irrespective of their gender (male or female). The eldest member (male
or female) of ‘Joint Hindu Family’ shall become Karta. Married daughter has equal rights in
property of a Joint Hindu Family.
Features:
1. Formation: For JHF business, there should be at least two members in the family and
ancestral property to be inherited by them. The business does not require any
agreement as membership by birth. It is governed by the Hindu Succession Act, 1956.
2. Liability: The liability of all members except karta is limited to their share of property
of business, however the karta has unlimited liability.
3. Control: The control of the business lies with the karta.
4. Continuity: The business continues even after the death of the karta as the next eldest
member takes up the position of karta.
5. Minor members: Minors can also be members of the business.
Advantages:
1. Effective control: The karta has absolute decision making power. This avoids conflicts
among members.
2. Continuity: The death of the karta will not affect the business.
3. Limited liability: The liability of all co-parceners except karta is limited.
4. Increased loyalty and cooperation: Business is run by the members of a family;
there is a greater sense of loyalty towards one other.
Disadvantages:
1. Limited resources: It faces the problem of limited capital as it depends mainly on
ancestral property.
2. Unlimited liability of karta: Karta’s personal property can be used to repay business
debts.
3. Dominance of karta: The karta individually manages the business which may at times
not be acceptable to other members.
4. Limited managerial skill: The karta was not an expert in all areas of management.
(2019-20) Page 12
PARTNERSHIP:
Partnership is an association of person with the main aim to run a business and share
the profits in agreed ratio. “Partnership is the relation between two or more persons who have
agreed to share the profits of a business carried on by all or any of them acting for all”- Indian
Partnership Act, 1932, Sec4.
Owners of the partnership business are collectively called a ‘Firm’ and individually
called ‘Partners’. The name under which the business is carried on is known as firm name.
Features:
1. Formation: The partnership form of business is governed by the Indian Partnership
Act, 1932. It comes into existence through a legal agreement.
2. Sharing of profit or loss: The profit shall be shared among the partners in an agreed
ratio, however they also share losses in the same ratio.
3. Existence of business: It is formed only for the purpose of carrying on a lawful
business.
4. Mutual agency: The partnership business may be carried on by all or any one of them
acting for all. Thus each partner is principal and so can act in his own right. At the same
time he can act on behalf of other partners as their agent.
5. Number of partners; The minimum number of partners needed to start a partnership
firm is two. According to section 464 of the Companies Act 2013, maximum number of
partners in a partnership firm can be 100, subject to the number prescribed by the
government. As per Rule 10 of The Companies (miscellaneous) Rules 2014, at present
the maximum number of members can be 50.
6. Unlimited liability: The liability of partner is unlimited.
7. Lack of continuity: The death, retirement, insolvency, insanity of any partner can
bring an end to the business.
8. Registration: Registration of partnership is not compulsory.
Partnership Deed: Partnership is the result of mutual agreement. The agreement may be
oral or written. It is desirable to have a written agreement. Such written agreement is called a
Partnership Deed. It contains the terms and conditions relating to partnership and regulations
governing the internal management and organization. It should be signed by all the partners
and stamped properly.
Contents:
i. Name of the firm
ii. Names and address of partners
iii. Nature of business
iv. Principle place of business
v. Duration of partnership, if any
vi. Amount of capital contributed by each partners
vii. Profit sharing ratio
(2019-20) Page 13
viii. Amount of salary, if any, payable to partners

ix. Amount of drawings, if any, permissible for each partners
x. Rate of interest on capital or drawings, if any
xi. Provisions regarding admission and retirement of partners
xii. Maintenance of books of accounts and audit
xiii. Arrangement for settlement of debts
xiv. Rights, duties, powers and obligations of all partners
xv. Provision regarding dissolution etc…………
Types of Partnership:
Partnership can be classified on the basis of two factors:
On the basis of Duration On the basis of Liability
Partnership at will Particular partnership with limited liability with unlimited liability
I. On the basis of duration- It is further classified into two:

a. Partnership at will: It exists at the will of the partners. Any partner may terminate
the partnership by giving notice for the same at his will.
b. Particular partnership: It is formed to undertake a particular venture or is formed
for a particular period. It comes to an end on the completion of the venture or on the
expiry of the period.
II. On the basis of liability: It is further classified into two:
a. General partnership: In this the liability of partners is unlimited and joint.
Registration of the firm is optional. The existence of the firm is affected by the death,
retirement, insolvency, lunacy…of the partners.
b. Limited partnership: In this type, the liability of at least one partner is unlimited
whereas the rest may have limited liability. It is not terminated due to death,
retirement, insolvency, lunacy of limited partners. The limited partner do not enjoy
any management right and its registration is compulsory.
In India, the permission to form limited partnership has been granted after
introduction of New Small Enterprise Policy in 1991.
Types of Partners:
1. Active partner: A partner who contributes capital and takes active participate in the
day to day working of the firm is known as active or working partner.
2. Sleeping partner: A sleeping partner does not take any active part in the conduct of
the business. He only contributed capital and shares the profits and losses.
3. Nominal partner: A nominal partner neither contributes capital nor takes any active
part in the management of the business. He simply lends his name to the firm. He may
or may not be entitled to get a share in the profits of the business. He is liable to third
parties for all debts of the firm. He is also called a quasi-partner.
(2019-20) Page 14
4. Partner by estoppels: If a person by his talk or action leads others to believe that he is
a partner in a firm, then he is known as partner by estoppels. He is not entitled to share
in the profit of the firm, but he will be liable to third parties.
5. Partner by holding out: If a person may be represented as a partner to the public by
others and he does not deny the news immediately on knowing it, he is considered as a
partner by holding out. He is liable to their parties to pay the debts of the firm.
6. Secret partner: A secret partner is one whose association with the firm is unknown to
the general public. Other than this distinct feature, in all other aspects he is like the rest
of the partners.
Minor as Partner: A minor is a person who has not attained the age of 18 years and hence is
incompetent to contract. A person during his minority may be admitted to the benefits of a
partnership and he may act as a partner of the firm. The liability of a minor partner is
limited. A minor can share only profit and cannot be asked to bear the losses. He will not
be eligible to take an active part in the management of the firm.
Registration of Partnership: According to Partnership Act 1932, “it is not compulsory

to get a firm registered. But an unregistered firm remains deprived of some special rights.
Therefore, it is beneficial to get a firm registered”. Under Partnership Act 1932, special rules
are made for registration of firm. Every State Government has appointed a Registrar for this
purpose.
Procedure of Registration:
1. Submission of application form in the prescribed form to the Registrar of firm. It
contain the following particulars:
i. Name of the firm
ii. The principle place of business
iii. Name and address of partners
iv. Date of admission of the partners
v. Duration of partnership etc…
The statement shall be signed by all the partners.
2. Deposit of required fees with the Registrar of Firms.
3. The Registrar after approval will make an entry in the register of firms and will
subsequently issue a certificate of registration.
Consequences of non-registration: If a firm is not registered, it fails to get the following
benefits: (i) a firm cannot sue third parties (ii) no partner can sue other partner (iii) no partner
can sue firm and (iv) the other parties can sue firm for their rights.
(2019-20) Page 15
Advantages of Partnership
1. Ease of formation and closure: A partnership firm can be formed easily by putting an
agreement between proposed partners. Registration is not compulsory. Closure of the
firm is also easy.
2. Better management and decision making: The partners can manage different
functions according to their areas of expertise.
3. More capital; In this capital is contributed by a number of members.
4. Sharing of risk: The risks involved in running a partnership firm are shared by all the
partners.
5. Secrecy: A partnership firm is not legally required to publish its accounts and submit
its reports; hence it is able to maintain confidentiality of information.
Limitations:
1. Unlimited liability: Partners are liable to repay debts even from their personal
resources in case the business assets are not sufficient to meet its debts.
2. Limited resources: There is a restriction on the number of partners, as a result,
partnership firm face problems in expansion beyond a certain limit.
3. Possibility of conflicts: Difference in opinion on some issues may lead to disputes
between partners.
4. Lack of continuity: Partnership comes into and end with the death, retirement,
insolvency or lunacy of any partner. It may result in lack of continuity.
5. Lack of public confidence: A firm is not legally required to publish its financial reports
to public; as a result, the confidence of the public in partnership firm is generally low.
JOINT STOCK COMPANIES:

A company can be described as an artificial person having a separate legal entity,
perpetual succession and a common seal. The company form of organisation is governed by
The Companies Act, 2013. As per section 2(20) of Act 2013, a company means company
incorporated under this Act or any other previous company law.
In general company is an association of individuals for common objective. The total
capital of a company is known as share capital and it is divided into small units called shares.
The person who hold the shares are known as shareholders of the company and they are the
real owners of a company. In India companies are formed under Indian Companies Act of
1956.
“A company means a Company formed and registered under this act or existing
company”-Indian Companies Act, 1956.
“A company is an artificial person created by law having a separate entity with a
perpectual succession and a common seal”- L.H.Haney.
(2019-20) Page 16
Characteristics/Features of a Company:
1. Separate legal entity: A company has a separate legal existence apart from its
members. It can own property, open a bank account, enter contract with members
etc…
2. An artificial person: Law has recognized a company as an artificial legal person. As a
person, the company can sell and purchase the property belonging to it. A company can
sue and be sued like a person.
3. Perpetual succession: A company has continuous existence. Its existence is not
affected by the death, insanity, insolvency, transfer of shares by the shareholders.
4. Limited liability: The liability of shareholders is limited to face value of shares held by
them.
5. Transferability of shares: Shares of Joint Stock Companies are freely transferable
from person to person except in the case of private company.
6. Separation of ownership from management: The Board of Directors are entrusted
with the task of management not the shareholders. The BOD is elected by shareholders
in democratic way (one share one vote).
7. Common seal: A company is an artificial person created by Law. All documents and
certificates issued by such a company must be authenticated by the company seal. Such
a common seal is the official signature of a company.
8. Compulsory registration: A company has to be registered under the Companies Act,
2013 or any of the previous company law. It is mandatory.
9. Formation: The formation of a company is time consuming, expensive and

complicated process. It involves the preparation of several documents and legal
formalities.
Merits:
1. Limited liability: The share holders are liable to the extent of the amount unpaid on
the shares held by them. Owner’s personal property is free from any charge.
2. Transfer of interest: The sharers of a public company can be sold in the market and
as such can be easily converted into cash.
3. Perpetual succession: Existence of a company is not affected by the death, retirement,
insolvency or insanity of shareholders as it has separate entity from its members.
4. Scope for expansion: A company has huge financial resources, thus there is a greater
scope for expansion and growth.
5. Professional management: A company can afford to pay higher salaries to
specialists and professionals. It can, therefore, employ people who are experts in their
area of specialization.
(2019-20) Page 17
Limitations:
1. Difficulty in formation: The formation of a company requires greater time, efforts,
knowledge of legal formalities….
2. Lack of secrecy: Companies information is available to the general public also,
therefore, it is difficult to maintain complete secrecy.
3. Impersonal work environment: Because of separation of ownership and
management, there is lack of effort as well as personal involvement on the part of the
officers of a company.
4. Numerous regulations: The functioning of a company is subject to many legal
provisions and compulsions.
5. Delay in decision making: Communication as well as approval of various proposals
may cause delays not only in taking decisions but also acting upon them.
6. Conflicts of interests: There may be conflicts of interests amongst various
stakeholders of a company.
Types of Companies:
A company can be either a private or public company.
Private Company: A private company means a company which:
a. Restricts the right of members to transfer its shares.
b. Have a minimum of 2 and a maximum of 200 members.
c. Does not invite public to subscribe to its share capital; and
It is necessary for a private company to use the word private limited after its
name.
Public Company: A public company means a company which is not a private company. As
per the Indian Companies Act, a public company is one which:
a. Has a minimum of 7 members and no limit on maximum members.
b. Has no restriction on transfer of shares and
c. Is not prohibited from inviting the public to subscribe to its shares.
A private company which is a subsidiary of a public company is also treated as
public company.
Difference between Private Company and Public Company
Basis Private Company Public company
1. Number of Members Minimum: 2 Minimum;7
Maximum: 200 Maximum: No limit
2. Number of Directors Two Three
3. Minimum Paid up capital 1 lakh 5 lakh
4. Invitation to public Not possible Possible
5. Minimum subscription Not required Required
6. Issue of prospectus No need Needed
7. Commencement of business After its incorporation After certificate of
Commencement.
8. Share transfer Restricted No restriction
9. Name Ended with Private Ended with Limited /Ltd.
Limited/(P)Ltd.
10. Legal formalities Less More
(2019-20) Page 18
The following are some of the privileges of a private limited company as

against a public limited company:
1. A private company can be formed by only two members whereas seven people are needed to
form a public company.
2. There is no need to issue a prospectus as public is not invited to subscribe to the shares of a
private company.
3. Allotment of shares can be done without receiving the minimum subscription. A private
limited company can start business as soon as it receives the certificate of incorporation
4. A private company needs to have only two directors as against the minimum of three
directors in the case of a public company. However the maximum number of directors for
both types of companies is fifteen.
5. A private company is not required to keep an index of members while the same is necessary
in the case of a public company.
CO-OPERATIVE ORGANISATION:
Cooperative society is a voluntary association of persons, who join together with the
motive of welfare of the members. Co-operative means to work together. This is a form of
organization in which people of common interests come together to work to enhance their
monetary benefits.
Co-operative organization is a voluntary association of persons for mutual benefit and
its aims are accomplished through self help and collective effort. The basis of co-operation is
self-help through mutual help and the motto is “each for all and all for each”. It is generally
formed and registered under the Co-operative Societies Act, 1912 and in Kerala, Kerala Co-
operative Societies Act, 1969.
The process of setting up a cooperative society is simple and at the most what is
required is the consent of at least ten adult persons. The capital of a society is raised from its
members through issue of shares. The society acquires a distinct legal identity after its
registration.
Features:
1. Voluntary association: Any one can become a member in a co-operative society
according to his own free will and he is free to withdraw his membership at any time.
2. Open membership: Membership is open to all irrespective of caste, sex, colour,
income or status in the society.
3. Legal status: Registration of a cooperative society is compulsory, therefore society has
a separate identity from its members.
4. Limited liability: The liability of the members of a cooperative society is limited to the
extent of the amount contributed by them as capital.
5. Control: In a cooperative society, the power to take decisions lies in the hands of an
elected managing committee( in a democratic way, one man one vote)
6. Service motive: It emphasis the value of mutual help and welfare.
(2019-20) Page 19
Merits:
1. Equality in voting right: The principle of one man one vote governs the
cooperative society.
2. Limited liability: The liability of members is limited to the extent of their capital
contribution.
3. Stable existence: Death, insolvency or insanity of the members do not affect
continuity of a cooperative society.
4. Economy in operation: As focus is on elimination of middlemen, this helps in
reducing costs.
5. Support from government: They find support from government in the form of
low taxes, subsidies, low interest rates on loans….
Demerits:
1. Limited resources: Resources of a cooperative society consists of capital

contribution of the members with limited means.
2. Inefficiency in management: Cooperative societies are unable to attract and
employ expert management because of their inability to pay them higher salaries.
3. Lack of secrecy: It is difficult to maintain secrecy about the operations of a
cooperative society.
4. Government control: Cooperative societies have to comply with several rules and
regulations related to auditing of accounts, submission of accounts etc. Through
state cooperative department, government exercised control over cooperative
societies.
5. Difference of opinion: Sometimes personal interests may start to dominate the
welfare motive and the benefit of other members.
Types of Co-operative Societies:

1. Consumer’s co-operative societies: Aim at ensuring steady supply of consumer
goods and services at reasonable prices to its members.
2. Producer’s co-operative societies: They purchase raw materials, tools and
equipment’s and other items of production in large quality and then distribute them
among their produce r member.
(2019-20) Page 20
3. Co-operative marketing societies: They enable the members to secure fair price for
their products by removing the difficulties in marketing.
4. Co-operative Credit Societies: They provide financial assistance in the form of direct
loans to the members
5. Co-operative farming societies: In this farmers pool their land and undertake
cultivation collectively.
6. Co-operative housing societies: They are formed to provide housing facilities to their
members, either on ownership basis or on rental basis.
Choice of Form of Business Enterprise:

