1. Internal Trade When buying and selling of goods and services takes place within the geographical limits of a country. It is known as internal trade.
The main features of internal trade are
(i) The buying and selling of goods and services takes place within a country. (ii) The payment are made and received in the home country only. (iii) There are no or very few formalities to be completed by the traders.
2. Types of Internal Trade Internal trade can be classified into two categories.
(i) Wholesale Trade It refers to the trade in which goods are sold in large quantities. The person who carries on wholesale trade is known as wholesaler.
A wholesaler provides many valuable services to the manufacturer as well as the retailer.
(a) Services to Manufacturer
Facilitating large scale production
Bearing risk
Financial assistance
Expert advice
Help in marketing function
Facilitate production continuity
Storage
(b) Services to Retailer
Availability of goods
Marketing support
Grant of credit
Specialised knowledge
Risk sharing
(ii) Retail Trade Retail trade refers to sale of goods in small lots to the final consumers. A retailer buys goods from a wholesaler and sells them to the consumer.
(a) Services to Consumers
Ready or quick supply
Wide variety
Guiding consumers
Demonstration and after sale services
Home delivery
Convenient location
Credit facility
(b) Services to Wholesaler and Manufacturer
Ready market
Providing information
Risk bearing
Distribution of goods to distant places
3. Classification of Retailers
Retailers can be classified on the following basis
(i) Size (ii) Product mix (iii) Pricing (iv) Service level (v) Form of ownership
4. Types of Retail Trade Keeping in mind all the above criteria, that is size product mix, pricing and service level, the retail trade can be classified in to the following categories
(i) Itinerants retailers (ii) Fixed shop retailers
5. Itinerants Itinerants refers to retailers who have no fixed place of sale. They move from one place to another in search of customers.
6. Types of Itinerants
(i) Hawkers and Peddlers Hawkers and Pedlars moves from street to street in search of customers.
The main features of hawkers and pedlars are
(a) They sell a variety of goods such as fruits, vegetables, toys etc. (b) They deal with non-branded and local items. (c) They supply the goods at the door step of the customer.
(ii) Periodic Market Trader These traders sell their goods on fixed days in different market places. Their weekly market are fixed
The main features of periodic market traders
(a) They sell their goods in the weekly market. (b) They deal in low price and low quality goods. (c) These traders also set up shops on the occasion of Diwali, Christmas, etc.
(iii) Street Traders These retailers display their articles on busy street corners, pavements, bus stands etc.
The main features of street traders are
(a) They generally operate near public places such as railway stations. (b) They deal in a variety of goods such as towels, things of daily use mirrors etc.
(iv) Cheap Jacks They display their goods in hired shops or intents for a temporary period in different localities.
The main features of cheap jacks are
(a) They hire small shops. (b) They shift from locality depending upon the prospectus of business. (c) They deal in low price, household articles.
7. Fixed Retailers The retailer having a fixed place of sale are known as fixed shop retailers.
Fixed shop retailers can be further classified into t\VO categories
(i) Small scale fixed retail shops (ii) Large scale fixed retail shops
8. Small Scale Fixed Retailer
(i) General Stores General stores are small shops located in residential areas.
The main features of general stores are
(a) They have a large variety in each line of product. (b) They provides free home delivery, credit facility.
(ii) Single Line Stores Single line stores are small shops which deal with one line of products.
The main features of single line stores are
(a) These stores deal with one line of products. (b) These stores deal in a variety of goods in that line of product.
(iii) Speciality Stores These stores deal in a particular type of product under one product line only.
The main features of speciality stores are
(a) These stores are specialised in one product only. (b) They keep all the brands of that product.
(iv) Street Shops These shops are situated at street crossings, They are also known as street stalls
The main features of street shops aTe
(a) These shops have a limited space. (b) These retailers display their goods on tables, stands etc.
(v) Second Hand Goods Shops These shops deal with second-hand goods or used articles such as books.
The main features of second- hand good shop
(a) These shops sell used goods. (b) The goods are generally priced low because these are used goods.
(vi) Seconds Shops There are the shops to sell goods which are not produced according to the required specification.
The main features of second-hand goods shop
(a) These shops deal in the products which have some manufacturing defect.
(b) Goods are sold at a heavily discounted price.
9. Large Scale Retailers Large scale retailers deal in a large stock of goods and purchase goods in bulk. Features of large scale retailers are.
(i) They require a huge investment. (ii) They have large size show rooms to sell goods.
The most common forms or types of large scale retailers are
(a) Departmental stores (b) Multiple shops or chain stores (c) Mail order retailing (d) Consumer co-operative stores (e) Super markets (f) Franchise
10. Departmental Stores A departmental store is a large retail showroom having a number of departments under one roof each department specialised in one line of product.
(i) Advantages
(a) Convenient shopping (b) Central location (c) Economies of scale (d) Elimination of middleman
(ii) Limitations
(3) High operating cost (b) Lack of personal attention (c) High price (d) Not located in residential colonies (e) Huge capital
11. Multiple Shops Multiple shops refer to a number of identical retail shops located in different parts of the city.
(i) Advantages (a) Economies of scale (b) Standardised products (c) Public confidence (d) Division of risk (e) No, bad debts
(ii) Limitations
(a) Limited variety (b) Lack of personal touch (c) Inflexibility (d) Divided attention (e) No facilities
12. Mail Order Retailing In mail order retailing seller contact the potential buyers through advertisements and mail publicity
(i) Advantages
(a) Limited capital (b) Convenience (c) Wider market (d) No, bad debts (e) Elimination of middleman
(ii) Limitations
(a) No personal contact (b) No personal inspection (c) Limited variety (d) Postal delay (e) Heavy advertising cost
13. Consumer Co-operative Store It can be defined as “A voluntary association of persons based on co-operative principles by buying in common and selling in common”.
(i) Advantages
(a) Reasonable prices (b) Low operating cost (c) Cash sales (d) Economies of scale (e) Benefits from government
(ii) Limitations
(a) Limited capital (b) Inefficient management (c) Lack of incentives (d) Lack of storage facilities
14. Super Markets Super market are organised by co-operative societies as well as by private traders.
(i) Advantages
(a) Wide choice (b) Low price (c) No, bad debts (d) Convenience in shopping
(ii) Limitations
(a) No credit (b) Lack of personal touch (c) High cost (d) Mis handling of goods (e) Limited scope
15. Vending Machines A vending machine is a new form of direct retailing. It is a machine operated by coins or tokens. The buyer inserts a coin or token in the machine and receive a specific quantity of product from the machine.
(i) Advantages
(a) Buying round the clock is possible. (b) The customer gets fresh supply of goods. (c) No, requirement of salesman.
(ii) Limitations
(a) Initial investment to install the machine is quite high. (b) Machine requires regular repair and maintenance. (c) Coins of exact shape and size are required to operate the machine.
16. Role of Commerce and Industry Association is in promotion of internal trade.
(i) Interstate movement of goods (ii) Octroi and other local levies (iii) Harmonisation of sales tax structure and value added tax (iv) Marketing of agro products and related issues (v) Weights and measures and prevention of duplication (vi) Excise duty (vii) Promoting sound infrastructure (viii) Labour legislation
1. Small Business The definition of small business by the Government of India is based on the investment in Plant and Machinery, This approach is justified because we have scarce capital and abundant labour. ‘the small scale industries includes.
(i) Small scale industries (ii) Ancillary industrial undertaking (iii) Export-oriented units (iv) Tiny units (v) Small scale industries owned by women (vi) Cottage industries (vii) Khadi and village industries (viii) Agro based industries
2. Nature of Small Scale Industries
(i) The business is organised by individuals in the private sector. (ii) The use of family labour and locally available talent is made. (iii) Simple equipments are used. (iv) Capital investment is small, generally restricted to one crore. (v) The use of indigenous technology.
3. Administrative Setup for the Small Scale
(i) Agro and Rural Industries
(a) The government of India created the Ministry of small scale industry and Agro and Rural Industries as the nodal ministry for formulation of policy.
(b) This ministry was divided into following two separate ministries in September 2001 .
Ministry of Small Scale Industries
Ministry of Agro and Rural Industries
(c) A part from the ministries state government also makes various promotional and development projects for SSI and then are executed.
4. Role of Small Business in India In developing countries like India there is a greater scope for small business enterprise. The following factors help in the scope of small business enterprises
(i) Limited resources (ii) Flexibility of operation (iii) Personal attention (iv) Individual attitude (v) Suppliers of large scale business (vi) Social utility
5. Role of Small Business in Rural India
Small scale industries provide the following benefits in rural area.
(i) Employment (ii) Improves economic condition (iii) Promotion of artistic and creative sense (iv) Rural development (v) Mobilisation of local resources
6. Problems of Small Business in India
(i) Shortage of Fund Small enterprises have a chronic shortage of finance both for fixed and working capital requirement.
(ii) Shortage of Raw Materials and Power Most of the small factories have shortage of raw materials and other equipments because of limited means to buy in bulk and suppliers hesitate to provide credit policy (facility) to small business.
(iii) Old Techniques of Production and Lack of Latest Technical Knowledge Most of the small scale enterprise use old techniques of production because they cannot afford new technique.
(iv) Marketing Problems Small scale industries face many difficulties in marketing their products because of many reasons
(a) The cost of production is high. (b) They cannot afford to have their own marketing organisation. (c) Products of many small firms are not having uniform quality.
(v) Personal Problem Securing the right type of personal is a major problem of small business. A more important problem is the problem of proper training reasonable compensation etc.
(vi) In perfect Organisational Setup In most of the small enterprise the ownership and management functions are performed by the owner himself. Generally the owners may not have the necessary skill to manage the business also.
7. Government Assistance and Special Schemes for Industries in Rural Backward and Hilly Areas Some of the support measures and programmes meant for the promotion of small and rural industries are grouped in following two categories.
(i) Institutional Support
(a) National Bank for Agriculture and Rural Development (NABARD) The NABARD provides loans and advances to State Government for a period not exceeding 20 years to enable to State Government.
(b) The Rural Small Business Development Centre (RSBDC) It is set up by the World Association for small and medium enterprises and is sponsored by NABARD. It aims at providing management and technical support to current and prospective micro and small entrepreneurs in rural areas.
