BUSINESS STUDIES CLASS 11 NOTES

Rights and Obligations of Partners

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The rights and obligations of partners are normally mentioned in the partnership deed. In case, the partnership deed does not specify them, then the partners will have rights and obligations as prescribed in The Partnership Act, 1932. These rights and obligations are given below:

Rights of partners

1. Every partner has a right to take part in the conduct and management of the firm’s business.

2. Every partner has a right to be consulted and express his opinion on any matter related to the firm. In case of a difference of opinion, the decision has to be taken by a majority. But important issues like an admission of a new partner, change in the firm’s business, alteration of profit-sharing ratio, etc., must be decided by unanimous consent of all the partners.

3. Every partner has a right to have access to, inspect and copy any books of accounts and records of the firm.

4. Every partner has the right to an equal share in the profits of the firm unless otherwise agreed by the partners.

5. Every partner has the right to receive interest on loans and advances made by him to the firm. The rate of interest should be 6 percent unless otherwise agreed by the partners.

6. Every partner has the right to be indemnified for the expenses incurred and losses sustained by him in the ordinary conduct of the firm’s business.

7. Every partner has a right to continue in the firm unless expelled in accordance with the terms of the partnership agreement.

8. Every partner has a right to retire in accordance with the terms of the partnership agreement or with the consent of other partners.

Duties and Liabilities of partners

1. Every partner must act diligently and honestly in the discharge of his duties to the maximum advantage of all the partners.

2. Every partner must act in a just and faithful manner towards each other.

3. Every partner must act within the scope of the authority entrusted to him.

4. Every partner is bound to share the losses of the firm equally unless otherwise agreed.

5. Every partner must indemnify the firm against losses sustained due to his willful negligence in the ordinary course of business.

6. No partner can transfer or assign his interest in the firm to others without the consent of other partners.

7. Every partner must maintain and render true and correct accounts relating to the firm’s business.

8. No partner must engage himself in a business in competition with the firm, otherwise, he will be liable for any loss suffered by the firm. He will have to surrender the private profits of the firm.

9. Every partner should use the firm’s property only for the firm’s business and interest.

10. No partner should make any secret profits by way of commission or otherwise from the firm’s business. He is liable to account for and pay to the firm any private profit from the transactions of the firm or from the use of its property or goodwill.

11. Every partner is liable jointly with all the other partners and also severally for all the debts of the firm. The liability of a partner to third parties is unlimited.

Registration of a Partnership Firm

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Registration of a partnership firm is not mandatory under law, however, if the partners so desire may register the firm with the Registrar of Firms of the state in which the firm's main office is situated. A partnership firm may be registered at the formation or at any time thereafter.

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Procedure for Registraion

In order to get a partnership firm registered, an application in a prescribed form must be filled with the Registrar of Firms. The application should contain the following information:

1. The name of the firm

2. The principal place of business of the firm

3. Names of other places where the firm's business is carried on.

4. Names in full and permanent addresses of the partners.

5. The date on which each partner joined the firm

6, Duration of partnership, if any.

The application should be signed and verified by each partner, then it is to be submitted to the Registrar of Firms of the area in which the main office of the firm's business is situated or proposed to be situated. The registration fee is also deposited along with the application. After the submission of the application, the registrar will examine the application. If he is satisfied that everything is in order and all the legal formalities have been observed, he will make an entry in the register of firms. He will also issue a certificate of registration. Any change in the information submitted at the time of registration should be communicated to the Registrar.

Consequences of Non- Registration

The consequences of a partnership firm which is not registered are as follows:

1. It cannot enforce its claims against the third party in a court of law.

2. It cannot file a legal suit against any of its partners

3. Partners of an unregistered firm cannot file any suit to enforce a right against the firm.

4. A partner of an unregistered firm cannot file suit against other partners.

Non- registration of a firm, however, does not affect the following rights:

1. The right of a partner to sue for the dissolution of the firm or for the accounts of a dissolved firm or to enforce any right or power to realize the property of a dissolved firm.

2. The power of an official assignee or receiver to realize the property of an insolvent partner.

3. The rights of the firm, or its partners, having no place of business in India.

4. Any suit or set off in which the claim does not exceed rupees hundred.

5. The right of a third party to sue the unregistered firm or its partners.

6. The right to sue a third party for infringement of a patent right.

What is a Partnership Deed and what are the clauses it usually contains?

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Partnership Deed is a document containing the terms and conditions of a partnership business. It is an agreement in writing signed by all the partners duly stamped and registered. It defines the rights, duties, and obligations of partners. The partnership deed must not contain any term which is contrary to the provisions of the Partnership Act. Even though it is not necessary to have a written agreement, a written agreement is helpful in preventing and resolving disputes among the partners. The terms and conditions of a partnership deed can be changed with the consent of all the partners.

A partnership deed normally contains the following clauses:

1. Name of the firm.

2. Nature of the firm's business

3. The principal place of business.

4. Duration of partnership, if any

5. Names and addresses of partners

6. Amount of capital to be contributed by each partner

7. The amount which can be withdrawn by each partner.

8. The profit-sharing ratio.

9. Rate of interest, if any

10. Amount of Salary or commission payable to partners.

11. Allocation of work among partners.

12. Mode of valuation of goodwill.

13. Procedure for admission, retirement, etc. of a partner.

14. Procedure for maintaining accounts and getting them audited.

15. Procedure to be followed in the event of the dissolution of the firm and settlement of accounts.

16. The arbitration clause in case of disputes among partners.

17. Loans and advances by partners and rate of interest payable on them.

Partnership- Meaning, Definition, Characteristics, Formation

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The partnership form of the business organization came out from the limitations of the sole proprietorship business. When a business expands, a single person is unable to arrange the funds and bear the risks. He cannot manage all the functions of business by himself. Therefore, two or more persons join hands and combine their capital and skills to start a business.