The selection of a suitable form of organization is made after considering the following
points:
1. Cost: From the point of view of initial cost, sole proprietorship is the preferred form as
it involves less expenditure. Company form of organization, on the other hand involve
greater cost.
2. Easy formation: The legal requirements are less in the case of sole proprietorship and
partnership, but registration is compulsory in the case of companies and cooperative
societies, therefore they are more complex.
3. Liability: In the case of sole proprietorship and partnership the liability of owners are
unlimited. In cooperative societies and companies, the owner’s liability is limited.
Therefore from the point of view of investors, company and cooperative societies are
more suitable as the risk is less.
4. Continuity: The death, insolvency and insanity of owners affect the continuity of a sole
proprietorship or partnership, but they are not affected for companies and cooperative
societies. Therefore if a business need long term existence company form is more
suitable. For short term ventures, sole proprietorship and partnership is preferred.
5. Management ability: If the organizations operations are complex in nature and
require professional management, company form of organization is more suitable. Sole
proprietorship and partnership may be suitable, where simplicity of operation in
business.
6. Capital: If the scale of operation and chance of expansion is large, company form of
organization is suitable whereas for medium and small business one can opt
partnership or sole proprietorship.
7. Degree of control: If direct control over operations and decisions is required, sole
proprietorship is preferred. But if the owners do not mind sharing control, partnership
or company form of organizations can be adopted.
8. Nature of business: For a small trading concern where direct personal contact
needed, sole proprietorship is more suitable. For large manufacturing units, company
form of business may be adopted. In cases where services of a professional nature are
required, partnership form is more suitable.
(2019-20) Page 21
Comparative Evaluation of Forms of Organisation
Basis Sole Partnership HUF Company Co-operative

proprietorship society
Easy Easy Easy Greater legal Greater legal

Formation formation(less formation( formation(exe formalities(Regis formalities(Regis
legal registration mption from tration is tration is
formalities) is optional) registration) compulsory) compulsory)
Private
Minimum:2 Company:
Members Only one Maximum:100 Minimum:2 Minimum: 10
No limit Maximum:200 Maximum: No
Public Company: limit
Minimum:7
Maximum: No
limit
Capital Limited, but Ancestral Large financial Limited

Contribution Limited finance more based property resources
on the size
Unlimited(Li
Liability Unlimited mited in the Unlimited for Limited Limited
case of Karta, limited
minor for
partner) coparceners
Separation
between
Control ownership and
and Owner itself Partners Karta Elected management(sha
Management representative( reholders are
managing owners but
committee) managed by
Board of
Directors.)
Stable
(depend
Continuity No stability upon the Stable Stable Stable
relationship
between
partners)
(2019-20) Page 22
CHAPTER III
PRIVATE, PUBLIC AND GLOBAL ENTERPRISES
The public sector consists of various organizations owned and managed by the
government. These organizations may either be partly or wholly owned by the central or state
government.
FORMS OF PUBLIC SECTOR UNDERTAKINGS:
Public sector undertakings are organized in any of the following forms:
I. Departmental Undertaking II. Public Corporations or Statutory corporations
III. Government Companies.
I. Departmental Undertakings: Departmental form of organization is the oldest and
most common form of organization. These enterprises are established as departments of the
ministry and are considered part of the ministry itself. Under this form, the enterprise is
managed by the government officials as one of the government departments. They have no
separate legal entity. It works under the control of a minister.
Eg: All India Radio, Doordarshan, Post and Telegraph, Indian Railways, Ports and harbours,
Electricity, defence undertakings ….
Characteristics:
i. It is organized and managed by a minister who exercises direct control over the
undertaking.
ii. Financed through budget allocation.
iii. Rules and procedures for staff selection, appointment and service conditions are the
same as that of government servants.
iv. Budgeting, accounting and auditing are as applicable to government departments
v. It cannot be sued without previous consent of government…
Advantages:
i. Total government control helps implementation of government policies.
ii. Strict audit and legislative controls prevent misuse of public funds.
iii. Managed by responsible government servants who keep the secrecy required in
strategic and defense industries.
iv. Revenue from these undertakings is remitted in the treasury.
v. Financing becomes very easy as it is managed by the government.
vi. These ensure a high degree of public accountability
vii. Where national security is concerned, this form is most suitable.
Disadvantages:
i. Political interferences the smooth functioning
ii. Red tapism is very strong
iii. Lack of flexibility and initiative in operations
iv. Government servants who manage the undertakings usually lack managerial skill land
efficiency.
v. The top management of the organization are over burdened with work
(2019-20) Page 23
II. Statutory Corporations or Public Corporations: It is an autonomous institution

established by passing a Special Act in the Parliament or State Legislature. It is a separate
entity for legal purposes. It can conduct business in their own name and have greater freedom
in making contracts and acquiring and disposing off property.
Eg. Reserve Bank of India, LIC, Air India, ONGC, IFC, SBI, UTI, KSRTC etc.
Characteristics:
a. It is wholly owned by the government.
b. It is created by government under a Special Act of Parliament or State Legislature
which defines its powers and duties.
c. It has a separate entity for legal purposes
d. It is usually independently financed
e. In the majority of cases, employed of public corporation are recruited and
remunerated under the terms and conditions which the corporation itself determines.
f. It is free from political, parliament and departmental interference
g. It is not under direct government control
Advantages:
a. Autonomy in working b. Quick decision and prompt action
c. Financial independence d. Efficient staff
e. Protection of public interest. Etc.
Disadvantages:
a. Government interference in the day to day working affect the autonomy
b. Any change in the functions and powers requires the amendment of the Act.
c. Absence of competition and profit motive leads to inefficiency.
d. There is a chance of corruption exist….
III. Government Companies: A government company is established under The
Companies Act, 2013 and is registered and governed by the provisions of The Act.
According to the section 2(45) of the Companies Act 2013, a government company means
any company in which not less than 51 per cent of the paid up capital is held by the central
government, or by any state government or partly by Central government and partly by one
or more State governments and includes a company which is a subsidiary of a government
company. A government company may be formed as a private limited company or a public
limited company. The shares of the company are purchased in the name of the President of
India
Eg. HMT, Hindustan Steel Ltd., IOC, FACT, The Hindustan Shipyard Ltd, etc
Characteristics:
a. Formed by registration under Companies Act 2013 or any other previous Company
Law.
b. Whole or major part of shares held by the government and the rest by private parties.
c. Has its own memorandum and articles of association
d. It is a body corporate with separate legal existence
e. Directors appointed by government alone or jointly by government and private
parties.
(2019-20) Page 24
Advantages:
a. Permits public participation in share capital
b. Easy formation by registration
c. Flexibility in operation
d. Enjoys better credit facilities.
e. No government control, less red tapism, less bureaucracy etc.
f. Majority of directors appointed by government etc.
g. Attract foreign capital, technical knowhow and foreign investors etc.
Disadvantages:
a. Every chance of political interference since the directors are appointed by the
government
b. Minority interest may be overlooked
c. Directors and staff may not take active interest as they have no share in the profits
d. Government approval is necessary for everything
e. No effective government control on financial matters etc.
COMPARISON OF PUBLIC SECTOR ENTERPRISES (Reference)

Basis Departmental Public Corporation Government Company
Undertaking
1. Formation By order of Ministry By special Act By register under
Companies Act
2. Legal Status No separate legal Separate legal entity. Separate legal entity.
entity.(part of Govt.)
3.Ownership Wholly owned by Wholly owned by At least 51% of share
Government Government capital owned by the
Government
4.Management By govt. officials By nominated board By board of directors(
of directors include private
participation)
5.Staff Government servants Not Govt. servants Not Govt. servants
6. Autonomy No Sufficient Some
7.Public Highest Higher High
accountability
8.Flexibility No Considerable Moderate
9.Suitability Public utility services Individual and Individual and
commercial commercial
enterprises of enterprises requiring
national importance pvt. participation
10.Financing From Budget Wholly by the Govt., Separate financing can
they can also borrow borrow, pvt.
participation possible
(2019-20) Page 25
CHANGING ROLE OF PUBLIC SECTOR: Public Sector Enterprises(PSE) came into

existence under the Industrial Policy Resolution of 1956. The aim of PSE was to make as
important instrument of economic and social development of the country. The main
objectives of PSE/PSU are:
i.) Development of infrastructure such as transportation and communication, fuel and
energy…..
ii.)To ensure regional balance.
iii.)To prevent concentration of wealth and economic power in the private sector.
iv.) To take advantages of economies of large scale industries such as power plants,
natural gas, petroleum industries …..
If a public sector was making losses continuously, it was referred to the Board for Industrial
and Financial Reconstruction (BIFR) for complete shutdown.
From 1991 onwards, there has been major rethinking on the role of PSE. The Government
of India introduced major reforms in the public sector in its new Industrial Policy in 1991. The
major changes after this are:
a. Reduction in the number of industries reserved for the public sector from 17 to 3
(atomic energy, arms and railway).
b. Disinvestment (sale of the equity shares to the private) of shares of a select set of
public sector enterprises.
c. Improvement of performance through a MoU (Memorandum of Understanding)
system by which managements are to be granted greater autonomy.
d. Competition will be introduced in many areas of public sector by inviting private
sector participation.
e. Professional management is to be introduced in PSUs.
DISINVESTMENT: Outright sale of Government shares in public sector undertaking is
called disinvestment.
Objectives of Disinvestment:
a. Releasing the large amount of public resources locked up in PSEs
b. Reducing the huge amount of public debt and interest burden.
c. Transferring the commercial risk to the private sector.
d. Reducing the government control and introduce corporate governance.
e. To reduce monopoly……..
(2019-20) Page 26
MULTINATIONAL COMPANIES/ GLOBAL ENTERPRISES.

A multinational company is one which has its headquarters in one country, but spreads
its operations all over the world. They operate on a very large scale and have very wide
marketing network. They also known as global enterprises or transnational companies
or transnational corporations. The branches of MNCs are called Majority Owned Foreign
Affiliates(MOFA).
Eg. Tata Motors, Ranbaxy, Infosys, Wipro, Hindalco (Indian MNCs),Pepsi, coca-cola, General
Motors, Cadbury, Brook Bond(foreign MNCs)etc.
Features:
1. Huge capital resources: These enterprises are characterised by possessing huge
financial resources and the ability to raise funds from different sources.
2. Foreign collaboration: Global enterprises usually enter into agreements with foreign
companies related to sale of technology, production of goods, use of brand names ........
3. Advanced technology: These companies used most modern technologies for their
production. They are able to conform to international standards and quality
specifications.
4. International market: They have vast access to international market; therefore they
are able to sell any product globally.
5. Product innovation: They have sophisticated R & D Department engaged in the task
of developing new products and superior designs.
6. Marketing strategies: They use aggressive marketing strategies in order to increase
their sales in a short period.
7. Centralised control: They have their headquarters in their home country and exercise
control over all branches and subsidiaries.
JOINT VENTURES:
When two businesses agree to join together for a common purpose and mutual benefit,
it gives rise to a joint venture. It can be flexible depending upon the requirements. It may
be on the result of an agreement between two firms.
Types of Joint Ventures
(i) Contractual Joint Venture (CJV): In a contractual joint venture, a new jointly-
owned entity is not created. There is only an agreement to work together. The
parties do not share ownership of the business but exercise some elements of
control in the joint venture. A typical example of a contractual joint venture is a
franchisee relationship.
(ii) Equity-based Joint Venture (EJV): An equity joint venture agreement is one in
which a separate business entity, jointly owned by two or more parties, is formed
in accordance with the agreement of the parties. The key operative factor in such
case is joint ownership by two or more parties. The form of business entity may
vary — company, partnership firm, trusts, limited liability partnership firms,
venture capital funds, etc.
(2019-20) Page 27
Examples of Joint Ventures: 1. AVI Oil India Pvt. Ltd. Date of establishment: 4
November, 1993 Joint Venture Holders: Balmer Lawrie & Co. Ltd., NYCO SA, France.
Areas of operation: Mineralbased lubricating oil, defence and civil aviation uses,
greases. 2. Green Gas Ltd. Date of establishment: 7 October, 2005 Joint Venture
Holders: GAIL (India) Ltd. and IOC. Areas of operations: Providing safe and reliable
natural gas to customers.
Objectives and Benefits of Joint Ventures:
1. Increased resources and capacity: Joining hands with another adds to existing
resources and capacity enabling the joint venture company to grow and expand
more quickly and efficiently.
2. Easy access to new markets and distribution networks: When a business enters
into a joint venture with a partner from another country, it opens up a vast growing
market and distribution channels.
3. Access to new technology: By engaging in partnership with a foreign company,
Indian company can enjoy the benefit of the latest and advanced new technology.
4. Innovation: Joint ventures allow business to come up with something new and
creative for the same market.
5. Low cost of production: They get the benefits of economy of large scale of
production. As a result the cost of production is reduced.
6. Competitive strength: When two companies together do the business, certainly
the strength to face competition increased.
7. Established brand name: When two businesses enter into a joint venture, one of
the parties benefits from the other’s goodwill which has already been established in
the market.
PUBLIC PRIVATE PARTNERSHIP (PPP): It is defined as a relationship

between public and private entities in the context of infrastructure and other
services. Under the PPP model, public sector plays an important role and ensures that
the social obligations are fulfilled and sector reforms and public investment are
successfully met. The government’s contribution to PPP is in the form of capital for
investment and transfer of assets that support the partnership in addition to social
responsibility, environmental awareness and local knowledge. The private sector’s role
in the partnership is to make use of its expertise in operations, managing tasks and
innovation to run the business efficiently.
Sectors in which PPPs have been completed worldwide include power
generation and distribution, water and sanitation, refuse disposal, pipelines, hospitals,
school buildings and teaching facilities, stadiums, air traffic control, prisons, railways,
roads, billing and other information technology systems, and housing.
(2019-20) Page 28
CHAPTER IV
BUSINESS SERVICES
Services are intangible in nature which provides satisfaction of wants.
Nature of services
a. Services are intangible, i.e., they cannot be touched.
b. Inconsistency.
c. Simultaneous activity of production and consumption being performed
(Inseparability).
d. Cannot be stored for a future use.
e. Participation of the customer.
Difference between Services and Goods
Basis Services Goods
An activity or process. e.g., A physical object. e.g., video

Nature watching a movie in a cinema hall cassette of movie
Type Heterogeneous Homogenous

Intangible e.g., doctor treatment Tangible e.g., medicine
Intangibility
Different customers having Different customers getting
Inconsistency different demands e.g., mobile standardised demands fulfilled.
services e.g., mobile phones
Simultaneous production and Separation of production and

consumption. e.g., eating ice- consumption. e.g., purchasing
Inseparability cream in a restaurant ice cream from a store
Cannot be kept in stock. e.g., Can be kept in stock. e.g., train

experience of a train journey journey ticket
Inventory
Participation of customers at the Involvement at the time of

time of service delivery. e.g., self- delivery not possible. e.g.,
Involvement service in a fast food manufacturing a vehicle
Types of Services:
1. Business services: It means those services which help in the successful running of a
business. Eg: banking, insurance, transportation, communication ......
2. Social services: Which are generally provided voluntarily to fulfill social goals. Eg:
health services, charity....
3. Personal services: Which are experienced differently by different people. They are
not consistent in nature. Eg: tourism, restaurants, tailoring ....
GATT: General Agreement of Tarrif and Trade)
(2019-20) Page 29
Classification of Business services:

BANKS: A bank is an institution, which is primarily engaged in receiving money from the
public by way of deposits and provides the same to those who are in need of it as loans and
advances. According to Banking Regulations Act 1949, banking means, “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 or otherwise”.
Banks can be classified into the following:
1. Cooperative Banks: They are governed by the provisions of State Cooperative
Societies Act . They act as an important source of rural credit ie, agricultural finance.
2. Specialized banks: They are established for some specific purposes such as foreign
exchange, industrial credit, export-import.....
3. Central Bank: They supervise, control and regulate the commercial banks and act as a
government banker. In India RBI is the central bank.
4. Commercial Banks: They are governed by the Indian Banking Regulation Act, 1949.
They are further classified into public sector, private sector and foreign banks.
Types of Commercial Banks:
1. Public Sector: They are owned and managed by the government. Now there are 27 public
sector banks in India [19 nationalised banks-14 banks nationalized on 19th July,1969 and 6
banks nationalized in 1980( among these New India Bank merged on PNB in 1993), 6 State
Bank Group banks, IDBI Bank, Bharathiya Mahila Bank].
Eg. SBI,Canara Bank, Corporation Bank, SBT, IOB, PNB etc….
2. Private Sector Banks: They are owned and managed by private parties. The private sector
banks consist of 25 old commercial banks and 9 new generation banks( ICICI, HDFC…).
Eg. Federal Banks, ICICI,South Indian Bank, Dhanalekshmi Bank ….
3. Foreign Banks: Banks have a place of origin at foreign country but operate with in India
are called foreign banks.
Eg.:Citi banks, Standard Chartered Banks, Bank of America, HSBC,….
Functions of Commercial Banks:
A. To Accept Deposits: Deposits received from the public constitute the major resource
available to a bank. Four types of deposits are usually accepted by banks. They are:
a. Fixed Deposits: Under this a fixed amount is deposited for a specific period. Normally it is
repayable on the maturity period. It carries a higher rate of interest. Banks issue FDR (Fixed
Deposit Receipts) when they accept fixed deposit. It is also known as ‘time deposits’ or ‘term
deposits’.
b. Saving Bank Deposits: This types of deposits helps in the mobilization of savings of the
general public. It carries a lower rate of interest than fixed deposits. There are certain
restrictions on operating this account such as keeping a minimum balance in the account,
frequency and volume of withdrawals etc.
(2019-20) Page 30
c. Current Deposits: This type of account is usually operated by businessmen. There is no

restriction on the frequency and volume of deposits or withdrawals of money. This account
carries Over Draft (OD) facility. This deposit does not generally carry any interest.
d. Recurring Deposits: In this type of account a fixed amount is to be deposited at regular
intervals for a fixed period of time. The amount deposited is repaid on the date of maturity
together with interest. This is mainly focused to encourage the saving habit of fixed income
group.
B. To give Loans and Advances: This is the second important function of commercial
banks. Banks usually lend money in the form of cash credit, overdraft, loans and advances
and by discounting bills of exchange.
a. Cash Credit: In this the banks open cash credit account in the name of the borrower and
permit his to withdraw money up to the sanctioned limit. Interest is to be paid on the
amount actually withdrawn by him.
b. Overdraft (OD): It is an arrangement where customers are permitted to withdraw cash
up to a level over and above their deposits in the account. Interest is to be paid only on the
actual amount of OD. Generally OD is granted to businessmen against their current accounts.
c. Discounting bill of exchange: In this the banker will credit the amount of the commercial
bill in the customer’s account after deducting a small amount of discount.
d. Term loan: Banks also provide medium term and long term loans to their customers. The
amount of loan may vary depending upon the requirements of the borrower.
C. Cheque facility: Bank collects customer’s cheque drawn on other bank. There are two
types of cheques mainly: (a) bearer cheques (encashable immediately at bank counters)
(b) crossed cheques (deposited only in the payees account).
D. Remittance of funds: Bank provides the facility of fund transfer from one place to
another. The transfer of funds is administered by using bank drafts, pay orders or mail
transfers, on nominal commission charges.
E. Other Services: It include various services such as bill payments, locker facilities,
underwriting services, payment of insurance premium, collection of dividend, buying and
selling of shares on behalf of customers..........
e- Banking (Electronic Banking) :
E-banking is electronic banking or banking using electronic media. Thus, e-banking is a
service provided by many banks, that allows, a customer to conduct banking transactions, such
as managing savings, checking accounts, applying for loans or paying bills over the internet
using a personal computer, mobile telephone or handheld computer (personal digital assistant).
The range of services offered by e-banking are: Automated Teller Machines (ATM) and
Point of Sales (PoS), Electronic Data Interchange (EDI) and Credit Cards Electronic or Digital
cash and Electronic bank transfer (EFT). The two ways in which EFT can be done are: NEFT
(National Electronic Fund Transfer) and RTGS (Real Time Gross Settlement).
(2019-20) Page 31
Benefits of e-Banking:
There are various benefits of e-banking provided to customers which are:
(i) E-banking facilitates digital payments and promotes transparency in financial
statements.
(ii) e-banking provides 24 hours, 365 days a year services to the customers of the
bank;
(iii) Customers can make some of the permitted transactions from office or house or
while travelling via mobile telephone;
(iv) It inculcates a sense of financial discipline by recording each and every
transaction;
(v) Greater customer satisfaction by offering unlimited access to the bank, not
limited by the walls of the branch and less risk and greater security to the
customer as they can avoid travelling with cash.
The banks also stand to gain by e-banking. The benefits are:
(i) e-banking provides competitive advantage to the bank;
(ii) e-banking provides unlimited network to the bank and is not limited to the
number of branches.
(iii) Load on branches can be considerably reduced
INSURANCE
Insurance is an agreement between the insured and the insurer by which the insurer
undertakes to indemnify the loss caused to the insured as a result of the happening of a
certain event.
Insurer: The person who undertakes the risk.
Insured: The person whose risk is undertaken.
Policy: The agreement or contract between insured and insurer.
Premium: The amount paid by the insured t the insurer for undertaking the loss.
Functions of Insurance:
1. Providing certainty: Insurance provide certainty of payment for the risk of loss.
2. Protection: It provide protection from probable chances of loss.
3. Risk sharing: The share is obtained from every insured member by way of premium.
4. Assist in capital formation: The fund received by insurance companies is invested in
various income generating schemes.
(2019-20) Page 32
Principles of Insurance:
1. Principles of utmost good faith: Contract of insurance is a contract of
‘uberrimaefidie’, ie, a contract which requires utmost good faith in the case of both the
parties. It means that both the parties are required to make full disclosure of all the
facts.
An ordinary contract of sale is based on the principle of Caveat Emptor (let the buyer
beware).
2. Principle of insurable interest; Insurable interest means monetary interest. A person
is said to have insurable interest in the subject matter of insurance if he stands to gain
from its existence and will suffer a financial loss with its destruction. Even a non-
owner may have insurable interest.
In the case of life insurance, insurable interest must be present in the
person insured at the time of taking the policy. In the case of fire insurance, the
insured must have insurable interest at the time of taking the policy and at the time of
lodging the claim. In the case of other general insurances, the insurable interest must
exist at the time of happening the event.
3. Principles of indemnity: It means that in the event of occurrence of loss, the insured
will be indemnified to the extent of actual value of his loss or the sum of insured
whichever is less. This principle is not applicable in life insurance, because the loss
due to death of the insured cannot be measured in terms of money and money cannot
be substituted as compensation for the loss of life.
4. Principles of subrogation: According to the principle, the scrap or remains of the
damaged property will become the property of the insurance company after the
payment of compensation to the insured. Further, the insurer will be entitled to have
all the rights enjoyed by the insured against third parties on the subject matter of
insurance.
5. Principle of Contribution: Under this principle, if the insured has taken a double
insurance, he is eligible to receive a claim only up to the amount of actual loss suffered
by him. If the insured claims full amount of loss from one insurer, he is not eligible to
get any amount from other insurers. This is not applicable in the case of life
insurance.
6. Principle of mitigation of loss: According to this principle, the insured should take all
reasonable steps to reduce the loss as a man of ordinary prudence would have taken in
his own case, if it were not insured.
7. Principle of causa proxima: Under this principle, the insurance company will admit
the claim, only if it is established that the damage have resulted directly by an event
which is covered under insurance.
(2019-20) Page 33
Double insurance: When the same subject matter is insured with more than one
insurer, it is known as double insurance. But the insured cannot recover anything more
than the financial value of actual damage suffered due to the mishap (according to
principle of indemnity, it is not applied in life insurance).
Re-insurance: It is a contract of insurance entered in to by the insurer with another
insurer with a view to spread a part or whole of the original risk. In this there is no
direct relationship between insured and re-insurer.
Types of Insurance:
I. Life Insurance: Life insurance is an agreement between the insurer and the
insured whereby the insurer assures to pay a certain sum of money wither on
the expiry of a fixed period or on the death of the insured in return of periodical
payment known as premium. It is a contract of assurance.
The main elements of a life insurance contract are:
 It is a contract of utmost good faith
 The insured must have insurable interest in the life assured.
 It is not a contract of indemnity.
 It must have all the essentials of a valid contract.
Kinds of Life Insurance Policies:

1) Whole life policy: The sum assured becomes payable only on the death of the
policy holder. The premium is to be paid for a specified period of time after
which the policy will become fully paid. It gives protection to the dependents.
2) Endowment life policy: Here the sum assured become payable either at the
end of the stipulated period or on the premature death of the policyholder
whichever is earlier.
3) Joint Life Policy: This policy is taken up by two or more persons. The premium
is paid jointly or by either of them. The assured sum or policy money is payable
upon the death of any one person to other survivor or survivors.
4) Annuity Policy: Under this, the assured sum is payable after a specific period in
periodically ie, monthly/ quarterly/ half yearly/yearly.
5) Children’s Endowment Policy: This policy is taken for children. The
agreement states that a certain sum will be paid by the insurer when the
children attain a particular age.
(2019-20) Page 34
II. General Insurance: It includes the following;

1. Fire Insurance: In this the insurer undertakes to indemnify the loss caused to
the insured due to fire. Two conditions must be satisfied for making a claim for
loss by fire: a. there must be a fire. b. the fire must be on accidental. The main
elements of a fire insurance contract are:
 Insurable interest must be present both at the time of insurance and at the
time of loss.
 It must be a contract of utmost good faith
 It is a contract of indemnity.
 The insurer is liable to compensate only when fire is the nearest cause of
damage or loss.
The various types of fire insurance policies are valued policy, specific policy and
average policy.
2. Marine Insurance: Loss covered incidental to marine adventures. It includes
Cargo Insurance, hull insurance and freight insurance. The main elements of
marine insurance are:
 It must be a contract of utmost good faith
 It is a contract of indemnity.
 The principle causa proxima will apply in it.
 Insurable interest must exist at the time loss but not necessary at the
time policy taken.
3. Health insurance: It cover the expenses of hospitalization, doctors service,
income lost due to unable to work, nursing bill of elderly people …….
4. Fidelity insurance: This type of policy is taken by employer of a business to cover
risks arising out of fraud and dishonesty of his employees…..
5. Motor vehicle insurance
6. Crop insurance
7. Cattle insurance
8. Burglary insurance....
(2019-20) Page 35
Difference between Life, Fire and Marine Insurance

Basis Life Insurance Fire Insurance Marine Insurance
1. Subject Human life Any physical Ship, cargo or
Matter property/assets freight
1. Element Protection and Only the element of Only the element
investment or both protection of protection
2. Insurable Must be present at the Must be present both Must be present at
interest time of policy taken at the time of policy the time of loss.
taken as well as the
time of loss
3. Duration Long period Normally for one Normally for one
year year
4. Principle of Not applicable Applicable Applicable
indemnity
5. Measureme Not possible Possible Possible
nt of loss
6. Surrender Possible Not possible Not possible
of policy
7. Nature of Certain Uncertain Uncertain
risk
8. Policy No limit Up to the value of Up to the market
amount subject matter value of the
ship/cargo.
Examples of Insurable Risks: 1. Property Risks 2. Personal risks (premature death, physical
disability, old age …) Legal liability risks (use of automobiles, employment, production
process..)
Examples of Non-insurable Risks; 1. Market risks (business cycle, change in fashion, taste
and preferences, competition ….) 2. Political risks (dismissal of govt., war, foreign exchanges
curbs...) 3. Production risks (labour problems, obsolescence…) 3.Personal risks
(unemployment, poverty…).
COMMUNICATION
The word communication is derived from the word, “Communis” which means “in
common”. The term communication refers to the flow of information, ideas, feelings and
emotions from one person to other or others. In case of business it helps in the smooth
running of various operations. There are two forms of communication available in business;
internal and external.
(2019-20) Page 36
Modes of Communication
Postal Services Courier Services Electronic Media Telecom Services
A. Postal Services: Indian post provides various postal services across India. For
providing these services the whole country has been divided into 22 postal circles. The
various facilities provided by the postal department are:
I. Mail facilities: It include transmission of letters and parcels from one place to
another. They provide facilities like Registered Post, Insured Post, Certificate of
posting.....
II. Financial facilities: They provide monthly income schemes, recurring deposits,
saving account, time deposit and money order facility. Post offices also provide
various saving schemes like National Saving Certificate, Kisan Vikas Patra and Public
Provident Fund etc.
III. Other facilities: It include greeting post, media post, direct advertising, passport
services, International Money Transfer(collaboration with Western Union Financial
Services), Speed Post, E-payment, Instant Money Order, philately, issue of various
forms etc..
B. Courier Service: In it messenger carrying letters, documents and parcels from one
place to another through private operators known as couriers or courier companies.
C. Electronic Media: It include internet (global network of computers), Email(electronic
mail), Fax(enables transmission of documents, diagrams and photos from the sender’s fax
machine to the receiver’s.
D. Telecom Services: It include telephone, mobile phone, voice mail, pager service,
DTH(Direct To Home) service, Cable services, VSAT(Very Small Aperture Terminal)
service etc.
TRANSPORTAITON
Transportation services are considered to be important for business since speed is of

essence in any business transaction. Also transportation removes the hindrance of place, i.e., it
makes goods available to the consumer from the place of production.
(2019-20) Page 37
WAREHOUSING
It is concerned with the establishment, maintenance and management of warehouses for the
storage of goods. It removes the hindrance of time. Storage enables goods to be made available
to the customers whenever and wherever it is demanded.
Functions of warehousing:
1. Consolidation: In it the warehouse receives and consolidates goods from different
production plants.
2. Break in bulk: They divide the bulk quantity of goods received from the production
plants into smaller quantities.
3. Storage of goods: They store seasonal goods or materials.
4. Value added services: They provide various value added services like grading,
packing, labeling.....
5. Price stabilization: By adjusting the supply of goods with the demand situation,
warehousing performs the function of stabilizing prices.
6. Financing: Warehouse owners advance money to the owners on security of goods and
further supply goods on credit terms to customers.
Types of Warehouses;
1. Private warehouses:-owned by large business firms or wholesalers.
2. Co-operative warehouses: owned by co-operative undertakings.
3. Government warehouse: - owned by government or government agencies.
4. Public warehouse: - owned by some agencies and provide space against the payment
of some fees. It also known as duty-paid warehouses.
5. Bonded warehouses: - These warehouses are used to keep the imported goods before
the payment of import duties. They are owned by dock authorities or by the private
parties. They are under the supervision and control of customs authorities.
(2019-20) Page 38
CHAPTER V
EMERGING MODES OF BUSINESS
e-Business: e-Business may be defined as the conduct of industry, trade and commerce
using the computer networks. Almost all types of business functions as well as managerial
activities can be carried out over computer networks.
E-Commerce: It covers a firm’s interactions with its customers and suppliers over the
internet. It is only a part of e-Business.
Scope of e-Business:
Firm’s e-business transactions can be seen in the following four ways:
1. B2B Commerce: In this commercial transactions take place between different
business organizations. It include placing of purchase orders, invoices, quotations...
Business to Business(B2B) form major share of total e-commerce volume.
2. B2C Commerce: It means Business to Customers transactions. It include selling of
goods, call centers, ATM facility....
3. Intra-B Commerce: Here the transactions takes place with in the firm. It include use of
computer networks in marketing, finance, production, purchase, human resource,
Research and Development departments.... It also include interaction of business with
its employees (B2E).
4. C2C Commerce: It means Customer to Customer. This type of commerce is best suited
for dealing in goods for which there is no established market mechanism. The vast
space of the internet ( eBay.com, olx.com, amazon.com, flipkart) allows persons to
globally search for potential buyers.
Some e-Business Applications
 e-Procurement: It involves internet-based sales transactions between business firms.
 e-Bidding/e-Auction: Most shopping sites have ‘Quote your price’ whereby you can
bid for the goods and services (such as airline tickets!). It also includes e-tendering
whereby one may submit tender quotations online.
 e-Communication/e-Promotion: Right from e-mail, it includes publication of online
catalogues displaying images of goods, advertisement through banners, pop-ups,
opinion poles and customer surveys, etc. Meetings and conferences may be held by the
means of video conferencing.
 e-Delivery: It includes electronic delivery of computer software, photographs, videos,
books (e-books) and journals (e-journals) and other multimedia content to the user’s
computer. It also includes rendering of legal, accounting, medical, and other consulting
services electronically.
 e-Trading: It involves securities trading, that is online buying and selling of shares and
other financial instruments. For example, sharekhan.com is India’s largest online
trading firm.
(2019-20) Page 39
Benefits of e-Business:
1. Easy of formation and lower investment requirements: It is relatively easy to start due to
less legal procedure. Even if you do not have much of the investment, you can do the
business through network.
2. Convenience: Internet offers the convenience of 24 hours business.
3. Speed: Internet allows faster services.
4. Global reach: It provides a boundary less market.
5. Movement towards a paperless society: Use of internet has considerably reduced
dependence on paperwork.
6. Lower transaction cost
7. It provide quality services
8. It provides new/innovative business opportunities.
Limitations of e-Business:
1. Low personal touch
2. Physical delivery of the product takes time.
3. Need for technology capability and competence of parties to e-business.
4. Can be used by dishonest people for illegal activities.
5. Information exchanged through internet may be stolen or misused.
Online transactions:
Three stages involved in online transactions- pre purchase/sale stage, purchase/sale
stage and delivery stage.
Procedure:
a. Registration: Before online shopping, one has to register with the online vendor by
fulfilling-up a registration form.
b. Placing an order: You can pick and drop the items in the shopping cart. Shopping cart
is an online record of what you have picked up while browsing the online store.
c. Payment mechanism: Payment for the purchases through online shopping may be
done in a number of ways such as-Cash on Delivery(CoD), cheque, net banking,
credit/debit card, digital cash( this is a form of electronic currency that exists only in
cyberspace. This type of currency has no real physical properties, but offers the ability
to use real currency in an electronic format.)……
(2019-20) Page 40
Information Technology Act 2000 paves way for Paperless Society