(c) National Small Industries Corporation (NSIC) Its main focus was on
• To supply indigenous and imported machines in easy instalments. • To procure and supply imported raw materials. • To export of products of SSI.
(d) Small Industries Development Bank of India (SIDBl) SlDBI was established in 1989 as a public corporation. Its main object is to promote. Finance and develop the small scale sector in India.
(e) The National Commission for Enterprises in the Unorganised Sector (NCEDS) The NCEUS was constituted in September 2004, with the following objectives
TO improve productivity of small scale enterprises.
To generate more employment opportunities.
(f) Rural and Women Entrepreneurship Development (RWED) This programme encourages rural people and women RWED provides the following
Enhancing human and institutional capacities.
Providing training for women entrepreneurs.
(g) World Association for Small and Medium Enterprises (WASME) Common schemes offered by WASMe are
Integrated Rural Development Programme
Prime Minister Rozgar Yojana
Training of Rural Youth for self-employment
Jawahar Rozgar Yojana
(h) Scheme of Fund for Regeneration of Traditional Industries (SFURTl) This fund is used
To improve the technology of traditional units.
To create sustained employment opportunities.
To set up traditional industries in various parts of the country.
(i) The District Industries Centre (DIC) The DIC Programme was started on 1 May 1978 to provide assistance to small scale industries at the district level.
These centres provides all the promotional activities such as identification of suitable scheme preparation of feasibility report arranging for credit etc.
(ii) Incentives Some of the common incentives offered are below
(a) Land (b) Power (c) Water (d) Sales Tax (e) Octroi (f) Raw materials (g) Finance (h) Industrial estates (j) Tax holiday
Notes Class 11 Business Studies Sources of Business Finance
1. Business Finance It refers to capital funds and credit funds invested in the business.
According to BO Wheeler, “Finance is thai business activities which is concerned with acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.”
The financial needs of a business can be classified into two categories.
(i) Fixed capital requirement (ii) Working capital requirement
2. Classification of Sources of Funds
(i) Period Basis On the basis of time period, a business finance can be classified in three categories.
(a) Long Term Finance Funds which are required to be invested In a business for a long period of time, that is more than five years are known as long term finance.
(b) Medium Term Finance The finance required by business enterprises for more than one year but less than five years is known as medium term finance.
(c) Short Term Finance The finance required for a short period upto one year is known as short term finance.
(ii) Ownership Basis On the basis of ownership, the sources can be classified into ‘owner’s fund’ and ‘borrowed fund’,
(a) Owner Fund It refers to the funds contributed by owners as well as the accumulated profit of the company this fund remains with the company and it has no liability to return this fund. e.g., equity shares, retained earnings.
(b) Borrowed Fund It refers to the borrowing of the firm. It includes all funds available by way of loans or credit
(iii) Source of Generation Basis Another basis of categorising the sources of funds can be whether the funds are generated from with in the organisation internal or from external sources.
3. Sources of Finance Companies can raise finance from the following methods.
(i) Retained Earning Retained undistributed profits after payment earning refers to of dividend and taxes. It provides the basis of expansion and growth of companies.
(ii) Features of Retained Earnings
(a) Cushion of security (b) Funds for new and innovative projects (c) Medium and long term finance (d) Conversion into ownership fund
4. Trade Credit It refers to an arrangement whereby a manufacturer is granted credit from the supplier of raw materials, inputs spare parts etc. The supplier allow their customers to pay their outstanding balance, with in a credit period.
The availability of trade credit depends upon
(i) Nature of the firm (ii) Size of the firm (iii) Status or credit worthiness of the firm
5. Factoring Factoring is a financial service’under which factor renders the following services
(i) Discounting of Bills of Exchange When goods are sold on credit then a supplier generally draws bills of exchange upon customers who are required to accept the same.
(ii) Providing Information Regarding the Creditworthiness of Prospective Clients Factors collect detailed information regarding the financial history of different companies which can used by the financier who may lend money to these companies.
6. Lease Financing Leasing is a contract between lessor and lessee. whereby the lessor permits the lessee to use the asset acquired by the lessor in return of a payment called rent.
Lessor is called the owner of the assets and lessee hires the assets by paying rent. With leasing contract the lessee can use the assets without investing a high amount of fund for buying it.
7. Public Deposits Public deposits refers to unsecured deposits invited from the public. A company wishing to invite public deposit places an advertisement in newspapers. Any member of the public can fill up the prescribed form and deposit money with the company. Different features of public deposits are
(i) Unsecured (ii) Finance of working capital (iii) Time period (iv) Simple procedure to raise (v) Repayment
8. Commercial Papers Commercial paper is a source of short finance. The commercial paper was introduced in India for the rust time in 1990. It is an unsecured promissory note issued by public or private sector company with a fixed maturity period, which varies from 3 to 12 months. Since these are unsecured that is why these are generally issued by companies having a good reputation.
9, Issue of Shares Share is the smallest unit in which owner’s capital of the company is divided. A share may also be defined as a unit of measure of a shareholder’s interest in the company.
According to Companies Act, a public company can issue two types of shares.
(i) Equity shares (ii) Preference shares
10. Equity Shares Equity shares is a common security issued under permanent or owner’s fund capital. Equity shares are the most important source of raising long term capital.
In Companies Act permitting companies to issue two categories of equity shares.
(i) Equity shares with equal rights. (ii) Equity shares with differential rights as to divided.
11. Preference Shares Preference shares are those shares which get preference over equity shares in respect to
(i) The payment of dividend. (ii) The repayment of investment amount during winding up. Different features of preferences shares are (i) Fixed rate of dividend (ii) No security (iii) Voting rights (iv) Hybrid security
12. Debentures Debentures are common securities issued under borrowed fund capital. Debentures are instruments for raising long term debt capital. Debentures are called creditorship securities because debenture holder are called creditors of a company.
Different features of debentures are
(i) Borrowed fund (ii) Fixed rate of interest (iii) Compulsory payment of interest (IV) Security (v) Redeemable (vi) No, voting right (vii) Appointment of trustee
13. Commercial Banks Commercial banks occupy a very important position as they provide funds for different purposes and different periods. Firms of all sizes can approach commercial banks. Generally, commercial banks provide short and medium term loans but now-a-days they have started giving long term loans against security.
14. Financial Institutions Public financial institutions are referred to as lending institutions. development banks or financial institutions, After independence the Government of India realised that for economic development of a country only commercial banks are not sufficient. There must be financial institutions to provide financial assistance and guidance to industries and business enterprises.
15. International Source of Finance After the new economic policy of liberalisation or globalisation. the doors of foreign companies and investors were opened to invest In the Indian companies. After 1991. the Indian companies tap international sources of finance for both debt and equity. The main securities used by Indian companies to tap international sources of finance are given below
(i) Loans from Commercial Bank!’; (ii) International Agencies and Development Bank (iii) International Capital Market
(a) GDR (b) ADR (c) lDR
The businessman must keep in mind the following factors
(i) Cost involved (ii) Financial capacity of the firm (iii) Form of business organisation (iv) Time period (v) Risk involved (vi) Control (vii) Flexibility (viii) Claim over the assets (ix) Tax benefits
Notes Class 11 Business Studies Formation of a Company
1. Business Finance It refers to capital funds and credit funds invested in the business.
According to BO Wheeler, “Finance is that business activity which is concerned with the acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.
2. Formation of Company There are two stages in the formation of private company, promotion and incorporation. A public company has to under go capital subscription stage and to the get certificate of commencement of business, to begin operation.
3. Promotion of a Company Promotion is the first stage in the formation of a company. It involves conceiving a business opportunity and taking and initiative to form a company so the particular shape can be given to exploiting the available business opportunity.
4. Functions of a Promoter
(i) Identification of Business Opportunity The foremost activity of a promoter is to identify a first and business opportunity.
(ii) Feasibility Studies The promoters undertake detailed feasibility studies to investigate all aspects of the business they intend to start. There are three types of feasibility
(iii) Name Approval Having decided to launch a company. the promoters have to select a name for it and submit.
(iv) Fixing up Signatories to the Memorandum of association Promoters have to decide about the members who will be signing the memorandum of association of the proposed company.
(v) Appointment of Professionals Certain professionals such as mercantile bankers. auditors etc are appointed by the promoters.
(vi) Preparation of Necessary Documents The promoter takes up steps to prepare certain legal documents. Which have to be submitted under the law
5. Documents Required to be Submitted
(i) Memorandum of Association (ii) Articles of Association (iii) Consent of Proposed Directors (iv) Agreement (v) Statutory Declaration (vi) Payment of Fee
6. Position of Promoters Promoters undertake various activities to get a company registered and get it to the position of commencement of business. But they are neither the agents nor the trustee of the company. They can’t be the agents as the company is yet to be incorporated.
7. Incorporation After completing the afore said formalities, promoters make an application for the incorporation of the company. The app cause is to be filed With the registrar of companies of the state within which they plan to establish the registered office of the company.
8. Effect of the Certificate of Incorporation A company is legally born on the date printed on the certificate of incorporation. It becomes a legal entity with perceptual succession on such date.
The certificate of incorporation is a conclusive evidence of the regularity of the incorporation of a company certificate of incorporation has been issued the company has been legal business entity irrespective of any flow in its registration.
9. Capital Subscription A public company can raise the required funds from the public means of Issue of shares and debentures. For doing the same. It has to issue a prospectus which is an invitation to the public to subscribe to the capital of the company.
The following steps are required for raising funds from the public
(i) SEBl approval (ii) Filling of prospectus (iii) Appointment of bankers brokers underwriters (iv) Minimum subscription (v) Application to stock exchange (vi) Allotment of shares
10. Conunencement of Business If the amount of minimum subscription is raised through new issue of shares, a public company applies to the registrar of companies for the issue of certificate of commencement of business.
Commencement of business along with the following documents
(i) A declaration about meeting minimum subscription requirement (ii) A declaration about details in respect of allotment to directors (iii) A declaration about no money being payable to applicants (iv) A statutory declaration
A public company raising funds privately has to submit only
(ii) and (iv) listed above
The registrar, upon satisfaction issues certificate of commencement of business. This certificate is also a conclusive evidence of completion of formation requirements.
