KVS (RAIPUR REGION)
brings for its students
STUDY MODULE For
CLASS-XI – Business Studies (2015-16) Under the leadership of Ms.P.B.S.Usha Deputy Commissioner (Chief Patron)
Mr. Girish Chand Principal, KV-Nabarangpur (Patron) Content Formation by: Sh. G. Shrivastav, Sh. A. K. Maurya, PGT-Commerce, KV-1, Raipur (IST shift) PGT- Commerce KV, NTPC Korba.
Sh.R.K. Thakur, . Sh. Bikash Anand PGT- Commerce, KV-No.2, Raipur. PGT-Commerce, KV, Bhawanipatna
Sh. Rakesh Chawala, Ms. M.D.P. Mukherjee PGT-Commerce, KV, Koraput PGT-Commerce KV, Bilaspur Mr. M.K. Bhardwaj Sh.V. Jaiswal, PGT-commerce, KV, Durg PGT-Commerce,KV, Durg.
KVS RAIPUR REGION STUDY MODULE
CLASS-XI – Business studies
Points deserve your attention while taking examination:-
*Put the question number clearly on the middle of the page and highlight it by underlining.*Utilise the early 15 minutes to read the question paper carefully. Plan and organise your answers in mind. Also try to analyze and break a long question in small parts for easy understanding. As internal choice is provided only in questions carrying 6 marks, select the questions to be attempted.* Write your answers in points as far as possible. Avoid writing in paragraphs. If a question carries a long answer but has been allotted comparatively less marks, focus on points and sub-points *to make presentation effective; underline the headings/main points and keywords.* Don’t get confused with the question starting with words like ” list out , outline, state, enumerate, explain “. In such questions ,answer with complete sentence should be given for each point. Question started with the word like ” state” give brief description(one sentence each). However, you may check the marks assigned to the question and accordingly write your answer within the given word limit.* You can make your answers more effective by supporting it with illustrations, diagrams, views of management experts, latest example or data, wherever necessary.* Questions based on distinction must be answered in tabular form with the basis of distinction clearly specified.*Do not spend more than requisite time on a particular question.*Use your watch to keep track of time so as to finish the paper well in time and do a quick revision before the exam ends.
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CHAPTER - 1NATURE AND PURPOSE OF BUSINESS
Content mapping
Concept and characteristics of business.• Business, profession and employment -Meaning and their distinctive features.• Objectives of business - Economic and social, role of profit in business• Classification of business activities: Industry and Commerce.• Industry - types: primary, secondary, tertiary - Meaning and sub types• Commerce - trade: types (internal, external, wholesale and retail; and auxiliaries to trade: banking, insurance, transportation, warehousing, communication, and advertising.• Business risks - Meaning, nature and causes.
Meaning:
Literal meaning of Business is “BUSY”.
Business is defined as an economic activity
involved in the production and sales of goods and services
undertaken with the motive of earning profit
by satisfying human needs in the society.
Characteristics of Business activities:
An Economic activity: It means an activity aimed at earning money. Business is also aimed at earning money or livelihood by satisfying human needs.
Production and procurement of goods and services: Every business enterprise must either manufacture the goods or it acquires from producers. Goods may be consumer goods or Capital goods. Services means facility offered to consumers like banking, insurance etc.
Sale or exchange of goods and services: Business involves transfer or exchange of goods and service for value.
Dealing in goods and services on a regular basis: It should be a regular activity. One time sale or exchange will not be considered as business.
Profit earning: Business always aims at earning profit. Uncertainty of earning: There is always a possibility of less amount of profit or even loss in business. Element of Risk: There is always a possibility of Uncertainty of earnings.
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Comparison of Business, Profession and Employment:
Basis Business Profession Employment
1. How to Start? Based on entrepreneurs /owners decision
Getting membership of a professional body
Getting an appointment letter
2. What is its nature? Providing goods and services to the public
Rendering of personalized expert services
Performing work as per service contract
3. Qualification/Who can start?
No minimum qualification
Requires qualification and training in a specific field
Requires qualification and training
4. Return/What will you get?
Profit Professional Fees Salary
5. Capital/How much you need to start?
Requires capital as per the size of the Business
Requires limited capital
No capital required
6. Risk involved More risk Less risk No risk
7. Transfer of Interest – Can you transfer?
Is possible with some formalities
Not possible Not possible
8. Code of conduct No code of conduct is prescribed
Professional code of conduct to be followed
Code of conduct is prescribed by the employer to be followed
Classification of Business Activities:
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Business
Commerce Industry
Industry : Production or processing of goods and services. It is concerned with changing the form of the products. It gives form utility to the products. It is classified into the following:
Industry
(Producing or processing of Goods as well as breeding of animals)
1. Primary 2. Secondary 3. Tertiary
1. Primary Industry
a. Extractive Industry b. Genetic Industry
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Extraction and production of natural resources and reproduction and development of living organisms, plants etc.
Processing the materials got in the primary industries
Support services to primary and secondary industries
Mining, lumbering, hunting and fishing operations
Breeding plants and animals, Poultry farming and fish hatchery
2. Secondary Industry
a. Manufacturing Industry b. Construction Industry
2.a. Manufacturing Industry
(i). Analytical (ii). Synthetical (iii). Processing (iv). Assembling Industry Industry Industry Industry
Commerce: It includes all those activities which are concerned with removing all the hindrances in the movement of goods from the manufacturer to the consumers. It includes the following activities.
COMMERCE
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INDUSTRY TRADE
Production and processing of goods creating form utilities
Construction of Buildings, dams, bridges, etc.,
Separates different elements from the same materials
Eg., Petrol, Diesel,etc.,
Combines various ingredients
Eg., Cement, Textiles, etc.,
Involves series of activities
Eg., Sugar and Paper
Assembles different components
Eg., Television, Car, Computer,
Commerce includes the following activities :
1. Industry2. Trade – Export, Import3. Transport and communication4. Banking5. Insurance6. Advertisement7. Packaging8. Warehousing etc.,
Trade : Trade means exchange of goods and services between sellers and buyers with profit motive.
Auxiliaries to Trade:
Role of Profit in Business: 7
1. Transport and communication : Physical movement of goods from the place where there is no demand to the place where there is demand. Creates place utility to the product.
2. Banking and Finance : Helps in removing financial hindrances. Facilitates production, buying and selling by providing funds by way of loans.
3. Insurance: It facilitates business by ensuring compensation for various types of risks.
4. Warehousing: It keeps the goods in tact till they are in demand. It creates time utility to the product.
5. Advertising: It provides information about availability of goods and services. It induces the consumers to buy the product.
It is source of income for the business man. It provides funds for expansion It is an indicator of efficiency of business man. It builds up reputation.
Business Risk : It refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events.
Nature Of Business Risks
Causes of Business Risks : 1. Natural Causes : Risk may be due to Flood, earth quake, lightning, heavy rains etc.2. Human Causes: It includes dishonesty, carelessness or negligence of employees, strikes, riots,
etc.
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Productivity
Business risks arise due to uncertainties Risk is an essential part of business Degree of risk depends upon the nature and size of
business Profit is the reward for risk taking.
Objectives of Business
Social Responsibility
Worker performance and attitude
Manager performance and development
Earning profits
Physical and financial resources
Innovation
3. Economic Causes: It includes uncertainties relating to demand for goods, competition, price, collection of dues from customers, changes in economic policies etc.
4. Other Causes: It includes political disturbances, mechanical failures etc.
Basic factors to be considered before starting a Business: 1. Selection of Line of Business: Based on the requirements in the market nature and type of
business to be selected. 2.Size of the Firm: Based on the amount of funds available and demand for the product in the
market size of the firm i.e small scale or medium or large scale to be decided.3. Choice of form of ownership: Based on the amount of capital required, legal formalities to be
filled in, liability of the owner, etc. the form of ownership is to be decided. 4.Location of the Business enterprise: Based on the availability of raw material and infrastructure
facilities location of the Business is to be selected. 5 . Financing the Proposition: Requirement of Capital and its sources must be decided.6. Physical facilities : Availability of physical facilities including machines and equipment, building
and supportive services to be considered before starting a business. 7. Plant layout: Plant layout should draw to show the arrangement of these facilities. 8.Competent and committed worked force.: Every business needs work force. So careful planning
should be about selection, training and motivation of employees. 9. Tax Planning: Tax liability and its impact on business to be considered. 10. Launching the enterprise: After fulfilling the formalities entrepreneur can launch the business.MCQ:
Q.1 Identify the occupation in which people work for other and get remunerated:
(a) Business (b) Employment(c) Profession (d) Social Service
Q.2 Which profession is related to “Bar Counsel of India”?
(a) Teacher (b) Doctor (c) Lawyer (d) Chartered Accountants
Q.3 Which profession is related to “Medical Counsel of India”?
(a) Teacher (b) Doctor (c) Lawyer (d) Chartered Accountants
Q.4 Which profession is related to ICAI?
(a) Teacher (b) Doctor (c) Lawyer (d) Chartered Accountants
Q.5 The persons who engaged in profession is known as:
(a) labour (b) manager (c) professional (d) worker
Q.6 The occupation which required special knowledge and skill to be applied by individuals is known as:
(a) Business (b) Employment(c) Profession (d) Social Service
Q.7 What is the reward or return in “Business”?
(a) satisfaction (b) salary or wages (c) profit (d) professional fees
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Short Answer type Questions :
1. State the different types of economic activities.Ans. Business, profession and Employment. (1)
2. Name the trade where the goods are bought from the foreign country.Ans. Import trade. (1)
3. State examples of Analytical industries. Ans. Petrol, diesel (1)
4. Which industry provides services to primary and secondary industry?Ans. Tertiary industry (1)
5. What is meant by Business Risk? Explain the features of it.Ans. Meaning and Features (3)
6. Describe the meaning of Commerce. (3)Ans. Meaning of commerce.
Long Answer type Questions:
7. Profit play an important role in business. Give four reasons to justify the statement. Ans. Role of profit in business (4)
8. Give the meaning and two examples of Economic activities. (4)Ans. Meaning. Ex. A person selling tea and coffee in the railway station 2. Doctor treating patients at his clinic.
(4)
9. Explain the meaning and causes of business risk. Ans. Meaning and causes. (5)
10. Compare the business, profession and employment. Ans. Table showing the comparison above. (5)
11. Explain the factors to be considered before starting a business. (6)12. Explain the features of business. (6)
HOTs:13. Harish produces wheat for personal consumption. Will it be a business activity?
Ans. No.As it is not for performed for earning profit. (1)
14. A person sells his old car at a profit. Can it be termed as a business activity? Explain. (4)Ans. No. because business involves dealing in goods on regular basis. Brief Explanation of features of business.
15. Risk is an inherent element of a Business. Do you agree? Explain. (4)Ans. Meaning and Nature of Business Risks .
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CHAPTER - 2FORMS OF BUSINESS ORGANISATION
Content mapping
Sole Proprietorship- meaning, features, merits and limitations.• Partnership- Features, types, merits and limitations of partnership and partners, registration of a partnership firm, partnership deed. Type of partners.• Hindu Undivided Family Business: features.• Cooperative Societies- features, types, merits and limitations.• Company: private and public company -features, merits and limitations.• Formation of a company- four stages, important document (MOA, AOA, relevances of certificate of incorporation and certificate of commencement.• Starting a business - Basic factors.
Meaning of Sole Proprietorship: It refers to a form of business organization which is owned, managed and controlled by an individual who is in receipt of all profits and bearer of all risks.
Features:
(i) Easy to form and close (ii) Liability (iii) Only bearer of profit and loss (iv) Control
(v) No separate entity. (vi) Lack of business continuity.
Merits:
(i) Quick decision making (ii) Personal satisfaction (iii) Information will be kept secretly (iv) Direct incentive (v) Ease of formation and closure.
Demerits:
(i) Limited resources (ii) Limited life of a business concern. (iii) Unlimited liability (iv) Limited managerial ability.
Application Question
1) The Business assets of an organization amount to Rs. 50,000, but the debts that remain unpaid are Rs. 80,000. What course of action can the creditors take ifa. The organization is a sole proprietorship firm.b. The organization is a partnership frirm with Authony and Akbar as partners.Which of the two partners
can the bcreditors approach for repayment of Debt?Ans. (a) They can claim over the personal property of sole proprietor as his liability is unlimited. (b) Credditors can approach both Anthony and Akbar and they are liable to pay back in their profit sharing ratio but in case one of the partners becomes insolvent then creditor can claim from only one partner also.
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Meaning of Joint Hindu Family Business: Karta eldest member of the family controls the business.
Features:
(i) Formation (ii) Liability (iii) Control (iv) Continuity (v) Minor members.
Merits:
(i) Effective control (ii) Continuity of business (iii) limited liability of members (iv) Increased loyalty.
Demerits:
(i) Limited resources (ii) unlimited liability of karta (iii) Karta’s dominance (iv)limited managerial skills.
Meaning of Partnership: Relation between persons to share the profits of the business carried on by all the partners or any one of the partner acting on behalf of all the other partners
Features:
(i) Formation (ii) Liability (iii) Risk bearing (iv) decision making (v) continuity (vi) Member
Merits:
(i) Easy to start and close (ii) proper decision making (iii) More money (iv)secrets are maintained.
Limitations:
(i) Unlimited liability (ii) Fights exist (iii) Chances for closure (iv) No public confidence.
Types
(i) Active (ii) sleeping (iii) secret (iv) Nominal (v) partner by behaviors (vi) partner by holding out.
Kinds of partnership:
(i) At Interest (ii) Formed for completing a work
Partnership deed: It contains the rules and regulations for carrying on partnership.
Meaning of Cooperative Society: It is a voluntary association of persons formed for protecting the consumers from middlemen.
Features:
(i) Voluntary association (ii) service motive (iii) power to take decisions (iv) limited liability.(v) Registration is compulsory so they have legal status.
Merits:
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(i) Equal voting rights. (ii) Continuous existence (iii) low cost of operation (iv) Government support (v) Easy to start (vi) limited liability.
Limitations:
(i) Resources are little (ii) Difference of opinion. (iii) Management is not proper (iv) Strict rules from the government.
Types:
(i) Consumer (ii) Producer (iii) Marketing (iv) Farmer’s (v) Credit (vi) Cooperative housing societies.
Meaning Of Joint Stock Company: Company is an artificial person with continuous existence& common seal.
Features:
(i) Artificial person (ii) Formation is difficult (iii)Company has separate identity.(iv)Continuous existence (v) Control of the company is made by directors.(vi)liability is limited.(vii) Common seal.
Merits:
(i) Liability is limited (ii) Chances are there for expansion (iii) Managed by professional people (iv) Continuous existence (v) Shares can be easily transferred from one person to another person.
Demerits:
(i) Very difficult to form (ii) No secrecy (iii) No personal involvement.(iv)More rules and regulations. (v) very slow in decision making (vi) owners have less control.
Types of Companies:
(i) Private company (ii) Public company (iii)
Choice of form of Business organization: (i) less costly in setting up the organization
(ii) Limited liability (iii) continuous existence (iv) Form of raising capital (v) Control to be made (vi) Nature of business.
Formation of a Company
STAGES
Promotion: Functions of a Promoter:
(i) Finding out a business opportunity (ii) Conducting studies (iii) Getting the name approved. (iv) Fixing up persons to sign Memorandum of association
(v) Appointment of professionals.(vii) preparation of necessary documents.
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Documents: Memorandum of association:
(i) Name clause (ii) Registered office clause (iii) Objects clause (iv) Liability clause (v)Capital clause (vi) Association clause. (vii) Articles of association. (viii) Consent of directors (ix) Agreement with managing director or whole time director (x) Statutory declaration
Incorporation: The memorandum of association must be duly stamped, signed and witnessed. (ii) The articles of association duly stamped and witnessed. (iii)Written permission of the directors. (iv) Agreement with the managing director/manager.(v)A copy of the registrar’s letter giving permission for the name. (vi) A declaration that all the legal requirements are followed.(vii) A notice about the exact office of the registered office. (viii) Documents showing the payment of fees.
Capital subscription:
(i) SEBI approval (ii) Filing of prospectus. (iii) Appointment of brokers, bankers etc., (iv) Collection of minimum subscription (v) Application to stock exchange (vi) Allotment of shares.
Commencement of Business : (i) A declaration about meeting minimum subscription requirement. (ii) A declaration regarding the application and allotment money paid by the directors as same as others. (iii) A declaration that no money is payable to the applicants because of the failure of the company. (iv) A statutory declaration that the above particulars are followed. (v) The registrar shall examine the documents if these are found satisfactory a certificate of commencement of business will be issued.