Meaning of Partnership:

A partnership is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses. They combine their funds and skills to carry on business together.

Definition by L. H. Haney :

Partnership is the relation existing between two persons competent to make contracts, who agree to carry on lawful business in common with a view to a private gain.

Definition according to The Partnership Act 1932:

Partnership is the relation between persons who have agreed to share profits of a business carried on by all or any one of them acting for all.

Characteristics of Partnership

1. Two or more persons: There should be at least two persons to start a partnership business. A single person cannot enter into a partnership with himself. The maximum number of persons for a partnership business should not exceed 10 in the case of a banking company and 20 in case of other types of business.

2. Agreement: The relation of partnership business arises from the formation of a contract and not from status or birth. There should be an agreement between persons. The agreement may be oral or in writing but it must satisfy all the essentials of contract.

3. Mutual Agency: Partnership business can be carried on by any of them acting on behalf of the others. In other words, every partner is both principal and agent. Each partner is liable for acts performed by other partners on behalf of the firm.

4. Unlimited liability: The partners of a partnership business have unlimited liability. In case the assets of the firm are insufficient to pay the debts in full, the personal property of each partner can be attached to pay the creditors.

5. Joint ownership and control: A partnership business is owned and controlled jointly by all the partners. The partners share responsibility among themselves and control the day to day activities.

6. Utmost good faith: The relations between the partners are based upon mutual trust and confidence. Every partner is expected to act in the best interest of other partners and of the firm as a whole. The partners must observe utmost good faith in all dealings with his co-partners. He must render true accounts and make no secret profits from the business.

7. Continuity: Death, retirement, insolvency, or insanity of any partner can bring an end to a partnership business. However, the remaining partner may, if they desire so, continue the business on the basis of a new agreement.

Formation of Partnership Firm

A partnership can be formed by two or more persons. Partnership is formed through a contractual relationship between two or more persons. This relationship is based on mutual trust and good faith. The agreement between the partners is to carry on a lawful business and to share the profits and losses.

In order to avoid disputes, the agreement should be in writing, though the law does not require the agreement to be in writing. In the absence of an agreement, the rights and duties of partners are determined by the Partnership Act 1932.

Joint Hindu Family Business

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Joint Hindu Family business is one of the oldest forms of business organization in the country. It refers to a form of organization wherein the business is owned and carried on by the members of the Hindu Undivided Family( HUF). It is governed by Hindu Law. If a person is born in the family then he/she will automatically become a member of the business.

The business is controlled by the head of the family who is the eldest member and is known as Karta. The members have equal rights in the property of an ancestor irrespective of their gender (male or female). The members are known as Co-parceners.

Examples: Reliance Industries Ltd., Mahindra & Mahindra Ltd. Haldiram's Pvt Ltd.

Characteristics

1. Formation: For the formation of the Joint Hindu Family business there should be at least two members in the family and an ancestral property to be inherited by them. No agreement is required for the business because membership is by birth.

2. Liability: The liability of all the members is limited to their share in the property of the business. However, the liability of Karta is unlimited.

3. Control: The control of the Joint Hindu Family business lies in the hands of Karta. He takes all the decisions and is authorized to manage the business. His decisions are binding on the other members of the family.

4. Continuity: The business continues even after the death of the Karta. The next eldest member of the family takes up the position of Karta. However, the business can be wind up with the mutual consent of members.

5. Minor members: The minor members of the family can also be the members of the business as the membership to the business is by birth.

Advantages

1. Effective Control: Only the Karta has decision-making power. This avoids conflicts among the members, as no one has the right to interfere. This also leads to quick decision making.

2. Continuity of business: The continuity of the business will not be get affected by the death of the Karta, because the next eldest member will take up the charge as Karta. So, there will be no fear of termination of business.

3. Limited liability of members: The liability of co-parceners is limited to their share in the business and consequently their risk is well defined and precise.

4. Increased Loyalty and Cooperation: As the business is run by the family members, there is a greater sense of loyalty towards each other. The growth of the business is an achievement for all the members of the family. This helps in securing better cooperation from all the members.

Limitations

1. Limited resources: The scope for expansion of the business is limited in the case of the Joint Hindu Family business. The capital is limited, as it mainly depends on the ancestral property.

2. Unlimited Liability of Karta: The Karta is not only burdened with the responsibility and management of the business but also suffers from the disadvantage of unlimited liability. His personal property may be used to clear the debts.

3. The dominance of the Karta: The Karta individually manages the business. At times, that not be acceptable to all the members. This may cause conflict among the members and sometimes even may lead to a break down of the family business.

4. Limited managerial Skill: As the Karta can't be an expert in all areas of management, the business may suffer as a result of unwise decisions. His inability to make proper decisions may result into poor profits or even losses for the organization.

Nowadays there are very few joint families in the country. As the number of joint families are decreasing, the Joint Hindu Family business is also decreasing.

A sole trader whose business is expanding feels the need for additional capital and managerial assisstance. Should he employ an assitant or take a partner?

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A sole trader may want to expand his business at some point of time. At that time he may face the problem of shortage of capital and managerial skills. Two alternatives are available to him for solving this problem.

1. To Employ a paid assistant

2. To admit one or more partners

Employment of Paid Assistant

When the sole trader employs a paid assistant, he has the following advantages and disadvantages:

Advantages

a) Division of work: An assistant can be appointed whose expertise can be used for the benefit of the business. The sole trader can delegate some of his work to the assistant and can devote his time and attention to crucial matters of business.

b) No share in profits: The assistant is paid a fixed salary. The assistant is not given a share in profits.

c) Complete control: The assistant has no right to interfere in decision making. So, the sole trader retains full control over the business.

d) Secrecy: The sole trader is not expected to share the secrets with his assistant.

e) Easy to dismiss: The sole trader can remove his assistant as and when he likes.