11. Preliminary Contracts Contracts signed by promoters with third parties before the incorporation of company.
12. Provisional Contracts Contracts signed after incorporation but before commencement of business.
Class 11 Business Studies Social Responsibilities of Business and Eussiness Ethics
1. Social Responsibility
Social responsibility is the obligation of businessmen towards the society. Businessmen must review the impact of their decisions and actions on the other sections of the society.
According to Peter F Druker, “Social responsibility requires managers to consider whether their action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength and harmony.”
2. Need for Social Responsibilities
A businessman must perform social responsibilities because of the following reason
(i) Self interest (ii) Better environment for business (iii) Public image (iv) Avoidance of government interference (v) Social power (vi) Resources used for moral justification (vii) Contribution to social problems
3. The Case Against Social Responsibility
Some experts criticise the concept of social responsibility, some of the arguments given against social responsibilities are given below
(i) Motive of earning profit (ii) Lack of social skill (iii) Social responsibility involves cost (iv) Dilution of basic goal of business (v) Business are not moral agents (vi) Reduction in competitiveness
4. Reality of Social Responsibility
After learning the case for and against social responsibilities, we can conclude that business is no longer a mere economic institution but it is also a social institution and businessmen are the trustees of different social groups.
The main reasons and factors which have forced businessmen to consider their responsibilities towards society
(i) Threat of public regulation (ii) Pressure of labour movements (iii) Impact of consumer consciousness (iv) Development of social standard for business (v) Relationship between social interest and business interest (vi) Development of professional managerial Class
5. Kinds of Social Responsibilities
(i) Economic Responsibility
In an economic responsibility, business is expected to produce goods and services that are beneficial for society and society which wants and sell them at a profit.
(ii) Legal Responsibility
Every business enterprise is expected to operate within the legal frame work of our society. A law abiding enterprise gets no interference of government and is considered as a socially responsible enterprise.
(iii) Ethical Responsibilities
Ethics is much more than law, while behaving ethically businessmen should not be involved in adulteration, black marketing, etc.
(iv) Discretionary Responsibilities
This responsibility is purely voluntary. This includes contribution in charity. Participation in social service projects, setting up educational and training institutions etc helping people affected by flood, earthquake etc.
6. Social Responsibility towards Different Interest Groups
(i) Responsibilities towards Consumers
(a) Production of safe items by maintaining quality standards (b) Being truthful in advertising (c) To follow fair trade practices.
(ii) Responsibilities towards Employee
(a) Providing fair compensation and benefits (b) Providing good and safe working conditions (c) To give them opportunities to participate in decision making
(iii) Responsibilities towards the Owners / Shareholders / Investors
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(a) To ensure safety of investment (b) To ensure fair and regular return on investment (c) To ensure appreciation of investment by proper utilisation of resources
(iv) Responsibilities towards the Government
(a) To abide by rules, regulations and laws (b) To pay taxes and duties on time (c) To help in solving social problem
(v) Responsibilities towards the Community
(a) To protect the environment from all types of pollution (b) To provide more employment opportunities (c) To help the weaker section of the society
(vi) Responsibilities towards Suppliers
(a) To ensure regular payment to the supplier (b) To adopt fair dealing with the suppliers (c) To protect and assist small scale suppliers by placing order with them
7. Business and Environment Protection
(i) Causes of Environmental Pollution
Environment pollution arises due to the following causes
(a) Air pollution (b) Water pollution (c) Land pollution
(ii) Need for Pollution Control
The main reasons to control the pollution are as follows
(a) To ensure safety (b) Economic losses (c) To maintain the natural beauty (d) To ensure healthy life (e) To lead a comfortable life
8. Role of Business in Environmental Protection
The businessmen should take following steps to control and check environmental pollution
(i) Making use of eco-friendly techniques of production (ii) Recycling industrial waste (iii) Treating the waste through technologies before discharging them into water or dumping in the land (iv) Make use of eco-marks by producing eco-friendly products
9. Business Ethics It refers to the set of moral values or standards or norms which govern the activities of a businessman. Ethics defines what i, right and what IS wrong.
10. Elements of Business Ethics
Some of the basic elements of business ethics while running a business enterprises are
(i) Top management commitment (ii) Publication of a ‘code’ (iii) Establishment of compliance mechanism (iv) Involving employees at all levels (v) Measuring result
The transaction taking place between business units and customers are known as B2C transaction.
B2C transaction may involve
(a) Selling and distribution (b) After sale service (c) Promotion and other marketing activities
(iii) C2C Commerce
The transaction taking place between customer and customers are known as C2C transaction
C2C transactions may involve
(a) Selling used books, clothes etc (b) Selling antique items (c) Information about the quality and durability of products etc
(iv) Intra b-commerce
This refers to transactions between the parties or persons who are the part of one firm only.
Intra b-commerce transactions may involve
(a) Interaction between any two departments of one firm (b) Placing orders and giving instructions of suppliers (c) Recruitment selection and training of employees.
3. Merits
(i) Easy to form and lower investment is required (ii) Convenience (iii) Speed (iv) Global reach (v) Cost saving (vi) Movement towards a paperless society
4. Limitations
(1) Low personal touch (ii) Delay in delivery (iii) Requirement of hardware (iv) Risk (v) Low ethics
Most of the limitations discussed can be over come with due care and diligence. Some of the way to over come problems are taken up
(i) Websites are becoming more and more interactive (ii) The speed and the quality of communication is improving (iii) India has undertaken 150 such projects to diffuse e-commerce in all nooks and corners
5. On Line Transactions
e-business refers to shopping through internet or on-line.
On-line opens up the whole world as one shop.
There are three phases of doing business in e-business or on-line.
(i) Registration Before on-line shopping one has to register with the on-line vendor by filling up a registration form. (ii) Placing an Order In on-line transactions the order can be placed by picking and dropping the items in the shopping cart. (iii) Payment Mechanism In an on-line purchase payment is made through
(a) Cash on delivery (b) Through cheque (c) Net banking transfer (d) Credit or debit card (e) Digital cash
6. Security security Problems Related to e-commerce
The main security problem of e-commerce are
(i) Transactional risk (ii) Data storage risk (iii) Risk of thread to intellectual property and privacy
7. Resources Required for Successful e-business Implementation of e-business
(i) Computer hardware (ii) Technically qualified staff (iii) Computerised system of receiving payment (iv) Well designed website (iv) Telecommunication facilities
8. Outsourcing Concept BOP refers to getting a business task accomplished through an outside agency.
(i) Advantages
(a) Concentration on core competence (b) Reduction in cost (c) Help to avoid labour problem (d) Benefits of latest development
(ii) Limitations
(a) Confidentiality (b) Sweat shopping (c) Protest in home country (d) Ethical concerns
(iii) Types of Outsourced Services
(a) Financial Services Big companies often need services of specialists for managing finance. e.g., estimating the finance required, how and when to issue shares, debentures.
(b) Advertising Services For a long time the firms are depending upon outsourcing services. The business firms hand over the task of designing and carrying on advertisement campaign to outsourcing firm.
(c) Courier Services Courier services refers to postal services provided by the private firms for carrying mails, parcels etc. The common problem of government postal services was delay. The private outsources offer speedy movement of parcels and samples so business firm relay on them.
(d) Customer Support Services All durable goods require after sale or customer support service to register and attend the complaints of the customers. So firms prefer to outsource these services to outside agencies which are specialised in these tasks.
1. Service Sector Service sector includes commercial firm engaged in banking. communication. transport, insurance, warehousing etc. The service sector constitutes the basic infrastructure which is a must for smooth flow of business activities.
2. Nature of Services
Basic features of services are
(i) Intangible (ii) Lack of Inconsistency (iii) Inventory (iv) Non-transferability or Inseparability (v) Involvement
3. Classification or Types of Services
Services can be broadly categorised into three categories
(i) Business Services Business services are these services which are used by business enterprise to carryon business activities more smoothly, e.g., banking, insurance, transportation warehousing, communication etc.
(ii) Social Services Social services are carried voluntarily to achieve social goal to the society at large.
(iii) Personal Services Personal services are experienced by different customers. These depends upon the customer demands and preferences. Example: Tourism, Restaurants etc.
4. Various Categories of Business Services
(i) Banking (ii) Insurance (iii) Communication (iv) Warehousing (v) Transportation
5. Banking A bank is an institution which attracts money on deposits for the purpose of being lent to industry or trade.
According to Indian Banking Regulation Act, 1949, “Banking means accepting deposits of money from the public for the purpose of lending or investment”.
Banks can be classified into following categories
(i) Commercial Banks Commercial banks are governed and regulated by Indian Banking Regulation Act, 1949 and according to it banking means accepting deposits from public for the purpose of lending investment.
There are Two Types of Commercial Banks
(a) Public Sector Banks (b) Private Sector Banks
(ii) Co-operative Banks These banks are governed by provisions of state Co-operative Societies Act and are formed to provide loan and advances to its members on easy terms.
(iii) Specialised Banks These banks are formed to cater to specific needs of industries, export units. There are foreign exchange banks, industrial development bank, export-import banks etc.
(iv) Central Banks Central bank of any country controls regulates and supervises the activities of commercial banks, it is known as banker of banks.
6. Functions of Commercial Banks The main functions of commercial banks are
(i) Collection of Deposits Commercial banks is that they accept deposits from their clients. The common types of deposits accepted by bank are
(a) Saving account deposits (b) Current account deposits (c) Recurring deposits (d) Fixed term deposits
(ii) Lending of Funds The commercial bank is to provide loans and advances out of the money received through deposits. These advances can be made in the form of overdraft cash credit etc.
(iii) Cheque Facility The banks collect the cheques for their customers drawn on other banks. To collect cheques banks have clearing houses.
(iv) Agency Functions Bank pay insurance premium on behalf of their clients. Bank also collect divided premium, interest, pension etc.
(v) Allied Services In addition to above functions bank also provide allied services such as bill payments, locker facilities etc.
7. e-banking Internet banking means any user with a PC and a browser can get connected to the banks website to perform any of the virtual banking functions and avail of any of the bank’s services.
There are various benefits of e-banking provided to customer which are
(i) e-banking provides 24 hours. 365 days a year services to the customer of the bank. (ii) Customers can. make some of the permitted transactions from office or house. (iii) Greater Customer satisfaction by offering unlimited access to the bank.