Key Concepts in Nutshell :
FORMS OF BUSINESS ORGANISATION
Sole proprietorship Partnership Hindu Undivided Co operative Company
Family Society
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Meaning Of Sole Proprietorship: Sole means only
Proprietor means owner
Merits of sole proprietorship:
1. A sole proprietor can take decision quickly.
2. Information can be kept secretly without any leakage.
3. No need to share profits.
4. He gets self satisfaction for the work he has done.
5. Easy to start and to close because of less rules and regulations.
Partnership Types of Partners :
1. Active partner: An active partner is a partner who gives capital, participates in management, shares the profits and losses and has unlimited liability.
2. Sleeping partner: A Partner who do not take part in the business activities.
3. Secret partner: A partner who has association with the firm but unknown to the public.
4. Nominal partner: A partner who allows his name to be used by the firm
5. Partner by estoppel: A person who by behaviour sets an impression to others that he/she is a partner of the firm.
6. Partner by holding out: A person who is not a partner but allows himself to be represented as partner in a firm.
Consequences of Non Registration:
1. A Partner of an unregistered firm cannot file a case against the firm or other partners.2. The firm cannot file a case against third parties.3. The firm cannot file a case against the partners.
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Types Of Companies
Public Company:1. Members: Minimum 7, Maximum unlimited2. Minimum number of directors: 33. Minimum paid up capital: 5 lakhs.4. Index of members: Compulsory.5. Transfer of shares: Shares can be transferred easily from one person to another.6. Invitation to public: It can invite the public to purchase the share and debentures
Private Company:1. Members: Minimum 2, Maximum -200.2. Minimum number of directors: 23. Minimum paid up capital: 1 lakh4. Index of members: Not compulsory.5. Transfer of shares: Shares cannot be transferred from one person to another.6. Invitation to public: It cannot invite the public to purchase the share and debentures.
Memorandum of Association:1. It defines the objects for which the company is formed.2. This is the main document of the company.3. This defines the relationship of the company with outsiders.4. Every company has to file Memorandum of Association.5. Alteration of Memorandum of Association is difficult.
Articles of Association:1. It defines the objectives of the company that are to be achieved.2. This is the subsidiary document of the company.3. Articles define the relationship of the members and the company.4. It is not necessary for the public limited company.
5. It can be altered by passing a special resolution.
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COMPANY
PRIVATE PUBLIC
MCQs ( 1 MARK)
1. Which of the following is the form of business organization:
(a) Private Sector (b) Public Sector (c) Mixed Sector (d) All of the above *
2. ‘Profit do not have to be shared.’ This statement refers to
(a) Partnership (b) JHF (c) Sole Trader-ship * (d) Company
3. Which of the following is not covered under the non-incorporated category of private sector?
(a) Sole Proprietorship (b) Joint Stock Company *
(c) Partnership (d) All of the above
4. Which of the following is not the feature of the sole trade?
(a) Individual Ownership (b) Limited Liability *
(c) Secrecy (d) Undivided Risk
5. Which of the following is not the advantage of the sole trade?
(a) Easy Formation (b) Unlimited Liability *
(c) Quick Decision (d) Personal Control
6. Which of the following is the limitation of the ‘Sole Trade’?
(a) Unlimited Liability (b) Limited Source of Capital
(c) Unbalanced Management (d) All of the above *
7. The head of the JHF Business is popularly known as
(a) Proprietor (b) Director (c) Karta * (d) Manager
8. The ‘Karta’ in the JHF Business has ……………………
(a) Limited Liability (b) Unlimited Liability *
(c) No Liability (d) Joint Liability
9. In which of the following states the ‘Dayabhag’ school of the Hindu Law applicable
(a) Assam-Bengal-Punjab (b) Bengal-UP-Odisha
(c) Odisha-Bengal-Chhattisgarh (d) Bengal-Odisha-Assam *
10. Which of the following is not the advantage of the JHF Business
(a) Easy to Start (b) Limited Resource *
(c) Secrecy (d) Direct Contact with Customers
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Very Short Answer type Questions: (1 Mark)Q.1 For which of the following types of business do you think a sole proprietorship form of organisation would be more suitable, and why?
(a) Grocery store (b) Medical store (c) Legal consultancy
(d) Craft centre (e) Internet café (f)Chartered accountancy firm.
Q.2 Sole trade is good for which type of business?
Q.3 For which of the following types of business do you think a partnership form of organization would be more suitable, and why?
(a) Grocery store (b) Medical clinic (c) Legal consultancy
(d) Craft centre (e) Internet café (f) Chartered accountancy firm
Q.4 Explain the following terms in brief
(a) Perpetual succession (b) Common seal (c) Karta (d) Artificial person
Q.5 JHF business is based on which two types of characteristics?
Q.6 What is meant by ‘partner by estoppel’? Explain.
Q.7 If registration is optional, why do partnership firms willingly go through this legal formality and get themselves registered? Explain.
Q.8 Distinguish between partnership and sole proprietorship on the basis of:
(i) Number of members (ii) Capital Contribution (c) Secrecy
Short Answer Question
1. Varun is the only owner of his restaurant. Name the form of business
organization. Ans: Sole proprietorship.
2. Name the form of organization found only in India Ans: JHF
3. List two merits of Sole proprietorship.
Ans: (i) Single ownership (ii) Full control.
4. Name any one business in which sole proprietorship is most suitable. Ans: Tailoring
5. Name the type of partnership which is formed to accomplish a specific project for a specific time.Ans: Particular partnership
6. State any one consequence of non registration of a partnership firm.
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Ans: An unregistered firm cannot file a case against third parties.
7. What is the minimum number of persons required to form a cooperative society? Ans: Ten8. Name the type of company which can invite the public to subscribe for the shares or debentures. Ans:
Public.9. Name the process by which a joint stock company is registered.
Ans: Incorporation.
10. Name the document which defines the object and powers of the company.Ans: Memorandum of Association.
Short Answer Type Questions: (3 or 4 Marks)1. State three advantages of joint Hindu Family business.
Ans (i) Effective control (ii) Continuity of business (iii) limited liability of
members (iv) Increased loyalty. (any three)
2. Explain the features of a Joint Hindu Family business.Ans: (i) Formation (ii) Liability (iii) Control
3. List any three advantages of partnership.Ans: (i) Easy to start and close (ii) proper decision making (iii) More money (iv) secrets are maintained.
4. State the important features of partnership. Ans: (i) Formation (ii) Liability (iii) Risk bearing (iv) decision making
(v) continuity (vi) Member .
5. What are the consequences of nonregistration of a partnership firm?
Ans: A Partner of an unregistered firm cannot file a case against the firm
or other partners.
The firm cannot file a case against third parties.
The firm cannot file a case against the partners.
6. Explain any three features of a company. (i) Artificial person (ii) Formation is difficult (iii) Company has separate
Identity.
7. Enumerate the various types of cooperative societies. (i) Consumer (ii) Producer (iii) Marketing (iv) Farmer’s (v) Credit
(vi) Cooperative housing societies
8. What are the functions of a promoter? (i) Finding out a business opportunity (ii) Conducting studies (iii) Getting the name approved. (iv) Fixing up persons to sign Memorandum of Association. (v)Appointment of professionals.(vii)
preparation of necessary Documents. 19
Long Answer Type Questions: (5 or 6 Marks)1. Distinguish between Memorandum of Association and Articles of Association.
Answer :
Memorandum of Association
1. It defines the objects for which the company is formed.
2. This is the main document of the company.
3. This defines the relationship of the company with outsiders.
4. Every company has to file Memorandum Of Association.
5. Alteration of Memorandum of Association is difficult. Articles of Association
6. It defines the objectives of the company that are to be achieved.
7. This is the subsidiary document of the company.
8. Articles define the relationship of the members and the company.
9. It is not necessary for the public limited company.10. It can be altered by passing a special resolution.2. Distinguish between a private company and public company.
Answer :
PUBLIC COMPANY:
Members: Minimum 7, Maximum unlimited
Minimum number of directors: 3
Minimum paid up capital: 5 lakhs.
Index of members: Compulsory.
Transfer of shares: Shares can be transferred easily from one person to
another.
Invitation to public: It can invite the public to purchase the share and
debentures
PRIVATE COMPANY:
Members: Minimum 2, Maximum -50.
Minimum number of directors: 2
Minimum paid up capital: 1 lakh
Index of members: Not compulsory.
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Transfer of shares: Shares cannot be transferred from one person to
another.
Invitation to public: It cannot invite the public to purchase the share and
debentures.
3. Describe the various partners in a partnership firm.Answer :
TYPES OF PARTNERS
Active partner: An active partner is a partner who gives capital, participates in management, shares the profits and losses and has unlimited liability.
Sleeping partner: A Partner who do not take part in the business activities.
Secret partner: A partner who has association with the firm but unknown to the public.
Nominal partner: A partner who allows his name to be used by the firm
Partner by estoppel: A person who by behaviour sets an impression to others that he/she is a partner of the firm.
Partner by holding out: A person who is not a partner but allows himself to be represented as partner in a firm.
4. Why is company form of organization preferred than other forms of organization?Answer :
Merits: (i) Liability is limited (ii) Chances are there for expansion
iii) Managed by professional people (iv) Continuous existence (v) Shares can be easily transferred from one person to another person.
5. List and explain the factors which help in choosing an appropriate form of Organization.
Answer :
Choice of form of Business organization: (i) less costly in setting up the
Organization.(ii) Limited liability (iii) continuous existence (iv) Form of
raising capital (v) Control to be made (vi) Nature of business.
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HOTs
1. “One man control is the best in the world if that man is big enough to manage everything”. Explain.
Answer :
Merits of sole proprietorship:
1. A sole proprietor can take decision quickly.
2. Information can be kept secretly without any leakage.
3. No need to share profits.
4. He gets self satisfaction for the work he has done.
5. Easy to start and to close because of less rules and regulations.
2. “A private company avoids many of the defects of a public company”.
Explain.
Answer :
Merits: (i) Liability is limited (ii) Chances are there for expansion
(iii) Managed by professional people (iv) Continuous existence (v) Shares can be easily transferred from one person to another person.
3. State the reasons for issuing prospectus:
Answer :
1. It serves as an invitation to the public to invest in the shares and debentures of the company.2. It acts as an advertisement for inducing the investors to invest in the company. 3. It serves as an record of the terms and conditions on which shares and debentures are issued.4. It helps to protect the interest of the investors.
4. “A company is said to be an artificial person created by law, having a separate entity with perpetual succession and a common seal”. Discuss the above statement.
Answer :
Features: (i) Artificial person (ii) Formation is difficult (iii)Company has separate identity.(iv)Continuous existence (v) Control of the company is made by directors.(vi)liability is limited.(vii) Common seal.
5. Describe the steps involved in the floatation of the company.
Answer :
Capital subscription:
1. SEBI Approval.
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2. Filing of prospectus.
3. Appointment of bankers, brokers and underwriters.
4. Minimum subscription.
5. Application of stock exchange.
6. Allotment of shares.
Question. Kiran is a sole proprietor. Over the past decade, her business has grown from operating a neighbourhood corner shop selling accessories such as artificial jewellery bags, hair clips and mail art to a retail chain with three branches, she is wondering hether she should from a company to better manage the business. She also has plans to open branches countrywide
(a) Explain two benefits of remaining a sole proprietor.(b) Explain two benefits of converting to a joint stock company.(c) What role will her decision to go nationwide play in her choice of from of the organization?(d) What legal formalities will she have to undergo to operate business as a company?
Ans. (a) Two benefits of remaining sole proprietor are:
(i) Sole beneficiary of profits
(ii) Personal touch
(b)Two benefits of converting in joint stock company are:
(I ) Large amount of capital
(ii) Limited liability
( c)If she plans to go nationwide then she will have to manage her form of business from sole proprietorship to joint stock company.
( d) If she plans to operate as joint stock company. She will have to complete many legal formalities such as:
(i) Getting certificate of incorporation(ii) Getting certificate of commencement of business, if she plans to operate as public
ltd.co.(iii) Appoint professional experts, brokers, who charge high fees.(iv) Prepare various documents such as: Prospectus, Memorandum of Association,
Articles of association etc. Gist of the Lesson:
Sole proprietorship – one owner Partnership – 2 or more partners. Joint Hindu Family Business- at least 2 persons. Cooperative society – At least 10 adults. Company – Minimum 2 Maximum 50 (Private) Company- Minimum 7 Maximum-unlimited.
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Memorandum of Association- External rules and regulations. Articles of Association – Internal rules and regulations.
Chapter :3Public, Private and Global Enterprises
Syllabus:• Private sector and public sector enterprises.• Forms of public sector enterprises: features, merits and limitations of departmental undertakings, statutory corporation and Government Company.• Changing role of public sector enterprises.• Global enterprises, Joint ventures, Public Private Partnership – Features
Introduction:Since the Indian economy consists of both privately owned and government owned business enterprises, it is known as a mixed economy. The Government of India has opted for a mixed economy where both private and government enterprises are allowed to operate. The economy, therefore, may be classified into two sectors viz., private sector and public sector.
The private sector:The private sector consists of business owned by individuals or a group of individuals, as you have learnt in the previous chapter. The various forms of organisation are sole proprietorship, partnership, joint Hindu family, cooperative and company.
The public sector:The public sector consists of various organisations owned and managed by the government. These organisations may either be partly or wholly owned by the central or state government. They may also be a part of the ministry or come into existence by a Special Act of the Parliament. The government, through these enterprises participates in the economic activities of the country.
In the Industrial Policy Resolution 1948, the Government of India had specified the approach towards development of the industrial sector. The roles of the private and public sector were clearly defined and the government through various Acts and Regulations was overseeing the economic activities of both the private and public sector. The Industrial Policy Resolution, 1956 had also laid down certain objectives for the public sector to follow so as to accelerate the rate of growth and industrialisation.
The 1991 industrial policy was radically different from all the earlier policies where the government was deliberating disinvestment of public sector and allowing greater freedom to the private sector.
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At the same time, foreign direct investment was invited from business houses outside India. Thus, multinational corporations or global enterprises which operate in more than one country gained entry into the Indian economy. Thus, we have public sector units, private sector enterprises and global enterprises coexisting in the Indian economy.
The forms of organisation which a public enterprise may take are as follows:(A) Departmental undertaking (B) Statutory corporation (C) Government company(A) Departmental Undertakings(i) This is the oldest and most traditional form of organising public enterprises.(ii) The funding of these enterprises come directly from the Government Treasury and is an annual
appropriation from the budget of the Government. The revenue earned by these is also paid into the treasury;
(iii) They are subject to accounting and audit controls applicable to other Government activities; (iv) They act through the officers of the Government and its employees are Government employees.
These undertakings may be under the central or the state government and the rules of central/state government are applicable. Examples of these undertakings are railways and post and telegraph department.
(v) The employees of the enterprise are Government servants and their recruitment and conditions of service are the same as that of other employees directly under the Government. They are headed by Indian Administrative Service (IAS) officers and civil servants who are transferable from one ministry to another;
(vi) It is generally considered to be a major subdivision of the Government department and is subject to direct control of the ministry;
(vii) They are accountable to the ministry since their management is directly under the concerned ministry.
(viii) These undertakings facilitate the Parliament to exercise effective control over their operations; (ix) These ensure a high degree of public accountability;(x) The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for
the Government; (xi) Where national security is concerned, this form is most suitable since it is under the direct control
and supervision of the concerned Ministry.
Limitations:(xii) Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of
business;(xii) The employees or heads of departments of such undertakings are not allowed to take independent
decisions, without the approval of the ministry concerned. This leads to delays, in matters where prompt decisions are required;
(xiii) These enterprises are unable to take advantage of business opportunities. The bureaucrat’s over-cautious and conservative approval does not allow them to take risky ventures;
(xiv) There is red tapism in day-to-day operations and no action can be taken unless it goes through the proper channels of authority;
(xv) There is a lot of political interference through the ministry;(xvi) These organisations are usually insensitive to consumer needs and do not provide adequate services
to them.
(B) Statutory Corporations: (RBI, FCI, LIC etc.)(i) Statutory corporations are set up under an Act of Parliament and are governed by the provisions of
the Act. The Act defines the objects, powers and privileges of a statutory corporation; (ii) This type of organisation is wholly owned by the Government (central/state). The government has
the ultimate financial responsibility and has the power to appropriate its profits. At the same time, the state also has to bear the losses, if any;
(iii) A statutory corporation is a body corporate and can sue and be sued, enter into contract and acquire property in its own name;
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(iv) This type of enterprise is usually independently financed. It obtains funds by borrowings from the government or from the public through revenues, derived from sale of goods and services. It has the authority to use its revenues;
(v) A statutory corporation is not subject to the same accounting and audit procedures applicable to government departments. It is also not concerned with the central budget of the Government;
(vi) The employees of these enterprises are not government or civil servants and are not governed by government rules and regulations. The conditions of service of the employees are governed by the provisions of the Act itself. At times, some officers are taken from government departments, on deputation, to head these organisations.