Disadvantages

a) Lack of Motivation: The assistant may not receive sufficient incentive to feel motivated to work. So, he may not be as sincere and careful as the trader himself.

b) Lack of responsibility: The assistant is not responsible for the losses incurred in the business. The risk of failure has to be borne by the trader himself. It is very difficult to appoint the right person for employment. If a wrong person is appointed, he may create new problems.

c) The problem of capital: The employment of an assistant does not solve the problem of finance. The assistant does not bring any capital with him. His employment does not add to the borrowing capacity of the business.

d) Competition: The assistant may commit some mistakes and cause a loss. He may also give up his job-creating serious problem of administration. He may set up a competitive business after leaving his service.

Admission of a partner

Advantages

a) Availability of capital: The new partner brings some capital, as a result, the problem of shortage of funds can be solved. Admission of a partner also increases the goodwill and borrowing capacity of the firm.

b) Division of work: The work can be divided between the sole trader and the partner on the basis of knowledge and skills. The advice and expertise of the partner are available for taking decisions.

c) Motivation: A partner gets a share in profits and, therefore, he has the motivation to work hard for the success of the business.

d) Reduced risk: Each partner shares the loss and liability of the business. As a result, the risk of the sole trader is reduced.

Disadvantages

a) Division of profit: The sole trader has to give a share of profit to the partner.

b) Loss of freedom: The sole trader can not take decisions on his own without consulting his partner. Freedom of action and complete control of one individual in decision making are lost. As a result, there may be a delay in taking decisions.

c) Lack of secrecy: When a partner is admitted, business secrets have to be shared with him. He may pass on the secrets when relations among the partners are not good.

d) Source of disputes: The existence of two or more partners with equal authority is often a source of disagreement. Such differences among the partners affect the efficiency and continuity of business.

So, both alternatives have their own advantages and disadvantages. In case, the sole trader can himself arrange more capital, it is better to appoint a qualified and experienced assistant to share the managerial workload. If this is not possible, it may be advisable to take a partner who can contribute both capital and managerial talent.

Sole Proprietorship

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Sole Proprietorship is a popular form of business organization and it is the most suitable form of organization for small businesses. It is one of the oldest, simplest, and common form of business organization. Sole proprietorship form of business is established, financed, owned, and managed by a single person who is known as, Sole Trader or Sole Proprietor. The sole trader bears all the risks and he alone is responsible for all the profit and losses of his business. He may borrow funds and employ people to help him but the ultimate authority and responsibility lie in his hands. Therefore, Sole trader business is a one-man show.

Definition of Sole Proprietorship by L.H. Haney

The individual proprietorship is the form of business organization at the head of which stands an individual as one who is responsible, who directs its operations and who alone runs the risk of failure.

Definition by B.O. Wheeler

The sole proprietorship is that form of business ownership which is owned and control by a single individual. He receives all the profits and risks all of his property in the success or failure of the enterprise.

Characteristics of Sole Proprietorship

1. Ownership: Sole proprietorship business is fully owned by a single person. The person contributes the total capital from his own wealth or from borrowed funds.

2. Control: The sole trader alone takes all the decisions pertaining to the business. He is not required to consult anybody.

3. No Separate Entity: A sole proprietorship has no legal identity separate from that of its owner. The law makes no difference between the owner and his business. The business and the owner exist together. If the owner dies or becomes insolvent the business is dissolved.

4. Unlimited Liability: The proprietors have unlimited liability. The owner is personally liable for all the debts of the business. In case the assets are not sufficient to meet its debts then the personal property of the owner could be sold for repaying the debt.

5. No Proft-sharing: The sole trader alone is entitled to all the profits and losses of the business. He bears all the risk and therefore he receives all the profits which become a reward for his risk-bearing.

6. No legal Formalities: No legal formalities are required to start, manage, and dissolve sole trader business.

Formation of Sole Proprietor Business

Sole Proprietor Business can be started by the initiative of a single person. He prepares the plan of the business and arranges the necessary finance. No legal formalities are required in the formation of the sole proprietorship business. Any person can start a business whenever and wherever he likes. However, the sole trader must be a person competent to enter into a contract. The business to be carried on must be allowed by law. In some cases, a licence from the competent authorities may be needed for starting the business. For example, a person desirous of starting a chemist shop is expected to get a license from the local Government.

The first step in the formation of a sole trader business is the selection of a particular line of business. This decision depends on the demand for a particular product, the availability of necessary resources, and the scope of earning profits. The selection of a proper place is another important decision. The requirements of customers and the nearness to the market should be considered.

Sole trader business can be wind up at any time without legal formalities. The owner has to simply settle the claims of his creditors and wind up the business.

Objectives of Sole Proprietorship

1. Sole Proprietorship business helps people to create work for themselves. A person can start his own small business instead of looking for a job.

2. If a person is having surplus funds and if that is not enough for big business, then he may start sole proprietorship business instead of keeping the funds idle.

3. A sole trader comes in direct contact with his customers. Therefore, he can better understand and serve customers.

4. Sole trader business helps in the distribution of income and wealth among a large number of people. It avoids monopoly and concentration of wealth in a few hands.

5. Sole proprietorship firms provide ancillary service to big firms.

Merits of Sole Proprietorship

1. Easy Formation: A sole trader can be set up easily and quickly. A sole trader can select a business of his choice and start the business without taking permission from anyone. The registration of the firm is not required. Only a license may be needed in special cases like for chemists and liquor shops.

2. Quick Decision Making: The sole trader himself can take all the decisions related to his business. He need not consult others for their approval. Quick decisions and prompt actions help to improve the efficiency of business operations. The sole trader can take on the spot decisions which will, therefore, not let any opportunity slip away.

3. Confidentiality of Affairs: The sole trader is not bound by law to publish his accounts. A sole trader can keep all the information related to his business confidential and maintain secrecy.

4. Flexibility: A sole trader business is normally small in size and simple in structure. So, it can be adjusted easily whenever necessary. The sole trader can expand or reduce his business operations to suit the changing conditions in the market.