Below are given some of the provisions of Information Technology Act 2000
that have made it possible to have paper less dealings in the business world as well as
in the government domain.
 Legal recognition of electronic records (Section 4)
 Legal recognition of digital signatures (Section 5)
 Use of electronic records and digital signatures in Government and its agencies
(Section 6-1)
Security and safety of e-Transactions:

1. Transaction risks: In e-business risk may arise for the seller or the buyer on account
of default on order taking/giving, delivery as well as payment.
2. Data storage and transmission risk: Vital information may be stolen or modified to
pursue some selfish motives or simply for fun. VIRUS (Vital Information Under Siege),
Hacking, brand hijacking..... are some of risk in e-business.
3. Risk of threat to intellectual property and privacy: Once the information is
published in internet, it is difficult to protect it from being copied.
Cryptography: It refers to the art of protecting information by transforming it

into an unreadable format called cyphertext. Only those who possess a secret key
can decrypt the message into plaintext.
Resources required for successful e-business implementation:

 Adequate computer with telecom network.
 Technically qualified and trained work force.
 Well developed websites.
 Well developed telecommunication facilities.
 A good system of making payments using credit instruments.
Outsourcing:
It refers to business organizations concentrate of their core activities and outsource
other services to specialized agencies. The services which are commonly outsourced are
financial services (it includes preparation of financial plans, issue of shares/debentures,
raising funds ….), advertisement services (include designing messages, selecting models,
media….), courier services (include mailing letters and parcels….), transportation (providing
various transportation facilities), warehousing, after sales services etc.
(2019-20) Page 41
Need/ Benefits/ Objectives of Outsourcing:

1. Focusing attention: Outsourcing helps the business to focus on its core activities and
contracting out the rest.
2. Provide better service: It helps to provide better services to customers through
specialization.
3. Cost reduction: Through division of labour and specialization, it helps to reduce the
cost too. This happens due to the outsourcing partners as they deliver the same service
to a number of organizations.
4. Growth through alliance: Through outsourcing firms investment requirements are
reduced therefore they can expand rapidly.
5. Enhance economic development: Outsource stimulates entrepreneurship,
employment and exports.
Concerns over Outsourcing/Limitations of Outsourcing:
1. Confidentiality: If the outsourcing partner does not preserve the confidentiality it
can harm the interest of the party.
2. Sweat-shopping: As the firms that outsource seek to lower their costs, they try to
get maximum benefit from the low-cost manpower of the host countries.
3. Ethical concerns: Sometimes the firms may violate the ethical concepts.
4. Problem of unemployment to home country.
Differences between Traditional and e-Business.
Basis Traditional e-Business
Business
Formation Difficult Easy
Location Important Not important
Cost of setting up High Low
Personal touch More Less
Employees Semi Technically/Professionally
skilled/unskilled skilled
Transaction Risk Less High
Operating cost High Low
Opportunity for physical pre- More Less
sampling of the products
Ease of going global Less Much
Response time for meeting Long Instant.
customers'/internal requirements
(2019-20) Page 42
CHAPTER VI
SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS
Social Responsibility: It means the obligation of business to act in a manner which will
serve the best interest of the society. A business is a social institution; therefore it must have
several responsibilities towards various interested groups. They are:
I. Responsibility towards Owner: It includes-

a. to ensure safety of investment
b. to provide fair and regular dividend/ profit.
c. to provide correct and regular information about financial position.
d. make efforts to increase the value of share etc…..
II. Responsibility towards Consumers: It includes-
a. Production and distribution of quality goods at reasonable price.
b. avoid unfair trade practices.
c. educating the consumer on product uses and its features
d. provide right services to consumers
e. handling of customers complaints with courtesy and sympathy etc…..
III. Responsibility towards Employees: It includes-
a. To provide fair compensation and benefits
b. to provide good working conditions
c. avoiding discrimination among the employees
d. to provide welfare schemes like housing, medical facilities etc.
e. to provide opportunity for education and self development etc…
IV. Responsibility towards Government: It includes-
a. to pay tax promptly and regularly
b. to co-operate with government in solving national problems such as poverty,
unemployment etc..
c. to follow the law passed by the government
d. to set up new venture in backward areas etc…
V. Responsibility towards Community: It includes-
a. providing economic stability
b. protecting public interests
c. protecting the environment
d. providing employment to the local people
e. ensuring non-discrimination on the basis of sex, religion etc….
(2019-20) Page 43
Rationale for social responsibilities of business or Arguments in favour

of Social responsibilities of business
Business must more aware of their social responsibilities due to the following
factors:
1. Justification for existence and growth: Business exists for providing goods and
services to satisfy human needs. Assumption of social responsibility by business
provides justification for its existence and growth.
2. Better image for the business: Through discharging the social responsibilities, a
business is able to earn public confidence and reputation, thereby improves its public
image.
3. Favourable environment for business; A socially responsible business can procure
labour with greater ease, ensure more commitment, minimize its wastage etc…
4. Earning profits through solving societal problems: There is a two way benefit
where economic gain is linked with social benefits. A business unit may operate a
Garbage Processing Plant where waste materials and garbage of the locality are
collected and scientifically processed to make fertilizers out of it.
5. Minimising government regulations: A socially responsible business will have
minimum government control.
6. Contribution to social problems: Many business units are responsible for creation of
social problems, like sound,-air-water and land pollution, damage to infrastructure etc.
Such units are hence responsible to solve problems created by them.
Arguments against Social Responsibility:
a. through this performance of business will be poor
b. it includes heavy cost, that will shift to consumers shoulder
c. business people have less skill to take up these works
d. Violation of profit maximization objective.
Kinds of Social Responsibility:
1. Economic responsibility: Produce goods and services that society wants and sell
them at a profit.
2. Legal responsibility: Operate within the laws of the land.
3. Ethical responsibility: It includes the behavior of the firm that is expected by society.
4. Discretionary responsibility: It is purely voluntary obligation that an enterprise
assumes.
CSR: Corporate Social Responsibility.
Corporate sustainability refers to the role that companies can play in meeting the agenda
of sustainable development and entails a balanced approach to economic progress, social
progress and environmental protection
In India, the concept of CSR is governed by Clause 135 of the Companies Act, 2013,
which was passed by both the Houses of the Parliament, and had received the assent of
the President of India on 23 August 2013. The CSR provisions within the Act is applicable
(2019-20) Page 44
to companies with an annual turnover of 1,000 crore and more, or a net worth of Rs. 500
crore and more, or a net profit of Rs. 5 crore and more.
1. The new rules, which are applicable from the fiscal year 2014-15 onwards, also
require companies to setup a CSR committee consisting of their board members,
including at least one independent director.
2. The Act encourages companies to spend at 2% of their average net profit in the
previous three years on CSR activities.
3. The indicative activities, which can be undertaken by a company under CSR, have
been specified under Schedule VII of the Act.
4. Only CSR activities undertaken in India will be taken into consideration.
5. Activities meant exclusively for employees and their families will not qualify under
CSR.
Business Ethics:
The word ‘Ethics’ is derived from the Greek work ‘Ethos’ which means character or
sentiments of community. Ethics is the belief in what is right, proper and just. Business
ethics is the application of general ethical rules and principles in business practices. It is the
socially determined moral principles which should govern business activities. It is the
code of conduct of a business.
Examples of some ethical activities in business;
a. Measures taken for prevention of food adulteration
b. to provide protection of workers against industrial accidents
c. putting up boards warning against payment and receipt of bribes
d. formulation and implementation of ethical codes
e. steps to encourage mutual help, mutual faith and trust etc….
“Business ethics and Social responsibilities are two sides of the same coin” –Comment
Business ethics and social responsibility are closely interrelated. The former leads to
the latter. When a business is ethical, it naturally meets its social responsibilities. It has to
justifiably discharge its obligations towards employees, consumers, government and local
authorities and social groups. Social responsibility and business ethics are, thus, the two sides
of the same coin.
Elements of business ethics:
The main elements of business ethics which facilitate ethical judgment are:
1. Top management commitment: . To achieve results, the Chief Executive Officer (CEO)
and other higher level managers need to be openly and strongly committed to ethical
conduct.
2. Publication of a code in written form: Enterprises with effective ethics
programmes do define the principles of conduct for the whole organisation in the form
of written documents which is referred to as the “code”.
3. Establishment of a compliance mechanism: In order to ensure that actual decisions and
actions comply with the firm’s ethical standards, suitable mechanisms should be
established.
(2019-20) Page 45
4. Involving employees at all levels: Employees at different levels involvement in ethics

programmes becomes a must.
5. Measuring the end result of ethical programs
Ground Rules of Ethics
The following are some of the universal virtues which every human being should
imbibe, develop and practice to be ethical in life:
(a) Be trustworthy (b) Have respect for others (c) Own responsibility (d) Be fair in
dealings (e) Be caring towards the well-being of others (f) Prove to be a good citizen —
through civil virtues and duties
Business and Environmental Protection: Environment is defined as the totality of

man’s surroundings. Business environment consists of all those forces in the surroundings of
a business enterprise under which business operations are to be carried out.
Pollution means injection of harmful substances into the environment, which causes
serious damage to human and other life. The major causes of environment pollution are:
A. Air Pollution (result of a combination of factors which lowers the air quality) B. Water
pollution(result of chemical and waste dumping) c. Land Pollution( due to dumping of toxic
wastes ) d. Noise Pollution. (Assignment and Seminar topic)
Need for pollution control: Pollution control is needed to preserve environmental
resources and to improve the environmental quality. It will improve the health and well being
of all things.
Environmental Problems
The United Nations has identified eight problems that cause damage to the natural environment.
These are: (i) Ozone depletion (v) Freshwater quality and quantity (ii) Global warming (vi)
Deforestation (iii) Solid and hazardous wastes (vii) Land degradation (iv) Water pollution (viii)
Danger to biological diversity
Reasons for pollution control:

a. Reduction of health hazards
b. Reduce risk of liability
c. Save the cost of operating the business
d. Improve public image
e. Ensure better quality life.
Role of Business in Environmental Protection
Some of the specific steps which can be taken by business enterprises for
environmental protection are as stated below:
(i) A definite commitment by top management of the enterprise to
create, maintain and develop work culture for environmental
protection and pollution prevention.
(ii) Ensuring that commitment to environmental protection is shared
throughout the enterprise by all divisions and employees.
(2019-20) Page 46
(iii) Developing clear-cut policies and programmes for purchasing good

quality raw materials, employing superior technology, using
scientific techniques of disposal and treatment of wastes and
developing employee skills for the purpose of pollution control.
(iv) Complying with the laws and regulations enacted by the
Government for prevention of pollution.
(v) Participation in government programmes relating to management
of hazardous substances, clearing up of polluted rivers, plantation of
trees, and checking deforestation.
(vi) Periodical assessment of pollution control programmes in terms of
costs and benefits so as to increase the progress with respect to
environmental protection.
(vii) Arranging educational workshops and training materials to share
technical information and experience with suppliers, dealers and
customers to get them actively involved in pollution control
programmes.
Environmental Protection in India (Steps by the Government)
1) Laws: The directive principles of state policy in the Constitution of India lay
emphasis on protection of environment. Some of the laws enacted are as under:
i. The Wildlife Protection Act, 1972 ii. The Water (Prevention and Control of
Pollution) Act, 1974 amended in 1974 and 1988 iii. The Air (Prevention and
Control of Pollution) Act, 1974 amended in 1974 and 1988 iv. The Environment
(Protection) Act, 1986 v. The Forests (Conservation Act, 1980 amended in
1988 vi. The Hazardous Wastes Act, 1989
2. Regulations: Administrative orders/policy guidelines have been laid down by the

government. A separate Department of Environment, Government of India was
created in 1980.
3.Certain regulatory bodies or quasi-judicial authorities have been established
such as:
• National Afforestation and Eco-development Board, and • National
Wastelands Development Board
4.Manufacturing units have been closed in cities. High Court of Delhi ordered
shifting of manufacturing units out of Delhi and closing them. Similarly, courts have
ordered removal of foundaries from Agra city, and shifting of manufacturing factories
from Kanpur.
5. Various programmes on environment education, and seminars on creating
awareness and resource are being organised regularly.
6. Government has also laid down Environment Action Plan (EAP).
(2019-20) Page 47
CHAPTER VII
FORMATION OF A COMPANY
There are different stages involving in the formation of a Joint Stock Company. They
are : Promotion, Incorporation, Subscription of capital and Commencement of business.
I. PROMOTION: It is the first stage in the formation of a company. Promotion simply means
the sum total of all activities which are necessary for bringing the company in to existence.
Promoter: Promoter is a person who takes initiative to form a new company. He takes all
preliminary work for starting a new company. A promoter can be a person, a firm, an
association or even a company.
Functions of Promoters:
i. Identification of business opportunity: It is the promoter who conceives the idea of
setting up a business.
ii. Feasibility studies: Promoters undertakes detailed investigation of the profitability
and future prospects of the growth of the proposed activity. Therefore, he undertakes
detailed feasibility studies such as technical feasibility, financial feasibility, economic
feasibility....
iii. Name approval: The promoters have to select a name for the company and submit an
application to the registrar of companies of the state in which the registered office of
the company is to be situated, for its approval. Three names, in order of their priority
are given in the application to the Registrar of Companies.
iv. Preparing preliminary documents: The promoter will have to prepare the necessary
documents which are compulsory for the registration of a company, such as
Memorandum of Association, Articles of Association, Prospectus/ Statement in lieu of
prospectus, list of directors, a written consent of directors, a statement of authorized
capital, a statutory declaration etc…
v. Fixing up signatories to the Memorandum of Association: Promoters have to
decide about the members who will be signing the Memorandum of Association of the
proposed company. Usually the people signing memorandum are also the first
Directors of the Company.
vi. Appointment of Professionals: Certain professionals such as bankers, auditors,
underwriters ......are appointed by the promoters.
Legal Status of a Promoter: In the eyes of law, he is neither an agent nor a trustee of the
company. They are personally liable for all the contracts which are entered by them, for the
company before its incorporation, in case the same are not ratified by the company later on
He stands in fiduciary ( a person who talk on behalf of company) relationship with the
company.
II. INCORPORATIN OF A COMPANY: A company is said to be incorporated when it is
registered with the Registrar of Joint Stock Companies. For this promoters make an
application for the incorporation of the company.
(2019-20) Page 48
The application for registration must be accompanies with certain documents such as:
 Memorandum of Association.
 Articles of Association
 Statement of Authorised Capital
 A list of directors
 A copy of the Registrar’s letter approving the name of the company.
 The written consent of directors
 Notice of address of the registered office
 A statutory declaration
 Documentary evidence of payment of registration fees....
Then the Registrar will scrutinize the documents and the statutory declaration he will
grant registration to the company by entering the name of the company in the register
concerned and give a CIN (Corporate Identity Number). After registration, the Registrar of
Companies will issue a certificate of incorporation. It is called the birth certificate of the
company. The Certificate of Incorporation once issued, is a conclusive evidence of the
existence of the company.
On the issue of Certificate of Incorporation, a private company can immediately
commence its business, but a public company has to undergo two more stages in its
formation.
III. CAPITAL SUBSCRIPTION:
A public company can raise the required funds from the public by means of issue of shares
and debentures. For this they want to issue a prospectus and follow various other formalities.
They are:
a. Obtain approval from SEBI (Securities and Exchange Board of India).
b. Filing a copy of prospectus or statement in lieu of prospectus with the Registrar of
Companies.
c. Appointment of Bankers, Brokers and Underwriters (they undertake to buy the shares if
these are not subscribed by the public).
d. Ensure minimum subscription (Company must receive applications for a certain
minimum number of shares before going ahead with the allotment of shares, known as
minimum subscription. The limit of minimum subscription is 90per cent of the size of the
issue.)
e. An application is made to at least one stock exchange for permission to deal in its
securities.
f. Allotment letters are issued to the successful allotters.
Return of allotment, signed by a director or secretary is filed with the Registrar of
Companies within 30 days of allotment.
IV. COMMENCEMENT OF BUSINESS: A private company can start the business