(vii) They enjoy independence in their functioning and a high degree of operational flexibility. They are free from undesirable government regulation and control;
(viii) Since the funds of these organisations do not come from the central budget, the government generally does not interfere in their financial matters, including their income and receipts;
(ix) Since they are autonomous organisations they frame their own policies and procedures within the powers assigned to them by the Act. The Act may, however, provide few issues/matters which require prior approval of a particular ministry;
(x) A statutory corporation is a valuable instrument for economic development. It has the power of the government, combined with the initiative of private enterprises.
Limitations:(xi) In reality, a statutory corporation does not enjoy as much operational flexibility as stated above. All
actions are subject to many rules and regulations; (xii) Government and political interference has always been there in major decisions or where huge funds
are involved;(xiii) Where there is dealing with public, rampant corruption exists; (xiv) The government has a practice of appointing advisors to the Corporation Board. This curbs the
freedom of the corporation in entering into contracts and other decisions. If there is any disagreement, the matter is referred to the government for final decisions. This further delays action.
(C) Government Company (SAIL, BHEL, GAIL, BEML etc.)(i) It is an organisation created under the Indian Companies Act, 1956;(ii) The company can file a suit in a court of law against any third party and be sued;(iii) The company can enter into a contract and can acquire property in its own name;(iv) The management of the company is regulated by the provisions of the Companies Act, like any other
public limited company;(v) The employees of the company are appointed according to their own rules and regulations as
contained in the Memorandum and Articles of Association of the company. The Memorandum and Articles of Association are the main documents of the company, containing the objects of the company and its rules and regulations;
(vi) These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed by the Central Government and the Annual Report is to be presented in the parliament or the state legislature;
(vii) The government company obtains its funds from government shareholdings and other private shareholders. It is also permitted to raise funds from the capital market.
(viii) According to the Indian Companies Act 1956, a government company means any company in which not less than 51 percent of the paid up capital is held by the central government, or by any state government or partly by central government and partly by one or more state governments. The shares of the company are purchased in the name of the President of India.
(xi) It has a separate legal entity, apart from the Government; (x) It enjoys autonomy in all management decisions and takes actions according to business prudence;(xi) These companies by providing goods and services at reasonable prices are able to control the market
and curb unhealthy business practices.
Limitations
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(xii) Since the Government is the only shareholder in some of the Companies, the provisions of the Companies Act does not have much relevance;
(xiii) It evades constitutional responsibility, which a company financed by the government should have. It is not answerable directly to the Parliament;
(xiv) The government being the sole shareholder, the management and administration rests in the hands of the government. The main purpose of a government company, registered like other companies, is defeated.
CHANGING ROLE OF PUBLIC SECTORThe Indian economy is in a stage of transition. The Five Year Plans in the initial stages of development gave lot of importance to the public sector. In the post 90’s period, the new economic policies, emphasized liberalisation, privatisation and globalisation. The role of public sector was redefined. It was not supposed to play a passive role but to actively participate and compete in the market with other private sector companies in the same industry. They were also held accountable for losses and return on investment. If a public sector was making losses continuously, it was referred to the Board for Industrial and Financial Reconstruction (BIFR) for complete overhauling or shut down. Various committees were set up to study the working of inefficient public sector units with reports on how to improve their managerial efficiency and profitability. The role of public sector is definitely not what was envisaged in the early 60’s or 70’s.
(i) Development of infrastructure: Investments were to be made to:(a) Give infrastructure to the core sector, which requires huge capital investment, complex and upgraded technology, big and effective organisation structures like steel plants, power generation plants, civil aviation, railways, petroleum, state trading, coal, etc; (b) Give a lead in investment to the core sector where private sector enterprises are not functioning in the desired direction, like fertilizers, pharmaceuticals, petro-chemicals, newsprint, medium and heavy engineering; (c) Give direction to future investments like hotels, project management, consultancies, textiles, automobiles, etc.
(ii) Regional balance: The government is responsible for developing all regions and states in a balanced way and removing regional disparities. After 1951, the government laid down in its Five Year Plans, that particular attention would be paid to those regions which were lagging behind and public sector industries were deliberately set up. Four major steel plants (Bokaro, Bhilai, Durgapur, Raurkela) were set up in the backward areas to accelerate economic development, provide employment to the workforce and develop ancillary industries.
(iii) Economies of scale: Electric power plants, natural gas, petroleum and telephone industries are some examples of the public sector setting up large scale units. These units required a larger base to function economically which was only possible with government resources and mass scale production.
(iv) Check over concentration of economic power: The public sector acts as a check over the private sector. The public sector is able to set large industries which requires heavy investment and thus the income and benefits that accrue are shared by a large of number of employees and workers. This prevents concentration of wealth and economic power in the private sector.
(v) Import substitution: Obtaining foreign exchange was a problem in second five year plan and it was difficult to import heavy machinery required for a strong industrial base. At that time, public sector companies involved in heavy engineering which would help in import substitution were established. Simultaneously, several public sector companies like STC and MMTC have played an important role in expanding exports of the country.
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(vi) Government policy towards the public sector since 1991: The Government of India had introduced four major reforms in the public sector in its new industrial policy in 1991. The main elements of the Government policy are as follows:• Restructure and revive potentially viable PSUs• Close down PSUs, which cannot be revived• Bring down governments equity in all non-strategic PSUs to 26 per cent or lower, if necessary; and• Fully protect the interest of workers.(a) Reduction in the number of industries reserved for the public sector from 17 to 8 (and then to 3): In the 1956 resolution on Industrial policy, 17 industries were reserved for the public sector. In 1991, only 8 industries were reserved for the public sector, they were restricted to atomic energy, arms and communication, mining, and railways. In 2001, only three industries were reserved exclusively for the public sector. These are atomic energy, arms and rail transport. This meant that the private sector could enter all areas (except the three) and the public sector would have to compete with them.(b) Disinvestment of shares of a select set of public sector enterprises: Disinvestment involves the sale of the equity shares to the private sector and the public. The objective was to raise resources and encourage wider participation of the general public and workers in the ownership of these enterprises. The government had taken a decision to withdraw from the industrial sector and reduce its equity in all undertakings.The primary objectives of privatizing public sector enterprises are: • Releasing the large amount of public resources locked up in nonstrategic Public Sector Enterprises (PSEs), so that they may be utilized on other social priority areas such as basic health, family welfare and primary education.• Reducing the huge amount of public debt and interest burden; • Transferring the commercial risk to the private sector so that the funds are invested in able projects;• Freeing these enterprises from government control and introduction of corporate governance; and• In many areas where the public sector had a monopoly, for example, telecom sector the consumers have benefitted by more choices, lower prices and better quality of products and services.(c) Policy regarding sick units to be the same as that for the private sector: All public sector units were referred to the Board of Industrial and Financial Reconstruction to decide whether a sick unit was to be restructured or closed down. The Board has reconsidered revival and rehabilitation schemes for some cases and winding up for a number of units. There is a lot of resentment amongst workers of the units which are to be closed down. A National Renewal Fund was set up by the government to retrain or redeploy retrenched labour and to provide compensation to public sector employees seeking voluntary retirement.(d) Memorandum of Understanding: Improvement of performance through a MoU (Memorandum of Understanding) system by which managements are to be granted greater autonomy but held accountable for specified results. Under this system, public sector units were given clear targets and operational autonomy for achieving those targets. The MoU was between the particular public sector unit and their administrative ministries defining their relationship and autonomy.
Global Enterprises:In the last ten years MNCs have played an important role in the Indian economy. They have become a common feature of most developing economies in the world. MNCs as is evident from what we see around us, are gigantic corporations which have their operations in a number of countries. They are characterized by their huge size, large number of products, advanced technology, marketing strategies and network of operations all over the world. Global enterprises thus are huge industrial organisations which extend their industrial and marketing operations through a network of their branches in several countries. Their branches are also called Majority Owned Foreign Affiliates (MOFA). These enterprises operate in several areas producing multiple products with their business strategy extending over a number of countries. They do not aim at maximising profits from one or two products but instead spread their branches all over. They have an impact on the international economy also.
Features of Global Enterprises:
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(i) Huge capital resources: They are able to tap funds from various sources. They may issue equity shares, debentures or bonds to the public. They are also in a position to borrow from financial institutions and international banks.
(ii) Foreign collaboration: Global enterprises usually enter into agreements with Indian companies pertaining to the sale of technology, production of goods, use of brand names for the final products, etc. These foreign collaborations have given rise to the growth of monopolies and concentration of power in few hands.
(iii) Advanced technology: These enterprises possess technological superiorities in their methods of production. They are able to conform to international standards and quality specifications. Computerization and other inventions have come due to the technological advancements provided by MNCs.
(iv) Product innovation: Qualitative research requires huge investment which only global enterprises can afford.
(v) Marketing strategies: The marketing strategies of global companies are far more effective than other companies. They use aggressive marketing strategies in order to increase their sales in a short period. They posses a more reliable and up-to-date market information system. Their advertising and sales promotion techniques are normally very effective.
(vi) Expansion of market territory: Their operations and activities extend beyond the physical boundaries of their own countries. Their international image also builds up and their market territory expands enabling them to become international brands.
(vii) Centralised control: They have their headquaters in their home country and exercise control over all branches and subsidiaries.
JOINT VENTURES: Any business organisation if it so desires can join hands with another business organisation for mutual benefit. These two organisations may be private, government-owned or a foreign company. When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a joint venture. Businesses of any size can use joint ventures to strengthen long-term relationships or to collaborate on short term projects.A joint venture may also be the result of an agreement between two businesses in different countries. In this case, there are certain provisions provided by the governments of the two countries, which will have to be adhered to.a joint venture is the pooling of resources and expertise by two or more businesses, to achieve a particular goal. The risks and rewards of the business are also shared.The reasons behind the joint venture often include business expansion, development of new products or moving into new markets, particularly in another country.
A joint venture company can be formed in any of the following ways: (i) Two parties (individuals or companies), incorporate a company in India. Business of one party is transferred to a new company. For consideration of such transfer, shares are issued by the new company and subscribed by the above party. The other subscribes for the shares in cash; (ii) The above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash and start a new business;(iii) Promoter shareholder of an existing Indian company and another party which may be either an individual or a company may collaborate to jointly carry on the business of that company. The other party may be non-resident or resident and may take up shares of the company through payment in cash. All joint ventures in India require government approvals if a foreign partner or a Non-Resident Indian (NRI) is involved. The approval can be obtained either from the Reserve Bank of India or Foreign Investment Promotion Board (FIPB), depending upon particular circumstances.(a) If the joint venture is covered under automatic route, then the approval of the Reserve Bank of India is required.(b) In other special cases not covered under the automatic route, a special approval of FIPB is required.
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Benefits of Joint Venture:(i) Increased resources and capacity: Joining hands with another or teaming up adds to existing resources
and capacity enabling the joint venture company to grow and expand more quickly and efficiently.(ii) 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. For example, when foreign companies form joint venture companies in India they gain access to the vast Indian market. Their products which have reached saturation point in their home markets can be easily sold in new markets.
(iii) Access to technology: Technology is a major factor for most businesses to enter into joint ventures. Advanced techniques of production leading to superior quality products saves a lot of time, energy and investment as they do not have to develop their own technology.
(iv) Innovation: The markets are increasingly becoming more demanding in terms of new and innovative products. Joint ventures allow business to come up with something new and creative for the same market.
(v) Low cost of production: When international corporations invest in India, they benefit immensely due to the lower cost of production. They are able to get quality products for their global requirements. India is becoming an important global source and extremely competitive in many products.
(vi) 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. If the joint venture is in India and with an Indian company, the Indian company does not have to spend time or money in developing a brand name for the product or even a distribution system.
Public Private Partnership:Public Private Partnership (PPP, P3, or P3) is a lagally binding contract between government and private business firms for the provision of public assets and / or public services for the benefits of public.
The goal of PPP is to combine the best capabilities of the public and private sectors.Government remains actively involved throughout the projects life cycle.The private sector is responsible for the more commercial functions such as project design, construction, finance and operations.
Features of PPP:1. Arrangement with private sector entity: The public assets and / or public service under an arrangement will be provided by the Private Sector Entity to the Public.2. Investments and / or management by Private Sector: It provides for both investment and non-investment PPPs.3. Operations or management for a specified period: The PPP arrangement is for a specific period, after which the arrangement with private sector comes to an end.4. Risk sharing with Private Sector: The PPP project involves sharing of risks with the private sector.5. Performance linked payments: It aims to provide central focus on performance and not merely provision of facility or service.6. Conformance to performance standards: It aims to provide a strong element of services delivery aspect and compliance to pre-determined quality standards.
Benefits of PPP:1. Inflow of Private Investment: PPP attracts private investment which is of utmost importance to undertake such essential projects. 2. Increased Efficiency: Involvement of private sector will bring efficiency in implementation of projects and cut down time and cost.3. Innovation: PPP helps in bringing innovative design and construction practices.4. Sharing of Project Risks: The structuring of a PPP project allocates the risks to the agency best-suited to handle the same.5. Better Viability: Involvement of experienced and creditworthy sponsors and commercial lenders could enhance viability of the project.
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HOTS – Higher Order Thinking Skills Questions:1. Identify the form of public sector enterprise in the following cases: (1 mark each)
(a) It is under the control of concerned Minister of the department(b) It enjoys maximum autonomy in all management activities.(c) LIC and Air India are the examples of this form of enterprise.(d) Minimum 51% of the paid up capital is held by the government.(e) This enterprise is most suitable when national security is concerned.(f) These enterprises are set up under a special act of parliament.
2. Why are MNCs in a position to exercise massive control on the world economy? [3]3. Which enterprise is formed when two or more firms join together for a common purpose and mutual
benefits. What are the benefits of such enterprise? [4]4. Even though public sector played a significant role in economic development, still the number of
industries reserved for it, were reduced to 3. Why? [3]5. “Multinational Corporations are a mixed blessing to the developing countries”. Comment on this.
(Hint: Merits & Demerits) [6]6. “Global corporations are giant both in terms of assets and operations.” Explain this statement.(Hint:
features of Global enterprise) [6]7. “The basic rationale of public sector has changed significantly.” In the light of this statement, state
any four initiatives taken by the government. [5]8. “Statutory corporations has been the most common form of organisation for public enterprises in
recent times.” State the characteristics and merits of a public corporation. [6]
Project Work:1. Contact persons who use the services provided by public sector enterprises. Find out from them the
types of services they use and the level of satisfaction / dissatisfaction that they have about these services. Find out from them the reasons for satisfaction / dissatisfaction.
2. From website and other sources, collect information about disinvestment of Government shareholding in public sector enterprises. Also find out reactions of different groups of persons about this disinvestment.
3. Visit a Departmental Store and pick up five products manufactured by multinational corporations. Prepare a brief profile of the concerned multinational corporation.
4. Identify at least three business activities where global corporations have no role to play in India. Give reasons to support your viewpoint.