5. Minimum Government Regulation: Sole proprietorship business is free from Government regulations. No legal formalities are involved in the working of sole proprietorship except tax laws and labour laws.

6. Easy Dissolution: It is very easy and simple to dissolve a sole proprietorship business. No specific legal formalities or regulations are involved in dissolution.

Demerits of Sole Proprietorship

1. Limited Resources: The financial resources of a sole trader are limited to his personal funds and borrowing from others. Bank and other lending institutions may hesitate to extend a long term loan to a sole proprietor.

2. Limited managerial ability: A person cannot be expert in each and every function of the business. All the qualities that are required for success in business are rarely found in one individual. The proprietor may not be able to give sufficient time to all the activities. He may commit an error while taking the judgment. Thus, decision making may not be balanced in the absence of experts.

3. Unlimited Liability: The proprietor is personally liable for all the losses of his business. In case the business fails, then the creditors can recover their dues not only from his business assets but also from the personal assets of the proprietor.

4. Uncertain life: The life of a sole proprietorship business is dependent on the life of the proprietor. The business may come to end due to the illness, insolvency, and death of the proprietor. His successors may not be capable enough to carry on the business successfully. The owner and his business are inseparable as the business has no separate legal status.

5. Limited scope for expansion: Due to limited financial and managerial resources, there is little scope for expansion and growth in sole proprietorship.

What are the various factors that should be considered while choosing the most suitable form of business organisation?

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The choice of the best suitable form of organization is a very crucial decision. So, the choice should be made with great thought and consultations. Each form of business organization has its own advantages and disadvantages, and these should be considered before choosing the form of organization. The following are the various factors that should be considered while making the selection of the form of organization:

1. Nature of business: The nature of business has an important role in the choice of the form of business organization. Businesses providing direct services, like small retailers, salons, tailors, restaurants, and professional services depend on their success upon personal attention to customers and the personal knowledge or skill of the owner and are, therefore, organized as proprietary concerns. Business activities which required pooling of skills and funds, like wholesale trade, accounting firms, tax consultants, stockbroker, are better organized as partnerships.

2. Size and area of operations: The large-scaled enterprises can be organized as private or public companies. Large enterprises require financial and managerial resources that are beyond the capacity of a single person or a few partners. On the other hand, small and medium scale firms are generally set up as partnership and proprietorship. Small scale enterprises serve a limited market and require small capital. The risk and liability are not heavy and the management problems can easily be handled by the owner himself. Medium-sized enterprises or professional firms such as health clinics, chartered accountants are predominantly partnerships. They combine their capital and expertise to operate on a larger scale and to avail of the benefits of specialization. Therefore, Company form is best suited for large scale enterprises. But if the area of operations is confined to a particular locality then sole proprietorship or partnership will be a more suitable choice.

3. Control: A person who desires to have direct control of business prefers proprietorship rather than the company because in the case of the company there is a separation of ownership and management. But if the person is not interested in direct control then he can go for the company form of ownership.

4. Capital Requirement: The funds required for the formation of a business enterprise have an important impact on the choice of the form of organization. Enterprises requiring huge capital like iron and steel plants should be organized as joint-stock companies. A partnership has to be converted into a company when it grows beyond the capacity and resources of a few persons. Requirements for growth and expansion should also be considered in making the choice. There is maximum scope for expansion in the case of a public company. Where the funds required initially are small and scope for expansion is not desired, proprietorship or partnership is a better choice.

5. Risk Involved: The amount of risk and the willingness of owners to bear it is an important consideration. A single person may have large financial resources sufficient for a medium scale enterprise but due to unlimited personal liability, he may not like to organize as a proprietor or a partnership. But in the case of a public company the risk is shared by a large number of shareholders.

6. Division of Profits: A sole trader receives all the profits of his business but he also bears all the risks. If a person is ready to bear the unlimited personal liability and desires a maximum share of profits, proprietorship and partnership are preferable to company form.

7. Government regulation and control: Sole proprietorship and partnership firms are subject to little regulation and control by the Government. While in the case of companies and cooperatives, they are subject to severe restrictions and have to publish their accounts.

8. The flexibility of operations: Businesses that require a high degree of administrative flexibility should better be organized as proprietorships or partnerships. The internal organization of sole proprietorship and partnership is much more simple and less elaborate than the internal organization of a joint-stock company.

Introduction to Business Organizations

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A business organization is an organization that is engaged in some industrial or commercial activity. It represents an institutional arrangement for carrying on any kind of business activity. It may be owned or controlled by a single individual or by a group of individuals who have entered into a formal or informal agreement to jointly conduct the business.

Every business has its own identity separate ownership. It can be distinguished from other undertakings based on its ownership, management, and control.

Meaning of Business Organisation

A business undertaking may be defined as an organization operating under separate ownership, management, and control and carry on any business activity with independent risk-bearing.

Characteristics of a Business Organisation

1. Separate Identity - Every business undertaking has a distinct name and separate existence. Its assets and liabilities are independent of the other undertakings. Its accounts are separate from those of the persons who own it.

2. Independent Ownership - Every business undertaking has an independent unit of ownership. A business undertaking is owned by the persons who contribute to its capital. The owners may be individuals or the government.

3. Independent management - The form of management of an organization depends on its nature and size and legal requirements. Every organization has its own management and the management of one organization does not interfere in the working of other organizations. The management of each undertaking takes independent decisions concerning different aspects of the business.

4. The element of risk - Every business undertaking involves risk. Profit is the reward for bearing risk. The risk of an undertaking is borne by its owners though some of the risks may be covered through insurance.

Types of Business Organizations

1. Private Sector Undertakings - These undertakings are owned, controlled, and financed by private businessmen. There is no Government participation in them.

Characteristics of Private sector undertakings

(a) Private Ownership and control - A private sector undertaking is fully owned and controlled by private entrepreneurs. It may be owned by one person or by a group of persons jointly.