immediately after getting the certificate of incorporation. But a public company can
start business only after getting another certificate called certificate of
commencement.
(2019-20) Page 49
Therefore a public company can submit the following documents for the same:
 A copy of prospectus or statement in lieu of prospectus.
 A return of allotment showing the names and addresses of shareholders and the
number of shares allotted to them.
 A declaration that the directors have made payment on their qualification shares.
 A declaration that no money is payable or liable to become payable to the applicants.
 A declaration that the minimum subscription is received in cash
 A declaration signed by a director or secretary of the company or an advocate stating
that the necessary formalities are compiled with.
The registrar shall examine these documents and if satisfactory, he will issue a ‘Certificate
of Commencement of Business’. With the grant of this certificate the formation of a public
company is complete and the company can legally start doing business.
DOCUMENTS USED IN THE FORMATION OF A COMPANY:
1. MEMORANDUM OF ASSOCIATION: It is the fundamental document or charter of a
company. Memorandum of Association is the most important document as it defines the
objectives of the company. No company can legally undertake activities that are not contained
in its Memorandum of Association. It determines the relationship with outside world ie,
shareholders, creditors and all those who have dealings with the company. It contains
different clauses, they are:
a. Name clause: Under this the name of the company is mentioned, which has already been
approved by the Registrar of Companies.
A name is considered undesirable in the following cases:
a. If it is identical with or too closely resembles the name of an existing company.
b. If it is misleading.
c. If it is violate of the provisions of ‘The Emblem and Names (Prevention of Improper Use)
Act, 1950.
b. Registered office clause: Under this clause, the name of the state in which the registered
office of the company is situated must be mentioned. The exact address of the registered office
must be notified to the Registrar within thirty days of the incorporation of the company.
c. Object clause: It is the most important clause of this document. It sets out the object with
which a company is formed. A company is not legally entitled to undertake an activity, which
is beyond the objects stated in this clause. It is further divided into main objects and other
objects.
d. Liability clause: This clause limits the liability of the members to the amount unpaid on the
shares owned by them.
e. Capital clause: This clause specifically stated the maximum capital with which the
company is to be incorporated. The authorized share capital of the proposed company along
with its division into the number of shares having a fixed face value is specified in this clause.
f. Subscription clause: This clause contains the name of the signatories to the memorandum
of Association and also gives their consent to purchase qualification shares.
Memorandum of Association must be signed by at least seven persons in the case of a
public company and two persons in the case of a private company.
(2019-20) Page 50
2) ARTICLES OF ASSOCIATION: It lays down the rules and regulations for the
management of internal affairs of the company. The Articles define the duties,
rights and powers of the officers and the Board of Directors. It is considered as the
bye-law of the company.
The articles of a company shall be in respective forms as specified in Table F, G, H, I and
J in schedule I as may be applicable to such company. However, the companies are free to
make their own articles of association.
The Articles generally contains the following matters:
1.Adoption of preliminary contracts. 2. Number and value of shares. 3. Issue of preference shares. 4.
Allotment of shares. 5. Transfer and transmission of shares. 6. Voting rights and proxies. 7. Meetings
and rules regarding committees. 8. Directors, their appointment and delegations of powers. 9.
Nominee directors. 10. Issue of Debentures and stocks. 11. Audit committee. 12. Managing director,
Whole-time director, Manager, Secretary. 13. Additional directors. 14. Seal. 15. Remuneration of
directors. 16. General meetings. 17. Directors meetings. 18. Borrowing powers. 19. Dividends and
reserves. 20. Accounts and audit. 21. Winding up. ......
Differences between Memorandum of Association and Articles of Association
Basis Memorandum of Association Articles of Association
Objectives Memorandum of Association They are the rules of internal
defines the objects for which management of the company.
the company is formed
Position This is the main document of This is a subsidiary document
the company and is and it is subordinate to both
subordinate to the Companies MoA and CA.
Act
Relationship It defines the relationship of It defines the relationship of the
the company with outsiders. members and the company.
Validity Acts beyond the Memorandum Acts which are beyond Articles
of Association are invalid and can be ratified by the members,
cannot be ratified even by a provided they do not violate the
unanimous vote of the Memorandum.
members.
Necessity Every company has to file a It is not compulsory for a public
Memorandum of Association. ltd. company to file Articles of
Association. It may adopt
Table F of The Companies Act,
2013
3. PROSPECTUS: Prospectus is a document issued by public companies inviting the public to

subscribe for shares or debentures of the company. A prospectus duly dated and signed by all
the directors should be filed with the Registrar of Companies, before it is issued to the public.
Statement in Lieu of Prospectus: Sometimes pubic company raise required capital privately.
For this it does not issue a prospectus but a statement called Statement in Lie of Prospectus must
be filed with the Registrar. It contains all the same information as is required to be disclosed in a
prospectus.
A private company does not require a prospectus or statement in lieu of prospectus.
(2019-20) Page 51
4. Consent of proposed Directors: A written consent of each person named as a director is

required. It is for confirming that they agree to act in that capacity and undertake to buy and
pay for qualification shares.
Qualification shares: These are the shares issued to Directors. Articles have a provision
requiring directors to buy a certain number of shares to ensure that they have some stake in the
proposed company. These are called qualification shares. They have to pay for these shares
before the company obtains Certificate of Commencement of Business
5. Agreement: Any agreement made by the company with its directors/managers/managing
directors is also submitted to the Registrar of Companies at the time of registration.
6. Statutory declaration: A declaration stating that all the legal requirements are fulfilled for
registration. It should be signed by an advocate of High Court/Supreme Court/Chartered
Accountant/Director/Manager/Secretary of the company.
Provisional Contracts: These are contracts which are signed after incorporation but before the
commencement of business. These become enforceable only after the company gets the
Certificate of Commencement of Business.
Director Identification Number (DIN)
Every individual intending to be appointed as director of a company shall make an
application for allotment of Director Identification Number (DIN) to the Central Government in
prescribed form along with fees. The Central Government shall allot a Director Identification
Number to an application within one month from the receipt of the application.
One Person Company

With the implementation of The Companies Act, 2013, a single person could constitute
a company, under the One Person Company (OPC) concept. The introduction of OPC in the
legal system is a move that would encourage corporatisation of micro businesses and
entrepreneurship. One Person Company is a company with only one person as a member.
That one person will be the shareholder of the company. It avails all the benefits of a private
limited company such as separate legal entity, protecting personal assets from business
liability and perpetual succession.
Characteristics
(1) Only a natural person who is an Indian citizen and resident in India:-
(a) Shall be eligible to incorporate a One Person Company;
(b) Shall be a nominee for the sole member of a One Person Company.
Explanation – For the purposes of this rule, the term “resident in India” means a person
who has stayed in India for a period of not less than one hundred and eighty two days during the
immediately preceding one calendar year.
(2) No person shall be eligible to incorporate more than a One Person Company or
become nominee in more than one such company.
(4) No minor shall become member or nominee of the One Person Company or can
hold share with beneficial interest.
(5) Such Company cannot be incorporated or converted into a company under
section 8 of the Act.
(6) Such Company cannot carry out Non-Banking Financial Investment activities
including investment in securities of anybody corporates.
(2019-20) Page 52
CHAPTER-VIII
SOURCES OF BUSINESS FINANCE
Finance: Finance is the life blood of the business. The requirements of funds by business to
carry out its various activities are called business finance. The financial needs of a business
can be categorized as follows:
a. Fixed capital requirements: The funds required to purchase fixed assets are known as
fixed capital requirements. Different business units need varying amount of fixed
capital depending on various factors such as nature of business, size of business etc.
b. Working capital requirements: Funds required for the day to day operations of a
business is called working capital requirements. It is used for holding current assets
and meets current expenses.
Classification of Sources of Fund:
Classification of Sources of Funds
On the basis of On the basis of On the basis of

Period ownership source of generation
Long term Medium-term Short term Owners Borrowed Internal source External source
Fund Fund
Equity shares Loan from bank Trade credit Equity- Debentures Equity share FIs
Retained earnings Public deposit factoring shares. Loan from banks Retained- Loan from banks
Preference shares Lease financing Commercial- Retained- Public deposits earning. Preference shares
Debentures Loan from FIs paper earnings Lease financing Debentures
Loan from FIs Banks Commercial paper Public deposits
Loan from banks Loan from FIs Leasing
Factoring.
Commercial paper
Trade credit
Period Basis:
1. Long-term finance; Funds which are required to be invested in the business for a long
period (exceeding 5 years) are known as long term finance or fixed capital. This is
required for procuring fixed assets such as land building, plant and machinery etc.
2. Short-term finance; It refers to funds needed for a period not exceeding one year, to
meet day to day expense, to finance production and to pay wages and other expenses. It
is also known as working capital or circulating capital. It is invested in current assets.
3. Medium-term finance; Funds may be required for a period between 1 to 5 years for the
purpose of modernization of plant and machinery, introduction of a new product,
adoption of new or improved methods of production and for conducting advertisement
campaigns. Finance required for such purposes is called medium term finance or medium
term capital.
Ownership Basis:
1. Owner’s Funds: Owners fund consists of the amount contributed by owners and profits
reinvested in the business. Owners fund is the real risk capital because he bears all risk of
loss or low profit it the business fails. The ownership funds remain in business as long as
the business exists. It is not refundable. It is used to acquire fixed assets.
(2019-20) Page 53
2. Borrowed Funds: It refers to funds raised from individuals, banks and financial
institutions and by way of issue of debentures, raising through public deposits and from
financial institutions. Periodical payment of interest at fixed rates and repayment of loan
capital on expiry date are to be done even if there is no profit.
Sources of generation:
1. Internal source: These are generated from within the business.
2. External source: These are generated from outside the business.
Sources of Finance:
A business can raise funds from various sources. Depending on the situation, purpose,
cost and risk, a choice may be made about the source to be used. The following are the various
sources of finance with their advantages and disadvantages:
1. Retained Earnings: It is that portion of net profit retained in the business for future
use. It is a source of internal financing or self-financing or ploughing back of profits.
Merits:
 It is a permanent source of fund
 It does not involve any cost
 It has greater flexibility
 It helps to increase the market price of equity shares
 It helps to face the unexpected losses
Demerits:
 It may create dissatisfaction among the existing shareholders
 It is an uncertain source of finance
 There is a chance of misuse/sub-optimal use of funds
2. Trade Credit: It is the credit given by one trader to another for the purchase of goods
and services. It helps to purchase of goods without immediate payment. It act as a
source of short term finance.
Merits:
 It is a convenient source of finance
 Easily available
 It helps to increase the inventory level
 It does not create any charge on the assets
 It is a tool of sales promotion by the seller
Demerits:
 It may lead to over trading which may create a risk to the firm
 There is a limit for this source
 It is generally a costly source of fund as compared to other sources.
3. Factoring: Factoring is a financial service under which the ‘factor’ renders various
services such as discounting of bills, collection of clients debts, providing credit
information …… The factor charges fees for the services rendered.
Methods of factoring: a. Recourse Factoring: Under this the client is undertake the risk of
bad debts. b. Non-Recourse: Under this the factor assumers all credit risk, ie, full amount
of invoice is paid to the client in the event of the debt becoming bad.
(2019-20) Page 54
Merits:
 Cheaper source
 The clients are able to meet their liabilities promptly
 It is flexible
 It does not create any charge on assets
 The clients can concentrate on other functional areas of business.
Demerits:
 It is expensive when the invoices are numerous and smaller in amounts
 Higher interest cost
 The factor is a third person to the customer who may not feel comfortable with
them.
4. Lease Financing: A lease is a contractual agreement (lease contract) whereby one
party (the owner of the assets-lessor) grants the other party (lessee-who use the
assets) the right to use the asset in return for a periodical payment (lease rental). At
the end of the lease period the assets goes back to the lessor. It is an important means
of modernization and diversification to the firm.
Merits:
 It enables to use the assets with a lower investment
 It is easier to finance assets.
 Lease rental is a tax deductable expense
 It does not affect the ownership and control of the firm
 It does not affect the debt raising capacity of an enterprise
 The risk of obsolescence is borne by the lessor.
Demerits:
 There is certain restriction to use the assets
 The normal business may be affected in case the lease is not renewed
 It may result in higher payout obligation in case of premature termination of the
agreement.
5. Public Deposits: It is the deposit raise by the firms directly from the public. Its rates of
interest are usually higher than that offered on bank deposits. It is regulated by RBI.
Merits:
 Its procedure is simple
 Its cost is generally lower than the cost of borrowings from outside
 It does not create any charge on the assets
 The control of the company is not diluted.
Demerits:
 It is difficult for new companies
 It is an unreliable source
 Its collection is difficult.
6. Commercial Paper (CP): It is an unsecured promissory note issued by a firm to raise
funds for a short period; varying from 90 days to 364 days .The amount raised by CP is
generally large. A firm which has good credit rating can only issue the CP. Its issue is
regulated by RBI.
(2019-20) Page 55
Merits:
 It is unsecured
 As it is freely transferable, it has high liquidity.
 It provides a continuous source of fund.
 The investors get high rate of interest.
 Low cost of issue.
Demerits:
 Only high reputed and financially sound company can issue it.
 Collection of fund may difficult.
 Extending the maturity of a CP is not possible.
7. Commercial Banks: Banks provides loans to the firms of all sizes and in many ways.
The borrower is required to provide some security or create a charge on the assets of
the firm before a loan is sanctioned by a commercial bank.
Merits:
 It provide timely assistance > Secrecy of business can be maintained
 It is an easier source of finance > It is a flexible source.
Demerits:
 Funds are generally available for short periods > Security is needed.
 Procedure of obtaining funds is difficult
8. Financial Institutions: The government has established a number of financial
institutions all over the country to provide finance to business organizations, IFCI
(Industrial Finance Corporation of India), SFC (State Financial Corporations), IDBI
( Industrial Development Bank of India), SIDC (State Industrial Development
Corporations), UTI ( Unit Trust on India), LIC etc. These are also called development
banks.
9. Issue of Shares: The capital obtained by issue of shares is known as share capital, ie,
the capital of a company is split into a large number of units, called shares. The
Companies Act defines it as “a share in the share capital of a company and included
stock” The person who holds a share is called a shareholder or member. Shareholders
are the owners of the company.
Kinds of shares: A public company can issue two types of shares such as preference
shares and equity shares.
a. Preference shares: These shares which carry preferential rights such as i) get a
fixed rate of dividend before any dividend is paid to ordinary shareholders and
ii) a prior claim in payment of capital on winding up of the company. They get
only a fixed percentage of dividends even if the company makes good profits and
they have vote only on matters affecting their interest like non-payment of dividends
etc. Therefore. it has some characteristics of both equity shares and debentures.
The different types of preference shares are discussed below:
i) Cumulative preference shares: These shares enjoy a fixed rate of dividend even if
the company does not declare dividend. Arrear dividend will accumulate till it is fully
paid.
ii) Non-cumulative preference shares; They are get dividend only out of profits of the
current year.
(2019-20) Page 56
iii) Participating preference shares; These shareholders receive the usual dividend at
fixed rate and also share the surplus profit of the company.
iv) Non-participating preference shares: They have no right to share surplus profits.
v) Convertible preference shares: These shares are converted in to equity shares after
a specified period. It may be partly convertible or fully convertible.
vi) Non-convertible preference shares: They are not converted in to equity shares.
Merits:
 Fixed rate of return and safety of investment.
 They provide long-term capital
 Management and control is not diluted
 It may enable a company to declare higher rates of dividend for equity
shareholders.
 Security is not needed
Demerits:
 Fixed dividend is paid
 Shareholders have no control over management
 Rate of dividend is more than the rate of interest of debentures
 No tax saving
 No voting right except under certain conditions
 No assured return for the investors.
b. Equity shares: Shares without any preferential right in payment of dividend or
repayment of capital are known as equity shares or ordinary shares. Dividend is
paid only after paying dividend on preference shares. On winding up of a company,
equity capital is paid only after settling all other claims. But they are the real owners
with complete voting right and participate and control the management.
Merits:
 No obligation to pay fixed dividend
 No security is needed
 It use as permanent capital
 They are the real owners of the company
 They have voting right.
 It provides the company sufficient flexibility in the utilization of its profits and
funds.
Demerits:
 The cost of equity shares is generally more
 Higher dividend leads to speculation
 Not attract investors who prefer safety and fixed income
 Additional issue dilutes the control of the existing shareholders.
 More legal formalities
(2019-20) Page 57
10. Issue of Debentures/Bonds: When a company wants to raise more funds