5. Analyze the benefits of at least three Joint Ventures between India and Foreign Partners.
MCQ.1. Reliance Industries Limited is a
(a) Joint Venture (b) Private Enterprise (c) Public Enterprise (d) Foreign Enterprise2. Indian Oil Corporation Limited is a
(a) Statutory Corporation (b) Departmental undertaking(c) Government Company (d) Private Company
3. Which one of the following bases is used for measuring efficiency of a public enterprise?(a) Public service provided (b) Prot earned(c) Government control exercise (d) Management process adopted
4. Which one of the following types of enterprises is a part of Government?(a) Statutory Corporation (b) Departmental undertaking(c) Government Company (d) Private Company
5. Which one of the following roles of public sector is true after Industrial Policy 1991?(a) Balance regional development (b) Employment generation(c) Privatization (d) Mobilization of resources
6. Which one of the following is a feature of global enterprise?(a) Giant size (b) Government ownership(c) Joint venture (d) Moderate technology
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7. Which of the following is not the form of Private Enterprises?(a) Sole Proprietorship (b) Departmental undertaking(c) Partnership (d) Joint Stock Company
8. A private company is related with(a) Private sector (b) Public sector (c) Govt. Sector (d) Mixed Sector
9. A public company is related with(a) private sector (b) Public sector (c) Govt. undertaking (d) All of the above
10. The units of public sector are also known as(a) State Enterprises (b) Public Sector Undertakings(c) Mixed Sector (d) All of the above
11. UCO Bank is the example of which sector?(a) Private sector (b) Public sector (c) Mixed sector (d) None of the above
12. Indian Railways is the example of ______________ form of public enterprises.(a) Departmental Undertakings (b) Public Corporations(c) Govt. Company (d) None of the above
13. A government company is any company in which the paid-up capital held by the government is not less than(a) 49% (b) 51% (c) 50% (d) 25%
14. ‘Food Corporation of India” is the example of ________________ form of public enterprises(a) Departmental Undertakings (b) Public Corporations (c) Govt. Company (d) None of the above
15. PSEs are organisations owned by(a) Joint Hindu Family (b) Government (c) Foreign Companies (d) Private Entrepreneurs
16. ‘Hindustan Machine Tools’ is the example of _____________ form of public enterprises:(a) Departmental Undertakings (b) Public Corporations(c) Govt. Company (d) None of the above
17. How many industries are reserved for public sector(a) Three (b) Four (c) Eight (d) Seventeen
18. Which of the following industries in not reserved for public sector?(a) Atomic Energy (b) Sugar Industry (c) Arms (d) Rail Transport
19. Reconstruction of sick public units is taken up by(a) MOFA (b) MoU (c) BIFR (d) NRF
20. Disinvestment of PSEs implies(a) Sale of equity shares to the Private Sector (b) Closing down operations(c) Investing in new areas (d) Buying shares PSEs
21. Centralized control in MNCs implies control exercised by(a) Branches (b) Subsidiaries (c) Headquarters (d) Parliament
22. Which of the following is not an advantage of MNCs?(a) Increase in foreign investment (b) Increase in employment(c) End of Monopoly (d) Danger for domestic industries
23. Which type of organisation has a disadvantage namely ‘No benefit to poor people’?(a) Sole Proprietorship (b) Partnership(c) MNCs (d) All of the above
24. Which of the following is not Indian MNCs?(a) Ranbaxy (b) Infosys (c) Brook Bond (d) Asian Paints
25. Which of the following is not the MNC of the USA?(a) Lipton (b) Coca-Cola (c) Ford Motors (d) Pepsi
26. When two business enterprises agree to join together for a common objective and mutual gain, it gives rise to(a) Partnership (b) Joint Venture (c) Company (d) MNC
27. Which of the following is not a feature of a global enterprise?(a) Its operations are spread out in several countries.(b) It attempts to maximise profits world over.
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(c) It is of huge size and has control over large assets.(d) It operates on a small scale.
28. The interference of the government in the day to day working is the highest in case of:(a) Departmental undertaking (b) Government Company(c) Statutory Corporations (d) None of the above
29. Which of the following is not a form of organizing public enterprise? (a) Statutory Corporation (b) Departmental undertaking(c) Government Company (d) Private Company
30. Public enterprises are owned by:(a) Government (b) Joint Stock Companies(c) Private entrepreneurs (d) Multinational Corporations
31. There are businesses which operate in more than one country known as:(a) Global Enterprises (b) MNCs (c) Both (d) None of these
32. The post office, in your locality is owned by the ............... Department, Government of India.(a) Post (b) Telephone (c) Railway (d) Post & Telegraph
33. There are people providing you services like legal services, medical services, being owned by more than one person i.e., (a) Sole tradership (b) partnership firms(c) HUF (d) Departmental Undertaking
34. Railways is an organisation wholly owned and managed by the government is the example of:(a) Government Company (b) Statutory Corporation(c) Departmental Undertaking (d) None of these
35. Indian economy consists of both privately owned and government owned business enterprises, it is known as a ...................(a) Joint economy (b) Joint Venture (c) PPP (d) Mixed economy
36. The 1991 industrial policy was radically different from all the earlier policies where the government was deliberating disinvestment of public sector and allowing ....................... to the private sector.(a) less freedom (b) greater freedom (c) no freedom (d) None of these
37. The government has a major role to play in the formation of the .................... (a) public sector (b) private sector (c) joint sector (d) mixed sector
38. These public enterprises are owned by the public and are accountable to the public through the .............(a) Supreme court (b) President (c) Parliament (d) Prime minister
39. In .......................... the government acts through its people, its offices, employees and they take decisions on behalf of the government.(a) public sector (b) private sector (c) joint sector (d) mixed sector
40. ………………… checks over concentration of economic power(a) Private sector (b) public sector (c) court (d) government
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Chapter :4BUSINESS SERVICES
Content Mapping-
Banking: Types of bank accounts- savings, current, recurring, fixed deposit and multiple option deposit account. Banking services with particular reference to issue of bank draft, banker‟s cheque (pay order), Real Time Gross Settlement (RTGS), National electronic Funds Transfer (NEFT), bank overdraft, cash credit and e-banking Insurance-: Principles, Types –life, health, fire and marine insurance –conceptPostal and telecom services: Mail, Under Postal Certificate (UPC), Registered Post, Parcel, Speed Post and Courier and other services
I. Types of Services 1. Business Services 2. Social Services 3. Personal Services
Business Services
1. Banking Service 2. Insurance Service 3 . Transport Service
4. Warehousing 5. Communication
II. Banking Services :- A) Types of Banks –
1) Commercial Banks 2) Cooperative Banks 3) Central bank 4) Specialised Banks
a) Public Sector Banks b) Private Sector Banks
B) Functions of Commercial Banks
Acceptance of Deposits Lending of Funds Cheque Facility
C) Types of Accounts
Savings Account Recurring Deposit Account Multiple Option Deposit Account
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Current Account Fixed Deposit Account
Banking Services include:
1. Issue of Bank Draft2. Pay Order or Banker’s Cheque3. Real Time Gross Settlement4. National Electronic Funds Transfer5. Bank Overdraft6. Cash Credits7. E-banking
Q. What is e-banking? What are the advantages of E-banking?
E-banking refers to electronic banking or banking using electronic media. E-banking includes a range of services like Electronic Funds Transfer (EFT), Automated Teller Machine (ATM), Electronic Data Interchange (EDI), Credit Cards and Electronic or Digital Cash.
Advantages are-
i) It provides 24 hours, 365 days a year services to the customers of the bank.ii) It lowers the transaction cost.iii) It inculcates a sense of financial freedom.iv) It lowers the transaction cost.
III. Insurance Services
Insurance is a contract by which the loss is likely to be caused by an uncertain event is compensated by the insurer.
A. Functions of Insurance
Providing certainty Protection Risk Sharing Assist in Capital formation
B. Principles of Insurance
Utmost good Faith Proximate Cause Contribution Mitigation
Insurable Interest Indemnity
C. Types of Insurance
Life Insurance Fire Insurance Marine Insurance Health Insurance
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Whole Life Policy Joint Life Policy Children’s endowment Policy
Endowment Life Assurance Policy Annuity Policy
Q. Why principle of indemnity not applicable to life insurance?
Ans:-Because under life insurance, the insurer is required to pay a fixed amount agreed upon in advance in the event of death or on the expiry of the period of policy. The reason is that the life of a person cannot be valued in terms of money and therefore the question of compensation of actual loss does not arise. Thus, a contract of life insurance is contingent contract or a contract of guarantee. It is not a contract of indemnity.
IV. Warehousing and Transportation
A warehouse is a commercial building for storage of goods. Warehouses are just not storage service providers but also logistical service providers in a cost efficient manner. They make availability of right quantity, at a right place, in the right time, in the right physical form and right cost.
A. Types of Warehousing
Bonded Cooperative
Private Public Government
B. Functions of Warehousing
Consolidation Stock Piling Price Stabilisation FinancingBreak the bulk Value Added Service
Q. Discuss some of the economic functions of transport services.
Ans:- Some important economic functions of transport services are-
i) They help in widening market.ii) They facilitate the mobility of men, materials and money and various other resources.iii) They help in stabilizing the prices of various products in different regions.iv) They help in the growth of several industries.v) They provide employment.
V. Communication: Postal and Telecom Services.
Postal Services- 1) Mail Services
A. Types of mail services
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Speed Post Courier Services UPC Registered Post Parcel Post
2) Financial Services
Kisan Vikas Patra
Public Provident Fund Monthly Income Scheme Recurring Deposit
Senior Citizen Savings Scheme Natioanl Savings Certificate
Telecom Services
VSAT
Cellular Mobile Services Cable Services DTH
Fixed Line Services
Radio Paging Services
CHAPTER -5EMERGING MODES OF BUSINESS
Content mapping
E-business-scope and benefits, resources required for successful e-business implementation, online transaction, payment mechanism, security and safety of business transactions Outsourcing-Concept: Business process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO)- Concept, need and scope Smart cards and ATM‟s meaning and utility
Key Termse – Businesse – Business refers to the process of performing Business activities electronically through the means of internet.VirusVirus stands for Vital Information &Resources Under Siegee – Tradinge – Trading involves securities trading, i.e. online buying & selling of shares and other financial instruments.Digital CashDigital Cash refers to electronic cash instead of actual money which exists only in cyberspace (also known as cyber currency)Sweat ShoppingFirms that outsource seek to reduce their costs and get maximum benefit from the low –cost manpower. This is known as “Sweat Shopping”.e – Commercee – Commerce refers to a firm’s interactions with its customers and suppliers over internet.
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Secure Sockets Layer (SSL)It is the technology used in encrypting and securing vital user information such as Credit/Debit card details etc. which are used in online transactions.
e – ProcurementIt involves internet based – sales between business firms forming digital marketplaces facilitating online trading between multiple buyers and sellers.Business Process Outsourcing (BPO)The process of contracting out non-core business activities to 3rd parties in order to reduce costs and time involved.Online TradingThe act of selling and buying anything online.e – BiddingMost shopping sites have “Quote your price” option whereby you can bid for goods and services. This refers to process of conducting auctions online.Call CentresFirms generally outsource their customer support to 3rd parties, which provide 24x7 Customer Support by the means of tele calling. The 3rd parties to whom this process is outsourced are called “Call Centres”.Captive BPO unitsThe outsourced - units over which the outsourcing firm has control.HorizontalsThe 3rd parties which undertake outsourcing contracts from many firms and doing a wide variety of jobs and processes are known as “Horizontals”.VerticalsThe 3rd parties which undertake outsourcing contracts from other firms but are specialized to do only certain specific non-core to core activities.B2B CommerceRefers to electronically conducted business transactions between business to business.B2C CommerceRefers to electronically conducted Business transactions to Customers.Intra-B CommerceRefers to electronically conducted business transactions within a given business firm.C2C CommerceRefers to electronically conducted Business transactions between Consumer toConsumer.e – Businesse – Business refers to all business transactions and functions conducted electronically.e – Business vs. e – Commercee – Business is more inclusive term than e – Commerce while e – Commerce refers to afirm’s interactions with its customers and its supplier over the internet. e – Business, apartfrom e – Commerce includes all other electronically conducted business activities such asinventory management, production, product development, accounting, finance, etc.,Scope of e – BusinessThe scope of e – Business is quite vast, it includes the following :-1. B2B Commerce :- Refers to electronically conducted business transactions between business to business.2. B2C Commerce :- Refers to electronically conducted Business transactions to Customers.3. Intra-B Commerce:- Refers to electronically conducted business transactions within a given business firm.4. C2C Commerce :- Refers to electronically conducted Business transactions between Consumer to Consumer.
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Benefits of e –Busines:1. Easy to formVery easy to start e – business because host of procedures required for traditional business are not required for e – Business2. Requires Less InvestmentBoth big and small business gets the benefits of internet equally. Thus even one start of small business with less investment can derive the benefit of e –Business.3. ConvenienceInternet offers the convenience of 24 hours X 7 days a week with a less investment – i.e. one can access anything, anywhere, any time.4. SpeedAny business transaction can be made simply at the click of the mouse button, for e.g. Electronic Funds Transfer takes place at the speed of light5. Global reach/accessIn e – Business both businessmen and consumers have no national boundaries because internet is without such boundaries. In absence of such internet, globalization may be restricted in scope and speed.6. Movement towards paperless societyCutting thousands and thousands of trees to make paper adversely affects the environment but internet has considerably reduced the dependence on paper.Easy to FormBenefits of e –Business:
Require Less InvestmentConvenienceSpeedGlobal Reach/ AccessMovement towardspaperless society
Limitations of e – Business
1. Low Personal Touch2. Delayed Delivery3. Need for technological capability and competence of parties4. Risk of Non-Traceability of parties5. People’s Resistance.6. Ethical Fallout
Despite limitations, e – Commerce is the wayYes, it is absolutely true, because when you wish to buy something especially fromother countries or from distant seller, problems faced by you in traditional business is morethan e – Commerce – thinking in terms of travelling – carrying money – time required – speedinvolved – mode of payment etc.Therefore, despite limitations e – Commerce is the way.
Online TransactionsInvolves three stages:-1. Pre-Purchase/ Sale Stage
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2. Purchase / Sale Stage3. Delivery Stage
Steps involved in online purchase1. Registration2. Placing an Order3. Payment Optionsa. Cash on Delivery(COD)b. Chequec. Net-Banking Transferd. Credit/Debit Cardse. Digital Cash
e – Business RisksThere are three types of possible risks as listed below:1. Transactions Risks Default on Order taking/GivingDefault on DeliveryDefault on Payment2. Data Storage and Transmission RiskVIRUSInterception3. Threat to intellectual property & Privacy
OutsourcingFeatures of Outsourcing
1. Outsourcing involves contracting out2. Generally non-core business activities are outsourced3. Processes may be outsourced to a captive unit or 3rd Party
Scope of OutsourcingOutsourcing comprises four key segments:Contract ManufacturingContract SalesContract ResearchInformatics
Need for OutsourcingThe major reasons of outsourcing are as follows:1. Focusing of attention2. Quest for excellence3. Cost Reduction4. Growth through alliance5. Fillip to economic development
Concerns over OutsourcingOutsourcing has its own benefits and has to stay globally but it has its own limitationsas discussed below:1. Confidentiality
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2. Sweat Shopping3. Ethical Concerns4. Resistance in home countries
ONE MARK QUESTIONS:
Q1. What is meant by mode of business?Ans. It means the manner of conducting business.Q2. What is digitisation?Ans. It means transmission of text, sound, images etc. electronically.Q3. What is the other name of digitisation of business?Ans. E-business.Q4. State any two major trends which are shaping the business?Ans. E-Business and outsourcing Q5. What is E-Business?Ans. It means carrying on business activities i.e. industry ,trade and commerce electronically ( through internet).Q6. What is E-Commerce ?Ans. It means buying of goods and services through internet.Q7. State the items included in E-business?Ans B2B commerce , B2C commerce , INTRA B commerce and C2C commerce .Q8. What is the main difference between E-business and E-commerce ?Ans. E-commerce is one of the part of E-business i.e. E-business has a wider concept than E-commerce.Q9. List any two risk involved in E-commerce ?Ans. VIRUS and hacking .Q10. What is the full form of BPO?Ans. Business process Outsourcing .Q11. Which is the common mode of payment used in E-commerce?Ans. Credit Card.Q12. Give any two ways to restrict E-commerce crime?Ans. Digital signature and special crime Cell.Q13. What is digital cash?Ans. It is an electronic currency that exist only in cyberspace .Q14. What is the full form of COD?Ans. Cash on deliveryQ15. What is VIRUS?Ans. Vital information resources under siege (VIRUS) is a computer program that clones itself when an infected piece of program executed.Q16. List any two anti-virus programmes ?Ans. AVG and NORTON.Q17. What is outsourcing ?Ans. It means contracting out non-core and routine activities in which a business firm does not have expertiseto outside agencies .