The banks also stand to gain bye-banking
(i) e-banking provides competitive advantage to the bank. (ii) e-banking provides unlimited network to the bank.
8. Insurance Insurance is a contract between the insurer and insured in which insurer agree to make good the loss of insured on happening of an event in consideration of a regular payment called premium.
(i) Functions
(a) Protection (b) Distribution of risk (c) Competitiveness (d) Specialisation (e) Beller utilisation of capital (f) Promotes foreign trade (g) Credit facility (h) Capital formation (i) Social welfare
(ii) Principles
(a) Principle of utmost. good faith (b) Principle of insurable interest (c) Principle of indemnity (d) Principle of contribution (e) Principle of subrogation (f) Principle of causa proxima (g) Principle of mitigation of loss
9. Types of Insurance
Insurance contracts are of following types
(i) Life Insurance It may be defined as a contract in which the insurer in consideration of a certain premium either is a lump-sum or by other periodical payments. agree to pays to the assured or the person for whose benefit the policy is taken. The life insurance lli related with two types of risks
(a) Risk of dying to early (b) Risk of dying to late
Types of life insurance policies are given below
(a) Whole Life Policy Under this policy the insured sum is paid only on the death of the insured Which means the policy is to run for the whole life of assured,
(b) Endowment Life Assurance Policy Under this policy the insurer pays a particular sum at the death of the person or on attaining a particular age.
(c) Joint Life Policy This policy is taken up by two 01′ more persons. The premium IS paid jointly or by either of them in instalments.
(d) Annuity Policy Under this policy the assured sum or policy a certain money is payable after the assured a attains age in monthly. quarterly. half yearly.
(e) Children’s Endowment Policy This policy is taken by a person for his/her children to meet the expenses of their education or marriage.
(ii) General Insurance
(a) Fire Insurance Fire insurance is a contract under which one party in return for a consideration agrees to indemnity the other party for the financial loss.
Kinds of fire insurance policies are as follows
Specific Policy
Double Insurance
Reinsurance
(b) Marin Insurance Marine Insurance is a contract between the insured and the insurer. The insured may be cargo owner or ship owner or fright receiver.
The different types of marine insurance are
Cargo Insurance
Hull Insurance
Freight Insurance
10. Communication Services Communication refers to exchange of ideas, views or message between two or more persons.
According to William H Newman, “Communication is an exchange of facts ideas, opinion or emotions by two or more persons”.
11. Postal Services The government at national and international level provides postal services.
(i) Features
(a) All the postal services arc controlled by the government.
(b) The postal department provides services at national as well as international level. (c) Post offices also started speed post service to compete with courier service.
(ii) Drawbacks
(a) Slow in speed (b) Bureaucratic in nature
12. Telecom Services Telecom services are the backbone of every business activity. In the absence of Telecom service every business activity will remain as a dream only.
The various types of telecom services are
(i) Cellular mobile phone (ii) Radio paging services (iii) Fixed line service (iv) Cable service (v) VSAT services (vi) DTH services
13. Transportation It refers to physical movement of goods from one place to other. Transportation comprises of freight services.
The transportation services is necessary to remove the place gap between the producer and consumer.
14. Warehousing Services Warehousing means holding and preservation of goods from the time of their production or purchase and until their sale or use.
(i) Functions
(a) Consolidation (b) Break the bulk (c) Stock pilling (d) Value added service (e) Price stabilisation (f) Financing (g) Risk Bearing
(ii) Types of Warehouses
Warehouses may broadly be classified into five categories
(a) Private warehouse (b) Public warehouse (c) Co-operative warehouse (d) Government warehouses (e) Bonded warehouses
Private, Public and Global Enterprises class 11 Notes Business Studies
PRIVATE SECTOR ENTERPRISES
The private sector consists of business owned by individuals or a group of individuals. The varios forms of organisation are- sole proprietorship, partnership, joint hindu family, cooperative and company.
PUBLIC SECTOR ENTERPRISES
Meaning: The public sector consists of various organizations owned and managed by central or State or by both governments. The govt. participates in economic activity of the country through these enterprises.
FEATURES:
1. Capital is contributed by central or state or both govts. 2. Public welfare or Service is the main objective. 3. Management & control are in the hands of govt. 4. It is accountable to the public.
I. DEPARTMENT UNDERTAKING
These are established as departments of the ministry and are financed, managed and controlled by either central govt. or state govt.
Examples: Indian Railways, Post & Telegraph departments.
FEATURES
1. No Separate Entity: It has no Separate legal entity. 2. Finance: It is financed by annual budget allocation of the govt. and all its earnings go to govt. treasury. 3. Accounting &Audit: The govt. rules relating to audit & accounting are applicable to it. 4. Staffing: Its employees are govt. employees & are recruited & appointed as per govt. rules. 5. Accountability: These are accountable to the concerned ministry.
MERITS
1. It is more effective in achieving the objective laid down by govt. as it is under the direct control of govt. 2. It is a source of govt. income as its revenue goes to govt. treasury. 3. It is accountable to parliament for all its actions which ensures proper utilization of funds. 4. It is suitable for activities where secrecy and strict control is required like defence production.
DEMERITS
1. It suffers from interference from minister and top officials in their working. 2. It lacks flexibility which is essential for smooth operation of business. 3. It suffers from red tapism in day to day Work. 4. These organizations are usually insensitive to consumer needs and do not provide goods and adequate service to them. 5. Such organization are managed by civil servants and govt. officials who may not have the necessary expertise and experience in management.
SUITABILITY:
(i) Where full Govt. control is needed. (ii) where secrecy is very important such as defence.
STATUTORY CORPORATIONS
It is established under a special Act passed in parliament or state legislative assembly. Its objectives, powers and functions are clearly defined in the special Act.
Examples: Unit Trust of India, Life Insurance Corporation.
FEATURES
1. It is established under a special act which defines its objects, powers and functions. 2. It has a separate legal entity. 3. Its management is vested in a Board of directors appointed or nominated by government. 4. It has its own staff, recruited and appointed as per the provisions of act. 5. This type of enterprise is usually independently financed. It obtains funds by borrowing from govt. or from public or through earnings. 6. It is not subject to same accounting & audit rules which are applicable to govt. department.
MERITS
1. Internal Autonomy: It enjoys a good deal of autonomy in its day to day operations and is free from political interference. 2. Quick decisions: It can take prompt decisions and quick actions as it is tree from the prohibitory rules of govt. 3. Parliamentary control: Their performance is subject to discussion in parliament which ensures proper use of public money. 4. Efficient Management: Their directors and top executives are professionals and experts of different fields.
DEMERITS
1. In reality, there is not much operational flexibility. It suffers from lot of political interference. 2. Usually they enjoy monopoly in their field and do not have profit motive due to which their working turns out to be inefficient. 3. Where there is dealing with public, rampant corruption exists. Thus public corporation is suitable for undertaking requiring monopoly powers e.g. public utilities.
SUITABILITY: It is suitable for organizing public enterprise when,
(i) The enterprise requires special power under an Act. (ii) The enterprise requires a huge amount of capital investment.
GOVERNMENT COMPANY
A government company is a company in which not less than 51% of the paid up share capital is held by the central govt. or state govt. or jointly by both.
Examples: Hindustan Insecticides Ltd., State Trading Corp. of India, Hindustan Cables Ltd.
FEATURE
1. It is registered or Incorporated under companies Act1956. 2. It has a separate legal entity. 3. Management is regulated by the provision of companies Act. 4. Employees are recruited and appointed as per the rules and regulations contained in Memorandum and Articles of association. 5. The govt. Co. obtains it funds from govt. shareholdings and other private shareholdings. It can also raise funds from capital market.
MERITS
1. It can be easily formed as per the provision of companies Act. Only an executive decision of govt. is required. 2. It enjoys autonomy in management decisions and flexibility in day to day working. 3. These are able to control the market and curb unhealthy business practices.
LIMITATIONS
1. It suffers from interference from govt. officials, ministers and politicians. 2. It evades constitutional responsibility which a company financed by the govt. should have as it is not directly answerable to parliament. 3. The board usually consists of the politicians and civil servants who are interested more in pleasing their political bosses than in efficient operation of the company.
SUITABILITY:
(i) Where the private sector is also needed along with in govt. (ii) Where activities related to finance are to be encouraged.
CHANGING ROLE OF PUBLIC SECTOR
Public sector in India was created to achieve two types of objective – (1) to speed up the economic growth of the country and (2) to achieve a more equitable distribution of income and wealth among people. The role and importance of public sector changed with time. Its role over a period of time can be summarized as following:
1. Development of Infrastructure: At the time of independence, India suffered from acute shortage of heavy industries such as engineering, iron and steel, oil refineries, heavy machinery etc. Because of huge investment requirement and long gestation period, private sector was not willing to enter these areas. The duty of development of basic infrastructure was assigned to public sector which it discharged quite efficiently.
2. Regional balance: Earlier, most of the development was limited to few areas like port towns. For providing employment to the people and for accelerating the economic development of backward areas many industries were set up by public sector in those areas.
3. Economies of scale: In certain industries (like Electric power plants. natural gas, petroleum etc) huge capital and large base are required to function economically. Such areas were taken up by public sector.
4. Control of Monopoly and Restrictive trade Practices – These enterprises were also established to provide competition to pvt. Sector and to check their monopolies and restrictive trade practices.
5. Import Substitution – Public enterprises were also engaged in production of capital equipments which were earlier imported from other countries. At the same time public sector Companies like STC and MMTC have played an important role in expending exports of the country. Very important role was assigned to public sector but is performance was far from satisfactory which forced govt. to do rethinking on public enterprises.
PUBLIC SECTORY REFORMS
In the industrial policy 1991, the govt. of India introduced four major reforms in public sector.
(I) Reduction in No. of industries reserved for public sector: This no. is reduced from 17 to 8 and to 3 only in 2001. These three industries are atomic energy arms and rail transport.
(II) Memorandum of Understanding (MOU): Under this govt. lays down performance target for public sector and gives greater autonomy to hold the management but held accountable for the specified results.
(III) Disinvestment: Equity shares of public sector enterprises were sold to private sector and the public. It was expected that this would lead to improved managerial performance and better financial discipline.