(b) Profit Motive - The main objective of private sector undertakings is earning profits. Profits provide the reward for the risk assumed and the required return on capital.

(c) No State Participation - There is no participation by the central or state Governments in the ownership and control of a private sector undertaking.

(d) Private Finance - The capital of a private sector undertaking is arranged by its owners. A private sector undertaking can also raise loans to meet its long-term and short-term needs for funds.

(e) Independent Management - A private sector undertaking is managed by its owners. In the case of sole proprietorship and partnership, the owners directly manage the firm. The management of a joint-stock company lies in the hands of directors who are the elected representatives of the shareholders.

2. Public Sector Undertakings - These undertakings are owned and operated by the Central and State Governments. Examples - Mahanagar Telephone Nigam Ltd, Reserve Bank of India is owned by the Central government, while Delhi Transport Corporation is owned by the Government of Delhi State.

Characteristics of Public Sector Undertakings

(a) State Ownership - Public undertakings are fully owned by the Government or some public authority.

(b) Government Control - The control of public sector undertaking lies with the Government.

(c) Service Motive - The primary objective of a public sector undertaking is to render service to the public at large. In order to serve the public, it may occur loss. For example, The Food Corporation of India provides food grains to the public at subsidized prices.

(d) State Financing - The Government provides the capital and funds through appropriations from its budget. The Government may also provide loans from time to time from the state exchequer.

(e) Bureaucratic Management - The management of public sector undertakings is bureaucratic in the sense that their operations are governed by certain rules and regulations prescribed by the Government.

(f) Public Accountability - Public sector undertakings are accountable to the public at large for their performance and results. The audit of public sector undertakings is conducted by the CAG ( Comptroller and Auditor General of India).

3. Public-Private Partnerships - PPPs consists of business undertakings where the ownership, control, and management is shared jointly by the Government, the private entrepreneurs, and the public. Examples of PPPs - Maruti Udyog, Cochin Refineries, and Gujarat State Fertilisers.

Characteristics of PPPs

a) The PPPs are owned jointly by the Government, private entrepreneurs, and the investing people.

b)The management and control of PPPs are with the nominees or representatives of the Government, Private businessmen, and the public.

c) The capital of PPPs is shared by the Government, private businessmen, and the public. The share in the capital is 26%, 25%, and 49% respectively.

Comparison between Private, Public, and PPPs Enterprises

Point of Distinction	Public Enterprise	Private Enterprise	PPPs Enterprise
Ownership Management Capital Objective Audit	Government By Government 51 % or more by the Government Service to society By Comptroller and Auditor General	Private persons By Private owners By private investors Earning Profits By Practicing Chartered Accountant	Government, Private both Both Government and private individuals Government and private both Profit and social objectives By Qualified Auditors

Forms of Private Sector Organizations

1. Sole Proprietorship - In this form of ownership, one person provides capital, bears all the risks, and independently manages the business. It is one of the oldest, simplest, and most popular forms of business organization.

2. Joint Hindu Family Firm - It is owned and controlled by a Joint Hindu family which consists of the father and his son, grandson, and the great-grandson. The head of the family called Karta who manages the business for the benefit of the family as a whole. The liability of every member of the family except the Karta is limited to his share in the family's assets. Hindu law has granted independent and corporate existence to the family.

3. Partnership - In this form of the organization two or more persons enter into a contract to carry on some lawful business jointly and to share its profits. Each partner is jointly and individually liable for the debts of the firm to an unlimited extent. The number of partners cannot be more than ten in the case of banking business and twenty in other types of business.

4. Joint Stock Company - It is an incorporated association of two or more persons. It has a distinct legal entity that is separate from the identity of its members. Its management and control lies in the hands of the Board of Directors consisting of the elected representatives of the members.

5. Cooperative Society - It is organized with the purpose of rendering service to its members and to the public in general. It is organized on the principle of mutual self-help. It has a distinct identity and the liability of its members is limited.

One mark Questions

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True or False

A) The sale of old TVset by Mr. Y does not constitute business

B) Industry creates form utility

C) Fishing is an extractive industry

D ) Transportation is a part of trade

E) Trade involves more risk than industry

F) Warehousing removes the hindrance of place

G) Assembling of a radio set is a genetic

H) Commerce is a part of trade.

Answers : True - a, b, c False - d, e, f, g, h

Fill in the blanks

A) Poultry firm is a ______ Industry.

B) Mining is a ______ Industry

C) A sugar mill is a _____ industry

D) Metro rail is a _____ industry

E) An oil refinery is a _____ industry

F) Cloth making is a _____ industry

G) Motor cycle plant is _____ industry

H) A fertilizer plant is _____ industry

Answers : a- Genetic , b- extractive , c - manufacturing, d- construction, e- analytical, processing, g- assembling, h- synthetical

What is the role of small business in India?

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Small scale industries are small in size but play a big role in the economic development of a developing country like in India. India has adopted the ideal of a socialistic pattern of societyy with full employment, balanced regional development and self-reliance as the major objectives.

Small scale firms are helpful in the achievement of these goals in the following ways :

1. Employment : Small scale firms use labour-intensive techniques and, therefore, they have high potential to provide employment to a larger number of people per unit of capital. For every worker employed in large scale industries, about three workers are engaged in small scale industries. Small firms promote self-employment particularly among the educated and professional class. They also provide employment to agriculturists who remain idle during a part of the year. Several studies have revealed that the employment generating capacity of small scale industries is about ten times more than that of the large scale industries.

2. Balanced Regional Development : Small scale industries promote decentralised development and help to remove regional disparities in industrialisation. The development of small scale industries leads to industrialisation in rural areas. By providing employment in rural areas, they help to check migration and overcrowding in urban areas.

3. Optimisation of capital : Small scale require less capital per unit of output and, therefore, greater output can be obtained with small investment. Small firms also provide quick returns after their establishment on account of short gestation period.