without increasing its share capital it can issue debentures. It is a document or
certificate issued by a company under its seal to acknowledge its debt. Those who
invest money in debentures are called debenture holders. They are creditors of the
company. So debenture is a creditor ship security. It is repaid after a fixed period. The
terms and conditions of issue of debentures are known as debenture deed.
Public Issue of debentures requires that the issue be rated by a credit rating agency like
CRISIL (Credit Rating and Information Services of India Ltd.)
Types of debentures:
i. Simple or naked or unsecured debentures; Issued without a charge on the assets of
the company.
ii. Secured or mortgage debentures; Issued with a charge on some or whole assets of the
company.
iii. Bearer debentures: Debentures issued without the name of the owner is bearer
debentures. It can freely transferable by mere delivery.
iv. Registered debentures; The name and address of registered debenture holders are
entered in the register of debenture holders. These cannot be freely transferable.
v. Convertible debentures: They are converted in to equity shares after a specified
period.
vi. Non-convertible debentures; They are not converted in to shares.
vii. First and Second debentures: Debentures that are repaid before other debentures are
repaid are known as first debentures. The second debentures are those which are
paid after the first debentures have been paid back.
ZID (Zero Interest Debentures): They are normally issued at a discount. This
debenture does not carry interest. The difference between face value of the debenture
and its purchase price is the return to the investor.
Merits:
 Control of management is not affected
 Interest paid is a tax deductible expense
 It can be redeemed at any time
 Debenture holders get fixed rate of interest
 It provides greater security to investors.
 It is suitable for the firms which have stable sales and earnings.
(2019-20) Page 58
Demerits:
 Through the issue of debentures, companies’ borrowing capacity will be reduced.
 Fixed rate of return is a burden on the company
 Debenture holders’ do not enjoy any voting right.
 It is repaid after a specific period even if the company face financial difficulty…
Difference between Shares and Debentures
No Basis Shares Debentures
.
1. Nature Ownership capital Borrowed capital
2. Status Holder of shares is an owner Holder of a debenture is a
creditor
3. Voting rights Enjoy voting right Does not enjoy voting right
4. Return Dividend Interest
5. Control Control over the management No control over the management
6. Redemption At the time of winding up Redeemed after a certain period
7. Payment of Dividend may fluctuate Fixed rate of interest
interest/dividend
8. Priority for No priority Priority for repayment against
repayment shares
9. Guarantee of No guarantee Guarantee for interest whether
return there is profit/loss
10. Security Not issued on the basis of Issued on the basis of security
security
Inter Corporate Deposits (ICD)
Inter Corporate Deposits are unsecured short-term deposits made by a company
with another company. ICD market is used for short-term cash management of a large
corporate. As per the RBI guidelines, the minimum period of ICDs is 7 days which can be
extended to one year. The three types of Inter Corporate Deposits are: (i) Three months deposits;
(ii) Six months deposits; (iii) Call deposits. Interest rate on ICDs may remain fixed or may be
floating. The rate of interest on these deposits is higher than that of banks. These deposits are
usually considered by the borrower company to solve problems of short-term funds insufficiency.
International Financing:
Indian companies have an access to funds in global capital market. Various
international sources from where funds may be generated include:
1. Commercial Banks: CBs all over the world extend foreign currency loans for business
purposes
2. International Agencies and Development Banks: A number of international
agencies and development banks have emerged over the years to finance international
trade and business. Eg. IFC (International Finance Corporation), EXIM Bank and ADB
(Asian Development Bank).
(2019-20) Page 59
3. International Capital Markets: The major instruments used in international capital

markets are:
a. GDRs (Global Depository Receipts): It is an instrument issued abroad by an Indian
company to raise funds in some foreign currency and is listed and traded on a
foreign stock exchange. It do not carry any voting right but only dividends and
capital appreciation.
b. ADRs (American Depository Receipts): ADRs are bought and sold in American
markets like other stocks. It is similar to GDR except that it can be traded only on a
stock exchange of USA.
c. FCCBs (Foreign Currency Convertible Bonds): They are issued in a foreign
currency and carry a fixed interest rate. These are listed and traded in foreign
stock exchanges. It is very similar to convertible debentures issued in India.
4. FDI (Foreign Direct Investment): It refers to the direct subscription to the equity
capital or an Indian company by a multinational corporation.
Factors affecting the choice of the Source of Funds:
i. Cost (cost of procurement and cost of utilizing the fund)

ii. Financial strength and stability of operation of the business.
iii. Form of business and legal status.
iv. Purpose of the fund and time period.
v. Risk profile of each source.
vi. Extent to which they are willing to share their control over the business.
vii. Flexibility and ease of obtaining funds.
viii. Tax benefits. (Assignment and Seminar topic)
(2019-20) Page 60
CHAPTER-IX
SMALL BUSINESS
In India, the ‘Village and small industries sector’ consists of both traditional and modern
small industries. This sector has eight subgroups. They are handlooms, handicrafts, coir,
sericulture, khadi and village industries (traditional), small scale industries and power looms
(modern). Village and small industries provide the largest employment in India.
The definition used by the GOI to describe small industries is based on the investment
in plant and machinery. The MSMED (Micro, Small and Medium Enterprise Development) Act-
2006, classified the small enterprises into two major categories; manufacturing and
services.
A. Manufacturing: These enterprises engaged in the manufacture or production of goods
specified in the first schedule to the Industries (Development and Regulation) Act, 1951. It has
three types:
(i) Micro enterprises: Where investment in plant and machinery does not exceed Rs. 25
lakhs.
(ii) Small enterprises: where investment in plant and machinery is more than Rs. 25 lakhs
but doesnot exceed Rs. 5 crore.
(iii) Medium enterprises: where the investment in plant and machinery is more than Rs. 5
crore but does not exceed Rs.10 crore.
B.Services: Here enterprises engaged in rendering services, there are three types of
enterprises:
(i) Micro enterprises: where investment in equipments does not exceed Rs.10 lakh.
(ii) Small enterprises: where the investment in equipment is more than Rs. 10 lakh but
does not exceed Rs. 2 crore.
(iii) Medium enterprises: where investment in equipments is more than Rs. 2 crore but
does not exceed Rs. 5 crore.
Village industries:
It has been defined as any industry located in a rural area which produces any goods,
renders any service with or without the use of power. Its fixed capital investment per worker
does not exceed Rs.50,000 or specified by central govt., from time to time.
Cottage industries:
They are not defined on the basis of capital investment. It is also known as Rural
Industries or Traditional Industries. However these industries are characterized by certain
features like:
a. Simple equipment is used
b. Organized by individuals with private resources
c. Family labour and locally available talent is used
d. Small capital investment
e. Produce simple products
f. Production of goods using indigenous technology…
(2019-20) Page 61
Administrative set up for Small Scale Industry:

The administrative set up for small scale industry consists of two ministries, i.e., the
Ministry of Micro, Small and Medium Enterprises and Ministry of Agro and Rural
industry. The ministry of SSI is the nodal ministry for formulation of policy and coordination
of central assistance, for the promotion and development of SSIs in India. The Small
Industries Development Organisation (SIDO), which is attached to this ministry is
responsible for implementing and monitoring of various policies and programmes. The
National Small Industries Corporation (NSIC), a public sector undertaking has been
providing marketing support to the medium and small enterprises.
Similarly, the Ministry of Agro and Rural Industries is the nodal agency for coordination and
development of village and Khadi Industries, Tiny and Micro Enterprises in both urban and
rural area.
State governments also execute different promotional development projected
schemes to provide a number of supporting incentives for development and promotion of SSIs
in their respective states through State Directorate of Industries and DICs(District Industries
Centers).
Role of Small Business in India:

SSIs play a very important role in the socio economic development of the country.
 95% of the industrial units in India come under SSIs, contributing up to 40% of the
gross industrial value and 45% of the total exports.
 SSIs are second largest employers of human resources, after agriculture. It is
considered to be more labour intensive and less capital intensive.
 They produce variety of products for the economy.
 They contribute to the balanced regional development of the country by using locally
available material and indigenous technology.
 It provides greater opportunity for entrepreneurship.
 It enjoy the advantage of low cost of production
 It is possible to take quick and timely decisions
 It is suited for designing the product as per the taste and preferences of customers.
 It helps to maintain good relationship with both customers and employees.
Role of Small Business in Rural India: It provides multiple source of income, in wide
range of non-agricultural activities and provide employment opportunities in rural areas,
especially for the traditional artisans and weaker sections of the society.
(2019-20) Page 62
Problems of Small Business:

The following are the major problems faced by small business in India:
1. Finance: One of the severe problems faced by SSIs is that of non-availability of
adequate finance to carry out its operations.
2. Raw materials: Availability and procurement of raw material is another major
problem faced by the SSIs. Their bargaining power is relatively low due to the small
quantity of purchases.
3. Managerial skills: SSIs are generally promoted and operated by single person, who
may not possess all the managerial skills required to run the business. They are also
not in a position to afford professional managers.
4. Labour: Productivity per employee is relatively low and employee turnover is
generally high due to low remuneration. It also faces lack of specialization.
5. Marketing: In most of the cases, marketing is a weaker area of small organisations;
therefore exploitation of middlemen is very more.
6. Quality: Many small businesses do not follow the desired standards of quality due to
shortage of finance and resources.
7. Capacity utilization: Many of the SSIs are operate below full capacity due to lack of
marketing skills or demand. It will cause to increase its operating cost and leads to
sickness and closure of the business.
8. Technology: Most of the SSIs use outdated technology, resulting in low productivity
and uneconomical production.
9. Sickness: Due to many internal and external problems, most of the SSIs are in the
edge of sickness.
10. Global competitions: Most of the SSIs face competitions not only from medium and
large industries, but also from Multinational Companies.
Government Assistance to Small Industries:
Government provides various institutional support and incentives for the promotion of
Small Industries and Small Business units. Some of them are:
A. Institutional Support:
a. NABARD (National Bank for Agriculture and Rural Development): It was set up
in 1982 to promote integrated rural development. Apart from agriculture, it
supports small industries, cottage and village industries and rural artisans using
credit and non-credit approaches.
(2019-20) Page 63
b. RSBDC (The Rural Small Business Development Centre): It was established for
the benefit of socially and economically disadvantaged individuals and groups. It
aims at providing management and technical support to existing and prospective
micro and small entrepreneurs in rural areas.
c. NSIC (National Small Industries Corporation): It was set up in 1995 with a view
to promote, aid and foster the growth of small business units in the country. A new
scheme of performance and credit rating of small businesses is also implemented
through NSIC.
d. SIDBI (Small Industries Development Bank of India): It was set up as an apex
bank to provide direct and indirect financial assistance under different schemes to
meet credit needs of small business organisation. It also coordinates the functions of
other institutions in similar activities.
e. DICs (District Industries Centers): This programme was launched on May 1, 1978,
with a view to providing an integrated administrative framework at the district
level. It provide all the services and support facilities to the entrepreneurs for
setting up small and village industries. DICs are trying to bring change in the
attitude of the rural entrepreneurs and all other connected with economic
development in the rural areas.
f. World Association for Small and Medium Enterprises (WASME): It is the only
International Nongovernmental Organisation of micro, small and medium
enterprises based in India, which set up an International Committee for Rural
Industrialisation. Its aim is to develop an action plan model for sustained growth of
rural enterprises.
B. Incentives: Government offered various package of incentives to attract industries in
rural and backward areas. Some of the common incentives offered in the form of land, power,
water, sales tax, octroi, raw materials, finance, setting industrial estates, offer tax holidays
(exemption from paying taxes for 5 or 10 years) ……
The slogan of success for small business in this modern era has to be
‘Think global, act local’.
 IRDP –Integrated Rural Development Programme.
 WTO – World Trade Organisation.
 PMRY- Prime Minister Rojgar Yojana.
 TRYSEM- Training of Rural Youth for Self Employment.
 LPG- Liberalisation, Privatisation and Globalisation.
(2019-20) Page 64
CHAPTER-X
INTERNAL TRADE
INTERNAL TRADE: Buying and selling of goods and services within the boundaries of a
nation are referred to as internal trade. Internal trade can be divided into two categories;
(I) Wholesale Trade (II) Retail Trade
1. WHOLESALE TRADE: Buying and selling of goods and services in large quantities,
for the purpose of resale or use is referred to as wholesale trade. Traders dealing in
wholesale trade are called wholesale traders. He deals only a limited line of goods. They act as
an important link between manufacturers and retailers.
Services of Wholesalers:
1. Services to manufacturers:
a. Facilitating large scale production: They collect small orders from a number of
retailers and pass on the pool of such orders to the manufactures and make
purchases in bulk quantities.
b. Bearing Risk: The wholesalers deal in goods in their own name, take delivery of the
goods and keep the goods purchased in large lots in their warehouses. In the
process, they bear variety of risks such as the risk of fall in price, theft, fire etc..
c. Financial assistance: They provide financial assistance to the manufactures in the
sense that they generally make cash payments for the goods purchases by them.
Sometimes they also advance money to the producers for bulk orders.
d. Provide expert advice: As the wholesalers are in direct contact with the retailers,
they are in a position to advice the manufactures about various aspects.
e. Help in marketing functions: They take care of the distribution of goods to a number
of retailers.
f. Facilitate production continuity: The wholesalers facilitate continuity of production
activity throughout the year.
g. Help in storage: Wholesalers take delivery of goods when these are produced in
factory and keep them in their warehouses.
2. Services to Retailers
a. Availability of goods: The wholesalers make the products of various
manufactures readily available to the retailers.
b. Marketing support: They perform various marketing functions and provide support
to the retailers.
c. Grant of credit: They generally extend credit facilities to their regular customers.
d. Specialised knowledge: They pass on the benefit of their specialized knowledge to
the retailers.
e. Risk sharing: They purchase in bulk and sell in relatively small quantities to the
retailers, therefore retailers are in a position to avoid various risk.
(2019-20) Page 65
2. RETAIL TRADE: Purchase and sale of goods in relatively small quantities, generally to
the ultimate consumers is referred as retail trade. Those dealing in retail trade are called
retailers. Normally he deals wide varieties of goods.
Services of Retailers
1. Services to Manufactures/wholesalers
a. Help in distribution of goods: They help in distribution of their products by making
these available to the final consumers.
b. Personal selling: By undertaking personal selling efforts, the retailers relieve the
producers of this activity and greatly help them in the process of increase the sale
of products.
c. Enabling large scale operations: On account of retailers services, the manufacturers
and wholesalers are free from making individual sales and they concentrate on
other activities.
d. Collecting market information: They serve as an important source of collecting
market information because they have direct and constant touch with customers.
e. Help in promotion: Retailers participate various sales promotional activities in
various ways and thereby help in promoting the sale of the products.
2. Services to consumers
a. Regular availability of products: They ensure availability of various products
produces by different manufacturers.
b. New products information: Retailers provide important information about the
arrival, special features etc. of new products to the customers.
c. Convenience in buying: They are normally situated very near to the residential
areas and remain open for long hours. This offers great convenience to the
customers.
d. Wide selection: They generally keep stock of a variety of products of different
manufacturers. This enable the consumers to make their choice out of a wide
selection of goods.
e. After sales services: They provide various after sales services in the form of home
delivery, supply of spare parts, repairs…..
f. Provide credit facilities: They sometimes provide credit facilities to their regular
buyers.
Terms of Trade
The following are the main terms used in the trade
1. Cash on delivery (COD):- It refers to a type of transaction in which payment for
goods or services is made at the time of delivery. If the buyer is unable to make payment
when the goods or services are delivered then it will be returned to the seller.
2. Free on Board or Free on Rail (FoB or FOR):- It rerers to a contract between the
seller and the buyer in which all the expenses up to the point of delivery to a carrier (it may
be a ship, rail, lorry, etc.) are to be borne by seller.
3. Cost, Insurance and Freight (CFF):- It is the price of goods which includes not only
the cost of goods but also the insurance and frieght charges payable on goods up to
destination port.
4. Errors and Omissions Excepted (E&OE):- It refers to that term which is used in
trade documents to say that mistakes and things that have been forgotten should be taken
into account.
(2019-20) Page 66
TYPES OF RETAILERS:
There are two categories of retailers. They are:
1. ITINERANT TRADERS: They have no fixed place of business.
Characteristics: a. They require only limited investment. b. They deal in light and
cheap consumer goods (like vegetables, fish, cloth etc.) of regular use. c. They keep limited
stock…
The most common type of such traders are:
a. Hawkers and Pedlars: Hawkers carry goods on vehicle, while pedlars on their backs or
heads moving from door to door in residential areas to sell their goods. It is convenient to
the customers. Limited choice of products is the main disadvantage.
b. Cheap jacks: They do business in rented shops or sheds, shifting from once locality to
another. Their shops are never permanent.
c. Market Traders: These traders sell their goods on periodical markets-weekly, monthly,
etc. They move from one market to another. They include stalls at melas or fairs and
exhibitions.
d. Street traders (pavement vendors): These traders display their goods in busy street
corners or pavements near railway stations, bus stands, cinema houses etc.
2. FIXED SHOP TRADERS: They carry on business in a fixed building either owned or
rented.
Characteristics: a. large investment b. dealing different types of goods c. greater
credibility…
Types of Fixed Shop Retailers:
There are small shop keepers and large retailers.
A. Small shop keepers: They run on small scale and deal in a limited line of goods. The
various types of small shop keepers are:
i. General stores: They are selling all general items of goods required by the local
customers. They stock wide variety of goods which are needed in the course of
everyday life like groceries, stationery, soft drinks etc.
ii. Single line stores: These stores deal in a particular line of products. The product
line may consist of readymade garments, medicines, stationery, books, shoes etc.
iii. Speciality shops: They specialize in a single product of a certain line. Eg. Shops
dealing in children’s books or kids wear etc.
iv. Street shops; These shops are generally located at street crossings or in the main
street. They are also known as street stalls.
v. Second hand goods shop: These deals in second hand goods such as books,
furniture, cloths and other household articles.
B. Large retailers: It may be defined as retail trade involving operations on a large scale
and sale of goods in small quantities. These are different forms in which large scale retailing
may be organizes. The most common forms are:
i. Departmental Stores: It is a large scale retail organization consisting of many
departments each dealing in one item, under one roof and management. Its aim is to
satisfy every customers need under one roof. It is said that one can buy ‘needle to an
aeroplane’/’all shopping at one roof’ from it. They are generally organized as Joint
Stock Companies.
Eg: Akberally(Mumbai),Kamalaya Store( Kolkatta), Spencer (Chennai)……
(2019-20) Page 67
Features:
a. It is a large scale retail organization
b. A number of retail shops in the same building
c. A wide variety of products are arranged in separate departments
d. It is located in a central place of a big city.
e. management, control and sales arte centralized.
f. provide various facilities like rest room, restaurant, travel…..
Advantages: Attract large number of customers, convenience in buying, attractive
services, economy of large scale operation, promotion of sale …..
Limitations: lack of personal attention, high operating cost, high possibility of loss,
inconvenience location …..
ii. Multiple Shops or Chain Stores: It is a system of branch shops operated under a
centralized management and dealing in similar line of goods. Each branch operated under the
same name and management. Eg. Bata Shoe company, Maveli stores etc.
Features:
a. It deals one or two lines of products.
b. Each shop deals in the same type of goods.
c. There is uniformity in shops design and layout
d. It has centralized management and control.
e. Goods sold are, of daily use and durable in nature
f. It works on the basis of cash and carry principle
Advantages: Enjoy economies of large scale buying, no risk of bad debts(only cash sales),
quick turnover, economy in advertisement, better location, business risk can be minimized,
low cost of operation, uniform display, public confidence, no-over stocking of goods, it helps
for elimination of middlemen…..
Disadvantages: Limited choice, No credit facilities, No personal contacts, lack of initiative,
risk due to change in fashion, taste……..
DIFFERENCE BETWEEN DEPARTMENTAL STORE AND MULTIPLE SHOPS
Basis Departmental Store Multiple Shop
1.Location In big cities In residential areas
2.Type of goods All kinds of goods Limited line of goods
3.Proximity to customers Not consider Consider
4.Cash/Credit basis Offer credit sales Only cash basis
5.Buying and Selling Decentralized buying and centralized selling Centralized buying and decentralized selling
6.Investment More capital Comparatively less capital
7.Mutual transfer of goods Not possible Possible
8.Overhead expenses Large Limited
9. Uniformity in prices Different Same price
10.Prices High price Low prices
11.Supplier Deal with various suppliers Only one
12.Services Provide various services No such services
13.Type of Customers Attract higher income groups Attract all classes of customers
14.Risk Greater risk Low risk
(2019-20) Page 68
3. Mail Order Houses: It is a kind of retail business which receives orders and delivers
the articles through post. Post office plays an important role here. There is no direct contact
between the buyers and the sellers. There are different alternatives for receiving payments
like advance payment, by VPP (Value Payable by Post), through bank…… This type of business
is not suitable for all types of products such as perishable goods, bulky goods etc.
Advantages: Limited capital, convenience in buying, avoidance of middlemen, no bad debts,
lower cost, wider scope, avoidance of over stocking of goods…..
Disadvantages: heavy expense on advertisement, absence of personal contact, no personal
inspection, not suitable for all items, delay in delivery, absence of credit facilities, unsuitable
to illiterate class….
4. Consumers Co-operative stores: It is a retail store formed and run by consumers on