THREE MARK QUESTIONS:
Q1. Give any three differences between e-business and traditional business?Ans.e – Business vs. Traditional Busines
Basis of distinction Traditional Business e - Business
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Ease of formation Difficult SimplePhysical Presence Required Not RequiredLocation Requirements Need to be near market
or Raw MaterialsNone
Cost of Setting Up High lowNature of Contact withsuppliers & Customers
Indirect through intermediaries direct
Nature of InternalCommunicationHierarchical
From toplevel management
Direct to all levels
Q2. Distinguish between e-business and e-commerce ?ANS.e – Business vs. e – Commercee – Business is more inclusive term than e – Commerce while e – Commerce refers to afirm’s interactions with its customers and its supplier over the internet. e – Business, apartfrom e – Commerce includes all other electronically conducted business activities such asinventory management, production, product development, accounting, finance, etc.,Q3. Briefly explain the scope of e-business?Ans.Scope of e – BusinessThe scope of e – Business is quite vast, it includes the following :-1. B2B Commerce :- Refers to electronically conducted business transactionsbetween business to business.2. B2C Commerce :- Refers to electronically conducted Business transactions toCustomers.3. Intra-B Commerce:- Refers to electronically conducted business transactionswithin a given business firm.4. C2C Commerce :- Refers to electronically conducted Business transactionsbetween Consumer to Consumer.Q4.Briefly explain the features of Outsourcing Ans.Features of Outsourcing1. Outsourcing involves contracting outNon – Core activities such as maintaining cleanliness, gardening, housekeepingetc. maybe contracted out to the outside agencies so that the business canconcentrate on core activities.2. Generally non-core business activities are outsourcedFor some organizations, non-core activities may be their core activities e.g.House Keeping for hotel business, so every organization used to identify itsown non – core activities and outsource them.3. Processes may be outsourced to a captive unit or 3rd PartyMultinational Companies (MNCs) normally outsource different processes such as recruitment, selection, training, pay roll, customer support etc. to business units created especially for this purpose and ensure efficiency.
LONG ANSWER TYPE QUESTION : 6 MARKS
Q1.Expalin the benefits of e-business?
Ans.Benefits of e – Business
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1. Easy to formVery easy to start e – business because host of procedures required for traditional business are not required for e – Business2. Requires Less InvestmentBoth big and small business gets the benefits of internet equally. Thus even one start of small business with less investment can derive the benefit of e –Business.3. ConvenienceInternet offers the convenience of 24 hours X 7 days a week with a lessinvestment – i.e. one can access anything, anywhere, any time.4. SpeedAny business transaction can be made simply at the click of the mouse button,for e.g. Electronic Funds Transfer takes place at the speed of light5. Global reach/accessIn e – Business both businessmen and consumers have no national boundariesbecause internet is without such boundaries. In absence of such internet, globalizationmay be restricted in scope and speed.6. Movement towards paperless societyCutting thousands and thousands of trees to make paper adversely affects theenvironment but internet has considerably reduced the dependence on paper.
Q2. Explain the limitation of e-business?
Ans.Limitations of e – Business1. Low Personal TouchInterpersonal touch between businessmen and the consumer is very important. e– Business may be high tech but the lacking interpersonal interaction is truly oneof its shortcomings.2. Delayed DeliverySometimes order may be placed at once through internet but delivery may bedelayed, which may disturb the customers.3. Need for technological capability and competence of partiesIf any one party – either buyer or seller is not familiar with digital technology, e –Business becomes difficult.4. Risk of Non-Traceability of partiesCyber personalities participate in e – Business, when any one is in remote area – Traceability may be one the biggest problem.5. People’s ResistanceIn general, people resist changes and halt will be more if any organization prefersto go fully online.6. Ethical FalloutIn e – Business, unless until you have high degree of protection, any one can keepan electronic eye on your transaction, even intrude into your privacy – which is ethically incorrect.Q3. Elaborate the steps involved in online trading ?
ANSOnline Transactions
Involves three stages:-
1. Pre-Purchase/ Sale Stage – Including advertising and information seeking.2. Purchase / Sale Stage – Comprising of price negotiation, closing deal & payment.3. Delivery Stage – Involves physical delivery of goods.The first two steps – involves only interaction and thus can be effectively done online.
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Steps involved in online purchase1. RegistrationRegister yourself with online vendor by filling up registration form – i.e. now you have an account with the online vendor and you receive your account’s password and an online shopping cart.2. Placing an OrderYou can pick and drop the items of your choice in the online ‘shopping cart’ (Just an online record) – choose check out and payment option.3. Payment Optionsa. Cash on Delivery(COD)Pay cash at the time of physical delivery of goodsb. ChequeVendor arranges the pick up of the buyer’s cheque(s) – Upon realization the delivery is madec. Net-Banking TransferElectronic transfer of funds from the buyer to the seller, after which the seller makes the deliveryd. Credit/Debit CardsThese are also called ‘Plastic Money’, the buyer enters the respective card’s details and the transaction is made. Credit cards allow the buyer to make purchases on credit, whereas Debit cards make use of thebuyer’s existing money.e. Digital CashThis form of currency exists only in cyberspace. The buyer deposits money into the Digital Cash account and this money are utilized for making purchases online.Q4. Explain the various risks encountered while conducting e-business?
ANS:e – Business Risks
There are three types of possible risks as listed below:1. Transactions RisksSeller may deny that customer ever placed the order or the customer maydeny that he ever placed the order. It is called “Default on Order taking/Giving”.Goods may be delivered at wrong address or wrong goods may be deliveredwhich is referred as “Default on Delivery”.Seller may claim/complain that he didn’t receive payment while customer mayclaim that payment was over. This is referred as “Default on Payment”.2. Data Storage and Transmission RiskVIRUS – Virus can create annoyance, disrupt functioning, damage target dataeven may cause complete destruction of the system.Interception – Data maybe intercepted in the course of transmission by others.If it goes in the wrong hands it may be detrimental to the business.3. Threat to intellectual property & PrivacyOnce the information is made available over the internet, it moves out of theprivate domain. So any secret formulae or research findings, improved/ newmethod of production and other such intellectual properties may be stolen byothers.When data furnished goes in the hands of others they may start dumping withlot of advertising & promotional literature into oure-mail box.
Q5. Explain the need of outsourcing ?
ANS:Need for Outsourcing
Outsourcing is being resorted to not out of compulsion but also out of choice. The major44
reasons of outsourcing are as follows:1. Focusing of attentionBy contracting out some of the non – core activities, the business may havesufficient time to focus its attention on core-activities.2. Quest for excellenceOutsourcing does not mean contracting out some of our work to any outsiderbut it means contracting out to a specialist who can perform the contractedwork in an excellent way.3. Cost ReductionDue to global competition, not only a firm needs to ensure global quality butalso global competitive pricing. For this the company needs to reduce its costof operation by contracting out the work to specialists who are cost-efficient.4. Growth through allianceA business may have a ownership stake in the other business to whom it isinterested to contract out its own work. By doing so not only the profit of theoutsourcing business goes up but it can have a share in the profit of thecontracted business, as it is a stakeholder in that.5. Fillip to economic developmentOutsourcing stimulates entrepreneurship, employment & exports thus it helpsthe economy to develop. For example, as far as global outsourcing in softwaredevelopment and IT enabled services are concerned, India has 60% of theglobal outsourcing share
Q 6. Explain the limitations of Outsourcing ?
ANS: Concerns over OutsourcingOutsourcing has its own benefits and has to stay globally but it has its own limitationsas discussed below:1. ConfidentialityOutsourcing depends on sharing a lot of vital information and knowledge. Ifthe outsourcing partner passes it on to competitors it can harm the business toa greater extent. Not only that even the outsourcing partner may start acompetent business.2. Sweat ShoppingAs the firms that outsource seek to lower their costs, they try to get themaximum from the low-cost manpower of the host countries, this may resultin sweat shopping and the firm that goes in for outsourcing may look for‘doing’ skill rather than development of ‘thinking’ skill.3. Ethical ConcernsIn the name of cost cutting, unlawful activities such as child labour, wagediscrimination maybe encouraged in other countries.4. Resistance in home countriesContracting out ultimately result in contracting out of employments; this may create resistance in the home countries. Particularly if the home country is suffering from problem of unemployment.
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CHAPTER - 6SOCIAL RESPONSIBILITIES OF BUSINESS & BUSINESS ETHICS
Content Mapping
- Concept of social responsibility - Need for social responsibility - Arguments for social responsibility- Reality of Social responsibility - Kinds of Social Responsibility - Social Responsibility towards different interest groups - Business and Environmental Protection - Types of Pollution- Causes of Protection - Need for Pollution Control - Role of Business in Environmental Protection- Business Ethics - Elements of Business Ethics
Concept of Social ResponsibilitySocial Responsibility of business refers to its obligation to take those decisions andperform those actions which are desirable in terms of objectives and values of oursociety.Need for Social ResponsibilityOpinions are divided over this issue, for some - Business is responsible only to its owners& for others - It needs to be responsible for social welfare also. Anyhow a betterbusiness can survive & grow only in a better society because it takes all resources fromthe society and serve to the society. So businesses become integral part of the society,therefore they should assume social responsibility.Arguments for social responsibility-Justification for existence and growth-Long term interest of the firm-Avoidance of government regulations-Maintenance of Society.-Availability of Resources with Business-Converting problems with opportunities-Better environment for doing business-Holding business responsible for social problemsArguments against social responsibilityViolation of maximization of profit motive
Reality of Social ResponsibilityWhatever maybe the argument, either in favour of or against social responsibility, thereality is in favour of social responsibility. Let us discuss some of them below.-Threat of Public Regulations
-Pressure of labour movement-Impact of Consumer Consciousness-Development of Social Standard for business-Development of Business Education-Relationship between social interest and business interest-Development of professional, managerial class
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ConclusionFrom the above seen ‘Realities of Social Responsibility’ it is clear that business housesmust assume social responsibility for their survival and growth.Kinds of Social ResponsibilityEconomic ResponsibilityMaximizing profit by producing and selling goods and services required for the society.Legal ResponsibilityEvery business needs to operate within the laws of the land. A law abiding enterprise is asocially responsible enterprise as well.Ethical ResponsibilityThis includes the behavior of the firm that is expected by the society but not included inlaw. Eg. Should respect religious sentiment and dignity of people while advertizingDiscretionary ResponsibilityThis refers to the voluntary obligations that an enterprise assumes.E.g. Charitable contributions, providing relief during natural calamities etc.,
Social Responsibility towards different interest groupsA business unit has to decide in which areas it should carry out social good. Few areasare explained below.Responsibility towards shareholders or ownersTo provide fair return on their investment, ensure safety of their investment and toprovide regular, accurate and full information about the business.Responsibility towards the workersTo provide opportunities for meaningful work, create the right kind of workingconditions, respect the democratic rights of the workers and ensure a fair wage dealfrom the management.
Responsibility towards the consumerTo provide right quality and quantity of goods and services at reasonable prices and toavoid adulteration, hoarding, dishonest and misleading advertisements.Responsibility towards the government & communityTo respect the laws of the country and pay taxes regularly and honestly and actaccording to well accepted values of the society and to protect environment.Business & Environmental ProtectionProtection of the environment is a serious issue that confronts business managers and decision makers. Business organizations are major pollutants so they have to do something to controlpollution.Causes of PollutionWaste generated by various industries, agriculture, mining, construction, energyproduction, transportation etc., cause pollution.Environmental ProblemsPollutions results in following environmental problems identified by UNO1. Ozone Depletion 5. Deforestation 2. Land Degradation 6. Global Warming3. Solid & Hazardous Wastes 7. Water Pollution 4. Danger to biological diversity 8. Fresh water quality and quantity
Types of PollutionAir PollutionCarbon monoxide emitted by automobiles, smoke and other chemicals frommanufacture and pollutes the air & lowers its quality. It also created a hole inthe ozone layer leading to global warming.Water Pollution
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This is primarily from chemical and waste dumping into water bodies. This lead to deathof several animals and posed a serious threat to human life.Land PollutionDumping of toxic wastes reduces the quality of land and making it unfit for agriculture orplantation.Noise PollutionNoise caused by the running of factories and vehicles create a serious health hazard suchas loss of hearing, malfunctioning of the heart and mental disorders.
Need for Pollution ControlTo preserve precious environmental resources & improve thequality of human life pollution control becomes essential. Let us listout some reasons for pollution control.Reduction of health hazardPollution control measures can check diseases like cancer, heart attack & lungcomplications and support a healthy life on earth.Reduced Risk of LiabilityWhen people are affected by toxicity released by any business, the business is liable topay compensation. If the business installs pollution control devices, it can escape fromsuch a liability.Cost SavingPollution control needs improved production technology which automatically reducescost.Improved Public ImageA firm that promotes the cause for environment will enjoy public confidence and goodreputation.Other social benefitsCleaner buildings, cleaner roads, clearer visibility, better quality of life, availability ofnatural products in a purer form are some of the other social benefits the society can getthrough proper pollution control system.Role of business in environmental protectionMost of the pollution is caused by business enterprises and therefore they should takethe lead in providing their own solutions to environmental problems. Some of thespecific steps that can be taken by a business are as follows.1. A definite commitment by top management to systematically protectenvironment.2. Involving all divisions and sections of employees in environmental protection.3. Developing clear cut policies and programs with regards to quality, methodand process of production and disposal of waste.4. Complying with laws of the land in relation to environmental protection.5. Participation in government programs such as management of waste,forestation etc.6. Periodical assessment of pollution control programs of their own, with a viewto improve them.7. Arranging educational workshops and training materials to share technicalinformation with everyone involved in pollution control.Business EthicsBusiness ethics refers to the socially determined moral principles which should governbusiness activities.Examples of Business Ethics- Charging fair prices- Using correct/accurate weights
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- Giving fair treatment to all employees- Avoiding adulteration, hoarding etc.- Not engaging in any illegal methods of operation and not doing anything which isbeing considered as undesirable by the society.- Using environmentally friendly products, methods and processes.
Benefits of doing Ethical Business- Ethical business is good business- It improves public image and support- Earns people’s confidence and trust- Leads to greater success- Helps in long-term standingElements of Business Ethics-Top Management commitment-Publication of a ‘code’-Establishment of Compliance Mechanism-Involving employees at all levels-Measuring Results
ONE MARK QUESTION:
Q1. What is meant by social responsibilities of business?
ANS :It refers to its obligation to take those decisions and perform those actions which are desirable in terms of objectives and values of our society.Q2. Give one example of economic responsibilities of business?
Ans; Production of goods and services according to society need/wants?
Q3.Give one example of discretionary responsibilities of business?
Ans: Helping flood effected people.
Q4.Give one example of legal responsibilities of business?
Ans: paying taxes honestly .
Q5. What is environment pollution?
Ans; It means injection of harmful substances into the environment.
Q6. List two types of pollution?
Ans : Air pollution, Noise pollution.
Q7. What is business ethics ?
Ans: It refers to the socially determined moral principles which should govern the business
activities.
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Q8. Give two examples of business activities considered as business ethics?
Ans: (i) charging fair prices from the customers ,(ii) paying taxes on time and with honesty
SHORT ANSWER TYPE QUESTION :( 3 MARKS)
Q1. What do you mean by social responsibility of business? How is it different from legal responsibility?
Ans. Social Responsibility of business refers to its obligation to take those decisions andperform those actions which are desirable in terms of objectives and values of oursociety.
Q2. What is environment ? What is environment pollution ?
Ans. Business EnvironmentIt is a totality of all external forces with which the business interacts constantly but overwhich it does not have any control. The environment influences the business directly toa great extent. Environmental Protection
It is the deliberate process of protecting the environment from existing or potentialthreats of any nature.
Q3. What is business ethics ? Mention the basic elements of business ethics?
Ans. Business Ethics
Business ethics refers to the socially determined moral principles which should governbusiness activities
Q4. Briefly explain (a) Air pollution (b) water pollution(c) Land pollution (d)
Ans.Types of Pollution
Air PollutionCarbon monoxide emitted by automobiles, smoke and other chemicals frommanufacture and pollutes the air & lowers its quality. It also created a hole inthe ozone layer leading to global warming.Water PollutionThis is primarily from chemical and waste dumping into water bodies. This lead to deathof several animals and posed a serious threat to human life.Land PollutionDumping of toxic wastes reduces the quality of land and making it unfit for agriculture orplantation.Noise PollutionNoise caused by the running of factories and vehicles create a serious health hazard suchas loss of hearing, malfunctioning of the heart and mental disorders
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Q5. What are the different kinds of social responsibility of business?
Ans:Kinds of Social Responsibility
Economic ResponsibilityMaximizing profit by producing and selling goods and services required for the society.Legal ResponsibilityEvery business needs to operate within the laws of the land. A law abiding enterprise is asocially responsible enterprise as well.Ethical ResponsibilityThis includes the behavior of the firm that is expected by the society but not included inlaw. Eg. Should respect religious sentiment and dignity of people while advertizingDiscretionary ResponsibilityThis refers to the voluntary obligations that an enterprise assumes.E.g. Charitable contributions, providing relief during natural calamities etc.,
Q6. Briefly explain the different reasons to control the pollution ?