(IV) Restructural and Revival: All public sector sick units were referred to Board of Industrial and Financial Re-construction (BIFR). Unite which were potentially viable were restructured and which could not be reviewed were closed down by the board.
MULTINATIONAL COMPANIES/GLOBAL ENTERPRISES
Multinational company may be defined of a company that has business operations in several countries by having its factories, branches or offices in those countries. But is has its headquarter in one country in which it is incorporated.
Examples: PHILIPS, Coca Cola etc.
FEATURES
1. Huge Capital Resources: MNCs possess huge capital resources and they are able to raise lot of funds from various sources.
2. International Operations: A MNC has production, marketing and other facilities in several countries.
3. Centralized control: MNCs have headquarters in their home countries from where they exercise control over all branches and subsidiaries. It provides only broad policy framework to them and there is no interference in their day to day operations.
4. Foreign Collaboration: Usually they enter into agreements relating to sale of technology, production of goods, use of brand name etc. with local firms in the host country.
5. Advanced technology – These organisation possesses advanced and superior technology which enable them to provide world class products & services.
6. Product Innovations: MNCs have highly sophisticated research and development departments. These are engaged in developing new products and superior design of existing products.
7. Marketing Strategies – MNCs use aggressive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion.
JOINT VENTURES
Meaning: When two or more independent firms together establish a new enterprise by pooling their capital, technology and expertise, it is known as a joint venture.
Example: Hero Cycle of India and Honda Motors Co. of Japan jointly established Hero Honda. Similarily, Suzuki Motors of Japan and Maruti of Govt. of India come together to form Maruti Udyog.
FEATURES 1. Capital is provided jointly by the Government and Private Sector Entrepreneurs. 2. Management may be entrusted to the private entrepreneurs. 3. It combines both social and profit objectives. 4. It is responsible to the Government and the private investors.
BENEFITS
1. Greater resources and Capacity – In a joint venture the resources and capacity of two or more firms are combined which enables it to grow quickly and efficiently
2. Access to advanced technology – It provides access to advanced techniques of production which increases efficiency and then helps in reduction in cost and improvement in quality of product.
3. Access to New Markets and distribution network – A foreign co. gain access to the vast Indian market by entering into a joint venture with Indian Co. It can also take advantage of the well established distribution system of local firms.
4. Innovation – Foreign partners in joint ventures have the ideas and technology to develop innovative products and services. They have an advantage in highly competitive and demanding markets.
5. Low Cost of production – Raw material and labour are comparatively cheap in developing countries so if one partner is from developing country they can be benefitted by the low cost of production.
6. Well known Brand Names: When one party has well established brands & goodwill, the other party gets its benefits. Products of such brand names can be easily launched in the market.
Public Private Partnership (PPP):
It means an enterprise in which a project or service is finance and operated through a partnership of Government and private enterprises.
FEATURES: 1. Facilitates partnership between public sector and private sector. 2. Pertaining high priority project. 3. Suitable for big project (capital intensive and heavy industries). 4. Public welfare example Delhi Metro Railway Corporation. 5. Sharing revenue – Revenue is shared between government and private enterprises in the agreed Ratio.
Forms of Business Organisation class 11 Notes Business Studies
Meaning A business enterprise is an institutional arrangement to form any business activity.
Classification On the basis of ownership business enterprises can broadly be classified into the following categories:
In case of CORPORATE FORM of private enterprises the identity of the enterprise is separate from that of the owner and in case of NON CORPORATE FORM, the identity of the enterprise is not different from that of its owners.
Sole Proprietorship
Sole proprietorship means a business owned, financed and controlled by a single person who is recipient of all profit and bearer of all risks.
It is SUITABLE IN AREAS OF PERSONALISED SERVICE like beauty parlour, hair cutting saloons & small scale activities like retail shops.
Features
1. Single ownership: It is wholly owned by one individual. 2. Control: Sole proprietor has full power of decision making. 3. No separate legal entity: Legally there is no difference between business& businessmen. 4. Unlimited liability: The liability of owner is unlimited. In case the assets of business are not sufficient to meet its debts, the personal property of owner can be used for paying debts 5. No legal formalities: Not required to start, manage and dissolve such business organization. 6. Sole risk bearer and profit recipient: He bears the complete risk and there is no body to share profit/loss with him.
Merits
1. Easy to start and close: It can be easily started and closed without any legal formalities. 2. Quick decision making: As sole trader is not required to consult or inform anybody about his decisions. 3. Sense of accomplishment: There is a sense of personal satisfaction. 4. Unlimited liability: The liability of owner is unlimited. In case the assets of business are not sufficient to meet its debts, the personal property of owner can be used for paying debts 5. No legal formalities: are required to start, manage and dissolve such business organization. 6. Sole risk bearer and profit recipient: He bears the complete risk and there is no body to share profit/loss with him.
LIMITATIONS
1. Limited financial resources: Funds are limited to the owner’s personal savings and his borrowing capacity. 2. Limited Managerial ability: Sole trader can’t be good in all aspects of business and he can’t afford to employ experts also. 3. Unlimited liability: Ofcourse, sole trader compels him to avoid risky and bold business decisions. 4. Uncertain life: Death, insolvency, lunacy or illness of a proprietor affects the business and can lead to its closure. 5. Limited scope for expansion:- Due to limited capital and managerial skills, it cannot expand to a large scale.
SUITABILITY:
Sole tradership is suitable- • Where the personal attention to customer is required as in tailoring, beauty parlour. • Where goods are unstandardized like artistic jewellery. • Where modest capital and limited managerial skills are required as in case of retail store • Business where risk is not extensive i.e. lesser fluctuation in price and demand i.e. stationery shop.
JOINT HINDU FAMILY BUSINESS
It is owned by the members of undivided joint Hindu family and managed by the eldest member of the family known as KARTA. It is governed by the provisions of Hindu law. The basis of membership is birth in a particular family.
FEATURES
1. Formation – For a joint Hindu family business there should be at least two members in the family and some ancestral property to be inherited by them.
2. Membership by birth – There are two systems which govern membership Dayabhaga System- It prevails in west Bengal and allows both male and female member to co-parcencers. Mitakshara System- It prevails all over India except West Bengal and allows only male members to be coparceners.
3. Liability – Liability of Karta is unlimited but of all other members is limited to the extent of their share in property
4. Continuity – The business is not affected by death or incapacity of Karta in such cases the next senior male member becomes the Karta.
5. Minor members – A minor can also become full fledged member of Family business.
MERITS
1. Effective control- The Karta can promptly take decisions as he has the absolute decision making power. 2. Continued business existence- The death, Lunacy of Karta will not affect the business as next eldest member will then take up the position. 3. Limited liability – The liability of all members except Karta is limited. It gives them a relief. 4. Secrecy – Complete secrecy regarding business decisions can be maintained by Karta. 5. Loyalty and Co-operation: It helps in securing better co-operation and greater loyalty from all the members who run the business.
LIMITATION
1. Limited capital: There is shortage of capital as it is limited to the ancestral property. 2. Unlimited liability of karta – It makes him less enterprising. 3. Dominance of karta – Karta manages the business and sometimes he ignores the valuable advice of other members. This may cause conflict among the members and may lead to break down of the family limit. 4. Hasty decisions: As karta is overburdened with work, he may take hasty and unbalanced decisions. 5. Limited managerial skills of karta also pose a serious problem. The Joint Hindu family business is on decline because of the diminishing no. of joint Hindu families in the country.
PARTNERSHIP
Meaning: Partnership is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses.
FEATURES
1. Two or more persons: There must be at least two persons to form a partnership. The maximum no. of persons is 10 in banking business and 20 in non-banking business. 2. Agreement: It is an outcome of an agreement among partners which may be oral or in writing. 3. Lawful business- It can be formed only for the purpose of carrying on some lawful business. 4. Decision making & control – Every partner has a right to participate in management & decision making of the organisations. 5. Unlimited liability – Partners have unlimited liability. 6. Mutual Agency – Every partner is an implied agent of the other partners and of the firm. Every partner is liable for acts performed by other partners on behalf of the firm. 7. Lack of continuity – Firms existence is affected by the death, Lunacy and insolvency of any of its partner. It suffers from lack of continuity.
MERITS
1. Ease of formation & closure – It can be easily formed. Only an agreement among the partners is required. 2. Larger financial resources – There are more funds as capital is contributed by no. of partners. 3. Balanced Decisions – As decisions are taken jointly by partners after consulting each other. 4. Sharing of Risks – In it, risk get distributed among partners which reduces anxiety, burden and stress on individual partner. 5. Secrecy – Secrecy can be easily maintained about business affairs as they are not required to publish their accounts or to file any report to the govt.
LIMITATIONS
1. Limited resources – There is a restriction on the number of partners and hence capital contributed by them is also limited. 2. Unlimited liability- The liability of partners is unlimited and they are liable individually as well as jointly. It may prove to be a big drawback for those partners who have greater personal wealth. They will have to repay the entire debt in case the other partners are unable to do so. 3. Lack of continuity – Partnership comes to an end with the death, retirement, insolvency or lunacy of any of its partner. 4. Lack of public confidence – Partnership firms are not required to publish their reports and accounts. Thus they lack public confidence.
TYPES OF PARTNERS
1. General / Active Partner – Such a partner takes active part in the management of the firm. 2. Sleeping or Dormant Partner – He does not take active part in the management of the firm. Though he invested money, shares profit & Loss and unlimited liability. 3. Secret Partner – He participates in business secretly without disclosing his association with the firm to general public. His liability is also unlimited. 4. Nominal Partner – Such a partner only gives his name and goodwill to the firm. He neither invests money nor takes profit. But his liability is unlimited. 5. Partner by Estoppels – He is the one who by his words or conduct gives impression to the outside world that he is a partners of the firm whereas actually he is not. His liability is unlimited towards the third party who has entered into dealing with firm on the basis of his pretensions. 6. Partner by holding out – He is the one who is falsely declared partner of the firm whereas actually he is not. And even after becoming aware of it, he-does not deny it. His liability is unlimited towards the party who has deal with firm on the basis of this declaration.
Minor as a Partner
A minor is a person who has not attained the age of 18 years. Since a minor is not capable of enlarging into a valid agreement. He cannot become partner of firm. However, a minor can be admitted to the benefits of an existing partnership firm with the mutual consent of all other partners. He cannot be asked to bear the losses. His liability will be limited to the exilent of the capital contributed by him. He will not be eligible to take an active part in the management of the firm.
Types of Partnership
A. Classification on the Basics of Duration
Partnership at will- This type of partnership exists at the will of partners. Particular Partnership-This type of partnership is formed for a specified June period to accomplish a particular project (consolation of building)
B. Classification on the basis of Liability
General partnership-This liability of partners is limited and joint. Registration of firm is optional. Limited Partnership-The liability of at least one partner is unlimited whereas the other partners may have limited. Registration of firm is compulsory.
PARTNERSHIP DEED
The written agreement on a stamped paper which specifies the terms and conditions of partnership is called the partnership deed.
It generally includes the following aspects – • Name of the firm • Location / Address of the firm • Duration of business. • Investment made by each partner. • Profit sharing ratio of the partners • Terms relating to salaries, drawing, interest on capital and interest on drawing of partners. • Duties & obligations of partners. • Terms governing admission, retirement & expulsion of a partner, preparation on of accounts & their auditing. • Method of solving dispute
REGISTRATION OF PARTNERSHIP
Registration is not compulsory it is optional. But it is always beneficial to get the firm registered. The consequences of non-registration of a firm are as follows:
• A partner of an unregistered firm cannot file suit against the firm or the partner.
• The firm cannot file a suit against third party.
• The firm cannot file a case against its partner.
Co-operative Society
A co-operative society is a voluntary association of persons of moderate means who unite together to protect & promote their common economic interests.
FEATURES
1. Voluntary association: Every one having a common interest is free to join a co-operative society and can also leave the society after giving proper notice.
2. Legal status: Its registration is compulsory and it gives it a separate legal identity.
3. Limited liability: The liability of the member is limited to the extent of their capital contribution in the society.
4. Democratic control: Management & Control lies with the managing committee elected by the members by giving vote. Every member has one vote irrespective of the number of shares held by him.
5. Service motive: The main aim is to serve its members and not to maximize the profit.
6. Bound by govt.’s rules: They have to be tide by the rules and regulations framed by govt. for them.
7. Distribution of surplus: The profit is distributed on the basis of volume of business transacted by a member and not on the basis of capital contribution of members.
MERITS
1. Excise of formation: It can be started with minimum of 10 members. Registration is also easy as it requires very few legal formations.
2. Limited Liability: The liability of members is limited to the extent of their capital contribution.
3. Stable existence: Due to registration it is a separate legal entity and is not affected by the death, luxury or insolvency of any of its member.
4. Economy in operations: Due to elimination of middlemen and voluntary services provided by its members.
5. Government Support: Govt. provides support by giving loans at lower interest rates, subsidies & by charging less taxes.
6. Social utility: It promotes personal liberty, social justice and mutual cooperation. They help to prevent concentration of economic power in few hands.
LIMITATIONS
1. Shortage of capital – It suffers from shortage of capital as it is usually formed by people with limited means.
2. Inefficient management – Co-operative society is managed by elected members who may not be competent and experienced. Moreover, it can’t afford to employ expert and experienced people at high salaries.
3. Lack of motivation – Members are not inclined to put their best efforts as there is no direct link between efforts and reward.
4. Lack of Secrecy – Its affairs are openly discussed in its meeting which makes it difficult to maintain secrecy.
5. Excessive govt. control – it suffers from excessive rules and regulations of the govt. It has to get its accounts audited by the auditor and has to submit a copy of its accounts to registrar.
6. Conflict among members – The members are from different sections of society with different viewpoints. Sometimes when some members become rigid, the result is conflict.
TYPES OF CO-OPERATIVE SOCIETIES
1. Consumers co-operative Society – It formed to protect the interest of consumers.It seeks to eliminate middleman by establishing a direct link with the producers. It purchases goods of daily consumption directly from manufacturer or wholesalers and sells them to the members at reasonable prices.
2. Producer’s Co-operative Society – The main aim is to help small producers who cannot easily collect various items of production and face some problem in marketing. These societies purchase raw materials, tools, equipments and other items in large quantity and provide these things to their members at reasonable price.
3. Marketing Co-operative Society – It performs various marketing function such as transportation, warehousing, packing, grading, marketing research etc. for the benefit of its members. The production of different members is pooled together and sold by society at good price.
4. Farmer’s Co-operative Society – In such societies, small farmers join together and pool their resources for cultivating their land collectively. Such societies provide better quality seeds, fertilizers, machinery and other modern techniques for use in the cultivation of crops. It provides them opportunity of cultivation on large scale.
5. Credit co-operative Society – Such societies protect the members from exploitation by money lenders. They provide loans to their members at easy terms and reasonably low rate of interest.
6. Co-operative Housing Society – The main aim is to provide houses to people with limited means/income at reasonable price.
JOINT STOCK COMPANY
Meaning – Joint stock company is a voluntary association of persons for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership.
FEATURES
1. Incorporated association – The company must be incorporated or registered tender the companies Act 1956. Without registration no company can come into existence.
2. Separate Legal Existence – It is created by law and it is a distinct legal entity independent of its members. It can own property, enter into contracts, can file suits in its own name.
3. Perpetual Existence – Death, insolvency and insanity or change of members as no effect on the life of a company. It can come to an end only through the prescribed legal procedure.
4. Limited Liability – The liability of every member is limited to the nominal value of the shares bought by him or to the amt. guaranteed by him. Transferability of shares – Shares of public Co. are easily transferable. But there are certain restrictions on transfer of share of private Co. Common Seal- It is the official signature of the company and it is affixed on all important documents of company.
5. Separation of ownership and control – Management of company is in the hands of elected representatives of shareholders known individually as director and collectively as board of directors.
MERITS
1. Limited Liability – Limited liability of shareholder reduces the degree of risk borne by him.
2. Transfer of Interest – Easy transferability of shares increases the attractiveness of shares for investment.
3. Perpetual Existence – Existence of a company is not affected by the death, insanity,
Insolvency of member or change of membership. Company can be liquidated only as per the provisions of companies Act.
4. Scope for expansion – A company can collect huge amount of capital from unlimited no. of members who are ready to invest because of limited liability, easy transferability and chances of high return.
5. Professional management – A company can afford to employ highly qualified experts in different areas of business management.
LIMITATIONS
1. Legal formalities – The procedure of formation of Co. is very long, time consuming, expensive and requires lot of legal formalities to be fulfilled.
2. Lack of secrecy – It is very difficult to maintain secrecy in case of public company, as company is required to publish and file its annual accounts and reports.
3. Lack of Motivation – Divorce between ownership and control and absence of a direct link between efforts and reward lead to lack of personal interest and incentive.
4. Delay in decision making – Red papism and bureaucracy do not permit quick decisions and prompt actions. There is little scope for personal initiative.
5. Oligarchic management – Co. is said to be democratically managed but actually managed by few people i.e. board of directors. Sometimes they take decisions keeping in mind their personal interests and benefit, ignoring the interests of shareholders and Co.
TYPES OF COMPANIES On the basis of ownership, companies can be divided into two categories – Private & Public.
Difference between Private Company & Public Co.
Private Co.
Public Co.
It has minimum 2 and maximum 50 members.
It has minimum 7 and maximum unlimited.
It cannot invite general public to buy its shares and debentures.
It invites general public to buy its shares and debentures.
There are certain restrictions on transfer of its shares.
Its shares are freely transferable.
It can commence business after incorporation.
It can commence business after obtaining certificate of commencement of business.
It has to write Private Ltd. After its nameEx- Tata Sons, Citi Bank, Hyundai Motor India.
It has to write only limited after its nameEx- Reliance Industries Ltd., Wipro Ltd. , Raymond’s Ltd.
In its minimum capital required is one lakh.
In its minimum capital required is five lakhs.
FORMATION OF A COMPANY
Formation of a company means bringing a company into existence and starting its business. The steps involved in the formation of a company are:
(i) Promotion
(ii) Incorporation
(iii)Capital subscription
(iv) Commencement of business.
A private company has to undergo only first two steps but a public company has to undergo all the four stages.
1. Promotion:
Promotion means conceiving a business opportunity and taking an initiative to form a company.
Step in Promotion:
1. Identification of Business Opportunity : The first and foremost function of a promoter is to identify a business idea e.g. production of new product or service.
2. Feasibility Studies: After identifying a business opportunity the promoters undertake detailed studies of technical, Financial, Economic feasibility of a business.
3. Name Approval: After selecting the name of company the promotors submit an application to the Registrar of companies for its approval.
4. Fixing up signatories to the Memorandum of Association: Promotors have to decide about the director who will be signing the memorandum of Association.
5. Appointment of professional: Promoters appoint merchant bankers, auditors etc.
6. Preparation of necessary documents: The promoters prepare certain legal documents such as memorandum of Association, Articles of Association which have to be submitted to the Registrar of the companies.
2. Incorporation
Incorporation means registration of the company as body corporate under the companies Act 1956 and receiving certificate of Incorporation.
Steps for Incorporation
1. Application for incorporation: Promoters make an application for the incorporation of the company to the Registrar of companies.
2. Filing of necessary documents: Promoters files the following documents:
(i) Memorandum of Association. (ii) Articles of Association. (iii) Statement of Authorized Capital (iv) Consent of proposed director. (v) Agreement with proposed managing director. (vi) Statutory declaration.
3. Payment of fees: Along with filing of above documents, registration fee has to be deposited which depends on amount of the authorized capital.
4. Registration: The Registrar verifies all the document submitted. If he is satisfied then he enters the name of the company in his Register.
5. Certificate of Incorporation: After entering the name of the company in the register. The Registrar issues a Certificate of Incorporation. This is called the birth certificate of the company.
III. Capital Subscription:
A public company can raise funds from the public by issuing shares and Debentures. For this it has to issue prospectus and undergo various other formalities:
Step required for raising funds from public:
1. SEBI Approval: SEBI regulates the capital market of India. A public company is required to take approval from SEBI.
2. Filing of Prospectus: Prospectus means any documents which invites offers from the public to purchase share and Debenture of the company.
3. Appointment of bankers, brokers, underwriters: Banker of the company receive the application money. Brokers encourage the public to apply for the shares, underwriters are the person who undertake to buy the shares if these are not subscribed by the public. They receive a commission for underwriting.
4. Minimum subscription: According to the SEBI guide lines minimum subscription is 90% of the issue amount. If minimum subscription is not received then the allotment cannot be made and the application money must be returned to the applicants within 30 days.
5. Application to Stock Exchange: It is necessary for a public company to list their shares in the stock exchange therefore the promoters apply in stock exchange to list company shares.
6. Allotment of Shares: Allotment of shares means acceptance of share applied. Allotment letters are issued to the shareholders. The name and address of the shareholders submitted to the Registrar.
IV. COMMENCEMENT OF BUSINESS:
To commence business a public company has to obtain a certificate of commencement of Business. For this the following documents have to be filled with the registrar of companies.
1. A declaration that 90% of the issued amount has been subscribed. 2. A declaration that all directors have paid in cash in respect of allotment of shares made to them. 3. A statutory declaration that the above requirements have been completed and must be signed by the director of company.
Important documents used in the formation of company:
1. Memorandum of Association – It is the principal document of a company. No company can be registered without a memorandum of association and that is why it is sometimes called a life giving document.
Contents of Memorandum of Association:
1. Name clauses – This clause contains the name of the company. The proposed name should not be identicator similar to the name of another exiting company.
2. Situation clauses – This clause contains the name of the state in which the registered office of the company is to be situated.
3. Object clause – This clause defines the objective with which the company is formed. A company is not legally entitled to do any business other than that specified in the object clause.
4. Liability Clauses – This clause limits the liability of the members to the amount unpaid on the shares held by them.
5. Capital clause – This clause specifies the maximum capital which the company will be authorized to raise tough the issue of shares called authorized capital.
2. Articles of Association:
The articles of Association are the rules for the internal management of the affairs of a company the articles defines the duties, rights and powers of the officers and the board of directors.
Contents of the Article: 1. The amount of share capital and different classes of shares. 2. Rights of each class of shareholders. 3. Procedure for making allotment of shares. 4. Procedure for issuing share certificates. 5. Procedure for forfeiture and reissue of forfeited shares. 6. Rules regarding casting of votes and proxy voting 7. Procedure for selection and removal of directors 8. Dividend declaration and payment related rules 9. Procedure for capital readjustment 10. Procedure regarding winding up of the company.
2. Prospectus:
Prospectus means any document which invites deposits from the public to purchase share or debentures of a company.
Main contents of the Prospectus: 1. Company’s name and the address of its registered office. 2. The main object of the company 3. The number and classes of shares. 4. Qualification shares of the directors 5. The name and addresses of the directors, managing director or manager. 6. The minimum subscription which is 90% of the size of the issue. 7. The time of opening and closing of the subscription list. 8. The amt. payable on the application and allotment of each class of share. 9. Underwriters to the issue. 10. Merchant bankers to the issue.
2. Statement is Lieu of Prospectus:
A public company having a share capital may sometimes decide not to raise funds from the public because it may be confident of obtaining the required capital privately. In such case it will have to tile a statement in lieu of prospectus with the Registrar of companies. It Contains information much similar to that of a prospectus.
CHOICE OF FORM OF BUSINESS ORGANISATION
The following factors are important for taking decision about form of organization:
1. Cost and ease in setting up the organization: Sole proprietorship is least expensive and can be formed without any legal formalities to be fulfilled. Company is also expensive with lot of legal formalities.
2. Capital consideration: Business requiring less amount of finance prefer sole proprietorship & partnership form, where as business activities requiring huge financial resonances prefer company form.
3. Nature of business: If the work requires personal attention such as tailoring unit, cutting saloon, it is generally setup as a sole proprietorship. Unit engaged in large scale manufacturing are more likely to be organized in company form.
4. Degree of control desired: A person who desires full and exclusive control over business prefers proprietorship rather than partnership or company because control has to be shared in these cases.
5. Liability or Degree of Risk: Projects which are not very risky can be organized in the form of sole proprietorship partnership whereas the risky ventures should be done in company form of organization because the liability of shareholders is limited.
Notes of Ch 1 Business, Trade and Commerce | Class 11th Business Studies
• All Human beings have different types of needs. To fulfill these needs, they perform certain activities.
• Business is a major economic activity as it is concerned with the production and sale of goods and services with the purpose of earning money by meeting people’s demands for goods and services.
• The chapter is divided into two sections.
→ Section I deals with the history of trade and commerce in ancient India.
→ Section II deals with the concept, nature and purpose of business.
Section – I – History of trade and commerce in ancient India
History of Trade and Commerce
• Indian subcontinent has Himalayas in the North and bordered by water in the South.
• Silk Routes, a network of roads helped in establishing commercial and political contacts with
adjoining foreign kingdoms and empires of Asia and the world.
• With the help of wealth earned through trade, the chief kingdoms, important trade centres and the industrial belt flourished that helped ancient India in progress of domestic and international trade.
Indigenous Banking System
• Metals came to be used as money as the economic life of the people progressed as they are durable and divisible.
→ This accelerated economic activities.
• Documents such as Hundi and Chitti were in use for carrying out transactions in which money passed from hand to hand.
→ Hundi involved a contract which — (i) warrant the payment of money, the promise or order which is unconditional (ii) capable of change through transfer by valid negotiation.
• With the development of banking, people began to deposit precious metals with lending individuals functioning as bankers or Seths.
→ Money became an instrument for supplying the manufacturers with a means of producing more goods.
• Agriculture and the domestication of animals were main part of the economic life of ancient people.
→ Also, weaving cotton, dyeing fabrics, making clay pots, utensils, and handicrafts, sculpting, cottage industries, masonry, manufacturing, transports (i.e., carts, boats and ships), etc., helped in generating surpluses and savings for further investment.
Rise of Intermediaries
• Intermediaries provided considerable financial security to the manufacturers by assuming responsibility for the risks involved, especially in foreign trade.
• During the Mughal period and the days of the East India Company, the institution of Jagat Seths also developed and exercised great influence.
• Commercial and Industrial banks later evolved to finance trade and commerce and agricultural banks to provide both short-and long-term loans to finance agriculturists.
Transport
• Transport by land and water was popular in the ancient times that helped in maintaining trade.
• Trade routes were structurally wide and suitable for speed and safety.
• Maritime trade was another important branch of global trade network. → Malabar Coast has a long history of international maritime trade going back to the era of the Roman Empire.
• An alternate route to India for spices that led to the discovery of America by Columbus in the closing years of 15th century and also brought Vasco da Gama to the shores of Malabar in 1498.
Trading Communities Strengthened
• In different parts of the country, different communities dominated trade. → Punjabi and Multani merchants handled business in the northern region. → The Bhats managed the trade in the states of Gujarat and Rajasthan.
• Other urban groups included professional classes, such as hakim and vaid (physician), wakil (Lawyer), pundit or mulla (teachers), painters, musicians, calligraphers, etc.
Merchant Corporations
• Guilds were autonomous corporations formed to protect the interests of the traders through which merchant community also derived power and prestige.
• Traders had to pay octroi duties that were levied on most of the imported articles at varying rates.
• Customs duties varied according to the commodities and from province to province.
• The ferry tax was another source of income generation which had to be paid for passengers, goods, cattle and carts.
• The guild chief dealt directly with the king or tax collectors and settled the market toll on behalf of its fellow merchants at a fixed sum of money.
Major Trade Centres
• In ancient India, the leading trade centres in ancient India were:
→ Pataliputra: Known as Patna today was a commercial town and also a major centre for export of stones.
→ Peshawar: It was an important exporting centre for wool and for the import of horses.
→ Taxila: It served as a major centre on the important land route between India and Central Asia. It was also a city of financial and commercial banks. The famous Taxila University flourished here.
→ Indraprastha: It was the commercial junction on the royal road where most routes leading to the east, west, south and north converged.
→ Mathura: Many routes from South India touched Mathura and Broach.
→ Varanasi:It grew as a major centre of textile industry and became famous for beautiful gold silk cloth and sandalwood workmanship.
→ Mithila: It established trading colonies in South China, especially in Yunnan.
→ Ujjain: Agate, carnelian, muslin and mallow cloth were exported from Ujjain to different centres.
→ Surat: Textiles of Surat were famous for their gold borders (zari).
→ Kanchi: Known as Kanchipuram today where Chinese used to come in foreign ships to purchase pearls, glass and rare stones and in return they sold gold and silk.
→ Madura: It attracted foreign merchants, particularly Romans, for carrying out overseas trade.
→ Broach: It was situated on the banks of river Narmada and was linked with all important marts by roadways.
→ Kaveripatta: It was a convenient place for trade with Malaysia, Indonesia, China and the Far East. It was the centre of trade for perfumes, cosmetics, scents, silk, wool, cotton, corals, pearls, gold and precious stones; and also for ship building.
→ Tamralipti: It was one of the greatest ports connected both by sea and land with the West and the Far East. It was linked by road to Banaras and Taxila.
Major Exports and Imports
Exports
Spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals and animal products—hides, skin, furs, horns, tortoise shells, pearls, sapphires, quartz, crystal, lapis, lazuli, granites, turquoise and copper etc.
Imports
Horses, animal products, Chinese silk, flax and linen, wine, gold, silver, tin, copper, lead, rubies, coral, glass, amber, etc.
Position of Indians Subcontinent In World Economy (1 AD UP to 1991)
• Between the 1st and the 7th centuries CE, India is estimated to have the largest economy of the ancient and medieval world, controlling about one-third and one-fourth of the world’s wealth.
• The 18th century India was far behind Western Europe in technology, innovation and ideas.
• In the mid-18th century, the British empire began to take roots in India and used revenues generated by the provinces under its rule for purchasing Indian raw materials, spices and goods. → Hence, the continuous inflow of bullion that used to come on account of foreign trade stopped.
India begins to Reindustrialise
• After Independence, India went for centralised planning. → In 1952, the First Five Year Plan was implemented and importance was given to the establishment of modern industries, modern technological and scientific institutes, space and nuclear programmes. → However, the Indian economy could not develop at a rapid pace due to lack of capital formation, rise in population, huge expenditure on defence and inadequate infrastructure.
• Thus, India relied heavily on borrowings from foreign sources and finally, agreed to economic liberalisation in 1991.
• Today, Indian economy is one of the fastest growing economies in the world today and a preferred FDI destination.
• The recent initiatives of the Government of India such as ‘Make in India’, Skill India’, ‘Digital India’ and roll out of the Foreign Trade Policy (FTP 2015-20) is expected to help the economy in terms of exports and imports and trade balance.
Section II – Nature and Concept of Business
Concept of Business
• Business means being busy.
• Business refers to an occupation in which people regularly engage in activities related to purchase, production and/or sale of goods and services with a view to earning profits.
Characteristics of Business Activites
• An economic activity: Business in considered as an economic activity as it is undertaken with the objective of earning money.
• Production or procurement of goods and services: Business includes all the activities concerned with the production of procurement of goods & services for sales. Services include transportation, banking, Insurance etc.
• Sale or exchange of goods and service: There should be sale or exchange of goods and service between the seller & the buyer. If goods are produced not for the purpose of sale but say for internal consumption it cannot be called a business activity.
• Dealing in goods & services on a regular basis: There should be regularity of dealings or exchange of goods & services. One single transaction of sale or purchase does not constitute business.
• Profit Earning: The main purpose of business is to earn profit. A business cannot survive without making profits. So, a businessman try to maximize profit by increasing the volume of sales or reducing costs.
• Uncertainly of return: Every business invests money with the objective of earning profit but the amount of profit earned may very also there is always a possibility of losses.
• Element of Risk: All business activities carry some elements of risk because future is uncertain and business has no control over several factors like strikes, fire, theft, change in consumer taste etc.
Comparison of Business, Profession and Employement
• Employment: It Refers to those economic activities which are connected with purchase, production or sale of goods & services with the objective of earning profit. Examples: Fishing, Manufacturing Goods, Mining Producing or selling of electronic goods, Banking.
• Profession: It includes those activities which require special knowledge be skills in the occupation. Examples: Medical (Doctor), Legal (Lawyer), Accountancy (CA).
• It refers to the occupation in which people work for others and get remuneration in return. Examples: Worker, Employee, Salesman.
Basic
Business
Profession
Employment
1. Mode of establishment
Starts after completing some formalities if needed.
Membership of a professional body and certificate of practice.
Appointment letter and service agreement.
2. Nature of
work Provision of goods and services to the public.Personalized services of expert nature. Performing work alloted by the employer according to the contract. 3. Qualification No minimum qualification is necessary. Professional qualification and training required. Qualification and training as prescribed by the employer. 4. Reward and Return Profit earnedProfessional FeeSalary 5. Capital Investment Capital needed according to nature and size Limited capital for establishment. No Capital required. 6. Risk Involves high riskDegree of risk No risk 7. Transfer of Interest Transfer possible with some formalities. Not Possible Not Possible 8. Code of Conduct No Code of ConductProfessional code of conduct is to be followed. Terms and conditions of services contract are to be followed. 9. Examples Shop, Factory Legal, Medical Profession. Jobs in Banks, insurance companies.
Classification of Business Activities
• Industry deals with the production or processing of goods and materials.
• Commerce deals with distribution of goods and services.
Industry
• Primary Industry: The primary industry includes those activities through which the natural resources are used to provide raw material for other industries. It can be classified into two types:
(i) Extractive: Industry under which something is extracted out of earth, water or air such as Coal, Iron, gas. Examples are Mining, Lumbering, Hunting.
(ii) Genetic: Industries under which the breed of animals and vegetables are improved and made more useful. Examples are Poultry Farms, dairy Farming, Fishing Fish Hatching, cattle breeding etc.
• Secondary Industry: Under this industry, new products are manufacturing by using the previously produced things e.g. producing cotton is a primary industry and manufacturing cloth out of cotton is a secondary industry.
It is of two types.
(i) Manufacturing – These industries convert raw materials or semi-finished products e.g. paper from bamboo, sugar from Sugar cane. It is further divided into four parts.
→ Analytic: Different things are manufactured out of one material such as petrol, diesel, gasoline out of crude oil.
→ Synthetic: Many raw materials are mixed to produce more useful products such as cement.
→ Processing: Industries wherein useful things are manufactured by making raw material to pass through different production processes such as sugar and paper.
→ Assembling: Different component parts to make a new product, as in the case of television, car, computer, etc.
ii) Construction Industries – Industries that are involved in the construction of building, dams, bridge, roads as well as tunnels and canals.
iii) Tertiary or Service Industry – This includes those services which help business to move smoothly such as transport, bank, insurance, storage and advertising.
Commerce
Commerce refers to all those activities which are concerned with the transfer of goods and services from the producers to the consumers. It embraces all those activities which are necessary for maintaining a free flow of goods and services.
The function of commerce are:
• Removing the hindrance of person by making goods available to consumers from the producers. through trade.
• Transportation removes hindrance of place by moving goods from the place of production to the markets for sale.
• Storage and warehousing activities remove the hindrance of time by facilitating holding of stock of goods to be sold as and when required.
• Insurance removes hindrance of risk of loss or damage of goods due to theft. fire. accidents etc.
• Banking removes hindrance of finance by providing funds to a businessman for acquiring assets. purchasing raw materials and meeting other expenses.
• Advertising removes hindrance of information by informing consumers about the goods and services available in the market.
Make in India
• ‘Make in India’ is an initiative launched by the Government of India on 25 September 2014, to encourage national, as well as multinational companies to manufacture their products in India.
• Major Objective: Job creation and skill enhancement in 25 sectors of the economy.
Commerce includes two types of activities.
• Trade: Refers to buying and selling of goods and services with the objective of earning profit. It is classified into two categories :
(i) Internal Trade: Takes place within a country. Internal Trade is classified into two categories:
→ Wholesale Trade: Refers to buying and selling o goods in large quantities. A wholesaler buys goods in large quantities from the producers and sell them to other dealers. He serves as a connecting link between the producer and retailer.
→ Retail Trade: Refers to buying of goods and services in relatively small quantities & selling them to the ultimate consumers.
(ii) External Trade: Trade between two or more countries. External trade can he classified into three categories:
→ Import trade: If goods are purchased from another country. if is called import trade. Example: Buying soft toys from China and selling here in India.
→ Export Trade: If goods are sold to other countries it is called export trade. Example: Selling Basmati Rice to USA from India.
→ Enterpot: Where goods are imported for export to other countries. Example: Indian firms may import some goods from America and export the service to Nepal.
Auxiliaries to Trade
Those activities which are meant for assisting trade are known as auxiliaries to trade. These activities help in removing various hindrances which arise in connection with the production and distribution of goods. These are:
(i) Transportation and Communication: Production of goods generally takes place in particular locations. But these goods are required for consumption in different parts of the country. The obstacle of place is removed by the transport. Along with transport communication is also an important service. It helps in exchange of information between producers. consumers and traders. The common communication services are postal service, telephone, fax, Internet etc
(ii) Banking and Finance: Business needs funds for acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained from a bank.
(iii) Insurance: It provides a cover against the loss of goods, in the process of transit, storage, theft, fire and other natural calamities.
(iv) Warehousing: There is generally a time lag between the production and consumption of goods. This problem can be solved by storing the goods in warehouses from the time of production till the time they are demanded by customers.
(v) Advertising: Advertising is one of the methods of promoting the sale of products. It helps in providing information about available goods and services and inducing customers to buy particular items.
Objective of Business
• Market standing: Market standing refers to the position of an enterprise in relation to its competitors.
• Innovation: Innovation is the introduction of new ideas or methods in the way something is done or made.
• Productivity: Productivity is ascertained by comparing the value of output with the value of inputs.
• Physical and financial resources: Any business requires physical resources, like plants, machines, offices and financial resources, i.e., funds to be able to produce and supply goods and services to its customers.
• Earning profits: One of the objectives of business is to earn profits on the capital employed.
• Manager performance and development: Business enterprises need managers to conduct and coordinate business activity.
• Worker performance and attitude: Workers’ performance and attitudes determine their contribution towards productivity and profitability of any enterprise.
• Social responsibility: Refers to the obligation of business firms to contribute resources for solving social problems and work in a socially desirable manner.
Business Risk
It refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events.
Nature of Business Risks
(i) Business risks arise due to uncertainties.
(ii) Risk is an essential part of every business.
(iii) Degree of risk depends mainly upon the nature and size of business.
(iv) Profit is the reward for risk taking.
Cause of Business Risks
(i) Natural causes: Human beings have little control over natural calamities, like flood, earthquake,
lightning, heavy rains, famine, etc. property and income in business.
(ii) Human causes: Human causes include such unexpected events, like dishonesty, carelessness or
negligence of employees, stoppage of work due to power failure, strikes, riots, management inefficiency, etc.
(iii) Economic causes: These include uncertainties relating to demand for goods, competition, price,
collection of dues from customers, change of technology or method of production, etc.
(iv) Other causes – These include unforeseen events like political disturbances. fluctuation in exchange rates etc.
Starting a Business – Basic Factors
(i) Selecting the line of business: The first thing to be decided by the entrepreneur is the line and type of business to be undertaken.
(ii) Size of business: After deciding the line of business, the entrepreneur must decide whether he wants to set up large scale or small scale business.
(iii) Choice of form of Business organization: A business organisation may take the form of a sale proprietorship, partnership, or a joint stock company.
(iv) Location of Business Enterprise: The entrepreneur has to decide the place where the enterprise will be located. Before taking this decision he must find out availability of raw materials, power, labour, banking, transportation etc.
(v) Financing the proposition: It is concerned with providing the necessary capital for starting, as well as, for continuing the proposed business.
(vi) Physical facilities: Availability of physical facilities, including machines and equipment, building and supportive services is an important factor to be considered at the start of the business.
(vii) Plant layout: The entrepreneur should draw a layout plan showing the arrangement of physical facilities.
(viii) Competent and committed worked force: The entrepreneur must identify the requirement of skilled and unskilled workers and managerial staff to perform various activities.
(ix) Tax planning: The entrepreneur must try to analyze the types of taxes as there are a number of tax laws in the country which affect the functioning of business.
(x) Setting up of the Enterprise: After analyzing the above mentioned points carefully the entrepreneur can start the business which would mean mobilizing various resources and completing legal formalities.