co-operative principles. These stores are owned and managed by the consumers so as to
make goods available at a reasonable price. To start a consumer cooperative store, at least 10
people have to come together and form a voluntary association and get it registered under the
Cooperative Societies Act.
Advantages: Easy to form, limited liability, democratic management, lower prices, cash sales,
convenient location….
Disadvantages: Lack of initiative, shortage of funds, lack of business training….
5. Super Market (Super Bazaar): It is a large scale retail store selling a wide variety of
consumer goods. They deal in food and non-food items. The most distinctive feature of super
bazaar is the absence of salesmen. They are also called ‘self-service stores’.
Features:
a. They are located in the main shopping centre of an area
b. They sell goods on cash basis only
c. They deal in wide variety of goods
d. They operate on the self-service principle.
e. The prices of the products are generally lower.
Advantages: buy all requirements from one place, no bad debts, assure greater profit, wide
selection, central location….
Disadvantages: availability of large space is difficult, no credit facilities, lack of personal
contacts, require huge capital investment, mishandling of goods…..
Vending Machines: They are the newest revolution in marketing methods. Coin operated
vending machines are providing useful in selling several products such as soft drinks, milk,
newspaper… It is useful for selling pre-packed brands of low prices products which have high
turnover and which are uniform in size and weight. However, the initial cost of a vending
machine and its regular maintenance expenditure is very high, also consumers cannot feel or
see the product before buying
(2019-20) Page 69
Goods and Services Tax (GST):

The Government of India, following the credo of ‘One Nation and One Tax’, and
wanting a unified market in order to ensure the smooth flow of goods across the country
implemented the Goods and Services Tax (GST) from July 1, 2017. The GST has replaced 17
indirect taxes (8 Central + 9 State levels) and 23 cesses of the Centre and the States,
eliminating the need for filing multiple returns and assessments and rationalising the tax
treatment of goods and services along the supply chain from producers to consumers. GST
comprises Central GST (CGST) and the State GST (SGST), subsuming levies previously
charged by the Central and the State governments respectively. GST (CGST + SGST) is charged
at each stage of value addition and the supplier off-sets the levy on inputs in the previous
stages of value chain through the tax credit mechanism. The last dealer in the supply chain
passes on the added GST to the consumer, making GST a destination-based consumption tax
Key Features of GST:
1. The territorial spread of GST is the whole country, including Jammu and Kashmir.
2. GST is applicable on the ‘supply’ of goods or services as against the present concept
of tax on the manufacture or sale of goods or on the provision of services.
3. It is based on the principle of destination-based consumption tax against the
present principle of origin-based taxation.
4. Import of goods and services is treated as inter-State supplies and would be subject
to IGST in addition to the applicable customs duties.
5. CGST, SGST and IGST are levied at rates mutually agreed upon by the Centre and the
States under the aegis of the GST Council.
6. There are four tax slabs namely 5 per cent, 12 per cent, 18 per cent and 28 per cent
for all goods or services.
7. There are four tax slabs namely 5 per cent, 12 per cent, 18 per cent and 28 per cent
for all goods or services.
8. There are various modes of payment of tax available to the taxpayer, including
Internet banking, debit/credit card and National Electronic Funds Transfer
(NEFT)/Real Time Gross Settlement (RTGS).
Role of Indian Chambers of Commerce and Industry in promotion of Internal Trade:

The Chambers of Commerce and Industry was formed as an association of business
and industrial houses to promote and protect their common interest and goals.
Eg. CII (Confederation of Indian Industry), FICCI (Federation of Indian Chambers of Commerce
and Industry)… They play an important role in strengthening internal trade and overall
economic activity. Some of their roles are:
 Helps in many activities relating interstate movement of goods.
 To ensure that octroi and other local levies are charged reasonably.
 Helps in harmonization of sales tax structure and Value Added Tax.
 Helps in marketing of agro products and related issued.
 Promoting sound infrastructure…..
(2019-20) Page 70
CHAPTER-XI
INTERNATIONAL BUSINESS `
Buying and selling of goods and services between two countries are called external
trade or foreign trade or international business. It facilitates specialization and efficient
utilization of resources.
Reasons for International Business:
The basic reason behind international business is that the countries cannot produce
equally well or cheaply all that they need due to the unequal distribution of various resources
such as labour, raw materials, capital….. Moreover, labour productivity and production costs
differ among nations due to various socio-economic, geographical and political reasons.
Therefore some countries being in a better position to produce better quality products or at
lower costs than what other nations can do.
Distinction between Domestic Business and International Business.
Domestic Business International Business
1.Exchange of goods with in the nation 1. Exchange of goods between two nations
2.Regulations and laws of only one country 2. Regulations and laws of different countries
3.Less documents needed 3. More documents needed
4.Cost of transportation is less 4. Cost of transportation is higher
5.Insurance is not compulsory 5.Insurance is compulsory
6.Goods are subject to less risk 6. Goods are subject to greater risk
7.Accounts are settled in national currency 7. Accounts are settled in foreign currencies
8.Limited formalities 8. Many formalities
9.Carried on retail and wholesale 9. Carried on wholesale only
10.Business system and practices are 10. Business system and practices between
relatively same nations may vary.
Scope of International Business:
Major areas of operations of international business are briefly discussed below:
1. Merchandise exports and imports: Merchandise means goods which are tangible, ie,
those that can be seen and touched.
2. Service exports and imports: It mean trade in intangibles, ie, those that cannot be
seen or touched. It is also known as invisible trade. Eg. Tourism and travel,
transportation, entertainment, communication, educational services…
3. Licensing and franchising: Under licensing a business firm permitting a person/firm
in a foreign country to produce and sell goods under your trademarks, patents or
copyrights for a fee is another way of operating international business. Eg. Pepsi, Coca-
Cola… Franchising is somewhat similar to licensing with the difference that it is
connected with provision of services. Eg.Mc Donald, KFC…
4. Foreign Investments: It means investment abroad in exchange for financial return. It
can be in FDI (Foreign Direct Investment)- directly invested in properties, and FPI
(Foreign Portfolio Investment)- investing by way of acquiring shares or granting loans.
(2019-20) Page 71
Benefits of International Business:

Benefits to Nations: Earning of foreign exchange, More efficient use of resources, improving
growth prospects and employment potentials, Increased standard of living…..
Benefits to Firms: Higher profits, increased capacity utilisation, prospects for growth, way out to
intense competition in domestic market, improved business vision….(Assignment and Seminar topic)
Modes of entry into International Business:

A company can enter into international business in the following ways:
1.Exporting and Importing: Export refers to sending of goods and services for
sale from the home country to foreign countries. Importing means purchasing of goods and
service from foreign countries for domestic use. It carried out directly or indirectly.
Advantages: 1. It is the easiest way of entering into international markets. 2. Foreign
investment risk is practically nil.
Disadvantages: 1. Additional cost involved for packaging, transportation, insurance, customs
duty….2. It is not a feasible method 3.Lack of knowledge about foreign markets.
2.Contract Manufacturing: In this a company enters into a contract with a local
manufacturer in a foreign country. The contract is for getting certain components or goods
produced as per specifications give. It is also called outsourcing. It may takes place in the
forms of production of certain components only, assembly of components into final products and
complete manufacture of the products.
Advantages: 1. Goods can produced on large scale without any investment 2. Less investment
risk 3. Getting products with lower material and labour costs.
Disadvantages: 1. Compromise quality 2. Local firm have lose the freedom in the production
process. 3. According to the term of contract, they cannot freely sell in the open market…
3.Licensing and Franchising: It is a contractual agreement in which one firm
permits another firm in a foreign country to access its trademark, patents or technology for a
fee called royalty. The form which gives permission is called licensor and to whom it is given
is called licensee.
Franchising is similar to licensing; it is concerned with provision of services. The
parent company is called franchiser and the party to whom franchise is granted is called the
franchisee.
Advantages: 1. Less expensive mode 2. Limited risk 3.better marketing facilities
Disadvantages: 1. Chance of lost the trade secrets 2. Chances of different opinion between
parties…
4.Joint Ventures: It means starting a firm which is jointly owned by two or more
firms. It comes into existence in the three major ways: a. foreign investor buying an interest in
a local firm. b. . local firm acquiring an interest in an existing foreign form c. both firms jointly
establishing a new firm.
Advantages: 1. Less financial burden 2.large projects requiring huge capital can be
undertaken 3.sharing of cost and risk…
Disadvantages: 1. Chances of lost of trade secrets 2. Chance of conflict between parties….
(2019-20) Page 72
5. Wholly owned subsidiaries: In this holding company (parent company)

acquires 100 per cent shares in the subsidiary company . A wholly owned subsidiary
company can be established in a foreign market in wither of the two ways: set up a firm in a
foreign country or acquire an existing firm in the foreign country.
Advantages: 1.full control over operation 2. Trade secrets did not lost …..
Disadvantages: 1. Not suitable for small and medium size business 2. No sharing of loss 3.
Greater political risk…
Foreign Trade Policy (FTP) 2015-20
The Foreign Trade Policy (FTP) 2015-20 provides a stable and sustainable policy
environment for foreign trade in merchandise and services, link rules and incentives for
exports and imports along with other initiatives, such as ‘Make in India’, ‘Digital India’ and
‘Skill India’ to create ‘Export Promotion Mission’, promote the diversification of India’s
exports basket by helping various sectors of the Indian economy to gain global
competitiveness, create an architecture for India’s global trade as an effort to reduce trade
imbalance.
FTP has introduced two major schemes:
1. Merchandise Exports from India Scheme (MEIS) covers agricultural products, like
fruits, flowers, vegetables, tea, coffee, spices, handicrafts, handlooms, jute products, textile
and garments; pharmaceuticals; surgical; herbal; auto components; telecom; transport;
railways; leather; wood; paper, etc.
2. Services exports from India Scheme (SEIS) which covers legal, accounting,
architectural, engineering, and educational and hospital services at 5%; hotels and
restaurants, travel agencies and tour operators and other business services at 3%.
Export Procedures: Steps involved in a typical export transaction are as follows:
1. Receipt of enquiry and sending quotations: The prospective buyer of a product
sends an enquiry to different exporters. The exporter sends a reply to the enquiry in
the form of a quotation, referred to as proforma invoice.
2. Receipt of order or indent: The prospective buyer places an order for the goods to be
dispatched. This order is also known as indent.
3. Assessing importer’s credit worthiness and securing guarantee for payments:
For ensuring the credit worthiness of importers most exporters demand a letter of
credit from the importer. It is a guarantee issued by the importer’s bank that it
will honour payment up to a certain amount of export bills to the bank of the
exporter.
4. Obtaining export license: Export of goods in India is subject to custom laws which
demand that the export firm must have an export license before it proceeds with
exports. For this the exporter must opening a bank account , obtain Import Export
Code(IEC) number from the Directorate General Foreign Trade (DGFT) or Regional
Import Export Licensing Authority, obtain RCMC from Export Promotion Council and
Registering with ECGC ( Export Credit and Guarantee Corporation).
(2019-20) Page 73
5. Obtaining pre-shipment finance: It is provided by exporter’s bank for procuring raw