4. Mobilisation of local resources : Small scale industries facilitate mobilisation and utilisation of local resources and skills which might otherwise remain latent or unutilised.

5. Exchange Earnings : Small scale industries help in reducing pressure on the country's balance of payment in two ways. Firstly, they do not require imports of sophisticated machinery. Secondly, they earn valuable foriegn exchange through export of their products.

6. Even-Handed Society : Small scale industries help in reducing concentration of economic power in few hands. They promote a more equitable distribution of national income and wealth. Development of small scale industries helps to reduce monopolies and exploitation of consumers.

7. Feeder to large industries : Small scale sector is complementary to the large scale industries. Small scale industries manufacture various types of components, spare parts, tools and accessories which are required by the large scale sector. Small firms also distribute the goods produced by large scale firms.

Small scale firms provide an excellent opportunity to young men and women with limited money to start their own business and therby become entrepreneurs. In the absence of small business, they will have to go in for employment in large scale concerns because they cannot launch enterprises by their own. Small business serves as the seedbed of entrepreneurship because

i) Small business requires less capital investment and people with limited money can start their own business.

ii) Small business can be started anywhere and even in one's own residence.

iii) the risk involved in small business is less

iv) Small business requires little training and technical skills.

v) Small firms can do job work for large firms.

vi) Small firms can succeed with traditional skills and local resources.

Classification of Business Activities ( Part 2) - Commerce

2020-07-11T22:54:00.000+05:30

Commerce and Its Nature

Commerce refers to all those activities which are necessary for bringing goods from the place of their consumption. Commerce includes not only trade but also services such as transport, warehousing, packaging, insurance, banking and sales promotion which are incidental or auxillaries to trade.

Characteristics of Commerce

1.Economic Activity : Commerce is an economic activity because it consists of activities which are undertaken for earning profits. A trader buys goods with the aim of selling them at a profit.

2. Exchange of goods and services : Commerce involves exchange and distribution of goods and services. Goods may be purchased or produced for sale.

3. Profit Motive : The motive of commercial activities is to earn profits. Any activity which does not have the aim of profit will not be a part of commerce.

4. Regularity of transaction : An isolated transaction does not imply commerce.

5. Creation of utilities : Commerce creates several types of utilities. It makes goods available as and when demanded. By creating utilities commerce helps to increase the volume of trade.

Functions and Importance of Commerce

The exchange of goods is a complex process beset with several types of hindrances.Commerce removes these hinderances.

1. Hindrance of person : This hindrance refers to the lack of contact between producers and consumers . Trade removes the hindrance of person by making goods available to consumers from producers.

2. Hindrance of place : A major problem faced by producers is to send their goods to distant places without loss through theft, pilferage, damage etc. Commerce solves this problem by means of transport, packaging and insurance.

3. Hindrance of time : Warehousing removes the hindrance by storing goods from the time of production till their distribution.

4. Hindrance of exchange: Banking removes the hindrance of exchange by providing finance and facilitating payments through cheques.

5. Hindrance of risk : Insurance removes the hindrance of risk by compensating for loss caused by various types of risk

6. Hindrance of knowledge : Advertising removes the hindrance of knowledge by providing information and education about goods and services to consumers.

Branches of Commerce

Commercial activities may be classified into two broad categories:

1. Trade

2. Aids to trade

Trade

Trade means buying and selling of goods and services with the aim of earning profits. It involves the exchange of commodities for money or money's worth. Traders serve as the link between producers and consumers. They help in directing the flow of goods to the most profitable markets. In the absence of traders, producers will have to go in search of consumers. The objective of trade is to make goods and services available to those persons who need them and are able and willing to pay for them.

Types of Trade

1. Home Trade : It means buying and selling within the geographical boundaries of one country. Both buyer and seller belong to the same country. Home trade is also known as domestic trade or internal trade. e.g., trade between Hyderabad and Bhubaneswar.

Home trade is of two types:

(a) Wholesale Trade : It means buying and selling of goods in large quantities. Goods are sold to industrial users or buyers. Traders engaged in wholesale trade are called wholesalers. A wholesaler serves as a connecting link between the producers and the retailer.

(b) Retail Trade : It means buying and selling of goods in small quantities. Traders engaged in retail trade are called retailers. A retailer serves as a connecting link between wholesalers and consumers.

2. Foreign Trade : It refers to buying and selling of goods and services between two or more countries. A businessman in one country buys from or sells to another businessman in a different country. Foreign trade is also known as external trade or international trade.

Foreign Trade is of the following types :

(a) Export Trade : It implies the sale of goods to foreign countries. e.g., India exports tea to the United Kingdom

(b) Import Trade : It refers to the purchase of goods from foreign countries. e.g., India imports crude oil from Saudi Arabia and Iraq.

(c) Entrepot Trade : It means importing goods from one country for the purpose of exporting (selling) them to another country. e.g., India imports certain commodities from European countries and exports them to Nepal and Bhutan.

Aids to Trade

Aids to trade or auxiliaries to trade refers to the activities essential for smooth flow of goods from producers to consumers. These activities facilitate trade by removing various barriers in the buying and selling of goods.

1. Transportaion : Transportaion refers to the conveyance of goods and passengers from one place to another. It facilitates trade by assembling and distributiong goods. Transport brings the goods from the place of production to all the far and distant places of consumption.

2. Warehousing : At the present time goods are produced in anticipation of demand. It is, therefore necessary to store and preserve the goods until they are sold. Many products such as wheat, sugar, rice, etc. are produced in a particular season but they are needed throughout the year. Warehousing removes the hindrance of time and thereby creates time utility. Warehouses are of three types, Private, public and bonded. Private warehouses are owned by merchants and producers for their own storage needs. Public warehouses are owned by port trusts, wharfingers. Bonded warehouses are set up by customs authorities to store goods which are liable to custom duty.

3. Insurance : Business involves several types of risk e.g., risks arising from price fluctuations dishonesty of employees, bad debts, exchange rate fluctuations, loss of goods in transit and storage, fire, floods, etc. Insurance removes the hinderance of risk. With the help of insurance, a businessman can protect hismself from several types of risks. There are various types of insurance e.g., fire insurance, marine insurance, workmen's compensation insurance , life insurance etc. Insurance facilitates expansion of trade by providing security against heavy risks.

4. Banking and Finance : There is usually a time gap between production and sale of goods. It takes time to collect money after sale of goods on credit. During this period, businessmen need finance to carry on their business activities banks and other financial institutions provide funds and credit to businessmen. Banks facilitate large scale and efficient business operations by providing cash and security. Banks provide funds in various forms eg., loans, overdraft, cash credit, discounting of bills, etc.

5. Advertising and publicity : Advertising and publicity inform the consumers about the availability of various products and services. They remove the hindrance of knowledge . Advertising educated consumers about the use of products and provides them greater satisfaction. The main purpose of advertising is to create and sustain demand. There are various forms of advertising and publicity such as the press, outdoor, displays, radio, tv, letters to customers, fairs exhibitions, cinema, etc.

Distinction between Industry, Commerce and Trade

Basis of Distinction Industry Commerce Trade
Meaning Production of goods
and services Distribution of goods and services Buying and selling of goods and service.
Scope Wide scope of operation as wide range of goods produced Wide scope consists trade and aids to trade Narrow scope restricted to buying and selling
Creation of utility Creates form utility Creates utilities of person, place, time, etc Creates only possession utility
Capital Large capital required Less capital required as compared to industry Less capital required as compared to industry
Risk Higher Risk than in commerce Low risk than Industry Low risk than Industry
Types Genetic, extractive, manufacturing, construction Trade and Aids to trade. Home Trade and Foreign Trade
Place of work Farms, Factory, mine, workshop From one place to another Market
Represents Supply of goods and services Demand for goods and services Exchange of goods and services
Ownership and control By Industrialists By merchants By traders

I hope your concept about Industry, Commerce and Trade is somewhat clear now.. Please do follow my blog for more updates..

Classification of Business Activities ( Part 1) - Industry

2020-07-09T10:54:00.004+05:30

Business activities may broadly be classified into two categories:

Industry – Industry involves the production of goods and materials
Commerce – Commerce is concerned with the distribution of goods and services.

Industry and Its Types

Industry means the production of goods for sale by the application of human or mechanical power. It is concerned with changing the form of goods from any stage from raw material to finished product. Thus, Industry creates utilities for the satisfaction of human wants and to earn profits.

Examples of Industry- Converting cotton into cloth, breeding cattle, constructing houses.

Industry involves in the production of consumer goods and producer goods. Consumer goods are produced for direct use by people e.g. bread butter, cloth, spices etc. Producer goods or capital goods are required for the production of consumer goods e.g. raw materials, machinery, equipment, plastic, rubber, aluminum, etc.

Characteristics of Industry

1. Economic Activity – Industrial activities are economic activities because their purpose is to earn money.

2. Production- Industry involves production of various types of goods and services to satisfy human wants.

3. Wide scope - The scope of industrial activities is very wide. Advancements in science and technology have created many new industries such as information technology industry.

4. Creation of utility - Industry creates utility by converting raw materials into useful products which can be used to satisfy human wants.

5. Economic Development - Industries accelerate the pace of economic growth by making productive use of natural and man-made resources. It generates employment, increases national income and earns foreign exchange.

6. Part of Business - Industrial activities give rise to other business activities such as trade and aids to trade.

Types of Industry

Industries may be divided into three broad categories:

1. Primary Industries - Industries which provide basic raw materials from natural sources are called Primary industries. These are of two types:

Genetic Industries - These industries are concerned with breeding (reproducing and multiplying) of certain species of plants and animals with the object of earning profits from their sale. Examples – Plant nurseries, poultry farms, cattle breeding farms, dairy farming, fish hatcheries.

Extractive Industries – These industries are engaged in extracting useful materials from soil, air, water and from beneath earth's surface. Produce of extractive industries may be used either as finished products or as raw materials. Extractive Industries provide raw materials to manufacturing and construction industries. Examples – Agriculture, mining, oil exploration, fishing and hunting.

2. Secondary Industries - Industries which use the materials provided by primary industries are called secondary industries. Secondary Industries may be further divided as follows:

a) Manufacturing Industries - These industries are concerned with the processing or transformation of raw materials and semi-finished products into finished products. Such industries change the shape and form of materials produced by genetic and extractive industries. Example – iron ore extracted through mining is converted into steel. Engineering, cement, sugar, textiles, jute, etc.

Manufacturing industries may be further divided into four categories:

1. Analytical industry analyses and separates different elements from same raw material. e.g., In an oil refinery, crude oil is refined and several petroleum products are obtained.

2.Synthetical industry combines two or more materials to form a new product. E.g., cosmetics, soap, cement, fertilizer, paint, etc.

3.Processing Industry processes a material through various stages for manufacturing finished products. E.g., Cotton passes through the spinning, weaving, dyeing, bleaching and printing processes in cotton textile industry.

4. Assembling industry assembles different component parts to make a new product. E.g., Manufacture of radios, TV sets, watches and automobiles.

(b) Construction Industries: These Industries are engaged in the construction, erection and fabrication of buildings, bridges, roads, dams and canals, etc. They utilize the products of manufacturing industries such as bricks, steel, cement, etc. Engineering and architectural skills are an important part in construction industries.

C) Tertiary Industries: These are concerned with providing support services to primary and secondary industries as well as activities relating to trade. These may be considered as part of commerce because as auxiliaries to trade these activities assist trade. Examples – Transport, banking, insurance, warehousing, communication, packaging and advertising.

I will upload the 2nd part i.e. Commerce in the next post.Until then keep reading..😊

Questions on Nature and Objectives of Business

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Short Answer Questions

1.Define Business

2.Name the economic objectives of business

3.A person sells his scooter at a profit, will it be considered as business? Explain the charateristic of business which is being stressed upon.

4.Give three main reasons for earning profit.

5.State the social objectives of business.

Long Answer Questions

What do you understand by business? Explain the characteristics of business.
Discuss the various objectives of business.
Why is business regarded as an economic activity? Explain.
Profit cannot be the sole objective of a business firm.Explain

Profit Maximization cannot be the sole objective of a Business Firm

2020-07-06T10:52:00.001+05:30

A truely successful business can be built only if the objective of service to the society is constantly followed. If this is done profits will come automatically, but if the whole emphasis is on making money business may not survive and succeed for a long period.

Profit canont be the sole objective of business due to the following reasons:

Profit helps to serve the interest of shareholders alone. But business also has obligations towards other stakeholders such as employees, customers, Government, society, etc.
The ultimate aim of business should be social welfare. If profit maximization is considered as the ultimate aim of business, businessmen might try to maximize profits by socially undesirable means such as black marketing, hoarding, exploitation of workers and consumers, etc.
Profit maximisation misguides managers to the point where they may endanger the survival of the business. In order to maximize current profits, managers may compromise the firm's future. they may ignore research and development, executive development, pushing the most easily saleable products, and other long-term investments.
Profit maximization is inconsistent with modern trends in business. Diffusion, of share ownership, professionalisation of management, growing social consciouness, etc. are some of these trends.

Thus, Every business should provide a proper balance between profit motive and social service.

Nature and objectives of Business

2020-07-04T10:20:00.003+05:30

Human beings have several wants which go on increasing day by day. In order to to satisfy their ever increasing wants, people require various types of goods and services.

Business activities are essential for production of these goods and services and for thier distribution among ultimate consumers. Business makes proper allocation and utilisation of natural, financial and human resources for the economic growth of the country and for the welfare of society.

The study of business activities helps a person to take better decisions. One can be better customer, employee and investor if one is familiar with business enterprises and their operations.

In this chapter I have discussed about the following points:

1. Definition and concept of Business

2. Charactristics of Business

3. Business as an Economic Activity

4. Objectives of Business

5. Role of Profit in Business

Pls click here for the chapter notes👉 DOWNLOAD

"Not competitive but complementary"

2020-07-02T10:48:00.004+05:30

"The activities of business,profession and employment are not competitive but complementary"

Inspite a lot of difference, there is a close inter relation between business, profession and employment. A large business enterprise employs a large number of persons in order to achieve its objectives. It also requires the services of professional experts such as chartered accountants, lawyers, architects, cost accountants, etc.Modern business has become very complex.Trained and experienced managers and other experts are rquired for efficient business operations. Professionals and other employees provide necessary manpower for efficient running of business concerns.Thus, business, profession and employment are complementary to one another.

Questions on Classifications of Human Activities

2020-06-30T14:27:00.000+05:30

Short Answer Questions

1.How would you classify human activities?

2.What do you understand by economic activities?

3."The same activity may be economic as well as non-economic at different times or place".Comment

4.What is the objective of economic activities?

5.Define the term 'Business' and Give five examples of business

6.Give two differences between economic and non-economic activities

7. What is Employment?

8.What is the main aim of human activities?

Long Answer Questions

1.Explain the nature of economic activities

2.Distinguish between economic and non economic activities

3.Discuss the various types of economic activities

4.What is a profession ? Explain the charaterstics of a profession.

5.Distinguish between business,profession and employment.

Classification of Human Activities

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Unit 1 - Nature and Purpose of Business

Chapter 1- Classification of human activities

Points covered in this chapter:-

Meaning and characterstics of Human Activities
Classification of human activities -Economic and Non-Economic Activities
Distinction between Economic and Non- Economic Activities
Types of Economic activities
Distinction between Business, Profession and Employment.

Click here to download the Chapter Notes; Download

Introduction to Business Studies

2020-06-26T16:54:00.001+05:30

Hello Readers,

Business studies is one of the important subject of commerce stream. Students think that it is very boring because it is a theory subject, but it's not like that infact it is a very marks scoring subject, if you study properly. Before starting the chapters it is neccessary to know the importance or relevance of this subject in today's world.

Introduction to Business Studies

Business Study is the study of how business work, especially the financial and the management aspects of business. Business studies helps you to make more informed decisions in the everyday business of living.

It gives you a better understanding of the world of work. It encourages you to think about how and why people start up in business and why you too might also consider starting a business.

Importance of Business Studies

* Business studies helps to provide opportunity for self-development

* It provides opportunity for making career selection

* It helps individual to make better investment decision

* The knowledge of Business studies help consumer to make better decisions about thier daily needs.

* It provides knowledge of the activities of commerce in the marketing of goods and services.

* To provide study of the more important aspects of the commercial world.

Please follow this blog to know more about business studies. I will be uploading chapter notes, question bank for every chapter in this blog.. Hope it will be helpful for you all..😊

Basis of Distinction	Industry	Commerce	Trade
Meaning	Production of goods and services	Distribution of goods and services	Buying and selling of goods and service.
Scope	Wide scope of operation as wide range of goods produced	Wide scope consists trade and aids to trade	Narrow scope restricted to buying and selling
Creation of utility	Creates form utility	Creates utilities of person, place, time, etc	Creates only possession utility
Capital	Large capital required	Less capital required as compared to industry	Less capital required as compared to industry
Risk	Higher Risk than in commerce	Low risk than Industry	Low risk than Industry
Types	Genetic, extractive, manufacturing, construction	Trade and Aids to trade.	Home Trade and Foreign Trade
Place of work	Farms, Factory, mine, workshop	From one place to another	Market
Represents	Supply of goods and services	Demand for goods and services	Exchange of goods and services
Ownership and control	By Industrialists	By merchants	By traders