Ans: Need for Pollution Control
Reduction of health hazardPollution control measures can check diseases like cancer, heart attack & lungcomplications and support a healthy life on earth.Reduced Risk of LiabilityWhen people are affected by toxicity released by any business, the business is liable topay compensation. If the business installs pollution control devices, it can escape fromsuch a liability.Cost SavingPollution control needs improved production technology which automatically reducescost.Improved Public ImageA firm that promotes the cause for environment will enjoy public confidence and goodreputation.Other social benefitsCleaner buildings, cleaner roads, clearer visibility, better quality of life, availability ofnatural products in a purer form are some of the other social benefits the society can getthrough proper pollution control system.
Q7. Briefly explain the role of business in environment protection?
Ans: Role of business in environmental protection
Most of the pollution is caused by business enterprises and therefore they should takethe lead in providing their own solutions to environmental problems. Some of thespecific steps that can be taken by a business are as follows.1. A definite commitment by top management to systematically protectenvironment.2. Involving all divisions and sections of employees in environmental protection.3. Developing clear cut policies and programs with regards to quality, methodand process of production and disposal of waste.4. Complying with laws of the land in relation to environmental protection.5. Participation in government programs such as management of waste,
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forestation etc.6. Periodical assessment of pollution control programs of their own, with a viewto improve them.7. Arranging educational workshops and training materials to share technicalinformation with everyone involved in pollution control.
LONG ANSWER TYPE QUESTION:
Q1. Explain the arguments for social responsibilities?
Ans. Arguments for social responsibility
(a)Justification for existence and growthThe ultimate motive of business is profit, as only profit can help the business grow andexpand. Profit should be made as an outcome of service to the society by means ofproducing goods and services to satisfy human needs.(b)Long term interest of the firmA firm and its image stand to gain maximum profits in the long run when it has itshighest goal as ‘service to society’. When increasing number of members of society feelthat business enterprise is not serving its best interest, they will tend to withdraw theircooperation to the enterprise concerned. Therefore, it is in its own interest if a firmfulfills its social responsibility.( c )Avoidance of government regulationsWhen a particular business is not socially responsible, government regulations tend tolimit its freedom. Therefore, it is believed that if businessmen are socially responsible,they can avoid government regulations.(d)Maintenance of SocietyLaw alone can’t help out people with all the difficulties they face. When businesses turnsocially responsible they take care of the society’s need, the society is at peace. Thatmeans business houses also have some responsibility to contribute something for socialpeace & harmony.( e) Availability of Resources with BusinessThe business enterprises have huge financial resources, very efficient managers &contacts and thereby they can ensure that a social problem can be solved easily, in thebest way possible.( f )Converting problems with opportunitiesBusiness with its glorious history of making risky situations into profitable deals can notonly solve social problems but also make them effectively useful.( g)Better environment for doing businessIf the business is to run in a society with diverse problems, the success of the business islimited. Therefore, if the business takes measures to resolve the social problems, thebusiness can create a better environment for its functioning and thereby earn moreprofits.( h)Holding business responsible for social problemsIt is argued that many problems are created by the existence of business enterprisethemselves – like environmental pollution, discriminated employment, corruption etc.Therefore it is the duty of business to set right the problems caused by them.Q2. Discuss the forces which are responsible for increasing concern of business enterprises towards social responsibilities?Ans.( a )Reality of Social ResponsibilityWhatever maybe the argument, either in favour of or against social responsibility, the
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reality is in favour of social responsibility. Let us discuss some of them below.( b )Threat of Public RegulationsDemocratically elected governments, through their law enforcing agencies continuouslytrying to ensure the welfare of the society and thus they have a watchful eye over allbusiness operations. So to avoid government action business organizations shouldbehave in a socially responsible manner.( c )Pressure of labour movementLabour, is not only the active factor but also activates other factors of production.Nowadays, they are more educated and their movement becomes more powerful in theworld. No more ‘hire and fire’ policy will work; this made the businessmen to take upsocial responsibility towards their employees.( d )Impact of Consumer ConsciousnessConsumers are more conscious about quality, price etc. of the product and services.Even for small discrepancies, nowadays they prefer to file a suit in the consumer court.( e)Development of Social Standard for businessNew social standards consider business enterprises as legitimate but with a conditionthey must also serve social needs.( f )Development of Business EducationBusiness education created much awareness about the social responsibility in the mindsof investors, consumers, employees etc. and they became more sensitive towards socialissues.( g) Relationship between social interest and business interestNow people come to realize that social interest and business interest arecomplementary. This ensures long term benefit of the business.( h) Development of professional, managerial classEarlier managers of business houses aimed at only profit maximization but professionalmanagement educational institutions created a new class of managers who gives equalimportance to social responsibility too.ConclusionFrom the above seen ‘Realities of Social Responsibility’ it is clear that business housesmust assume social responsibility for their survival and growth.
Q3. Briefly explain the social responsibilities towards (a) shareholders (b) workers (c) consumer (d) government and community?
Ans. Social Responsibility towards different interest groups
A business unit has to decide in which areas it should carry out social good. Few areasare explained below. (a )Responsibility towards shareholders or ownersTo provide fair return on their investment, ensure safety of their investment and toprovide regular, accurate and full information about the business.( b) Responsibility towards the workersTo provide opportunities for meaningful work, create the right kind of workingconditions, respect the democratic rights of the workers and ensure a fair wage dealfrom the management.( c)Responsibility towards the consumerTo provide right quality and quantity of goods and services at reasonable prices and toavoid adulteration, hoarding, dishonest and misleading advertisements.
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( d) Responsibility towards the government & communityTo Srespect the laws of the country and pay taxes regularly and honestly and actaccording to well accepted values of the society and to protect environment.
HOTs:1. When enterprises behave as good citizen, towards which group are theyshowing their responsibility?Ans. Government and community2. “A Business owes certain obligations towards different groups” Identify thosegroups and explain the obligation of business towards those groups.Ans. Consumer ,Shareholders ,Employees, Government ,Community andSuppliers3. Which groups expects that the companies must provide good quality andunadulterated goods and services as their social responsibility?Ans. Consumer group4 . Name the concept which is concerned with what is right and what is wrong?Ans. Ethics7. What is the relationship between ethics and moral values??Ans. Higher moral values lead to higher ethics.8. Give any two reasons against social obligation.Ans. 1.Profit Motive 2.lack of social skill
CHAPTER - 7 SOURCES OF BUSINESS FINANCE Content Mapping:- Concept of business finance, Owners‟ funds- equity shares, preferences, share, Global Depository receipt (GDR), AmericanDepository Receipt (ADR), International Depository Receipt (IDR) and retained earnings, Borrowed funds: debentures and bonds, loan from financial institution, loans from commercial banks,public deposits, trade credit, Inter Corporate Deposits (ICD).
Business cannot be run without money. Funds required to carry out business is called Business Finance. This chapter throws light on how the finances for the business can be arranged, what are the sources of funding and what terms and conditions are governed with each type of funding.
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Sources of Funds :
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Period Basis; On the basis of period, the different sources of funds can be categorized into three parts. These are long-term sources, medium-term sources and short-term sources.Ownership Basis; On the basis of ownership, the sources can be classified into ‘owner’s funds’ and ‘borrowed funds’. Owner’s funds; means funds that are provided by the owners of an enterprise.‘borrowed funds’; on the other hand, refer to the funds raised through loans or borrowings.Retained Earning; A company generally does not distribute all its earnings amongst the shareholders as dividends. A portion of the net earnings may be retained in the business for use in the future. This isknown as retained earnings. MERITS; (i) Retained earnings is a permanent source of funds available to an organization;(ii) It does not involve any explicit cost in the form of interest, dividend or floatation cost;(iii) As the funds are generated internally, there is a greater degreeof operational freedom and flexibility.LIMITATIONS; (i) Excessive ploughing back may cause dissatisfaction amongst the shareholders as they would get lower dividends;(ii) It is an uncertain source of funds as the profits of business are fluctuating;(iii) The opportunity cost associated with these funds is not recognizedby many firms. This may lead to sub-optimal use of the funds.
Trade Credit; Trade credit is the credit extended by one trader to another the purchase of goods and services.MERITS; (i) Trade credit is a convenient and continuous source of funds;(ii) Trade credit may be readily available in case the credit worthiness of the customers is known to the seller;(iii) Trade credit needs to promote the sales of an organization.LIMITATIONS; (i) Availability of easy and flexible trade credit facilities may induce a firm to indulge in overtrading, which may add to the risks of the firm;
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(ii) Only limited amount of funds can be generated through trade credit;(iii) It is generally a costly source of funds as compared to most other sources of raising money.Public Deposits; The deposits that are raised by organizations directly from the public are known as public deposits. Rates of interest offered on public deposits are usually higher than that offered onbank deposits.MERITS; (i) The procedure of obtaining deposits is simple and does notcontain restrictive conditions as are generally there in a loan agreement;(ii) Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions;(iii) Public deposits do not usually create any charge on the assets ofthe company. The assets can be used as security for raising loansfrom other sources;(iv) As the depositors do not have voting rights, the control of thecompany is not diluted.Limitations; (i) New companies generally find it difficult to raise funds through public deposits;(ii) It is an unreliable source of finance as the public may not respondwhen the company needs money;(iii) Collection of public deposits may prove difficult, particularly whenthe size of deposits required is large.Share: The amount of capital to be raised from public is divided into units of equal values. These units are known as SHARE. Equity (Ordinary) shares; are those which do not carry any special or preferential rights.
Equity (Ordinary) shares;
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Merits Demerits
1. Convenience 1. Low dividend2. No charge on assets 2. Uncertain3. No obligation 3. Unbalanced growth 4. Dependable 4. Misuse and Speculation5. Growth and Expansion
Preference shares; are those which carry two special or preferential rights.(i) receiving a fixed rate of dividend, before any dividend is declared for equity shareholders; and (ii) receiving their capital before equity shareholders.MERITS;(i) Preference shares provide reasonably steady income in theform of fixed rate of return and safety of investment.(ii) Preference shares are useful for those investors who want fixedrate of return with comparatively low risk.(iii) It does not affect the control of equity shareholders over themanagement as preference shareholders don’t have voting rights.LIMITATIONS; (i) Preference shares are not suitable for those investors who are willing to take risk and are interested in higher returns.(ii) Preference capital dilutes the claims of equity shareholders overassets of the company.(iii) The rate of dividend on preference shares is generally higher than the rate of interest on debentures.
Debenture: A company can raise funds through issue of debentures, which bear a fixed rate of interest. The debenture issued by a company is an acknowledgment that the company has borrowed a certain amount of money, which it promises to repay at a future date.
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Types Of Debentures
• Secured Unsecured
• Redeemable Irredeemable
• Convertible Non- Convertible
• Registered Bearer
Debentures
Merits Demerits
1. Regular return 1.Charge on assets2. Safety of investment 2.No voting rights3. Economic sources 3.Permanent burden of 4. Flexibility interests5. Tax relief
Differences between Shares and Debentures
BASIS SHARES DEBENTURES
1.Types of funds Owner's funds Borrowed funds
2.Return Flexible Fixed
3.Voting rights Available No voting rights
4.Status of holdersOwners of the
companyCreditors of the
company
5. Redemption Not redeemable Mostly Redeemable
6.Charge No charge on assets Charge on assets
7. Degree of risk for
HoldersHigh Low
Public deposits:
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Refers to the unsecured deposits invited by companies from the public. It can invite for a period of six months to 3 years. Public deposit cannot exceed 25% of its share capital & resources.
MERITS DEMERITS
1. Simplicity 1. Uncertainty2. Economical 2. Temporary finance 3. No charge on assets 3.Unsuitable for new 4. No loss on control company
Loans From Commercial Banks
Business can raise finance from commercial banks in the following ways;
MERITS;(i) Banks provide timely assistance to business by providing funds as and when needed by it.(ii) Secrecy of business can be maintained as the information supplied to the bank by the borrowers is kept confidential.(iii) Formalities such as issue of prospectus and underwriting are not required for raising loans from a bank. This, therefore, is an easiersource of funds.LIMITATIONS; (i) Funds are generally available for short periods and its extension or renewal is uncertain and difficult;(ii) Banks make detailed investigation of the company’s affairs, financial
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Cash Credit:
Interest is charged on the amount actually
Term Loan:
For medium term
Discount of bill:
Banks provide short term finance in exchange for bill.
Overdraft:
Current Account holders is allowed to overdraw his A/c.
structure etc., and may also ask for security of assets and personalsureties. This makes the procedure of obtaining funds slightly difficult;(iii) In some cases, difficult terms and conditions are imposed by banks.for the grant of loan. For example, restrictions may be imposed on thesale of mortgaged goods, thus making normal business working difficult.
Financial Institutions; The government has established a number of financial institutions all over the country to provide finance to business organizations. These institutions are established by the central as well as state governments. They provide both owned capital andloan capital for long and medium term requirements like IFCI, ICICI, IDBI, etc.MERITS; (i) Financial institutions provide long term finance, which are not provided by commercial banks;(ii) Besides providing funds, many of these institutions provide financial,managerial and technical advice and consultancy to business firms;(iii) Obtaining loan from financial institutions increases the goodwillof the borrowing company in the capital market. Consequently,such a company can raise funds easily from other sources as well;(iv) As repayment of loan can be made in easy installments, it does notprove to be much of a burden on the business;(v) The funds are made available even during periods of depression, when other sources of finance are not available.Limitations (i) Financial institutions follow rigid criteria for grant of loans. Too many formalities make the procedure time consuming and expensive.(ii) Certain restrictions such as restriction on dividend payment are
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imposed on the powers of the borrowing company by the financial institutions.
Inter Corporate Deposits (ICD);The Board of DirectorsInternational Sources of Finance: Financial institutions and investors in foreign countries can invest in the shares and debentures of Indian companies. Two main instruments used by Indian companies to tap international sources of finance are:
Global Depository Receipts; (GDR’s): The local currency shares of a company are delivered to the depository bank. The depository bank issues depository receipts against these shares. Suchdepository receipts denominated in US dollars are known as GlobalDepository Receipts (GDR). GDR is a negotiable instrument and can betraded freely like any other security. A holder of GDR can atany time convert it into the number of shares it represents. The holdersof GDRs do not carry any voting rights but only dividends andcapital appreciation. American Depository Receipts (ADR’s): The depository receiptsissued by a company in the USA are known as American DepositoryReceipts. ADRs are bought and sold in American markets like regularstocks. It is similar to a GDR except that it can be issued only toAmerican citizens and can be listed and traded on a stock exchangeof USA.Indian Depository Receipts (IDR’s): The Indian Depository Receipt is a financial instrument denominated in Indian Rupees in the form of a depository receipt created by a domestic/Indian depository against the underlying equity of issuing company .It enables the foreign companies to raise funds from the Indian
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securities market. The custodian of securities must be registered with the SEBI.
ADR GDR
(American Depository Receipt) (Global Depository Receipt)
1. Raised from equity markets in USA. 1. Traded on a stock exchange 2. Funds from ADR are available in in Europe or US or both.
US Dollars. 3. No broker is needed. Issued only to 2. No voting right
American citizens
Gist of the Lesson;
1.Business finance is of three types – Long term, Medium term, Short term
2.There are two sources of business finance – Owners funds, Borrowed funds
3.Shares are of two types – Equity and Preference shares
4.Retained profits refer to the undistributed profits which are re-invested in business.
5.ADRS ,GDRS and IDRS are the main International sources of finance.
VALUE BASED QUESTION;
Q. The Board of Directors of “Suzy ltd.” Decided to purchase a new machinery, which require an investment of 5 crore .The actual cost of machinery was 4 crore but The Board of Directors had an understanding with the supplier that he will prepare an invoice of 5 crore and payback the difference to the directors in cash, personally. What values did The Board of Directors ignore in the above case.
Ans. 1. Honesty 2. Breach of trust 3. Integrity.
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VSA (Very short Answer type questions ) (1mark)
1. What is ADR?2. What is meant by convertible debenture?3. Explain the term ‘ICD’ ?
SA (Short Answer type questions ) (3 or 4 marks)
1. Describe the various types of finance?2. Explain three sources of owners funds.3. Explain any two types of preference shares.4. Explain the advantages of equity share.5. What is IDR?
LA (Long Answer type questions ) (5 or 6 marks)
1. Distinguish between Equity shares and Preference shares.2. What are retained profits? Discuss their merits and demerits.3. Explain the disadvantages of shares.4. Explain the merits and demerits of public deposits.
HOTS
1. Name the capital invested in permanent assets.2. What is self financing?3. Name the funds needed for day to day operations of business.
CHAPTER - 8
SMALL BUSINESSContent mappingSmall scale enterprise as defined by MSMED Act 2006 (Micro, Small and Medium Enterprise Development Act)Role of small business in India with special reference to rural areas
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Government schemes and agencies for small scale industries (National Small Industries Corporation) and District Industrial Centre (DIC) with special reference to rural, backward and hilly areas
Small Scale IndustryIt is one in which investment in plant and machinery does not exceed rupees one core.
An ancillary industrial unit
It is one which supplies not less than 50% of its output to another parental unit.The ancillary small industry can manufacture parts, components, sub- assemblies, tools or intermediate products for the parent unit.
Export-Oriented unit
It is one which exports more than 50% of its output and wherein investment in plant and machinery does not exceed rupees one core.
Small Scale UnitIt owned and managed by Women Entrepreneur is one in which women have a share capital of not less than 51%.
Small scale industries owned and managed by women entrepreneurs: An enterprise promoted by women entrepreneurs is a small scale industrial unit in which she/they individually or jointly have share capital of not less than 51 per cent. Such units can avail the special concessions offered by the government, like low interest rates on loans, etc.
Tiny Industrial unitIt is an enterprise having investment in plant and machinery of not more than Rs.25 laths.
Micro BusinessIt unit is one where investment in plant and machinery of not more than Scone laky.
Village IndustryIt means any industry located in a rural area which produces any goods, renders any service with or without the use of power and in which fixed capital investment per head does not exceeds Rs.50,000.
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Cottage IndustryIt refers to industrial units which are traditional rural industries located in residential premises and in which manual techniques and simple tools are used.
Definitions of Micro, Small & Medium Enterprises Development (MSMED)
In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:
(a) Manufacturing Enterprises-
The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.
(b) Service Enterprises:
The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.
The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under:
Manufacturing Sector Enterprises Investment in plant & machinery Micro Enterprises Does not exceed twenty five lakh rupees Small Enterprises More than twenty five lakh rupees but does not
exceed five crore rupees Medium Enterprises
More than five crore rupees but does not exceed ten crore rupees
Service Sector Enterprises Investment in equipments Micro Enterprises Does not exceed ten lakh rupees: Small Enterprises More than ten lakh rupees but does not exceed two
crore rupees Medium Enterprises
More than two crore rupees but does not exceed five core rupees
Role of Small Business in India (With Special Reference to Rural Areas)
Generation of employment in rural areas
Small industries provide employment opportunities in rural areas. They are the second largest employers of human resources
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Rural industrialization
The development of village & rural industries leads to industrialization in rural areas
Equitable distribution of national income
They ensure equitable distribution national income &wealth by reducing income inequalities between rural & urban areas. They contribute nearly 40% of the gross industrial value added
Mobilization of local resources
They help in mobilization & utilization of local resources & skills
Multiple source of income
They help generate multiple sources of income to the rural house holds
Prevent migration
They prevent migrations of rural population to urban areas in search of employment.
Role of small scale industries in socio economic development of India
Employment generation Output generation Export promotion Balance regional development Development of entrepreneurship Complementary to large scale industries
Problems Of Small Scale Industries
Finance:Small scale industries find it difficult to get loans from banks & other financial institutions.
Quality
They are not able to get quality raw materials at reasonable prices.
Management skills
They are usually run by people who may not have managerial skills.
Labor
They cannot pay higher salaries to employees so they leave the business.
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Global competition
They face competition from global enterprises.
Technology
They use outdated machineries & technologies. Raw materials
Their quality of goods is low. Marketing
Due to lack of marketing skills & lack of demand, half of the capacity is not utilized so the operating cost is more.
Government Schemes and Agencies for Small-Scale Industries (SSI) Government Measures and Schemes Land is supplied at a concessional rate to industries setup in back ward areas. Power is supplied at a concessional rate. Water is supplied on no profit no loss basis. In all union territories SSI’s are exempted from sales tax. Scarce raw materials are supplied on priority basis. Loans are offered at concessional rate. They are exempted from payment of tax for 5 or 10 years. 800 items are reserved for exclusive production by SSI’s.
Measures taken by the government (Point wise) Protective measures Credit and finance Marketing assistance Incentives Institutional support
Institutional support 1. National bank for agriculture and rural development (NABARD) 1982
It provides assistance to units in SSI sector for rural development. It supports cottage and rural industries and artisans by offering cancelling and consultancy
service. It provides easy credit facilities It organise training and development programmers for rural areas.
2. National small industries corporation(NSIC) 1955 It supplies imported machines and raw materials to SSI’s on easy hire purchase schemes
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It exports the products of SSI’s It provides technologies to SSI’s and creates awareness on technological up gradation
3. District Industrial centers (DIC) 1978 They provide an integrated administrative frame work at the district level They provide all the services and support facilities to the entrepreneurs for setting up small
and village industries
4. Small industries development bank of India (SIDBI) 1989 It provides term loans to SSI units for modernization, technology up gradation and
diversification. It provides assistance for working capital requirements for SSI’s and tiny industries. It provides assistance for rehabilitation of potentially viable sick units in SSI sector. It undertakes discounting of bills for small business. It provides services like factoring, leasing, etc. It extends financial support to various institutions engaged in the promotion of small
business, such as the state financial corporation (SFC), state industrial development corporations (SIDC), etc.
It has formulated a credit guarantee fund trust (CGFT) for small industries for guaranteeing the loans and advance up to Rupees 10 lakh.
INCENTIVES a. Land
Developed plot offered by state for setting industry
b. Power Free or 50% concessional rate during initial years.
c. WaterWater supplied free or concessional rate.
d. Exemption from tax (tax holiday)Tax exemption for 5 to 10 years
e. Finance Loans are offered at very low rate of interest
f. Industrial estates States encourage establishing industries in rural areas and hilly areas.
g. Raw material SSI gets preferential allotment of scare raw materials like iron, cement, steel etc.
Things to be remembered:
Type of Industry Investment Limit(Rs) Remarks
Small scale industry One croreFor specific products it is five
crores (71 products so far)
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Ancillary industry One crore50% of output supplied to the
parent unitTiny enterprise 25 lakhs No location limit
Service and Business(industry related) 10 lakhs No location limit
enterprises
Women enterprise Any of the above 51% equity holding by women
and managed by womenExport Oriented Units
One crore100%, EOUs can sell 25% in
(EOU's) domestic markets.
THE FUTURE OF SMALL BUSINESSThe rules of trade are subject to frequent changes as per global expectations. As a founder member of WTO, India too has committed itself to the policy framework of WTO. As a result, small business is also moving away from the pre-liberalisation era of protection. With the Indian economy getting integrated with the global economy, it is inevitable for the small businesses to gear up their capabilities to explore, penetrate and develop new markets. They have to steadily reorient themselves to face the challenges posed by increased competition, domestically and internationally too. With their dynamism, flexibility and innovative entrepreneurial spirit, small businesses have to adapt themselves to the fast changing needs of the market driven economy. Government should reorient its assistance to the small business sector by acting as a facilitator and promoter and not as a regulator.
Very Short Answer Type Questions:
1. Name the two categories of village and small industries sector in India.
Ans. Traditional small industries –handlooms, handicrafts, coir, sericulture, khaki, and village industries Modern small industries- small scale industries and power looms.
2. Name the small scale unit in which investment in plant and machinery does not exceed rest 25 laths.Ans. Tiny industrial units.
3. How much do small industries in India account for the total industrial units?Ans. 95%.
4. How much do small industries contribute to total export from India?Ans. 45%.
5. Give the full form of NABARD.Ans. National Bank for Agriculture and Rural Development.
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Short Answer Type Questions:
1. How would you differentiate between an ancillary unit and tiny unit?Ans. Aspin ancillary unit the investment in plant and machinery is up to 1 core and supplies 50% of its production to the parent unitIn tiny unit the investment in plant and machinery is up to 25 laths.
2. What is the difference between small scale enterprise and cottage industries?Ans. In small scale industry in investment in fixed assets is up to 1 core where as in cottage industry produce simple products by using indigenous technology and the investment per person is RS 50,000.
3. Explain four important problems of small business in India.Ans. The following points should be explained
Finance Management skills Marketing Quality
4. Explain any 3 incentives offered by got to small scale enterprise so that they can contribute in the development of overpopulated country like India.
Ans. Protective measures Credit and finance Marketing assistance Incentives Institutional support
5. What is the definition of MSMED?
Ans.The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as under:
Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh; A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh
but does not exceed Rs. 5 crore; A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5
crore but does not exceed Rs.10 crore. In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No.S.O.1722(E) dated October 5, 2006 .
6. What is Small Business?
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Ans. Small Business includes :a) Small Industries having investment up to 1 Croreb) Ancillary industrial undertakingsc) Tiny Unitsd) Cottage Industriese) Small Scale Industries owned by womenf) Khadi and village industriesg) Agro based industries.
7. Write the features / Characteristics for small scale enterprises?
Ans. The features / Characteristics of Small scale enterprises are:-a. Personal Characterb. Independent managementc. Dominance of Labourd. Limited Investmente. Limited Area of Operationsf. Located in Rural and Semi-Urban Areag. Engaged in Light Consumer Goods
8. Give the Assistance and Special Schemes for Industries in Rural Backward and Hilly Areas by the Government?
Ans.a. Institutional Support
i. National Small Industries Corporation (NSIC)ii. The District Industries Centres (DICs).
b. Incentives Offered to Industries in Rural, Backward and Hilly Areasi. Land at Concessional Rateii. Location of Public Sector in Backward Areaiii. Establishment of Industrial Estateiv. Development of Infrastructurev. Tax Concessionvi. Providing Finance at Concessional Ratevii. Providing Subsidies such as Transport Subsidy, Capital Subsidy and Infrastructure
Subsidyviii. Development of Backward Areas.
9. Give one feature of Cottage Industries.
Ans. A) Artisans produce goods with the help of Family Members e.g., Handloom weaving.
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10. Give any two incentive offered by the govt. To Small Scale Industries.
Ans. a)About 800 items are reserved exclusively for SSI.
b) Exemption from excise duty up to Rs 1 crore.
11. Give any two characteristics of SSI.
Ans. a)Personal Touchb) Dominance of Labour.
15. Name any two units included in SSI category.
Ans. a) SSI b) Ancillary Unitsc) Tiny Unitsd) Cottage Industries.
Long Answer Type Questions:
1. The path of small scale industries is full if hurdles.” In the light of this statement, discuss the problems faced by small scale industries.
Ans. The following Problems of small scale industries should be explained Finance Management skills Marketing Quality Underutilisation of capacity Raw materials Labor Technology Global competition
2. Describe the role of small business in rural India.
Ans. The following points should be explained Generation of employment in rural areas Multiple source of income Prevent migration Mobilization of local resources Rural industrialization Reduction in income inequalities
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Equitable distribution of national income.3. Identify any 6 major industry groups in the small sector in India.
Ans. 1. Food products 2. Chemicals and chemical products 3. Hosiery and garments 4. Leather and leather products 5. Repair services 6. Beverages, tobacco and tobacco products.
4. Mention the forms of support to small industries by the govt.
Ans.1. Institutions for credit facilities. 2. Provision of training facilities. 3. Supply of machinery on hire purchase system. 4. Technical assistance. 5. Financial assistance for technological up gradation. 6. Incentives for setting up enterprises in backward areas.
Chapter 9INTERNAL TRADE
Content mapping
Services rendered by a wholesaler and a retailer . Types of retail-trade-Itinerant and small scale fixed shops. Large scale retailers-Departmental stores, chain stores, mail order business. Concept of automatic vending machine . Chambers of Commerce and Industry: Basic Functions Main documents used in internal trade: Performa invoice, invoice, debit note, credit note. Lorry receipt (LR) and Railways Receipt (RR). Terms of Trade: Cash on Delivery (COD), Free on Board (FOB), Cost, Insurance and Freight (CIF), Errors and Omissions Excepted (E&OE).
Meaning of Internal Trade: Buying and selling of goods & services takes place within the boundaries of a nation is referred as Internal Trade. Types of Internal Trade: Itinerant retailer – traders who move from one place to another in search of customers and do not have fixed place to sell their goods, is called ‘Itinerant retailer’. Examples are – peddlers & street hawkers, pavement vendors, market traders, cheap jacks etc. and they are sold the goods as vegetables, fruits, daily needs goods, home utility items etc.
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Hawkers move from one place to other carrying goods in a bicycle, a hand cart or cycle rickshaw whereas peddlers carry goods on their heads and move from one place to other in search of customers. They deal in non-standardized and low valued products. Market trader’s deals in low valued, low priced of one line or a variety of products by setting temporary shops at different places on fixed days or dates. i.e. garments, crockery items, general kitchenware or other day to day utilities. Street traders are the small retailers who sell their goods at places which are surrounded by huge floating population. They sell items of daily needs or immediate consumption.Cheap jacks are petty retailers who run independent, temporary shop in a business locality. They usually pay a fix amount to the fixed shop owner and set up their temporary shop in the area assigned by the fixed shop owner. They deal in consumer items and change their place depending up on the potential customers. They can offer better quality products at cheaper prices due to low overhead cost.Fixed Shop Retailers: (1) Small Scale Fixed Shop retailers (2) Large Scale Fixed Shop retailers Small scale fixed shopsExamples: General Stores, Street Stall Holders, Speciality Shop Holders, Second hand goods dealers, Single Line Shop.General stores are the small shops which sell a variety of consumer products procured from varied manufacturers. They operate in a local market or residential areas, so they aim to sell products which would satisfy the day to day needs of the consumers in nearby areas. Speciality shops are small shops which deal in a specific line of products manufactured by varied manufacturers. These shops provide customers an opportunity to select a product from a wide variety of brands. Example- readymade garments shop for school uniforms.Second-hand goods shops are run by retailers dealing in second hand goods. They sell second hand items at very low prices. Single line stores are the shops which deal in a single product. They sell wide variety of items of the same line. Example- Novelty Shoe store, sell shoes of different brands for all – men, women and children.Seconds shop sells such goods which were not produced as per the specification or may have manufacturing defects. The customers are well informed about the defect before buying the product. Large scale Fixed Shops:Departmental storesA departmental store is a large retailing business which offers a wide variety of speciality products with a sole aim of catering to every customer under the one roof. It is organized into well-defined departments where each department looks after the activities related to a specific line of products. They offer medicines, groceries, clothes, toiletries, furniture, electronics, dress materials, shoes and the list goes on. Example- Big Bazar.Features:(1) Varied Service – A departmental store, besides providing widest possible range of goods under the one roof it also provides services like restaurant, telephone booth, restrooms, information counter, entertainment facility etc.(2) Central Location – The stores are located at a place which is well connected with all part of the city.(3) Huge Investment – The stores are deals in all types of goods with wide variety at large quantity and they have high overhead cost therefore, needs heavy investment in fixed and working capital.
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(4) Corporate Status – The stores are formed as joint stock companies to meet the requirement of huge investments. They are managed by a board of directors.(5) Bulk Purchasing – They purchases the goods in large quantities directly from manufacturers. They have their own warehouse.(6) Centralized Purchases – The store has centralized purchasing but decentralized sales.(7) Organized as Departments – The store is organized in various departments and each department is responsible to sell a line of products. Chain Stores (Multiple Shops):A chain store is the network of identical retail shops owned and operated by manufacturer or intermediaries. These are located at different places across the country, deal in same products, have similar appearance and operate under the same ownership.Example – Bata Shoe Stores, Pizzahut etc.Features:1. Location – located at the places which attract large number of customers.2. Huge Investment – involves huge investments to open identical stores across the country.3. Single line store – specialize in one line of products of entire variety.4. Uniformity – sell same products, follow same prices, have identical strategies and displays as decided by the head office.5. Purchases & Sales – centralized purchases and decentralized sales.6. Management – the day to day business affairs are managed by branch managers who are accountable to the head office.7. Cash Sale – sell on cash basis and deposit the daily sales into a local bank account on behalf of the head office.8. Controlled by Head Office - Mail order business: Mail order houses are the retail outlets selling their products through mail. There is no personal contact between the buyer and seller. Advertisement is the medium of sale targeting literate customers. This is not limited to any geographical boundaries. Mail orders are suitable for consumer goods which are standardized, have continuous demand and long expiry and can be easily transported. Example – books, cloths, toys, footwear etc.
Advantages of Departmental, Chain Stores and Mail order housesDepartmental Stores Chain Stores Mail Order Houses1. Attract large number of customers2. Provides convenience in buying3. Provides variety of services4. Enjoy economies of large scale operations5. Promote sales by various schemes & offers6. Good quality of products
1. Economies of scale2. Standard quality3. Elimination of middlemen4. No bad debts5. Transfer of goods6. Diffusion of risk7. Low cost8. FlexibilityCentralized plan & control
1. Limited capital required2. Elimination of middlemen3. No bad debts4. Wide reach5. Convenience
Limitations of Departmental, Chain Stores and Mail order housesDepartmental Stores Chain Stores Mail Order Houses
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1. Lack of personal attention2. High operating cost3. Inconvenient location4. High possibility of loss5. Huge investment
1. Limited selection of goods2. Lack of initiative3. Lack of personal touch4. Difficult to change demand5. Huge investment6. No credit sales
1. Lack of personal contact2. High promotion cost3. No after sale services4. No credit sales5. Delayed delivery6. Possibility of fraud7. Dependency on mail
Automatic Vending Machine:Automatic vending machines are the latest addition to the means of retail business. A coin or a token is used to purchase a product. The customer inserts the coin or token in the machine and receives the product. The automatic vending machines are usually places with floating population for example, airports, railway stations, malls, petrol pumps, office complex etc.* to withdraw the money with debit card* to get milk from mother dairy booths* to get cold drinks from cold drink machines* Coffee/tea machinesServices rendered by Wholesaler:Services rendered to manufacturers:1. Facilities large scale production – collects various small orders from retailers and places large orders with manufacturers.2. Bearing risk – market risks for change in demand or prices are borne by the wholesaler.3. Provides financial assistance – pays either cash or advance for goods purchased.4. Expert advice – provides latest market information about competitors, tastes and preferences of customers.5. Help in marketing functions – distributes goods to millions of customers through retailers.6. Provides continuity to production activity.7. Act as storing base for manufacturers – wholesaler store, grade, repack in smaller quantities and transport to retailers.Services rendered to retailers:1. Enables retailers to keep/store/sell products of different manufacturers in smaller quantities.2. Provides market support3. Provides financial support by selling goods on credit4. Updates retailers with technological changes, information about new products, competitor’s products.5. Shares the risk of theft, price fluctuation, etc. by way of storing goods on behalf of retailers. Services rendered by Retailer:Services rendered to manufacturers/wholesalers:1. Helps in getting orders, distribution of goods and collection of payments.2. Makes efforts to sell goods direct customers enabling manufacturer to operate at a large scale.3. Provides updated market information with concerned to customers preferences.4. Promotes new products using direct contact with customers.5. Shares risks.Services rendered to Consumers:1. Makes regular availability of goods2. Provides information related to new products3. Provides consumers the convenience of quantity and place of buying.
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4. Provides wide variety of goods5. Provides after sale service for sold product6. Provides consumers the credit facility.Chamber of Commerce and Industry: Role & functions in the promotion of internal trade1. Provides help in promotion of interstate movement of goods2. Ensures that local taxes do not affect the smooth transportation and local trade3. Interacts with forming cooperatives to streamline subsidies, marketing policies for agriculture products.4. Interacts with government for formulation and implementation of policies related to weights, measures and brands.5. Collaborates with government for development of infrastructure.6. Interacts with government on issues related to labour laws.Documents used in internal trade:Performa Invoice – Preliminary bill sent by the seller with details of goods to be delivered. Invoice – Detailed of goods delivered such as name of firms and goods, quantity, quality, prices and other terms & conditions.Debit note – Business receives from customer to inform sales return.Credit note – Business sends to customer to acknowledge goods received against sales return. Lorry receipt – Receipt issued by road transporter against accepting goods for delivery to a specific destination.Railway receipt – Receipt issued by rail authority against accepting goods for delivery to specified destination.Terms of Trade: Cash on delivery (COD) – Payment for goods purchased at the time of delivery of goods. Free on board (FOB) – Seller pays transportation cost up to the point of delivery to the transportation mode.Cost, Insurance and Freight (CIF) – Seller pays for cost of goods, insurance and transportation cost at the time of delivery of goods. Errors and Omissions Excepted (E & OE) – Phrase used on legal documents to reduce liability for incorrect or incomplete information.
Chapter 10INTERNATIONAL BUSINESS
One Mark questions:
Q.N.1 What do you mean by international business?
Ans: International business refers to those business activities that take place beyond the geographical limit of the country.Q.N.2 What do you mean by Indent?
Ans: Indent is a supply order of goods containing complete description of goods ordered , prices to be paid , terms of delivery etc.Q.N.3 Who does issue Mate’s Receipt ?
Ans: Mate’s Receipt is issued by the captain (commanding officer) of the ship to the exporter after the cargo is loaded on the ship.Q.N.4 Distinguish between domestic business and international business on the basis of Nationality of buyers and sellers.
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Ans: In domestic business both buyers and sellers belong to same country ,while in International business both belong to different country.Q.N.5 What do you understand by ‘ Letter of Credit’ ?
Ans: Letter of credit is a guarantee issued by the importer’s bank to honour payment of the export bills to the bank of the exporter.Q.N.6 What is WTO?
Ans: Word Trade Organization(WTO) is a newly globalised trade organization to promote International Trade.Q.N.7 What do you mean by Enterpot trade?
Ans: When goods are imported from one country and re-exported the same to another country , it is known as enterpot trade Q.N.8 What is proforma invoice?
Ans: It is a document issued by the exporter containing detailed information regarding price, quality ,grade, size, weight and all other conditions on which their export will take place.Q.N.9 State any two functions of WTO ?
Ans: (i) Undertakes the task to settle the trade related dispute among the members countries. (ii) Provides environment for mitigating grievances by the members countries.Q.N.10: State one reason for International Business.
Ans: Unequal distribution of natural resources.Q.N.11: Where is the head quarter of WTO located?
Ans: It is located in Geneva, Switzerland. 159 countries are the members of WTO. Q.N.12: What do you mean by ‘bill of lading’
Ans: Bill of lading is a document issued by shipping company as an evidence that the shipping company has accepted the goods for carrying them to the port of destination.
(SHORT ANSWER QUESTIONS) 3-4 Marks
Q.N.13 State any three characteristics of international business.
Ans: (i) It involves two or more than two countries . (ii) Foreign currency is used as the medium of payment.(iii) legal obligation to follow rules regulation of the country (iv) It involves high degree of risk.Q.N.14: Discuss any three reasons which justify the need of International Business.
Ans: (a) Uneven distribution of Natural Resources : All the natural resources are not available in all the country of the world but the resources are the need of every country. (b) Specialization : Some countries are specialized in the production of those goods and services for which they have some advantages of high labour productivity, technical know-how , and suitable climate conditions etc. (c) Cost benifits: Production cost differs in different countries due to socio- economic, geographical and political conditions .Each country concentrates on production of of such goods and services , which are most economical to produce.Q.N.15: State any four problems of International business.
Ans: (a) Different currencies: Every county has its own currency therefore importer has to make payment in the currency exporter ‘s country. so there is a risk of loss due to exchange rate fluctuations. (b) Language barrier: Due to different language in different countries , it become difficult for
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traders to understand the terms and conditions of the contract. (c) Legal formalities : International business is subject to large number of legal formalities and restrictions . So it involves a heavy documentation. (d) Mobility of factors of production: The Mobility of factors of production especially labours and capital is difficult between nations due to legal restrictions, variation in social, cultural, geographical , economical environment .Q.N.16: Describe any four advantages of International Business.
Ans: (a) Earning of foreign exchange : Export of goods and services to other countries generate foreign exchange which can be used to import capital goods , technology and other product as required by the country. (b) Optimum utilization of resources: The country produce those goods and services which it can produce efficiently from the available natural resources . The option of exporting the surplus production prompts the producers to utilize available resources to achieve maximum production . (c) Increases employment opportunities: International trade directly increase the level of production and thus it creates employment opportunities for people . (d) Increase standards of living : The international trade provides the better quality and cost effective goods and services produced in other countries . Which improves the standards of living of the people .Q.N.17: State any four any four differences between domestic business and International business.
Basis domestic business International businessConcept domestic business takes place with
in the geographical boundries of a country.
International business takes place beyond the geographical boundries of a country.
Nationality Both buyers and sellers belong to the same country.
Both buyers and sellers are from different countries.
Currency of payment Payments are done in local currency of the country.
Importer make the payment in the currency of the exporting country.
Rules and regulations domestic business follows rules regulations of the country.
International business follows rules and regulation of multiple countries.
Q.N.18: State any four objectives of WTO.
Ans: (1) To ensure the reduction of tariffs and others trade barriers imposed by different countries. (2) To facilitate the optimal use of the world’s resources for sustainable development. (3) To improve the standards of living ,create employement , increase income and effective demands and facilitates higher production and trade. (4) To ensure protection and preservation of the environment.Q.N.19: State any four fuctions of WTO.
Ans: (i) Promotes an environment for member countries to mitigate their grievances at WTO. (ii) Formulates a code of conduct which is acceptable to all member countries to reduce tariffs and trade barriers. (iii) Acts as dispute settlement body. (iv) Cunsult IMF and IBRD and other affiliated agencies to create better understanding and cooperation in global economic policy making.Q.N.20: What do you mean by shipping bill and certificate of origin?
Ans: shipping bill:It is a permission to export, received after the custom clearance of goods to be exported . It contains details of the goods exported , the name of vessel, discharge port , destination country ,exporters name and address etc. certificate of origin : It is document which acts as a proof certifying that the goods have been
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manufactured in the expoting country. It is issued by the trade consultant of the exporting country.
(LONG ANSWER QUESTIONS) 5-6 MarksQ.N.21: Discuss the procedure to be followed for export of goods.
Q.N.22: What do you mean by import trade ? Describe the steps involved in import procedure.
Ans: : Import trade: It refers to buying of goods and services by a firm of home country from a firm of
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Ans: (1) Receipt of enquiry and sending quotations: Exporter Receives an enquiry with complete product details from the prospective buyer requisting information regarding price , quality , and terms and conditions for export of goods . The exporter send quotation in reply to the inquiry in the form of the proforma invoice . (2) Indent or Receipt of order: Indent is a supply order, received from the prospective buyer satisfied with the quotation sent. It contains the description of the goods ordered , price to be paid , delivery term and packing and marking details. (3) Securing guarantee for payment(demond for letter of credit): To minimize the risk of non- payment , exporter generally demands a ‘letter of credit ‘ from the importer. Letter of credit is a guarantee issued by the importer’s bank to honour payment of the export bills to the bank of the exporter. (4) Obtaining export license : The exporter is required to obtain ‘Export License ‘ before exporting the goods from’ Directorate General of Foreign Trade ‘ (5) Obtaining pre- shipment finance And production or procurement of goods: After receiving letter of credit , the firm may approach bank to get pre- shipment finance to meet financial requirement to execute the export order.And the exporter starts the manufacturing or procuring the goods. (6) Pre – shipment inspection : The inspection can be done by inspection agencies authorized by the government under export quality control and inspection Act, 1963. (7) Excise clearance : As per Central Exise Tariff Act , exporter is required to pay excise duty on certain excisable goods and to obtain ‘Excise Clearance certificate ‘ for the same. (8) Obtaining Certificate of Origin: The exporter obtain the certificate of origin from the consultant and provide the same to the importer to avail exemption from importing goods from a particular country. (9) Reservation of shipping space : The exporter has to book shipping space to export goods. After reservation the shipping company issue ‘shipping order ‘ (10) Packing and forwarding : The goods are then properly packed and marked with necessary details such as name and address of importer , gross and net weight, port of shipment and destination ect.
(11) Insurance of goods : The goods are insured with an insurance company to avoid the risk. (12) Custom clearance: Goods can be loaded on the ship only when they get custom clearance. For this purpose the exporter prepares shipping bill and it is submitted to custom appraiser at the custom house along with all impotant documents. (13) Obtaining mate’s receipts : After getting the custom clearance , the goods are loaded on ship for which the captain of the ship issues a receipt to the port superintendent , known as mate’s Receipt. (14) Payment of freight and issuance of bill of lading : After getting mate’s Receipt the exporter submit the mate’s Receipt to the shipping company for computation of freight . Once the freight is paid the shipping company issues the ‘Bill of Lading ‘. Which is an evidence that the shipping company has accepted the goods for carrying them to the destination port. (15) Preparation of invoice : After sending the goods the exporter prepares an invoice for the goods exported . The invoice will contain details about the quantity of goods sent and the amount to be paid by the importer . (16) Securing payment: After the shipment , the exporter inform the importer and sends following documents so that the importer can claim title of the goods (i) Invoice (ii) Bill of Lading (iii) Packing list (iv) insurance policy (v) Certificate of origin (vi) Letter of Credit . The exporter’s bank delivers these documents to the importer only when the importer accepts the ‘Bill of Exchange’
foreign country.Import procedure : (1) Trade Enquiry : Trade Enquiry is a written request from the importer to the exporter to provide information (quotation) regarding the price ,terms and conditions on which the exporter is able to supply goods.(2) Procurement of import license: In case license is mandatory for the given goods , then the importer must obtain license from the licensing authority. The authorities are Directorate General of Foreign Trade, Regional import export licensing authourity.(3) Obtaining Foreign Exchange; The importer has to procure foreign exchange (currency) as payment for import has to be made in the currency of exporting countrys or US dollar. In India all foreign exchange transactions are regulated and sanctioned by exchange control department of RBI.(4) Indent or Placing Order: After obtaining Foreign Exchange , the importer places order for the goods to be imported. Which is known as Indent.(5) Obtaining letter of Credit: The exporter ensures the credit worthiness of the importer , so the importer obtain the letter of credit from its banker and forward it to the exporter .(6) Arranging for finance: The importer should make arrangements to pay in advance to the exporter.(7) Receipt of shipment advice: After loading goods on the ship , the exporter despatches the shipment advice to the importer. Which contains information regarding shipment of goods like Invoice , Bill of Lading , Packing list, Name of the ship, description of goods etc.(8) Retirement of import documents : After loading goods on the ship, the exporter prepares necessary documents and submits it to his banker such as invoice , B/L , Certificate of origin, insurance policy, Packing list etc. The exporter’s bank delivers these documents to the importer only when the importer accepts the ‘Bill of Exchange’ .(9) Arrival of goods : When the goods arrive at the port of the importer’s country , the incharge of the carrier (ship) provides ‘Import General Manifest’ to the concerned officer in-charge at the port .On the basis of the documents the goods are unloaded from the carrier .(10) Custom clearance and release of the goods : In India , delivery of imported goods can be taken only after custom clearance. Which involves the following steps (i) Obtaining delivery order or bill of lading (ii)Payment of dock charge (iii) Filling Bill of Entry for assessment of custom import duty (iv) Payment of custom duty and delivery of goods .Q.N. 23: Describe the following documents required in export and import trade . (i) Certificate of origin (ii) Bill of Lading (iii) Letter of Credit (iv) mate’s receipts (v) Shipping order (vi) Shipping Bill
Q.N.24 What is WTO? State any five fuctions of WTO.
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Ans: (i) Certificate of origin : It is document which acts as a proof certifying that the goods have been manufactured in the expoting country. It is issued by the trade consultant of the exporting country.On the basis of this certificate the importer avail exemption on importing goods from a particular country. (ii) Bill of Lading : Bill of lading is a document issued by shipping company as an evidence that the shipping company has accepted the goods for carrying them to the port of destination.It is also a document of the title of the goods .(iii) Letter of Credit: Letter of credit is a guarantee issued by the importer’s bank to honour payment of the export bills to the bank of the exporter.(iv) Mate’s receipts: After getting the custom clearance at the port of the exporter , the goods(cargo) are loaded on ship for which the captain of the ship issues a receipt to the port superintendent , known as mate’s Receipt. Which contains details regarding the name of the vessel, berth , date of the shipment , description of the package , marks and number etc.(v) Shipping order: The exporter has to book shipping space to export goods. After reservation the shipping company issue ‘shipping order ‘ .Shiping order is an instruction to the captain of the ship to receive the specified goods on board after clearance from the cutom.(vi) Shipping Bill: A shipping bill is the main documenton the basis of which the the custom officegrant permission for the export .Which contains details regarding the name of the vessel, berth , date of the shipment , description of the package , marks and number , name and address of exporter , destination country etc.
Ans: WTO: Word Trade Organization(WTO) is a newly globalised trade organization to promote International Trade. The Word Trade Organization(WTO) was established on Jan. 1, 1995 to replace the General Agreement on Trade and Tariff (GATT). It ensures that International Trade flows as smoothly and freely as possible .Functions of WTO: (i) Promotes an environment for member countries to mitigate their grievances at WTO. (ii) Formulates a code of conduct which is acceptable to all member countries to reduce tariffs and trade barriers. (iii) Acts as dispute settlement body. (iv) Consult IMF and IBRD and other affiliated agencies to create better understanding and cooperation in global economic policy making. (v) Ensuring that all the rules and regulations are duly followed by the member countries to settle their disputes.
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