materials and other components. The pre-shipment inspection report is required to be
submitted along with other export documents at the time of exports.
6. Production or procurement of goods: In this the exporter proceeds to get the goods
ready as per the specifications of the importer.
7. Pre-shipment inspection: The government has passed Export Quality Control and
Inspection Act, 1963 in order to ensure quality of goods at the time of export.
8. Excise Clearance: After this excise clearance is obtained from Excise Commissioner.
But in many cases the government exempts payment of excise duty or later on refunds
it if the goods so manufactured are meant for exports. The refund of excise duty is
known as duty drawback.
9. Obtain certificate of origin: For availing some benefits the importer may ask the
exporter to send a certificate of origin. This certificate can be obtained from the trade
consulate located in the exporter’s country.
10. Reservation of shipping space: The exporting firm applies to the shipping company
for provision of shipping space. On acceptance of the application, the shipping
company issues a shipping order.
11. Packing and forwarding: The goods are then properly packed and marked with
necessary details. The exporter then makes necessary arrangements for transportation
of goods to the port.
12. Insurance of goods: The exporter insured the goods with an insurance company.
13. Customs clearance: For obtaining customs clearance, the exporter prepares the
shipping bill. It is the main document on the basis of which the customs office gives
the permission for export. It contains the details of the shipment.
Five copies of the shipping bill along with the following documents are then
submitted to the Customs Appraiser at the Customs House:
• Export Contract or Export Order
• Letter of Credit
• Commercial Invoice
• Certificate of Origin
• Certificate of Inspection, where necessary
• Marine Insurance Policy.
After submission of these documents, the Superintendent of the concerned port
trust is approached for obtaining the carting order. Carting order is the instruction to
the staff at the gate of the port to permit the entry of the cargo inside the dock. After
obtaining the carting order, the cargo is physically moved into the port area and stored in
the appropriate shed.
Since the exporter cannot make himself or herself available all the time for
performing all these formalities, these tasks are entrusted to an agent — referred to as
Clearing and Forwarding (C&F) agent.
14. Obtaining mates receipt: The goods are then loaded on board the ship for which the
captain of the ship issues a document called mates receipt to the port superintendent.
The port superintendent, on receipt of port dues, handed over the mate’s receipt to the
exporter or his agent called C&F (Clearing and Forwarding) agent.
(2019-20) Page 74
15. Payment of freight and issue of bill of lading: The exporter or C&F agent surrenders
the mates receipt to the shipping company for computation of freight. After receipt of
the freight, the shipping company issues a bill of lading. It acts as an evidence that the
shipping company has accepted the goods for carrying. In the case the goods are being
sent by air, this document is called airway bill.
16. Preparation of invoice: After this an invoice of goods dispatched is prepared and it
duly attested by the customs.
17. Securing payment: After the shipment of goods, the exporter informs the importer
about the shipment of goods and sent various documents to his bank with the
instruction that these may be delivered to the importer after acceptance of the bill of
exchange.
Bill of exchange is an order to the importer to pay a certain amount of money to,
or to the order of, a certain person or to the bearer of the instrument.
It can be of two types: document against sight (sight draft) or document
against acceptance (usance draft).
In case of sight draft, the documents are handed over to the importer only
against payment. The moment the importer agrees to sign the sight draft, the relevant
documents are delivered.
In the case of usance draft, on the other hand, the documents are delivered to the
importer against his or her acceptance of the bill of exchange for making payment at the
end of a specified period, say three months.
On receiving the bill of exchange, the importer releases the payment in case of
sight draft or accepts the usance draft for making payment on maturity of the bill of
exchange. The exporter’s bank receives the payment through the importer’s bank and
is credited to the exporter’s account.
The exporter, however, need not wait for the payment till the release of money
by the importer. The exporter can get immediate payment from his/ her bank on the
submission of documents by signing a letter of indemnity. By signing the letter, the
exporter undertakes to indemnify the bank in the event of non-receipt of payment
from the importer along with accrued interest.
Major documents in connection with Export
A. Documents related to goods:
a. Export invoice: Export invoice is a seller’s bill for merchandise and contains
information about goods such as quantity, total value, number of packages, port
of destination …..
b. Packing list: It is a statement of packs and the details of the goods contained in
these packs.
c. Certificate of origin: This is a certificate which specifies the country in which
the goods are being produced. This certificate entitle the importer to claim tariff
concessions or other exemptions.
(2019-20) Page 75
d. Certificate of inspection: For ensuring quality, the government has made it

compulsory for certain products that these be inspected by some authorized
agency. Export Inspection Council of India(EICI) is one such agency.
B. Documents related to shipment:
a. Mate’s receipt: This receipt is given by the commanding officer of the ship to
the exporter after the cargo is loaded on the ship. The mate’s receipt indicates
the name of vessel, berth, date of shipment, description of packages…..
b. Shipping bill: It is the main document on the basis of which customs office
grants permission for the export. It contain particulars of the goods being
exported, the name of vessel, the port at which goods are to be discharged,
exporters name and address…..
c. Bill of lading: It is a document wherein a shipping company gives its official
receipt of the goods put on board its vessel to the exporter and at the same time
gives an undertaking to carry them to the port of destination. It is also a
document of title to the goods and as such is freely transferable by the
endorsement and delivery.
d. Airway bill: Like bill of lading, an airway bill is a document wherein an airline
company gives its official receipt of goods.
e. Marine insurance policy: It is a certificate of insurance contract whereby the
insurance company agrees in consideration of payment called premium to
indemnify the insured against loss incurred by the later in respect of goods
exposed to perils of the sea.
f. Cart ticket: A cart ticket is also known as a cart chit, vehicle or gate pass. It is
prepared by the exporter and includes details of the export cargo in terms of the
shipper’s name, number of packages, shipping bill number, port of destination
and the number of the vehicle carrying the cargo.
C. Documents related to payment:
a. Letter of Credit: A LoC is a guarantee issued by the importer’s bank that it will
honour up to a certain amount the payment of export bills to the bank of the
exporter. It is the most appropriate and secure method of payment adopted to
settle international transactions.
b. Bill of Exchange: It is a written instrument whereby the person issuing the
instrument directs the other party to pay a specified amount to a certain person
or the bearer of the instrument. In the context of export-import transactions, it
is drawn by exporter.
(2019-20) Page 76
Import Procedure:
1. Trade enquiry: The importing firm has to gather information about the countries and
firms which export the given product. After receiving trade enquiry, the importer get
proforma invoice from exporter.
2. Procurement of import license: In India, it is obligatory for every importer (and also
for exporter) to get registered with the Directorate General Foreign Trade (DGFT) or
Regional Import Export Licensing Authority, and obtain an Import Export Code (IEC)
number. This number is required to be mentioned on most of the import documents.
3. Obtaining foreign exchange: For obtaining foreign exchange sanction, the importer
has to make an application to a bank authorized by RBI.
4. Placing Indent/order: The importer places an import order or indent with the
exporter for supply of the specified products.
5. Obtaining letter of credit: The importer must obtain the letter of credit from its bank
and forward it to the overseas supplier.
6. Arranging for finance: The importer should make arrangements in advance to pay to
the exporter on arrival of goods at the port.
7. Receipt of shipment advice: A shipment advice is obtain from the exporter.
8. Retirement of Import documents: The acceptance of bill of exchange for the purpose
of getting delivery is known as retirement of import documents, here the bank hands
over the import documents to the importer.
9. Arrival of goods: The person in charge of the ship/airway inform the officer in charge
at the dock/port about the arrival of goods in the importing country through a
document called import general manifest.
10. Customs clearance and release of goods: The importer fills a form called bill of entry
for assessment of customs duty. After payment of the import duty, the bill of entry has
to be presented to the dock superintendent. After his examination, it is handed over to
port authority. After receiving necessary charges, the port authority issues the release
order.
Important Documents used in an Import Transaction
a. Import order or Indent: It is a document in which the buyer (importer) orders for
supply of goods to the supplier (exporter). The indent contains the information
such as quantity and quality of goods, price to be charged, nature of packaging,
mode of payment…..
b. Letter of Credit: A LoC is a guarantee issued by the importer’s bank that it will
honour up to a certain amount the payment of export bills to the bank of the
exporter. It is the most appropriate and secure method of payment adopted to
settle international transactions.
c. Shipment advice: It is a document send by the exporter to the importer informing
him that the shipment of goods has been made.
(2019-20) Page 77
d. Bill of Entry: It is a form supplied by the customs office to the importer. It is to be

filled in by the importer at the time of receiving the goods. It has to be in triplicate
and is to be submitted to the customs office. The bill of entry contains information
such as name and address of importer, name of the ship, number of packages,
description of goods, name and address of exporter, port of destination……
e. Bill of exchange: It is a written instrument whereby the person issuing the
instrument directs the other party to pay a specified amount to a certain person or
the bearer of the instrument. In the context of export-import transactions, it is
drawn by exporter.
f. Import general manifest: It is a document that contains the details of the
imported good. It is the document on the basis of which unloading of cargo takes
place.
Foreign Trade Promotion:- Incentives and Organisational support:
Major trade promotion measures (especially those related to exports) are as follows:
a. duty draw back scheme (refund of excise and customs duty)
b. export manufacturing under bond scheme (produce goods without payment of duty)
c. Exception from payment of sales tax
d. advance license scheme
e. Export Promotion Capital Goods Scheme(EPCG)
f. Export services
g. export finance
h. Export Processing Zones(EPZs):-They are industrial estates, which form exclaves from the
Domestic Tariff Areas(DTA). These are usually situated near ports. They are intended to provide
an internationally competitive duty free environment for export production at low cost.
Eg.Kandal (Gujarat), Santa Cruz( Mumbai), Noida(U.P.), Cochin (Kerala)… Recently the EPZs
have been converted to SEZs(Special Economic Zones) which are more advanced form of EPZs.
i. 100 per cent Export Oriented Units(EOUs)
Organisational Support: Some of the important institutions are-
a. Department of Commerce: The Department of Commerce in the Ministry of
Commerce, Government of India, is the apex body responsible for the country’s
external trade and all matters connected with it.
b. Export Promotion Councils (EPCs): The basic objective of the export promotion
councils is to promote and develop the country’s exports of particular products falling
under their jurisdiction. At present, there are 21 EPC’s dealing with different
commodities.
(2019-20) Page 78
c. Export Inspection Council (EIC): The council is an apex body for controlling the
activities related to quality control and pre-shipment inspection of commodities meant
for export.
d. Indian Trade Promotion Organization (ITPO): ITPO is a service organisation and
maintains regular and close interaction with trade, industry and Government. It serves
the industry by organising trade fairs and exhibitions—both within the country and
outside, it helps export firms participate in international trade fairs and exhibitions,
developing exports of new items, providing support and updated commercial business
information.
e. Indian Institute of Foreign Trade (IIFT): It provides training in international trade,
conduct researches in areas of international business, and analysing and disseminating
data relating to international trade and investments. It has recently been recognised as
Deemed University.
f. Indian Institute of Packaging (IIP): It is a training-cum-research institute pertaining
to packaging and testing.
g. State Trading Organisations: The main objective of the STC is to stimulate trade,
primarily export trade among different trading partners of the world.
International Trade Institutions and Trade Agreements:

 World Bank(IBRD):
The International Bank for Reconstruction and Development (IBRD), commonly
known as World Bank, was result of the Bretton Woods Conference. The main objectives
behind setting up this international organisation were to aid the task of reconstruction of
the war-affected economies of Europe and assist in the development of the
underdeveloped nations of the world.
As of today, the World Bank is a group of five international organisations
responsible for providing finance to different countries. The group and its affiliates
headquartered in Washington DC catering to various financial needs are listed below:
 IMF (International Monetary Fund): The International Monetary Fund (IMF)
is the second international organisation next to the World Bank. IMF which came into
existence in 1945 has its headquarters located in Washington DC. In 2005, it had 191
countries as its members. The major idea underlying the setting up of the IMF is to
evolve an orderly international monetary system, i.e., facilitating system of
international payments and adjustments in exchange rates among national currencies.
(2019-20) Page 79
Major objectives of IMF:

1. To promote international monetary cooperation through a permanent institution
2. To facilitate expansion of balanced growth of international trade
3. To promote exchange stability
4. To assist in the establishment of a multilateral system of payments in respect of
current transactions between members.
Functions of IMF
Various functions are performed by the IMF to achieve the aforesaid objectives.
Some of the important functions of IMF include:
• Acting as a short-term credit institution;
• Providing machinery for the orderly adjustment of exchange rates;
• Acting as a reservoir of the currencies of all the member countries, from which a
borrower nation can borrow the currency of other nations;
• Acting as a lending institution of foreign currency and current transaction;
• Determining the value of a country’s currency and altering it.
• Providing machinery for international consultations
 World Trade Organization (WTO) and Major Agreements: General
Agreement for Tariffs and Trade (GATT) came into existence with effect on 1 January
1948 and remained in force till December 1994. The GATT was transformed into World
Trade Organization (WTO) with effect from 1 January 1995. The headquarters of the
WTO are situated at Geneva, Switzerland.
Objectives of WTO:
• To ensure reduction of tariffs and other trade barriers imposed by different
countries
• To engage in such activities which improve the standards of living, create
employment, increase income and effective demand and facilitate higher production and
trade
• To facilitate the optimal use of the world’s resources for sustainable development;
and
• To promote an integrated, more viable and durable trading system.
(2019-20) Page 80
The major functions of WTO include:

• Promoting an environment that is encouraging to its member countries to come
forward to WTO in mitigating their grievances;
• Laying down a commonly accepted code of conduct with a view to reducing trade
barriers, including tariffs and eliminating discriminations in international trade
relations.
• Acting as a dispute settlement body.
• Ensuring that all rules regulations prescribed in the Act are duly followed by the
member countries for the settlement of their disputes.
• Holding consultations with the IMF and the IBRD and its affiliated agencies so as to
bring better understanding and cooperation in global economic policy making; and
• Supervising on a regular basis the operations of the revised Agreements and
Ministerial declarations relating to goods, services and Trade Related Intellectual
Property Rights (TRIPS).
Benefits of WTO:
• WTO helps promote international peace and facilitates international business.
• All disputes between member nations are settled with mutual consultations.
• Rules make international trade and relations very smooth and predictable.
• Free trade improves the living standard of the people by increasing the income
level.
• Free trade provides ample scope of getting varieties of qualitative products.
• Economic growth has been fastened because of free trade.
• The system encourages good government.
• WTO helps fostering growth of developing countries by providing them with
special and preferential treatment in trade related matters.
(2019-20) Page 81

Hsslive XI BUSINESS STUDIES Notes 2019 20 Sanal Signed PDF

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Hsslive XI BUSINESS STUDIES Notes 2019 20 Sanal Signed PDF

Загружено:

Авторское право:

Доступные форматы

PLUS ONE

October, November, December

Eg.: Praying, social service, production for self-consumption, charity etc…

Economic Activities Non-Economic Activities

Business Profession Employment

II. Profession: Profession refers to an occupation which requires specialized

Comparison or Distinction between Business, Profession and Employment

Basis Business Profession Employment

7. Objective/Return Profit Fees Salary

Nature of Business Risks:

(i) Business risks arise due to uncertainties.

Causes of Business Risk:

Methods of Dealing with Risks

Classification of business activities:

Basis of size Basis of Ownership Basis of function

Small Medium Large Public Private Joint Industry Commerce

Departmental undertaking Sole proprietor ship

On the basis of Function

Primary Secondary Tertiary

Extractive Genetic Manufacturing Construction

Analytical Synthetical Processing Assembling

1. Manufacturing industries: They engage in converting raw materials into finished

Trade: It refers to the sale, exchange or transfer of goods on a continuous and

 The hindrance of person is removed by trade.

Internal/home/domestic trade External/Foreign/International trade

Whole sale Retail Export Import Entrepot

Starting a Business- Basic Factors:

1. Selection of line of business: It means nature and type of business to be undertaken.

Gender Equality in the Joint Hindu Family a Reality

viii. Amount of salary, if any, payable to partners

On the basis of Duration On the basis of Liability

I. On the basis of duration- It is further classified into two:

Registration of Partnership: According to Partnership Act 1932, “it is not compulsory

JOINT STOCK COMPANIES:

9. Formation: The formation of a company is time consuming, expensive and

The following are some of the privileges of a private limited company as

1. Limited resources: Resources of a cooperative society consists of capital

Types of Co-operative Societies:

Choice of Form of Business Enterprise:

Comparative Evaluation of Forms of Organisation

Basis Sole Partnership HUF Company Co-operative

Easy Easy Easy Greater legal Greater legal

Capital Limited, but Ancestral Large financial Limited

II. Statutory Corporations or Public Corporations: It is an autonomous institution

COMPARISON OF PUBLIC SECTOR ENTERPRISES (Reference)

CHANGING ROLE OF PUBLIC SECTOR: Public Sector Enterprises(PSE) came into

MULTINATIONAL COMPANIES/ GLOBAL ENTERPRISES.

PUBLIC PRIVATE PARTNERSHIP (PPP): It is defined as a relationship

Basis Services Goods

An activity or process. e.g., A physical object. e.g., video

Type Heterogeneous Homogenous

Simultaneous production and Separation of production and

Cannot be kept in stock. e.g., Can be kept in stock. e.g., train

Participation of customers at the Involvement at the time of

Classification of Business services:

c. Current Deposits: This type of account is usually operated by businessmen. There is no

Kinds of Life Insurance Policies:

II. General Insurance: It includes the following;

Difference between Life, Fire and Marine Insurance

Postal Services Courier Services Electronic Media Telecom Services

Transportation services are considered to be important for business since speed is of

Information Technology Act 2000 paves way for Paperless Society

Security and safety of e-Transactions: