JUNIOR INTER COMMERCE NOTES


1. CONCEPTS OF BUSINESS
1. What is business? What are the features of business?
Literally business means ‘Busyness’ or the ‘state of being busy ’. In economic sense business means work, efforts and acts of people, concerned with the production of wealth. Business is a kind of human activity, which is directed towards acquiring wealth through the production and exchange of goods and services. Properly business is an economic activity. The production or acquisition of goods and services are for personal consumption. It is not be considered as business.  Business is a continuous activity. A single isolated transaction with profit motive cannot be considered as business.
Definition: Business is a ‘Human activity directed towards providing or acquiring wealth through buying and selling goods’ --- L.H. Haney
From the above e definition business characteristics can be defined as follows:
1. Deals with goods & Services: Every business organisation must provide goods & services to satisfy the want of human beings either it may be manufactured or produced. Basically goods are two types.
1. Consumer goods 2. Producer goods
If the goods were meant for direct consumption are known as consumer goods. Ex: Bread, cloth etc.
Producer goods are used for producing other goods:
Ex: Raw materials, plant & Machinery etc.
2. Profit Motive: Making profit is a main feature of any business organisation. Every business will run to earn more profits.  We cannot separate the concept of profit from business. At the same time business men may get losses also. The profit must earn through legal and fair practices only.
3. Continuity of Transactions: Exchange of goods and services with a motive of profit is business. But such transactions are to be continued regularly and then only we have to treat that as business. A single transaction with a motive of profit cannot be treated as business. Exchange of goods and services with a motive of profit and that exchange must be continued for a long time.  Then only it becomes business.
4. Risk & Uncertainty: Profit is the reward of risk bearing. Risk (loss) & profits both are like head & tail of a coin. Risk means possibility of loss and uncertainty of reward (profit). The aim of business may be profit but some times losses may also come. Profits will come only by the efforts of business man, but losses can be occurred (may come) in many ways. Business many may or may not control these situations.
5. Innovation:   Innovation means creating new ideas. But the long existence of business in the market will depends upon innovation. If an organisation rejects the new ideas, the downfall will automatically begins. In the world of competition business man has changes his ideas from time to time. Then only organisation will stood in the market for long period of time.

2. Explain the objectives of a business.
Every human activity is goal oriented. Human being works with an objective. Business is also a human activity, as such it is also having its own objectives. Generally known objective is making profit, but only profit making is not enough for the sake of successful running of the business. Just like ‘Eating is not only the objective of living’. The objectives of the business are classified as follows:
I. Economic objectives: Firstly and basically business is an economic activity. The important economic activities of business are as follows:
a. Profit earning: Different kinds of business are motivated towards making profits. Every business is in need of profit for existence, for expansion and for the development. Business man has to achieve this objective by selling quality goods at reasonable prices. Then only business organisation can exists for a longer time in the business world.
b. Creation of customers: Business activities are concerned with exchange of goods and services. These goods and services satisfy the need of the customers. Without customer, we cannot imagine the picture of the business world or market. He is the center point for any business. Businessman must search for new customers to increase his sales volume.
c. Innovation: In the world of competition, every business tries to sell its products by offering quality goods at lower prices. It is possible only by introducing new methods of production. For this business firms have to adopt latest technology. The essence of innovation is very important to reduce the cost of production.
2. Social objectives: Business is a part of the society. Business has to satisfy the needs of the society. Business and society both are meant to exist for each other. The social objectives of the business are as follows:
a. Providing qualitative goods and services: Customers plays an important role in the business world. So it is the main responsibility of the business to produce and supply the qualitative goods and services. The supplies of adulterate, cheap and harmful goods are against the business rules.

b. Providing Employment: The business can help the society by creating more employment for the public. When the expansion of business is needed then firm needs additional employees.
c. Utilisation of natural resources: Business firm has to utilise the natural resources at its optimum level. It is helpful to as well as to the business and to the nation also. Optimum utilisation of resources loads to the reduction of cost of production. By this qualitative goods are produced at lower cost, and will be available at cheaper prices to the consumers.
d. Co-operation with the government: Government makes policies for the development of the nation. Business people have to respond positively, towards the policies of the government. Then only growth of the economy will be fasten.

3. Write about economic activities.
Every human is busy in various activities to satisfy their wants and desires. These are basically known as human activities. These activities classified as economic activities and non economic activities. Economic activities are concerned with production wealth and distribution of goods and services. All those activities which are inspired by love, sympathy, patriotism etc., come under non-economic activities.
1. Profession: Profession is an occupation which renders specialised, expert and personal services. The services are based on professional education, knowledge and training. Every professional requires the minimum academic qualification and specialised training before he can practice his profession. The remuneration which he gets is known as fees: Ex: Lawyers, Doctors, Chartered Accountants (C.A) etc.,
2. Employment: Employment is an occupation in which a person has to work under an agreement or contract and he has to perform such work assigned to him by the employer. In return he gets salary or wage. The agreement may be oral or written. Relationship between two parties is like the owner and servant. Some times professionals also may take up employment for salary.
3. Business: Literally business means ‘busyness’ or the ‘state of being busy’. But in economic sense business means work or efforts of people which are connected with the production of wealth. Business is a human activity directed towards acquisition of wealth through the production and exchange of goods and services. Business does not include any non economic activity. The production or collection of self consumption is not a subject matter of business. The main objective of the business is earning profit.

4.Briefly discuss the Social responsibility of a business.
                Business is the summation of economic activities concerned with the exchange of goods and services. Any business will have to take inputs like men, machinery, money etc., from the society and given output to the same society with an object of earning profits. Now-a-days for business organizations economic activities and social responsibilities became interdependent. Business organization has to discharge its responsibilities towards their customers, workers, shareholders and society. Following are the responsibilities of business organization towards different sections.
a.       Towards business organization: The first responsibility of any organization is to get stability in business itself. To get the stability it has to earn reasonable profits. Business organization has to sell more and more goods at lower prices for reasonable profit. Only then the organization will get the stability and get a chance to help others.
b.      Towards shareholders: Shareholders will provide the capital and expects something from the business organization. Reasonable return and successive progress of organization are the main objectives of any shareholders. So, the business organization has to keep an eye on both objectives of the shareholders.
c.       Towards employees: An employee of an organization wants job security and fair wages. It helps him to improve his living standards. So, business organization has to provide proper education and training for the employees to develop their skills. It will be helpful to both employees and organization.
d.      Towards consumers: Every consumer expects good quality at lower prices. So every business organization has to provide greatest possible services to the consumer and society. Business organization should not any commit adulteration, poor quality, dishonest advertisements etc., even through may laws are protecting the interests of the consumers.
Eg: Consumer Protection Act-1986, Weights & Measures Act- 1958 etc.
2 MARKS QUESTIONS
1.       Business: The word ‘Business’ literally means ‘a state of being busy’. Any activity carried mainly with the object of earning profit can be called a business activity. This objective can be achieved when goods and services are exchanged A person engaged in business is called businessman or entrepreneur.
2.       Profession: Profession is an occupation which renders specialized, expert and personal services. The services are based on professional education, knowledge and training. Every professional requires the minimum academic qualification and specialized training before he can practice his profession. The remuneration which he gets is known as fees: Ex: Lawyers, Doctors, Chartered Accountants (C.A) etc.,
3.       Profit Motive: Making profit is a main feature of any business organization. Every business will run to earn more profits.  We cannot separate the concept of profit from business. At the same time business men may get losses also. The profit must earn through legal and fair practices only.
4.       Innovation: Innovation:   Innovation means creating new ideas. But the long existence of business in the market will depends upon innovation. If an organization rejects the new ideas, the downfall will automatically begins. In the world of competition business man has changes his ideas from time to time. Then only organization will stood in the market for long period of time.
5.       Employment: Employment is an occupation in which a person has to work under an agreement or contract and he has to perform such work assigned to him by the employer. In return he gets salary or wage. The agreement may be oral or written. Relationship between two parties is like the owner and servant. Some times professionals also may take up employment for salary.
6.     Any two parts relating to role in profit in business:
Earning profit is necessary, not only to the investors but also for the organization to get the stability in the competitive business world. The role of profits may be discussed as follows.
a.       For future expansion and development of the business
b.      To attract the outsiders funds like bank loans etc.
c.       For the economic status and social status of the organization.
d.      To meet the future risks.
e.      To rate or estimate the efficiency of the organization.



2.  BUSINESS ACTIVITIES

1. Explain the term industry. Briefly describe different types of industries.

Industry means creating utility of manufacturing or producing the goods. For that, it uses the raw-materials and human resources. The raw materials can be extracted either directly from nature or it may be developed with the help of human resources. The products may concern to both consumers and manufacturers.
In other words industry means ‘Creating wealth or Value’, it is the backbone of the trade and commerce. Based on the kind of goods produced the industry may be divided as follows:
a. Extractive industry: In this type of industries, the materials or products will be directly extracted (obtained) from the natural resources like soil, water, earth etc., There won’t be any contribution of human beings. Entirely it depends up on the nature. The materials or the products may be obtained either from above the earth or below the earth. The output of this industry will be utilised as raw materials for manufacturing and construction industries.
Ex: Agriculture, Hunting, Fishing, Mining etc.,
b. Genetic Industry: Genetic industries are concerned with the reproduction of certain species of plants and animals. In simple, nature will be developed under the supervision of human beings. Here human skills and techniques are needed. Ex: Nurseries, Poultries etc.,
c. Manufacturing industries: In these industries the raw materials will be converted into finished or semi-finished products. The product or extractive industry will become the raw materials for manufacturing industry. Ex: Cotton textile, Cement, Sugar etc.,
d. Construction Industries: Construction industries are concerned with the construction of Building, bridged, Dams etc., These industries create the basic infrastructure for the development. It uses the output of manufacturing and extractive industries as raw materials.
e. Service industries: These industries offer various services to the business world. Services industries provide various services like finance, transport, warehousing, etc., These services are very much needed in the distribution channel. This industry helps in the development of Trade and Business. Ex: Hospitals, libraries, Banks etc.,
f. Other types of industries: Industries are furtherly classified into two types according to their size and technology which they are using. They are (i) Heavy industries (ii) Light Industries.

1. Heavy industries: To start these kinds of industries huge capital and latest technology is needed in these types of industries huge amount is to be spent for the machinery and equipment. Ex: Steel, Ship, building etc.,
2. Light Industries: To start these industries minimum / lesser investment and simple technology is enough. These are known as light industries. Ex: Paper, Sugar, Textile etc.,


2. Commerce is the sum total of those processes which are engaged in the removal of hindrances of persons, place and time in the exchange of commodities’. Explain.
Commerce plays an important role in the distribution of goods and services. For the smooth running of trade and business some services are needed, like transport., banking, insurance etc. Exchange of goods and services is not a simple process. For the smooth distribution of goods and services many hindrances are to be cleared. For that commerce helps a lot.
Definition: “Commerce is an organised system for the exchange of goods between the members of the industrial world’” - James Stephenson.
In simple commerce is an organised system for the removal of all hindrances / obstacles. It helps for the free flow of goods and services. The main hindrances are as follows:
1. Hindrances of place: Goods may produce at one place and they may be required at many places. The place of production may be away from the place of consumption. To remove this barrier transport facilities are required . The various means of transport (Road, Rail, Water & Air) will helps for the smooth distribution of goods and services.
2. Hindrances of time: Goods are produced by expecting the demand. So it is necessary to make suitable arrangement for their storage. Especially for the seasonable products like sugar, cotton, tobacco etc., warehousing facility is very important. The gap between production and consumption is the main hindrance with the help of ware housing we can over come this hindrance.
3. Hindrances of Exchange: Exchange of goods and services automatically deals with exchange of value. For that time, value, place may vary. Those hindrances and working capital problems will be solved with the help of banks. Bank provides loans and advances to the business people.
4. Hindrances of knowledge: Creation of demand is very important function of commerce. When consumer comes to know regarding the features, functions and price of the product, then only he can demand for the product. If we fails to create demand then no question of production or distribution arises. With the help of advertisements we can over come this hindrance.
5. Hindrance of risk: Objective of business is to earn profit. But profit is the reward of risk bearing. A choice of loss occurrence is there. While in the distribution at any point, good may be damaged either by theft, fire etc., This hindrance can be removed with the help of insurance. Finally commerce is a group of services it includes trade and aids to trade.

3. Explain various types of home Trade.
If the buying and selling was made within the boundaries of a country, it is known as the Home Trade. Both the seller and buyer belong to the same country. Internal transport will play an important role in home trade.
Home trade is also known as ‘Internal Trade’ Or ‘Domestic Trade’. Home trade is classified into two types:
a. Wholesale trade b. Retail trade
a. Wholesale Trade: If the purchase or sale was made in a large scale, it is concerned to wholesale trade. Wholesaler buys the goods in larger quantities from the manufacturers and sells them in small quantities to the retailer. He acts as a link between producers and retailers.
b. Retail Trade; Retail trade refers to sale of goods in small quantities to the final consumers. A person who involves in this trade is known as Retail Trader. He buys in large quantities from wholesaler and sells in less to the final consumers. He is the (middle man) media for wholesaler and the final consumer.


4. What are the characteristics of commerce?
Commerce: Commerce plays an important role in the distribution of goods and services. For the smooth running of trade and business some services are needed like transport, banking, insurance etc., These group of services are known as commerce. Exchange of goods and services is not a simple process. For the smooth distribution of goods and services many hindrances are to be cleared. For that commerce helps a lot.
Exchange of goods and services is not an easy process. There are many obstacles in the course of exchange of goods and services. The obstacles or hindrances can be overcome with the help of ‘Aids to trade’. These are also known as auxiliaries to trade. These all are part and parcel of commerce without the help of these activities, distribution of goods and services becomes more difficult. For the smooth running of trade and commerce these services are needed.   Commerce = Trade + Aids of trade.
Aids to trade or auxiliaries to trade are as follows:
1. Transportation: Goods are produced at one place, but the consumers are spread all over the world. This difficulty of distance is removed by transport. Transport creates ‘Place utility’ to the product. The various types of transports are available like Road, Railway, Airways and Water ways, choice of transport facility depends upon the nature of the product. Transport carries goods and services from the place of production to the place of consumption.
2. Warehousing : Production and consumption are separated by varying intervals of time. Some products are useful only in some seasons. But they have to be manufactured irrespective of seasons, to meet the seasonal demand.
Ex: Umbrellas, heaters, crackers etc.
In the same manner some products are seasonally produced, but they are needed in every season. Especially agricultural products are best examples. Like paddy, wheat, sugar etc.,
During this time gap between the production and consumption the product is to be stored in warehouses. Ware housing provides ‘Time Utility’ to the product.
3. Insurance: Insurance provides a cover against sudden loss or damage of goods in the process or storage or in the transportation. The loss occurred to the producers and traders is fully compensated. By removing the fear of loss, insurance helps for the development of business.
4. Banking: Banking is a branch of trade which provides finance and credit facilities to the business people. Banking sector plays an important and vital role in overcoming the financial problems. Therefore banking regarded as an important function of commerce.
5. Advertising: Advertising provides the information of product to the consumers.  It explains about the availability and use fullness of various products in the market. By this consumer can easily select the product which he wants or desire. The advertising helps to remove the hindrance of information to the consumers advertising create the brand image to the goods and services.

5. Discuss the inter relationship between trade, Commerce and Industry.
Trade, Commerce and industry are part of the business. Profit motive is the main objective of the trade, commerce and industry. the purpose of all these activities is to satisfy ever growing needs of the human being.
Buiness activities = Industry + Commerce
Objectives = Protif motive + satisfaction of human wants.
The main organs of industry and commerce occur one after the other in succession. Industry is responsible for producing goods and services through the conversion of raw materials while, commerce facilitate the movement of goods from the production point to the consumption ends. Commerce helps industry in achieving its goals by removing various hindrances that exist in the process of supplying goods from the producers to the consumers. Industry is the back bone of commerce and trade. Trade completely depends upon industry and there can be no trade without industry. Thus trade, commerce and industry are closely related to each other.

6. Wholesale Trade:
If the purchase or sale is made in a large scale it is concerned to wholesale trade. Wholesaler buys goods in larger quantities from the producers and sells them in small quantities to the retailers. He acts as a link between producers and retailers.

7. Entrepot Trade:
When the goods are in ported from one country with a view to export the same to another country is known as Entrepot trade. When the direct trade relationship between two countries is not good then entrepot trade enters.
Ex: India imports wheat from U.S & exports the same to Srilanka.



3. FORMS OF BUSINESS ORGANISATION

1. What are the characteristics of a sole proprietor business.

‘Any business unit which is owned and run by a single person is known as sole trade’. The person who manages it is called as sole trader. It is the oldest form of business unit. In this a single person brings the capital, himself manages it and enjoys the profits. Some times he may take the assistance of relatives and friends or he may appoint employees. He is the founder and he is the controller. In one sentence ‘All is he and he is All’.
Definition: ‘The sole proprietorship is that form of business ownership which is owned and controlled by a single individual. He receives all profits and bears risk of his property in the success or failure of the enterprise’ - Wheeler.
“The form of business organisation the head of which is an individual who is responsible, who directs its operations and who alone runs the risk of failure’- L.H. Haney.
By analysing the above definitions the features of sole tradership business organisation can be defined as follows.
Characteristics:
1. Individual initiative: Sole tradership is a business, where everything is to be maintained by a single person. ‘He is all and all is he’. Each and every step is to be taken by himself. Either concerning to factors of production or staff and control of business, everything lies on the shoulders of sole trader. Finally he has to bear all risks and enjoys the profits.
2. Management and control: Entire business is managed and control by sole trader. Planning and execution, administration, control everything is maintained under his guidelines. He may take the assistance of his relatives and employees. But final control lies with him only. He is the manager, guide and controller of the business unit.
3. Unlimited liability: In sole trade, owner and the firm are one and the same. The liability of the sole trader is unlimited. While in the repayment of firms debts, sole trader may lose his private property also.
4. Motivation: In sole trade, single person is the owner. He enjoys all profits. His efforts are rewarded directly. If he works hard, he earns ore. Incentive comes in the form of profit. It works as motivation in the case of sole trader.
5. Secrecy: All decisions are taken by sold trader himself. So he keeps all secrets with him only. These secrets play an important role in the market.
6. Uncertain existence: By death, or disability of sole trader may led to uncertain existence of the firm.
7. Scope of operations: The dealings of sole trader, normally concerning to a particular area. Because of the limited managing ability and controlling power of the sole trader.
8. Risk: All profits and losses are to be born by sole trader himself. Nobody shares his risk.
9. Government regulations: The registration is not compulsory for all sole trade concerns. No special acts are made for sole trade. And government regulations are also very less.

2. What are the advantages and disadvantages of sole proprietor business?
Merits:
1. Easy to start: There are no legal formalities to start a sole trade business unit. It is very easy and simple to commence this type of business unit. The registration is not compulsory. Some formal licenses are necessary from local governments. But legal formalities are very less, when compared with companies.
2. Direct control: Sole trader has complete control on the affairs of the business. All activities are taken under his supervision. All decisions are taken by himself. In simple, sole trade runs with centralised direction and personal control.
3. Motivation: All profits are enjoyed by sole trader himself. His efforts results directly. If he work hard, he earns more and more. Profits works as motivation in sole trade.
4. Secrecy: Sole trader takes all decisions by himself. All business matters lies with him only. And these business secrets play a vital role in the business world.
5. Direct contact with customers; For sole trader customers are very few in number. He maintains regular contact with customers. By this sole trader able to know the tastes and preferences of the customers.
6. Flexibility in operation: Depending upon the profitability, sole trader may change his business operations time to time.
7. Less cost of management : Sole trader himself is the owner, manager and controller of the business. By this managerial and clerical costs are reduced.
8. Tax advantage: Sole trader enjoys the tax benefits also.
9. Easy dissolution: Whenever sold trader is not interested, he can close his business. No need to consult anybody. There won’t be any legal formalities also for the closing.
10. Less regulations: Very less government control lies either to start or manage a sole trade business unit. And no need of compulsory audit.
11. Easy to raise finance: Sole trader liability is unlimited. His private property is also liable for the debts of the firm. By this everybody comes forward to give loans to a sole trader.
Demerits:
1. Limited resources: The amount of finance that a sole trader can raise, is limited. Himself he has to bring entire capital or else, he can borrow from relatives or from banks and financial institutes. The security may or may not be adequate, offered by the sole trader. By this he may fail to supply required funds for the development of organisation.
2. Unlimited liability: The liability of sole trader is unlimited. He may loose his private property also, wrong decisions and bad conditions of market may lead to losses. By this liabilities may increase. Liability sole trader spreads to his personal property also.
3. Limited managing capacity: A business organisation contains so many functional areas like purchases, sales, production etc. All things are to be maintained by himself. He may not be able to spare sufficient time to look over all areas managing capacity of a sole trader is limited.
4. Less Economies: Usually sole trader business transactions lies in small quantities. By this economies are also very less. Large scale economies are not possible. By this reducing the cost of production is quite difficult.
5. No division of labour: In sole trade all activities are to be managed by a single person only, so no chance for division of labour. To have the merits of division of labour, he has to appoint employees. But it is a matter of expensive work.
6. Lack of continuity: Generally, the sole trader’s concern continues as long as the trader is alive. After his death the existence is uncertain. The sons or relatives may not be that much of efficient as sole trader.
7. Wise decisions may not be taken: All decisions are taken by a single person. He may take suggestions from relatives or friends. But final decision lies with him. Always the decisions may not be correct. By that losses may occur.
Conclusion: Even though above demerits are there in sole trade, considering the merits they are very less. For the proper distribution of goods sole trader is very important. Consumers normally depend more on sold traders rather than manufacturers and wholesalers. So sole trade form of business plays active role in the economy.


3. “One man show is the best in the world provided that one man is big enough to take care of everything” - Explain.
Sole trade business is mostly suitable for small size business units. It is very easy to start a sole trade concern. In the same manner it is very easy to close, or easy to shift the place of business. Sole trade business operations are flexible according to the marketing conditions. Sold trader can change his style of operations. By considering all these flexibility Willam Baset Say’s “One man show is the best in the world provided that one man is big enough to take care of everything”. In sole trade only single person is the owner so no chance for disputes in the decision making. Sole trader can run his business with lot of freedom by providing qualitative goods and services sole trader gets more and more profits. To get the best results sold trader must passes many qualities. If he is able to maintain the following qualities never the less sole tradership organisation is the best in the world.
1. Qualitative goods/services 2. Technique
3. Management skills
4. Customer orientation and customer satisfaction
5. Foresight 6. Patience
7. Determination 8. Logical thinking
9. Training 10. Self confidence
11. Capacity of taking right decision at right time
12. Business loyalty etc.,
If sole trader is able to maintain above all qualities no doubt he is the greatest person in the world and sole proprietorship organisation is the best organisation in the world.

4. What do you understand by a “Cooperative Society” ? State its characteristics.
The Co-operative movement started in England in the year 1844 by Robert Owen. Co-operative society is a voluntary association of person with main objective to serve the members of the society. All the members will have one common motive. The main principle is ‘One for all and all for one”. Their motto is service first and profit next. And self help and mutual help are the two pillars of co-operative societies.
Definition: According to co-operative Societies Act, 1912, “A society which has its objectives for the promotion of the interest of its members in accordance with the principles of co-operation is co-operative societies”.
Features/Characteristics/Principles:
1. Voluntary association/Membership: Membership in co-operative societies is voluntary. A person can join in society whenever he likes, But he has to give a notice when he is leaving.
2. No. of members: Minimum 10, maximum number no limit according to co-operative societies act 1912.
3. Voting rights: Irrespective of the shares held by a member, he gets only one voting right. ‘One man one vote’ is the principle. All the members of the society are treated equally.
4. Service motto: Co-operative societies may earn profits but their first motto is service. They service to their members. Some times to the outer people also.
5. Cash Trading: Co-operative societies deals only with cash transactions. They won’t sell or buy goods and services for credit. By this we can avoid bad debts and collection charges also.
6. Registration: Every co-operative society must be registered under the co-operative society,s act, 1912 which is mandatory.
7. Liability: Liability of the members is limited and it is to the extent of their share in capital.
8. Democracy: Co-operative society’s management lies in the democratic pattern. Chairman and other office bearers are elected by conducting the elections. The members of the society, elects these office bearers by using their voting right. And all important decisions are taken by following the opinion of the majority members.

5. Explain the advantage and disadvantages of a co-operative form of business organisation.
Merits:
1. Easy formation: The legal formalities are very simple to start a co-operative society. Minimum ten members are enough to start a co-operative society.  The registration procedure is very simple.
2. Low operating costs: Administrative expenses are very low to maintain a co-operative society. Because many people participates voluntarily in the management where in these societies division of labour is possible.
3. Service motto: A feeling of co-operation is going to be created among the members. Society provides the various services like financial, social etc., to its members. Co-operative societies are mainly concerned with service motto.
4. Liability: Liability of the members is limited. By this the members can take more daring steps for the development of the society.
5. Tax advantage; Co-operative societies are exempted from income tax and surcharges up to certain limit. Sometimes stamp duty and registration fees are also exempted.

6. Mutual help: A co-operative society works on ‘all for one and one for all’. By this mutual co-operation will be developed.
7. Elimination of middleman: In the distribution channel middle men portion will be eliminated with the help of co-operative societies.
Demerits:
1. Financial resources: Due to limited financial resources growth of a co-operative society will be restricted.
2. Application: It is suitable for small and medium size units only. Not for large scale.
3. Lack of secrecy: The activities of society will be known to all the members. So secrecy is not possible.
4. A member cannot transfer his shares.
5. A huge political interference will be there.
6. Societies will have so many rules and regulations. Rigid control by state govt.,

6. Write about different types of co-operative societies.
The following are the different types of co-operative societies.
1. Consumer’s co-operatives: These are started to help lower and middle class people. These societies protect the weaker sections of the society. Usually these societies work under the control of government. Through these societies sells the commodities to consumers at reasonable prices. Consumer’s societies purchase the goods directly from manufacturers and sells to consumers.
2. Producer’s co-operative societies: These societies are established for the benefit of small producers. Its main objective is to improve their economic condition and to compete with large producers.
3. Marketing co-operatives: These societies are association of producers for selling their products at remunerative prices. These provide services like grading, warehousing, insurance etc., These societies will sell the commodities whenever market is favourable.
4. Co-operative credit societies; These societies are formed to give financial help to the small farmers and other poor sections of society. These societies are two types.
a. Agricultural credit societies; These societies consists of farmers. These societies obtains founds by sale of shares and by accepting deposits. This society provides loans to its members at lower rates of interest to purchase seeds, fertilizers etc.
b. Non agricultural credit societies: These societies are formed by people living in cities. These are also known as urban societies. Collecting deposits and lending them to traders and other sections is the main objective for these societies.
5. Housing co-operative societies; These societies provides loan facilities to the weaker sections of the society to construct own houses. Normally these societies are promoted in urban areas. Basically housing co-operative societies are of 3 types.
a. Some societies construct buildings and provide them to the member on rent basis.
b. Some societies acquire land and give the plots to the members after making layout. The members then built houses either with own funds or loan provided by the society.
c. Some societies acquire land and construct and hand them over to the members. Members have to pay the amount in simple installments to the society.

7. What is Joint Hindu Family? Explain its features.
Joint Hindu Family is a unique type of business unit, which found only in India. This business is controlled by Hindu Law. The membership is acquired only by birth. The members of the business are known as co-parceners. All the affairs of the business are controlled by the eldest male member of the family, known as ‘Karta’ or ‘manager’.
Definition: No act has defined the JHF. But in a judgment JHF was defined as follows:
‘A JHF is a family which has the same place of worship, shares the same blood and share the same property of the family’.
Features:
1. Membership: In JHF membership comes by birth. Every male member has equal share in the property, irrespective of the age. Right on property comes with inheritance. Even it is applicable to adopted sons also.
2. Governed by Hindu Law; The business of JHF is managed and controlled by Hindu Law. Mitakshara and Dayabhaga principles of this act prescribe the right and duties of the members of the family.
3. Management : All the business affairs are managed and controlled by the eldest member of the family known as Karta. His powers are unlimited.
4. Liability: The liability of ‘Karta’ is unlimited. But the liability of other members is limited, to the extent of their share in the joint property.
5. Continuity: Either death or disability of Karta or any other member does not dissolve the business, business taken forward by other members. The consecutive eldest member becomes Karta.
6. Maintenance of accounts: The accounts of the family are maintained by Karta. He is not accountable to anybody. No member can question him about the accounts.
7. Implied authority of Karta: Karta is having the authority to take loans from outsiders for the purpose of business . No other member is having this authority.

8. What are the advantages and disadvantages of JHF?
Advantages:
1. Equal share: In JHF every co-parcener is assured of an equal share in profits of the business. It is irrespective of their efforts in the business. By this weaker section of family like children, widows, handicapped etc., are protected.
2. Economy: Economy is must for the business. In JHF Karta spends with great caution and economy.
3. Limited liability: Liability of the co-parceners is limited to the extent of their share in property. However, the Karta’s liability is unlimited.
4. Centralised management: All the business affairs are handled by Karta with all his experience and intelligence, he can provide efficient management.
5. Quick decisions: All the decisions are taken by Karta only. No one can raise any objections against him. By this decisions are made quickly and the dealings are more profitable.
6. Secrecy: Karta maintains a complete secrecy. He can keep a thing secret even from the members of the family also all the decisions are taken by himself. So it is easy to maintain secrecy, which helps a lot in the development of the business.
7. Stability: The firm is not affected by death or insolvency of a member. It goes on forever with stability. It increases the goodwill and reputation of the firm.
8. Credit facilities: In JHF the credit facilities are more because the liability of Karta is unlimited.
Demerits:
1. Limited capital: The investment is limited to the extent of the property held by the family. In some times it may not be adequate for the necessary steps to be taken in business. Financial resources are very limited for JHF’s.
2. Selfishness of Karta: Karta having unlimited powers. And he is not answerable to anybody. He may behave selfishly and manipulate the accounts.
3. No reward for efficiency: Members who work efficiently will be rewarded only with basis needs. By this they demodulated, and they also may sit idly without working.
4. Limited managerial skill: Only Karta will manage the entire business. He may not have sufficient skill to manage business.
5. Lack of stability: The stability of this form of business is linked with joint family. But the joint family system is breaking very fast now-a-days. So this form of organisation lacks stability.


9. Write about Kartha
The head of the family is known as Karta. Generally, the eldest male member in the family acts as Karta. He is also known as manager. He is the controller of the business and custodian for the property. All decisions are made by him and nobody can question his decision. He himself maintains the books of accounts. His liability is unlimited. On the death of Karta, the next eldest male member has taken his position.
10. Write about Co-parcener
The members of the JHF are called Co-parceners. Co-parcener is a person who has a share in common property formed through inheritance. Oldest/Eldest person is ‘Karta’. Co-parceners liability is limited. There won’t be any agreement between these members. But it comes into existence by the operation of Hindu Law. By birth a member gets a share in  property, it continues till his death. Shares in the property gets fluctuate according to the number of co-parceners. Only living members will have right on joint property. Co-parceners cannot leave JHF without the consent of other co-parcener.
11. Write about Unlimited liability.
In sole trade business, the proprietor and the business are one and the same. The liability of a sole trader is unlimited. He is personally liable for the debts of the business. Creditors can recover their loan amounts only from the assets of the business but also from sole trader’s private property.
In JHF Karta’s liability is unlimited and concerning to partnership, partners liability is ‘individual, joint and unlimited’.
12. Write about Mitakshara School.
This act applicable to the whole country except Assam and West Bengal. According to this rule, only male members of the family get the right of inheritance (on property) by birth. The right on property comes by birth and lost by death. Illegitimate children will have no right on inheritance till the death of the father. Then also, they get only 50% share.
13. Write about Dayabhaga School.
This school is applicable only in the states of Assam and West Bengal. According to this school the right of property comes by succession and not by birth. Co-parceners can leave JHF without the consent of other co-parceners. But the share in property decided at the time of partition only.




4. PARTNERSHIP ORGANISATION
1. Define Partnership and states its essential characteristics.
Introduction: A person may have money and a person may have talent. If both mix up with an agreement to perform business. Such business organisation may called as partnership.
Definition: ‘The relationship between two or more persons who have agreed to share business profits, carried on by all or any of them acting for all’.
The members of partnership are called as partners. The firm have a separate legal entity if it was registered. The relationship is called partnership. For the governance of partnership firms Indian Partnership Act which was made in 1932. The registration of partnership form is optional. But firm will get some excess benefits if it was registered.
Characteristics:
1. Agreement: Partnership starts from an agreement, between the partners. It may be in the form of written or oral. But written is suggestible. By this we can a void future disputes between the partners.
2. Sharing profits and losses: The main objective of any business is making profits only. Partnership also follows the same. Partners shares the profits and losses, in the ratios mentioned in the agreement or else they have to share them equally (1932).
3. Members: In partnership minimum number of partners is 2, and maximum number is 20, if it is banking the maximum is 10.
4. Liability: The liability of partners is collective individual and unlimited. If collectively unable to pay, individually partners are liable. They have to loose even their personal assets also to clear the debts of the firm.
5. Transferring of shares: Transferring the shares is restricted in a partnership firm. All the partners must accept before the transfer of the share. Before the selling of share he must consult all other partners.
6. Other important features:
a. All the partners acts as principal and they are agents for each other.
b. Partners must be faithful to each other.
c. According to their convenience they may or may not attend in the regular system.

2. Is Registration of partnership compulsory under Partnership Act, 1932? Explain.

A partnership is an association of two or more persons to carry on a business as co-owners for profit. Individually they are called as partners. For the governance of partnership organisations, Indian Partnership act, was made in 1932. According to this act, registration of partnership is compulsory. However there are some disadvantages of non-registration. For registration of a partnership firm, partners have to follow the following procedure.
Registration Procedure: The partners have to prepare a statement, giving the following particulars. They are
1. Name of the firm
2. Place of business, business head office and branches if any
3. Names and addresses of all partners
4. Date of opening of the business, type of the business and its nature
5. Date of joining the firm in the case of every partner.
6. Partnership business duration, if any,
7. Any other particulars relating to partnership form of business organisation.
The statement shall be duly dated and signed by all the partners. It should be submitted to the Registrar of the firms along with prescribed fee. After verification and satisfying with the terms an d conditions as per the act, registrar issues a certificate of registration, under the seal of registrar of firms. The name of the firm, and partners, names will be enrolled in the register of firms. This register is a open document for public, to inspect.  After registration firms gets a separate entity. All subsequent changes must be communicated to the registrar, with in 15 days of such alternations.

3. Write about Partnership Deed or Partnership Agreement. Discuss its contents.
Partnership starts with an agreement between partners. That agreement is known as partnership deed. The terms and conditions, regulations are to be specified in the deed. The registration of deed is not compulsory. And deed may be in the form of written or oral. But in written is suggestible. The registered deed must be signed by all partners. If the deed is registered then ti can be used as legal evidence. Indian Partnership Act was made in 1932.
The normal items of the deed are as follows:
a. Name of the organisation
b. Objectives of the firm
c. How much capital and who to contribute
d. Profit sharing rations of partners
e. Management rights and duties of partners
f. Accounts maintenance of firm
g. Bank accounts and their operation
h. Rules to be followed when a partner dies or insolvent or what to leave the firm
i. Drawings or salary of partners etc.
j. If any other important points, partners can include in the agreement, if not 1932 act rules will be automatically applicable.

4. What are the differences between Sole trading and partnership firm.

Nature Sole Trade Partnership

1. Members Only one person Minimum2 and maximum is 20. In case of banking the maximum is 10
2. Liability Unlimited Liability is collective, indi- vidual and unlimited.
3. Act No Special Act Indian partnership act was made in 1932.
4. Registration For sole tradership no Registration of a partner-
           need of special regist- ship firm is compulsory.
ration.
5. Profit sharing No sharing of profits As per partnership deed, or rules of Indian Partnership are applicable.
6. Capital Total capital is to be More than one person
 invested by a single person. invests the capital.
7. Agreement No need of any written Agreement is compulsory
agreement. between partners. It may be oral or written. But                                                                                               
                                                                                written is suggestible.
5. Explain the merits and demerits of partnership firm.
Advantages / merits:
1. Easy formation: It is very easy to form. Understanding between parties is enough. Registration is simple and not compulsory.
2. Closing: Partnership firm can be closed by giving a notice before 14 days to all the partners. So closing of firm is very simple.
3. Secrecy: All affairs of firm will be kept secretly. All secretes lies among the partners only. Auditing is also not compulsory. So secrets will be kept.
4. Capital: It is a combination of persons. So automatically capital raising power will be more than a sole trader. If the capital is not sufficient they may invite another partner. All partners may or may not invent the capital. Same partners may invest their talent as capital. It depends upon the mutual agreement between the partners.
5. Managerial ability: More man power will be available in partnership. So division of labour is possible and managerial ability firm will be increased.
6. Wise decisions: Whenever they want to make a decision, all the partners meets at one place and they discuss. By this wise and best decisions are taken and it will be implemented promptly and in a proper way.
Disadvantages:
1. Comparing to company sector partnership organisartions provides lesser capital and having lesser managerial ability.
2. There is no legal formalities and control on partnership. Obviously people does not have confidence on partnership firm.
3. The liability is joint and several. By this partners may be afraid to take risky decisions.
4. Partnership firm and deed are one and same. By death of a partner or insolvency of a partner, it can enter into troubles.
5. A partner cannot transfer or sell his share without consulting other partners.

6. State disadvantages of Non-Registration.
Registration of partnership firm is not compulsory. It is optional for the partnership firms according to the Indian Partnership Act, 1932. By keeping unregistered, partnership firms will have following disadvantages.
i. The unregistered firm or its partner cannot take any action legally, against third parties.
ii. The rights of third parties are unaffected, even though firm is not registered. Creditors can take action against the firm or on its partners.
iii. But unregistered firm cannot act on debtors. It cannot demand for the clearance of debit from its debtors.
iv. A partner cannot she on the firm or on other partners as long as firm is not registered. It is possible only in the cases of dissolution of the firm.
v. The firm cannot take any legal action against any partner as long as it is un-registered. A small firm dealing strictly on the cash basis may remain un-registered for a long period of time. But a big firm, dealing large volume of credit transactions, must be registered as early as possible.

7. Explain various types of partners.
The following are different types of partners.
1. Active partner: The partner who participates in the day-to-day business transactions he is known as Active partner. He plays an active role in the business transactions. He enjoys full management powers and he will act as an agent for the remaining partners.
2. Sleeping partner: The partner who does not participate in the day to day transactions of the firm is known as sleeping partner. He himself he surrenders his right to manage the organisation. But he is responsible for all the liabilities of the firm. And he is entitled to share all profits and losses.
3. Nominal partner: Nominal partner does not invest any money but his name will be used in the business transactions. Because of his goodwill firm gets more business. He may or may not get the share in profits but no never takes any active part in management. And his liability to third parties is unlimited.
4. Minor partner: A partner,  whose age is below 18 years, is known as minor partner. A partner below 18 years can enter into partnership, but his liability is limited. After becoming major he has to give a notice if he has willing to continue in the business. After becoming major his acceptance must be informed before 6 months, and his liability will be unlimited from the day of majority.
5. Holding out partner: If a person represents himself as a partner of the firm. Such person is liable to the third party by the obligation which he had created. This is a misrepresentation or fraud. The liability in such cases is unlimited.
6. Partner by estoppel: If a person by oral or written if he creates a belief to third parties as he is a partner known as estoppel partner. This type of partner does not invest any capital or any part in management. His liability to third parties is unlimited.
7. Secret partner: The partner does not disclose his name as partner in a firm directly to the public. His name will be kept secret such partner known as ‘Secret partner’. But his liability is unlimited.
8. Partner in profits: This type of partner will share only profits. But his liability to creditors is unlimited. He won’t share the losses of the firm. Only he enjoys the profits.

8. What are the liabilities of partner?
Partners are liable jointly and personally unlimited for the debts of the firm. When dealings are made with outside parties certain liabilities are grouped. They are
a. The partners liability is unlimited, joint and several.
b. Every partner is to share the losses equally or else as specified in the partnership deed.
c. Retiring partner is liable for all debts when he was acted as a partner.

5. JOINT STOCK COMPANY


1. What are the features of a company?
Because of the demerits of non-corporate organisations joint stock companies came into action. In all non-corporate organisations unlimited liability is one of the man disadvantages, and limited liability is the main feature to the corporate sector. The concept firstly invented in Italy in 14th Century, later on spread to England. And it was developed in 17th and 18th centuries. In India separate companies act was made in 1956. This is known as Indian companies act 1956.
Definition: ‘Joint stock company is a voluntary association of individuals for profit, having a capital divided into transferrable shares, the ownership of which is the condition of membership’. --- L.H. Honey.
By the above definition we can say that company is a voluntary association of members, to share profits and they will have a chance to transfer their shares freely. And company is called an artificial person. It will have a common seal. Limited liability, separate legal entity is main features.
Features:
1. An artificial person: Company is an artificial person which was created by law. It has its own legal entity. It may enter into contracts and appoint people as employs. Except physical entity company will have all the features of a human being.
2. Registration: Every company must be registered with the company’s registrar and according the Indian Companies act, 1956.
3. Common seal: A company is an artificial person. It will have a common seal and it will act as a signature of the company. It must b e presented important documents of the company. Minimum two directors have to sign on the common seal. It must be in the custody of directors.
4. Continuity: Company is an artificial person. And it will have its own entity. Death, insolvency or disability of a shareholder does not affect the continuity of the company.
5. Distribution of risk: Risk will be distributed among the large range of people. So the individual liability will comes down automatically. The risk will be spreaded to many people.
6. Liability: The liability of shareholder is limited to the extent of the face value of the share. Even company falls in losses and closed, then also shareholders private property does not bears any risk. There won’t be any personal risk. Shareholders liability limits to the extent of his share in capital.
7. Transfer of shares: Share holder can sell his shares in the open markets without any permission of any person. The transfer of shares will be done very freely.
8. Ownership and management: Ownership differs from the management in the company form of organisations shareholders are the real owners of the company. But day-to-day transactions are be maintained by the board of directors. Therefore share holders may be situated all over the world.  But directors maintain the day-to-day transactions of the company.

2. Discuss the merits and demerits of company form of business organisation.
Advantages:
1. Liability: In company form of business the liability of share holder is limited. The liability is limited to the face value of the share. No where concern with his private property. The personal property of shareholder remains safe.
2. Continuity: Company business will have continuous business life. By the disability of any shareholder or directors, company won’t loose its continuity. It will remain stable.
3. Financial resources: A company can secure or raise large amount of capital by issuing shares to the public. If a company requires more fund once again it may go for the public issue. Even a small income group person also invests in the companies.
4. Distribution of risk: Risk will be distributed among the large range of people. So the individual liability will comes down automatically. The risk will be spreaded to amy people.
5. Public confidence: A company has the public confidence because of the activities regulated by the government. Its all affairs will come to know by their accounts. Every company has to publish the account details, by that public will get the faith on company, and believes it.
6. Tax advantage: A company enjoys certain tax benefits when compare with other form of organisations.
7. Democratic control: The affairs of the company are being controlled by the directors possible. By this they will get large scale economies. And for lesser price consumer can get the goods.
Disadvantages:
1. Difficult formation; A number of documents have to be prepared and filed for the registration. Many legal formalities have to be followed to start a company. For a normal person it is quite difficult.
2. Ownership and management: The actual management of the company will be done by the employees. They won’t have any interest in the company. Owners are shareholders and they will be all round the world.
3. Government control: Companies have to follow many government rules. The day-to-day transactions of the company have to follows the government rules. These rules and regulations may reduce the efficiency of the company.
4. Speculation: Usually shares are listed in the stock exchanges. For the liquidity and marketability it will be done. But in sometimes it may lead for the speculation. By this economy may misguide and may show the wrong information.
5. Slow decisions: In taking decisions on various problems of administration, meetings are necessary. The minimum number must be there. By this decision making may be late. By this company may lose some chances to make the profit.


3. Distinguish between partnership and joint stock company form of business organisation.

Partnership Joint-stock Company
1. Legal Status: It has no separate legal 1. It has a separate legal entity.
   entity apart from its members.
2. Liability: Partners liability is unlimited, 2. Shareholders liability is limited to
   joint and several.     the face value of shares held by them.
3. Transfer of shares: A partner cannot 3. A shareholder can transfer his share
   transfer his interest in the firm to any-   to any body without the consent of
   body without the consent of the other   other shareholders.
4. Continuity: It has no continuous existe-4. It has a continuous existence.The con-
                nce. It may dissolve on the death or            tinuity doesn’t effect by the death or in-
   insolvency of a partner.    solvency of a shareholder.
5. No. of members: The minimum member 5. The minimum is 2 and maximum is
   of persons is two and maximum number      50 in case of Pvt.,limited. And in case
                is 10 in case of banking and 20 in case       public limited minimum is 7 and max-
               of non-banking business.      imum number is unlimited.
6. Registration: Registration is not compu-   6. Registration is compulsory.
                lsory. It is optional.
7. Common Seal: A partner can sign on a   7. It is an artificial person. Hence, it
   document on behalf of the firm. Therefore     uses common seal in the place of the
   common seal is not used.       signature to indicate its approval.
8. Mode of creation: It is brought into exist-   8. It is brought into existence by
   ence by a agreement.        registration.
9. Audit of accounts: It is not compulsory.      9. It is compulsory.
          10. Government control: The government     10. The government has more control      control is lesser.          over its operations.
          11. Borrowing capacity: It has a limited   11. It has a greater borrowing capacity.
   borrowing capacity.

4. What are the differences between Private and Public Company?
Private Limited company: When a company’s ownership is restricted to a few members, it is known as a private limited company. The minimum number of members are two and with a maximum of 50 members in this company. As such, it is limited to few members. Private limited company does not allow transfer of shares.
Public Limited company: According to companies act, all those companies other than the private limited are considered as public limited companies. Atleast 7 persons are needed to start this company. And for maximum number of members is unlimited. The differences between private limited and public limited are as follows.
Private Limited company Public Limited Company
1. Number of members: It can be started    1. It can be started with minimum of 7
   with a minimum of two members. The         members and no limit for maximum
   maximum is fifty.     number of members.
2. Transfer of shares: In this type of comp-   2. Shares are freely transferable.
   anies shares cannot be transferred.  
3. Number of directors: The minimum nu-     3. The minimum number if three
   mber of directors is 2.
4. Quorum for meeting: Minimum 2 memb 4. Five members are quorum for
   ers  are to be attended for meeting.           public limited companies.
5. Statutory meeting: Need not hold a   5. The public company should conduct
    statutory meeting.        a statutory meeting within one year
       from the date of commencement of
       business.
6. Retirement of directors: Directors need 6. 1/3rd board of the directors should     not retire by rotation.         retire by rotation every year.
  7. Name : The words ‘Private Limited’ must  7. The word ‘Limited’ is enough.
   be added at the end of its name.
8. Qualifying shares: Directors need not      8. Directors should possess qualifying
    possess qualifying shares.          shares.
9. Grant of loans: It can grant loans to its     9. It can grant loans to directors only
   directors, without any consent.         with the consent of government.
10. Articles of association: Private limited 10. Public limited company may prepa-
                  company has to file articles of associa-         re itself or else adopt ‘Table-A’ of
     tion without fail. i.e, compulsory.          companies act, 1956.
11. Share warrant: It need not issue share     11. It can issue share warrant
      warrant.
12. Issue of prospectus; It cannot issue           12. It can issue prospectus.
     prospectus.
13. Minimum subscription: No need to     13 .It is compulsory to collect minimum
                  secure minimum subscription. subscription for public limited
company.
14. Commencement of business: After      14.  It cannot commence business
      getting ‘certificate of incorporation’ it            unless it gets certificate of ‘comm
      can start business. encement of business’

5. What is a “Government Company’?
These companies are registered under companies Act 1956. According to companies act, Government company means any company which is having not less than 51% of paid up share capital of the central government or any state government.
Ex: HMT, Singareni Collieries Ltd.,

6. Companies limited by guarantee.
These types of companies started not for carrying on business for profits but for the promotion of art, education, sports etc. Generally such companies do not have any share capital. The members of such company, gives an undertaking to pay a certain amount, when the company goes into liquidation. The liability of its members is limited to the extent of unpaid amount of shares held plus the amount guaranteed by them.

7. Companies limited by shares.
In these type of companies the liability of the shareholders is limited to the extent of their share in capital. Whether it is a public limited or private limited company, at the time of liquidation shareholders are liable to the face value of their shares only. Risk or liability does not travel up to their private properties.

8. Chartered companies.
Chartered companies are those which are started under a special charter of a king or queen many companies were started in England Under Royal Charter in 17th Century. The powers and scope of these type of companies are stated in that charter itself.
Ex: East India company, charter bank (Australia) are the best examples for these type of companies. In India such type of companies are not in existence.

9. Registered companies:
The company which is registered under the companies act is called registered company. These companies are mainly 3 types.
a. Companies limited by guarantee b. Unlimited companies
c. Limited Companies

10. Unlimited companies:
The liability of members of those companies is unlimited. All the shareholders or members are liable to meet the liabilities of the company to an unlimited extent. This type of company is not popular and not found in large number.


11. Statutory companies:
Those which are started under the special act of parliament or Assembly are known as statutory companies. All public utilities like electricity, water works, gas supplies comes to this type. Ex: RBI, SBI etc.,


12.  Limited companies:
In these types of companies, the liability of the shareholders is limited to the extent of their share in capital. Whether it is a public limited or private limited companies, at the time of liquidation shareholders are liable to the face value of their shares only. Risk or liability does not travel up to their private properties.
13. Private company:
When a company’s ownership is restricted to a few members, it is known as a private limited company. The minimum number of members are two and with a maximum of 50 members in this company. As such, it is limited to few members. Private limited company does not allow transfer of shares.
14. Public Limited company:
According to companies act, all those companies other than the private limited are considered as public limited companies. Atleast 7 persons are needed to start this company. And for maximum number of members is unlimited.
15. Promotion
The process of starting a business is known as Promotion. It is the first stage in the formation of a company. Promotion includes many stages. Like identifying of business opportunities, gathering relevant information and taking steps to implement it through the formation of the company. Main duty of promotion is the discovery of business opportunities. It may be undertaken to set up a new business, for expansion or to combine two or more business units.
16. Memorandum of Association
It is the constitution of a company Memorandum of association defines the company’s relation with outsiders, which draws the boundaries of company. Beyond that the company cannot Act. The name of the company, its objectives situation etc., are contained in the memorandum. The MOA of a company shall be divided into paragraphs and are them to be numbered. It is to be signed by two subscribers in case of public limited.
17. Articles of association:
It contains the rules and regulations relating to the internal management of the company. It contains the rules, capital structure etc., of the company. It is also to be signed by the members of MOA.
18. Certificate of Incorporation.
For the registration of a company promoter has to submit an application. And prescribed fee has to be paid. Registrar will verify all the documents. If he is satisfied, name of the company will be entered in the register of companies and shall issue a certificate known as ‘certificate of incorporation’. By this company will get an entity. Nobody can challenge this certificate, once it was issued. After getting this certificate, Private Limited Company can start his business. But for the public limited company they here to get another certificate which is known as certificate of commencement of business.


19. Dividend
Out of the profits of the company each shareholders get a share as a dividend. Preference shareholders have right to receive the dividend at a fixed rate irrespective of profits. There is no specific assurance to equity shareholders regarding the rate of dividend.      


 6. INCORPORATION OF A COMPANY


1. Explain the meaning and purpose of Memorandum of association.

Memorandum of Association is the heart of the company. In this company powers and scope will be specified. It contains the relationship between the company and outsiders. Company cannot make any contract beyond MOA. MOA protects the interests of the shareholders and also the people who want to make relation with the company. The contents must be printed. They must be divided into paragraphs and numbered constructively. MOA is a public document. Any person can get the copy of MOA by paying the prescribed fees at the registered office of the company. It contains the general information of the company. Name of the company, objectives, scope, investing areas etc., are the main contents of MOA.
         Clauses of MOA / Contents of MOA: The MOA contains the following clauses.
1. Name clause: A company can choose any name. But it has to follow some conditions. The name should not be similar to any existing company. Not to have any link with any government departments. And all private limited companies must contain this work ‘Private Limited’ at the end of its name. For public limited ‘Limited” is enough. The name of the company must appear outside of every office. Also on every letter, bills, cheques, notices etc.,
2. Situation clause: This clause specifies, the state in which the company’s Register office is located. Exact address is not needed. This clause decides the jurisdiction of the company.
3. Objectives clause: In this clause powers of the company are discussed. Company is not having any power to overcome this clause. It protects the interests of investors and also the third parties. It defines the scope of the operations of the company.
4. Liability clause: This clause state the liability of the members or shareholders. Usually it is limited to the face value of the share. A shareholder is not personally for the debts of the company. His liability is limited.
5. Capital clause: In this clause capital structure of the company will be defined. The authorised or registered capital will be mentioned here. Division of capital, no. of shares etc., are the other important items of this clause.
6. Subscription clause: With this clause MOA ends. In this a declaration of members and their signatures lies. Atleast 7 members in case of public limited and 2 members in case of private limited are to be signed.

2. What is Articles of association and describe the contents.
The Articles of Association (AOA) of a company contains its rules and regulations, which helps for the internal management of the company. The articles play very important role in the affairs of the company. MOA narrates the scope and powers of the company. AOA manages the way of the company, to achieve its objectives.
Every private limited company must submit AOA to the registrar. But for public limited company it is optional. Alternatively it may adopt table A, of First Schedule of the Companies Act, 1956.
Contents of Articles of Association:
1. Rules and regulations.
2. Rules for preliminary contracts.
3. Provisions regarding use of common seal.
4. Procedure of issuing shares.
5. Procedure for transfer and forfeiture of shares.
6. Procedure for issue of debenture.
7. Rules regarding appointment of directors.
8. Maintenance of bank accounts.
9. Preparation of accounts and audit.
          10. Procedure of liquidation (closing) etc.

3. What is importance of Articles of Association and bring out the differences between Memorandum and Articles of Association.
Both MOA and AOA are important of document for a company. They are just like two eyes of a person. But they are different in the following cases.


MEMORANDUM OF ASSOCIATION              ARTICLES OF ASSOCIATION
1. Objects: MOA specifies the relationship 1. It specifies the internal manage-
    of the company with outsiders.    ment of the company.
2. Scope: It is the charter of the company. 2. It contains the rules and regula-
   It discusses the nature of the company.    tions of the company.
3. Changes: Contents of MOA cannot be 3. Articles can be changed easily.
   changes easily.
4. Status: It is superior to AOA. 4. AOA has to follow MOA.
5. Filling: MOA must be prepared by 5. AOA is compulsory only to
   every company.    private limited companies.    Optional to public Ltd.,company.
6. Priority: MOA is a document of First order.     6. It is a document of Second order
7. It is governed by companies act (1956) only. 7. Articles are governed by both
companies act and memorandum


                           7. PROSPECTUS
1. What do you mean by Prospectus and what are its legal requirements.
Prospectus is an invitation, inviting the public to subscribe the shares of the company. Any advertisement offering shares or debentures of the company for sale to the public is called prospectus. This invitation must be in writing. It has to issued on behalf of the company.
Legal Requirements for Prospectus: A private limited company cannot issue a prospectus. They are strictly prohibited from inviting the public to subscribe their shares. Even private limited companies are not authorised to accept deposits also.
In order to protect the interests of investors the companies act lays down the following regulations.
a. Prospectus must be dated. This date be taken as the date of publication of the prospectus.
b. Prospectus must be signed by every director or a proposed director.
c. A copy of prospectus must be submitted to the registrar before the date of its publication. If the prospectus is issued in more than one language, each language copy must be submitted to the Registrar.
d. The prospectus must be issued with in 90 days of its registration either by news paper or otherwise.
A prospectus must be in writing. An oral invitation is not a prospectus. For example, an advertisement in Television or a film is not treated as a prospectus.
Attaching Documents of Prospectus: The following documents must be attached to the copy of prospectus, while filing it with the registrar of companies.
a. The consent of the expert mentioned in the prospectus.
b. A copy of every contract relating to the appointment or remuneration of managing directors or manager.
c. A copy of every material contract.
d. A written statement in respect of any adjustments in the figures of any profits or losses and assets and liabilities.
e. The consent in writing of persons like auditor, legal advisor attorney, solicitor, bankers etc.,
f. A copy of underwriting agreements, if any.

2.What are the contents of Prospectus?
Prospectus is an invitation, inviting the public to subscribe the shares of the company. Any advertisement offering shares or debentures of the company for sale to the public is called prospectus. This invitation must be in writing. It has to issue on behalf of the company.
Contents of the Prospectus: Every prospectus should disclose all the material facts to the investors. It acts like a window to the company. It has to be prepared in such a manner that the history of the company, competence of management is to be disclosed. Every prospectus should follow the guidelines of companies Act, 1956, Part I of Schedule II, discussed the matter which should be contained in a prospectus. These are as follows.
1. General information (Name of the company, address etc.,)
2. Capital structure of the company
3. Terms and conditions of the present issue.
4. Particulars of this issue.
5. Company management and project.
6. Financial information of group companies.
7. Basis for issue price.
8. Management perception of risk factors.
9. Particulars of companies under the same management.
10. Projections
11. Statutory and other information
12. Main objectives of the company
13. About minimum subscription
14. Names and addresses of bankers, auditors and directors
15. Particulars of preliminary expenses
16. Important agreements with dates if any ---- etc.,

3. Statement -in-lieu of prospectus.

Every public company has to submit a prospectus with the registrar. If a public company could get required capital by some private arrangement. It may not issue prospectus. But in that case it must file a ‘statement in lieu of prospectus’ with registrar. It must be duly dated and signed by all the directors. It shall contain the particulars and reports as get out in schedule III to the companies act, 1956. The contents of this statement are more or less similar to the contents of prospectus. A private limited company does not required to file either prospectus or statement in lieu of prospectus.


4. Certificate of Commencement of Business.
A private limited company can start its operations after getting ‘certificate of incorporation’. But a public limited company has to get ‘certificate commencement of business’ to start its operations. It can be obtained within the one year of incorporation. Public limited companies have to issue prospectus and have to obtain minimum subscription. Some has to be reported to registrar of companies. After verifying the documents, register issues ‘certificate of commencement of business’.

5. Liability for mis-statements in prospectus.
Prospectus is the basis of agreement between the company and its shareholder, so all the facts must be revealed.  A  prospectus not to be contains any mis-representations. If any Mis-representations made, it may impose civil an criminal liability there on.
* The company
* Promoters and directors
* The person who drafted the prospectus.
* Civil liability: The person or company is liable to pay compensation to the            opponents.
* Criminal liability: The person may be imprisoned up to 2 years or fine up to            Rs. 50000/- or both.

6. Objectives of the prospectus.
Prospectus is an invitation, inviting the public to subscribe the shares of the company. Any advertisement offering shares or debentures of the company for sale to the public is called prospectus. This invitation must be in writing. It has to be issued on behalf of the company.
* To inform the public about the company.
* It is an authorised record of terms and conditions.
* TO pinpoint the responsibilities of the directors and promoters.

7. Criminal liability for Mis-statements.
The punishment for the mis-statements in prospectus may extend to imprisonment up to 2 years or fine up to Rs. 50000/- or both. It may be avoided if the person accused following proofs.
a. That the mis-statements was immaterial (or)
b. The he had reasonable ground to believe and id believe up to the issue of the prospectus, that the statement was true.

8. Essential features of prospectus.
* Prospectus must contain an invitation to the public.
* Invitation must be ‘to subscribe or purchase’.
* Invitation is to be related with the company.
* It must be in writing.
* It is to be made ‘buy or on behalf of the company’.

9. Minimum subscription.
Minimum subscription is the minimum amount of the capital, which a public limited company has to secure before allotting the shares. It must be stated in AOA and prospectus. And it has to be secured by the company within 120 days from the date of prospectus.

10. Underwriters
If a company fails to secure minimum subscription within 120 days of issue of prospectus, it has to wind-up all the activities and further proceedings of the company. In such a case the risk taken by the promoters become waste.. To avoid this, promoters enter into an agreement with some financial institutions or persons who undertakes the responsibility of minimum subscription. These are called as underwriters. They are entitled to get a commission. The commission should not be more than 5%. In case of shares and in case of debentures it is 2 1/2%.

11. Preliminary expenses
A large amount of money must be spent incorporate a company and to secure capital. These expenses are called ‘preliminary expenses’. The expenses are also called ‘Formation expenses’. The promoters will meet these expenses first. After incorporation, they recover them from the company.


    8. SOURCE OF BUSINESS FINANCE-I

1. Define business finance and explain the need for business finance.
Introduction: A business firm requires finance to commence its operations and for expansion. Money is required for all types of business activities. Without adequate capital no enterprise can achieve its objectives.
Need of business finance: Business finance helps to achieve profit motive of the business organisation. It is needed for all types of institutions. Amount required may vary, but the need is same for all. Because, which is lifeblood of the enterprise. Finance is needed due to the following reasons.
1. While starting a business finance is needed to process fixed assets and as well ad day to day maintenance. The amount of finance to be procured depends upon type, size and nature of the business.
2. In the competitive world of business, it is very important to follow the latest trend. Introducing of new products, new technologies etc., are compulsory to maintain optimum demand levels. So expansion of business need more funds.
3. In fast moving markets, update of products is needed. If not, competitions will make and they may grab our products market. Funds are needed for the research and development to upgrade or modernisation of our products.
4. Expansion of business units may done through entering into new markets also. For that huge amount of funds are needed.
5. A business enterprise needs money to meet day to day expenses, in simple working capital.

2. What is meant by business finance? Describe the nature and features of business finance.
Introduction: A business firm requires finance to commence its operations and for expansion. Money is required for all types of business activities. Without adequate capital no enterprise can achieve its objectives.
‘Business finance’ term refers to ‘acquisition of capital funds to meet the financial needs of a business organisation’.
Depending upon the nature and purpose business finance is classified into two types. They are
a. Fixed capital (purpose is to acquire fixed assets)
b. Working capital (To meet day to day maintenance of business)
Features: For the effective maintenance of business operations, business finance helps a lot. Business finance includes both stages of acquiring the funds and proper utilisation of funds.
The following are the some of the features of business finance.
1. Business finance includes all types of funds used in business.
2. It needs for all types of organisations like small, large, trading or manufacturing.
3. The amount needed may differ from firm to firm. But the need is the same.
4. It involves an estimation of funds.
5. And it is also responsible for the optimum utilisation of funds.
6. Basic work of business finance is searching the financial resources, acquiring them and proper utilisation.

3. Write about different types of business finance.

Introduction: A business firm requires finance to commence its operations and for expansion. Money is required for all types of business activities. Without adequate capital no enterprise can achieve its objectives.
1. Long term finance 2. Medium term finance 3. Short term finance
1. Long term finance: Funds that are required in the business for long period are termed as long term finance. Usually these funds are required for a period of 5 to 20 years. Long term finance is essential to invest in fixed assets, expansion and modernisation of business and its processes. It depends upon the size, nature and level of technology of the business. The main sources of long term finance are:
* Issue of shares * Issue of debentures
* Loans from banks and other financial institutions
* Hire purchasing * Retained earnings etc.,
2. Medium term finance: Funds that are required for a period of 1 year to 5 years are known as medium term finance. These funds are used for
* Modernisation of machinery * To meet huge advertisement expenses
* Launching new products * Opening new branches etc.,
These types of funds are highly required for manufacturing concerns. To adopt technological changes and to prevent competition threats, medium term finance is needed. The main sources of medium term finance are
* Issue of shares * Issue of debentures
* Loans from Bank’s and financial institutions
* Public deposits
* Retained earnings etc.,
3. Short term finance: This type of finance is needed for a short period up to one year. Short term finance is used to meet working capital (day-to-day expenses / maintenance) needs. These funds are having recurring in nature. The amount required depends upon mainly on the nature of the business. Like manufacturing, trading, banking etc., The order and delivery time, the volume of business operations play an important role. The main sources are,
* Bank Credit * Trade credit * Installment credit
* Retained earnings * Customer advances etc.,


4. Write about fixed capital.
To start production every business requires some amount of fixed capital. In simple, the amount (capital) invested in fixed assets is known as fixed capital. Like, land buildings, plant and machinery, furniture, trademarks etc., Manufacturing concerns needs large amount of fixed capital when compared with trading concerns. These assets generate profits for a longer period of time, and remains in the business for a long period also.

5. Working Capital.
The capital required to meet the day-to-day operations is known as working capital which is lifeblood of the organisation. Mainly, working capital is needed for the purchase of raw materials, payment of wages, salaries, and other maintenance expenses etc., In other words capital invested in current assets is called as working capital. It is also called circulating or revolving capital.

6. Operating cycle
The time gap between production and sale is known as operating cycle. If goods are immediately sold, there is no need of huge amount of working capital. The size of working capital required depends upon the nature of operating cycle

.7. Order delivery period
For production of goods, proper supply of raw materials iv very important. After booking an order for raw materials some time gap may occur, for the delivery. This time gap is known as order-delivery period. If that time gap is more huge amount is to be invested in stocks of raw materials. It is needed for the uninterrupted production or selling activity. In such situation more working capital is required.

8. Bank Loan
Bank Loan is one of the sources of finance for the business organisations. Commercial banks play a very important role in financing the medium and short term financial needs of the companies. They provide finance by following ways.
       A. Loans: Loans are granted for specific project like purchase of plant and machinery.
B. Overdraft: A customer having an account with a bank is allowed to overdraw from his account. It happens only in the case of current account.
C. Cash credit: Under this scheme, the bank provides cash credit and fixes limit to the amount. Whenever business man needs, then he can withdraw from bank

9. Current assets:
Current assets are those assets which are held in cash or which are likely to be converted into cash during the accounting year. These assets are more liquid then the fixed assets, i.e., convertibility into cash would be high for current assets.
Ex; Cash, cash at bank, stock ,debtors, bills receivables etc.,

10. Trade Credit
Usually for raw materials or goods may be acquired for credit from the suppliers. These are usually known as trade creditors. Trade credit can be obtained through bills payable also. Trade credit is a short term finance, hence it is to be paid back with in the accounting year.


   9. SOURCE OF BUSINESS FINANCE-II
1. Explain the meaning of ownership funds and describe their features, merits and limitations.
Ownership funds: The capital procured from equity share holders (real owners of the company) and the undistributed profits (retained earning) jointly known as ownership funds’. Occasionally preference share capital is also included in ownership capital. Ownership funds include capital and all other sources of funds from the owners. For example, partner’s loan is a fund but not the owner’s capital.
Features:
1. Owner’s capital is the permanent source of capital in the organisation.
2. Ownership capital does not need any security or charge on the assets of the company.
3. The contribution of this capital will have a right to participate and to vote in the meeting of the company.
4. Dividends are aid on this capital only when the company makes profit.
5. Owners’ fund is the source of risk capital in the business.
6. These funds holders will have a right to make decisions.

Merits :
1. Owners provides the risk capital to the organisation, which forms the basis for borrowed funds.
2. It is a safe source of finance which is non-refundable until the company goes into the liquidation.
3. Investment in ownership funds gives the right to control the business.
4. No security is required for these funds. So the assets of the company can be utilised for raising loans from banks and other financial institutions.
5. A repudiated company can raise unlimited amount of capital. This helps further development of the company.
6. The owner’s capital would not make any additional burden on the form of either for return (dividend) or claim of repayment.
Limitations:
1. A joint stock company can raise unlimited capital. This will increase the number of shareholders, which will reduce the control and power of the original promoters,
2. Being permanent source, these funds may not be utilised properly.
3. Over raising of these funds may lead to over capitalisation.
4. The rate of dividend may fall down, if these funds are heavily raised.

2. What do you mean by equity shares? Explain the features, merits and limitations.
Equity shares are ordinary shares, having no preference. These shareholders get dividend after the preference shareholders receive their dividend. The holders of these shares are the real owners of the company. And they control the business. Equity shareholders will have equal voting rights. The dividend rate won’t be fixed for equity shareholders. Each share denotes with its face value and also known as book value or normal value.
Features /  characteristics / merits / advantages:
1. Equity shares and holders bears much risk.
2. Equity share capital is permanent capital.
3. There is no need to offer any security to the shareholders.
4. The company has no obligation to pay dividends to equity shareholders.
5. Equity shareholders have voting rights, and will have the control on management of the company.
6. Liability of these shareholders is limited to the extent of their value of share.
7. Company may buy-back the shares at any time.
Demerits / Limitations:
1. The company cannot trade on equity, if only equity shares are issued.
2. There is a danger of over capitalisation.
3. In the case of liquidation, equity shareholders are very last party while getting back their investment.
4. Equity shareholders suffer speculative losses frequently.
5. Even company gets profits, then also no guarantee for their dividend.
6. There are more legal formalities in the issue of equity shares.

3. What do you mean by preference shares? Explain the features, merits and limitations.
These shares which enjoy certain preferential rights over the equity shares are called preference shares. These shareholders get a fixed rate of dividend. Preference shares are less risky, when compared with equity shares. Preference shares carry special rights as to payment of dividend or repayment of capital or both. Only in certain situations preference shareholders gets voting rights. After certain period this capital may be paid back.
Features / Characteristics or Merits / Advantages:
1. Fixed rate of dividend: The dividend on preference shares is paid regularly at a fixed rate. So these shares are convenient for all types of investors.
2. Refund of capital: In case of winding up of a company, the first preference will be given preference shareholders, to get back their capital.
3. Preference shares are the long term finance resources to a company.
4. These shares can be issued as bonus shares.
5. Convertibility: These shares can be converted in to equity shares. But for that company has to follow the instructions stated in the articles of association.
6. Voting rights: Preference shareholders are not absolute owners of the company. These shareholders also will have the voting rights, but only in certain issues of the company.
7. No charge on assets: To get preferential share capital no need to mortgage any assets of the company.
8. Less risky: These shares are less risky when compared with equity shares. Preference shareholders are assured for a fixed rate of dividend every year.
Disadvantages:
1. The dividends paid on these shares won’t have any tax benefits
2. Return on these shares would be generally less or fixed. This does not attract many investors.
3. When comparing with debentures, cost of preference shares were high.
4. The dividend is to be paid at a fixed rate. So ti may become as a burden to the company every year.
5. If company fails to pay dividends regularly, preference shareholders will get voting rights. By this controlling power will automatically dilutes.


4. Describe various types of preference shares.

The shares which enjoy certain preferential rights over the equity shares are called preference shares. These shareholders get a fixed rate of dividend. Preference shares are less risky, when compared with equity shares. Preference shares carry special rights as to payment of dividend or repayment of capital or both. Only in certain situations preference shareholders gets voting rights. After certain period this capital may be paid back.
Types of Preference Shares:
1. Cumulative Preference shares: The dividend on cumulative preference shares is to be payable to the shareholders, whether the company earns profit or not. The arrears of dividend will be paid in future, whenever company earns profit. In simple dividend right accumulates whenever it was not paid.
2. Non - cumulative preference shares: The right of dividend cannot be carried over to next year, for these shares. These shareholders cannot claim their dividend arrears of the past years. But dividend will be paid prior to the equity shareholders.
3. Redeemable preference shares: These shares will be re-paid after certain period of time. The repayment is called redemption. The period will be mentioned very clearly before the issue. For the redemption, the company has to follow the instructions of articles of association. In simple these shareholders receive back their money after fixed period of time or before the liquidation of the company.
4. Irredeemable preference shares: The shares which cannot be redeemed unless the company is liquidated are called as irredeemable preference shares. These shares are not redeemed as long as company exists.
5. Convertible preference shares: These shareholders will have an option to convert their  preference shares into equity shares, according on the terms and conditions mentioned in the issue. The right of conversion must be authorised by articles of association.
6. Non-convertible preference shares: The shares which cannot be converted into equity shares are known as non-convertible preference shares. These shares are usually non-convertible unless otherwise stated.
7. Participating preference shares: These shareholders will have a right to participate in the surplus profit. The fixed rate of dividend is assured and first they get their dividend. If any surplus available, after paying to equity shareholders,  once again these shareholders can participate in that also.
8. Non-participating preference shares: The holders of these shares receive only a fixed rate of dividend. They have no right to participate in additional profits.


5. Explain the feature, merits and limitations of retained earnings.
The portion of profits which were not distributed and kept (retained) in business is known as retained earnings of ploughing back profits. These are the resources of Internal Financing. For the future needs company may side some part of their profits. These savings may be represented by various accounts like general, reserve, dividend equalisation reserve, P/L a/c etc., These internal resources are safe in the time of emergencies. If these funds are utilises properly company sets good result.
These funds may be utilised for the following purposes.
* For expansion of the organisation.
* Replacement of assets
* To finance a new project
* For research and development
* To meet working requirements.
Advantages / Features:
1. Economical method of financing: This method is the most convenience and economical method of financing. No legal formalities are involved. No fixed obligations are created.
2. Credit worthiness improves: Ploughing back of profits adds to the financial strength and credit worthiness of the company. It increases the borrowing capacity of the company.
3. Increase in the value of shares: Ploughing back of profits enables a company to adopt a stable dividend policy. Payments of stable dividends, earns of good name for the company and the value of its shares grow up in the market.
4. Increases the rate of capital information: Reinvestment of profits help to increase the rate of capital formation which is necessary for the rapid economic development of the country.
5. Higher standard of living: Ploughing back of profits increases productivity and facilities greater, better and cheaper production of goods and services. . If the cost of goods decreases, the consumers will be benefited, their standard of living increases
Demerits:
1. Over capitalisation: Excessive ploughing back of profits may result of over capitalisation.
2. Creating of monopolies: Continuous re-investment of profits may led a company to grow into monopoly with all its evils.
3. Dissatisfaction among the share holders: The policy of ploughing back of profits limits the amount of dividends payable to shareholders. As a result, there will be dissatisfaction and frustration among the shareholders.
4. Manipulation in the value of shares: Dishonest direction may manipulate the price of shares by declaring low dividends fore some times.  The genuine investors’ interest will be affected.
5. Misuse of retained earnings: The management of a company  may not always use the retained earnings in the best interests of share holders. The management may misuse the retained earning by investing them in unprofitable activities.

6. What are the differences between Preference shares and equity shares?

Preference shares: These shares which enjoy certain preferential rights over the equity shares are called preference shares. These shareholders get a fixed rate of dividend. Preference shares are less risk, when compared with equity shares. Preference shares carry special rights as to payment of dividend or repayment of capital or both. Only in certain situations preference shareholders gets voting rights. After certain period this capital may be paid back.
Equity shares: Equity shares are ordinary shares, having no preference. These shareholders get dividend after the preference shareholders receive their dividend. The holders of these shares are the real owners of the company. And they control the business. Equity shareholders will have equal voting rights. The dividend rate won’t be fixed for equity shareholders. Each share denotes with its face value and also known as book value or normal value.
      Preference shares    Equity shares
1. Issue: It is not compulsory to issue 1. A company must issue equity shares.
   these shares.
2. Payment of dividend: Dividend is 2. Dividend is paid after paying dividend
   paid before paying dividend on    on preference shares.
   equity shares.
3. Voting rights: These shareholders 3. These shareholders will have absolute
   will have limited voting rights.    voting rights.
4. Rate of dividend: Rate of dividend 4. Rate of dividend is not fixed
   is fixed.
5. Speculation: No scope for speculation 5. There is a scope of speculation.
6. Risk: These shares are less risky. 6. These shares are with high risk.
7. Bonus shares: No chance of Bonus 7. Bonus shares are offered to equity
   shares.    shareholders.

7,  What are the various sources of business finance?
Business finance refers to money required for the business purpose. It shows various ways of financing. At any stage finance is the key factor in the business world. It is the lifeblood of the business enterprise.
Definition: Business finance is ‘an activity concerned with acquisition of funds to meet the financial needs of the business organisation’.
By the above definition it comes to know that business finance is needed for all types of organisations. The size of funds required may differ but need is the same. Business finance concentrates on estimation of funds and finding the resources. At the same time effective and efficient utilisation of funds is the responsibility which lies on business finance.
Ownership funds: The capital procured from equity share holders and the undistributed profits (Retained earnings) jointly called as ownership funds. Sometimes preference share capital also included in the ownership funds. In simple ownership funds include capital and all other sources of finance from the owners. The following are the types of ownership of ownership funds, which are fundamental resource of finance for any business.
1. Equity shares: Equity shareholders are the real owners of the company and they are the final claimants. There won’t be any preference to these shares. Equity shareholders received large part of the profit.  Equity shareholders get their amount only at the time of liquidation of the company.
2. Preference shares: These shareholders will have certain preferential rights over the equity shareholders. These shareholders receive the dividends at fixed rate. They will get back their capital also prior to the equity shareholders. Preference shares are less risky when compared with the equity shares.
3. Retained earnings: The portion of profits which were not distributed to shareholders and retained in the company are known as retained earnings. This is also known as internal financing or self financing.
4. Differed shares: These shares were earlier issued to promoters. These shares were also known as ‘Founders shares’. The rate of dividend would be fixed on these shares like preference shares.
Borrowed funds: Borrowed funds include all sources of funds raised by way of loans from public, banks and financial institutions. The main contents are as follows.
1. Debentures: A debenture is an acknowledgment of a debt by the company. And it is issued under the seal of the company. It is used to raise long term loans, It is very important source of the company.
2. Public deposits: Acceptance of deposits from the public is one of the important sources of medium and short term sources. These deposits are accepted for a period of 6 months to 1 year. The rates of interest paid on these deposits were usually between 4 1/2% to 6 1/2%.

3. Institutional borrowings: Another important source of raising finance is from financial institutions. They become necessary because of the increase in the financial problems of the industries. These institutes are playing an important role in the development of industrial development. Ex: IFCI, IDBI,ICICI etc.,
4. Borrowings from banks: Most of the Indian commercial banks have been working on the lines of Western banks. Banks accepts the deposits and lend them as loans to the needy public. These loans include short and medium term loans.

8. Ownership Capital.
Ownership funds: The capital procured from equity share holders (real owners of the company) and the undistributed profits (retained earning) jointly known as ownership funds’. Some times preference share capital is also included in the ownership capital. Owner’s capital is the permanent source of fund. This capital is paid back only when the company is going to be closed. Ownership capital does not need any security or charge on the assets of the company. The contributors of this capital will have the voting rights. Dividends are paid on ownership capital. These funds provide foundation to any enterprise and facilities for the development of the organisation.

9. Features of Equity shares.
The following are the features of equity shares.
1. Equity shares and holders bears much risk.
2. Equity share capital is permanent capital.
3. There is no need to offer any security to the shareholders.
4. The company has no obligation to pay dividends to equity shareholders.
5. Equity shareholders have voting rights, and will have the control on management    of the company.
6. Liability of these shareholders is limited to the extent of their value of share.
7. Company may buy-back the shares at any time.

10. Voting rights of preference shareholders.
These shares are issued to the investors, who are not willing to bear much risk.
 A regular income si secured for preference shareholders. They have preference in payment of dividend and in the repayment of capital at the time of liquidation of the company.
These shareholders will have limited voting rights. They can participate in the decision making in the matters relating to dividend payment of their shares are one earned.  They are not entitled to interfere in the general matters of the company. Only when the dividend is not paid regularly, then only they will get voting rights.

11. Ploughing back of profits (or) Internal source of finance.
The portion of profits which were not distributed and kept (retained) in business are known as retained earnings or ploughing back profits. These are the resources of internal financing. For the future needs company may side some pat of their profits. These savings may be represented by various accounts like general, reserve, dividend equalisation reserve, P/L a/c etc., These internal resources are safe in the times of emergencies. If these funds are utilised properly company gets good result.

12. Trading on Equity
Payment of dividend on preference shares would be at a fixed rate. If company earns super profits, payment of dividend on rate. If company earns super profits, payment of dividend on equity shares would be high. By this equity shares demand automatically increase. Company will be able to make more trade on equity, i.e., investors shows much interest to buy equity shares rather then preference shares. It helps to the company to get more funds with less cost. Because after certain period,  preference share capital is to be paid back. But on equity share capital there won’t be any obligation, except when company is going to be wound up.

13. Share or Share Capital
The capital of Joint Stock Company is divided into a large number of equal units. Each such units called a share. Capital of the company is called as share capital. Section 2(46) of companies Act, 1956, defines share as ‘a share in the share capital of a company and includes stock except where a distinction between stock and shares is expressed or implied’.  A company invites public through its prospectus to buy the shares as many they like. A person who is allotted such shares is known as ‘shareholder’ and becomes a part owner of the company.

14. Dividend
The divided part of the profit is known as dividend, which is a return on capital invested by the shareholders. For equity shareholder there won’t be any fixed rate. Only preference shareholders get a fixed rate of dividend. Equity shareholders are the real owners of the company. They are entitled to get dividend when ever company earns profits. Sometimes they may not get dividends even company earn the profit.

15. Over capitalisation.
In case the management miscalculates the long term financial requirements it may raise more funds than required by issuing of shares. This may lead to over capitalisation. Fund remains idle in the firm. It leads to low return on the investment. The value of the shares will fall down in the share markets, which causes a huge damage to the goodwill of the company.

16. Speculation
Market value of the share fluctuates depending upon the goodwill of the firm, rate of dividend,  bonus issue etc., Prices of shares may raise or may dip by considering above scenarios and market conditions, usually public purchase equity share to get profit by the specialisation activities. All the fluctuations in the values of shares are known as speculation.


17. Risk bearing of equity shareholders.
Equity shareholders risk is high. In the case of liquidation of a company, they are the very last party to get refund of the money. Equity shareholders actually swim and skin with the company. Equity share capital is a permanent burden to the company. The company may declare dividend only if there is enough profit. So risk always lies with the equity share holders.

18. Deferred shares
These shares were earlier issued to promoters. These shares were also known as ‘Founders shares’. The rate of dividend would be fixed on these shares like preference shares.


   10. SOURCE OF BUSINESS FINANCE-III
1. What is debenture? Explain different types of debentures.
‘Uniform (equal) part of the debt raised by the company is known as debenture’. The total amount of borrowing is divided into a fixed value. And these units are called debentures. For the convenience of selling and buying, units denomination will be in small. These are offered to the public to subscribe in the same manner like shares. A Debenture is issued under the common seal of the company. It is a acknowledgment of a debt by the company. In this all necessary matters will be specified like rate of interest, time of repayment, securing offered etc.,
A debenture holder is a creditor of the company. A fixed rate of interest is paid on debentures. Debentures are generally given a floating charge over the assets of the company.
Types of Debentures:
1. Simple debentures / Unsecured debentures: Simple debentures are not secured by any charge or security of any assets of the company. Any have, all debentures will have a floating charge on all assets of the company. These debenture holders are unsecured creditors of the company.
2. Secured / Mortgage debentures: These debentures are issued with a charge on the company’s assets as a security. The holders of these debentures are secured creditors of the company. In the case of liquidation, these debentureholder can have their claim on the property mortgaged by the company.
3. Redeemable debentures: These debentures are repayable at the end of a particular period of time, specified in the bond. Companies usually issue this type of debentures.
4. Irredeemable debentures: Such debentures are not repayable during the lifetime of the company. They are paid only at the time of liquidation only.
5. Bearer debentures: The names and addresses of these debenture holders are not registered in the books of the company. They are transferable by just on deliver. The interest on these debentures will be paid on the presentation of coupons attached to these debentures.
6. Registered debentures: For this type of debentures, company has to maintain a register of debenture holders. This register contains names, and addresses of the debenture holders. The transfer of debenture is recorded in the register.
7. Convertible debentures: The debentures which can be converted into shares after a definite period are known as convertible debentures. The terms and conditions are to be mentioned in the prospectus at the time of issue of debentures.
8. Non-convertible debentures: The debentures cannot be converted into shares. Therefore, they are called as non-convertible debentures.’
2. What is a debenture? Describe the features, merits and limitations of debentures.
Features:
1. Debenture holders are the creditors of the company. They are entitled to get a fixed rate of interest. Irrespective of the profits company has to pay interest to the debenture holders.
2. Debentures are repayable after specific period of time which is mentioned on the debenture. If surplus funds are there, company can repay the debenture holders before the time period also.
3. Debenture holders are creditors to the company. Not owners, Hence they won’t have any voting rights.
4. Debentures are secured on the assets of the company. They have a floating    charge on the assets.
5. Debentures have the facility to convert either in to equity or preference shares. It                 depends upon therms and conditions of issue and articles of association.
6. Debentures are transferable from one person to another person.
7. The funds acquired from debentures can be used as fixed capital.
Merits / advantages: Debentures are advantageous for both investors and for the company also. The merits of debentures are as follows.
1. Debenture are generally covered by floating charge on the assets of the company, so debenture holders have only less risks,
2. A fixed rate of interest is paid on debentures irrespective of profits of the company.
3. Debentures are prior then all shares. They can get back their investment in first priority than shareholders.
4. Interest paid on debentures, is allowable for tax deduction to the company.
5. Debentures can be redeemable whenever company had surplus of funds.
6. Debenture holders won’t have any voting rights, by this control of the company lies with shareholders.
Limitations / disadvantages:
1. Usually debentures are of high denominations (value). Common people may not effort for those.
2. Companies have to earn more than the interest rate of debentures.
3. Because of stamp duty cost of raising capital through debentures would be high.
4. Unstable profited companies have to pace risk through debentures.
5. Interest paying is a fixed burden on company for debenture holders. In time of losses also company has to pay interest.

2. What are the differences between shares and debentures?
SHARES DEBENTURES
1. He is the owner of the companies 1. He is a creditor of the company.
   property.
2. He can’t get back his capital from 2. He is paid back his amount after the
   the company, until it is wound up,    expiry of specified period.
3. He gets dividends only when the 3. He gets interest irrespective of the
   company makes profits.     profitability of the company.
4. His rate of dividend is not fixed. 4. He gets a fixed rate of interest
5. He can take part in the management 5. He can’t take part in the management.
    of the company.

3. What are the features, merits and limitations of public deposits?
In India, the development of industries provided the development of banking on modern lines. In the absence of banking facilitates on modern lines the public used to deposit their savings with which they had confidence. Thus industrial concerns receive deposits from the public. These are known as public deposits. Generally companies accept these deposits fro a period of 1 to 3 years, these deposits can be renewed from time to time.
Features / Advantages:
1. The interest payable on public deposits is lower than the interest charged by                banks and other financial institutes.

2. Interest paid on deposits is a deductable expense for income tax purpose.
3. Administrative cost of deposits is lower than that involved in the issue of shares                and debentures.
4. Interest rate payable on deposits is fixed.
5. A company attracting, public deposited need not depend upon any financial                 institutions.
Limitations or disadvantages:
1. Public deposits are uncertain and unreliable source of finance,
2. These are available only for short term.
3. Depositors do not get any security for their investment.
4. There are some legal restrictions on public deposits.
5. More usage of this source may restrict the growth of capital market.

4. What is institutional finance? What are the merits and demerits of institutional finance?
Financial institutes like IDBI, IFCI and ICICI etc., are very crucial financial source for the companies. Such organisations provide long and medium term loans on easy instalments to big industrial houses. Such institutions help in promoting new companies.
Merits / Advantages:
1. These institutions provide loan capital.
2. They also provide under writing facilities.
3. New companies, which find it difficult to raise finance from the public, can get finance from these institutes.
4. The rate of interest and repayment procedure are convenient and economical.
5. Along with finance, a company can obtain expert advice and guidance for the successful planning and administration of projects.
Demerits / Disadvantages:
1. A number of formalities are to be fulfilled.
2. Many deserving concerns may fail to get security.
3. Sometimes, these institutions place restrictions on the autonomy of management.
4. Most of these institutions may show favourism in growing loans.

5. What are the differences between preference share and equity share?
PREFERENCE SHARE EQUITY SHARE
1. The holders of these shares are 1. The holders of these share rank next to
   entitled to receive dividend first.    preference shareholders in the matter
                                                                           of receipt of dividend.
2. They have no voting rights. 2. They enjoy voting rights.
3. They don not participate in 3. They may participate in the
   management.     management of the company.
4. Dividend rate is fixed for these shares 4. Dividend rate is not fixed.
5. This share capital may be paid back 5. This share capital will not be paid
    after certain period of time.     back, unless company is liquidated.
6. Types of Mortgage debentures.
Mortgage debentures are two types. They are as follows.
1. First mortgage debentures: These debentures are repaid first out of the sale proceeds of the property, which was mortgaged.
2. Second mortgage debentures: These debentures are repaid after the first mortgage debenture holders are fully paid off. For the remaining amount they will be treated as unsecured creditors of the company.
7. Types of loans from Commercial banks.
Commercial banks play an important role in financing the short term requirement of the companies. They provide finance by the following ways.
1. Loans : Loans are granted for specific project like purchase of plant and machinery.
2. Overdraft: A customer having an account with bank is allowed to overdraw his account.
3. Cash credit: Under this scheme, the bank provides cash credit and fixes limit to the amount.
4. Discounting the bills: Commercial banks extend credit to the industries by discounting the bills and promissory notes.
8. Unit trust of India.
The UTI was set up on 1st, February, 1964 under UTI Act, 1963. A board of trustees was appointed for the management of UTI. The main objectives of the UTI are
1. To stimulate the prosperity of the middle and low income groups to save.
2. To enable them to share the benefits and prosperity of industrialisation.
The UTI has a net work of approved agents for the sale of units through out                         the nation.
9. Debt capital
The amount collected by the company from the public by issue of debentures, accepting deposits and loans taken from banks and financial institutions combined known as borrowed funds or debt capital. These funds are used to meet the medium and long term of the company. Borrowed funds include all sources of funds raised by way of loans from public, banks and other financial institutions.
10. ICICI
Industrial Credit and Investment Corporation of India was incorporated on January5, 1955. The main objective is to assist the industries in the private sector. LIC is the major shareholder of ICICI, ICICI provides loans to the companies to purchase capital assets such as land, buildings and machinery etc.,
11. SFC
The State Financial Corporation Act was passed by the government of India in 1951. The main objective is to provide financial assistance to small and medium scale industries, which are beyond the scope of IFCI. The share capital is subscribed by respective state governments and by RBI, LIC and other commercial banks.
12. Institutional Finance
Financial institutes like IDBI, IFCI and ICICI etc., are very crucial financial source for the companies. Such organisations provide long and medium term loans on easy installment  to big industrial house. Such institutions help in promoting new companies.
13. IDBI
Industrial Development Bank of India was established in July, 1964 by a special act of Parliament. The whole capital of IDBI is help by the central government. The main objectives are.---
1. To set up a apex institution to co-ordinate the activities of other financial institutions.
2. To promote participation of private capital.
3. To promote private ownership of industrial activities.



         11. PUBLIC SECTOR UNDERTAKINGS

1. Explain the need for public sector in India.
The organisation which is owned and run by the state on behalf of public is known as public sector. The control of government may direct or indirect. Public sector firms will be started to protect the interests of the people (public) and accountable to the government.
In simple words ‘a public sector enterprise is an industrial or other economic unit owned and managed by the central or state or jointly by both’.
Need of Public Sector:
1. To speed up the economic growth: To establish a strong industrial background government has to take the active part. Industrialization requires heavy capital and form returns we have to wait for a long time. In private sector, they need fast returns. So public sector has to fill the gap and it has to invest in such sectors.
2. Control on monopoly: It is desirable to give monopoly status to public utility services like electricity, water, railways etc., Government motive will be service. If in case of private monopoly, consumers may exploit.
3. Balance regional development: Public sector enterprises will be established even in backward areas also. And financial institutions also offer some incentives for the backward areas. It is only possible in public sector only. By that all the areas will develop equally.
4. Employment generation: The generation of employment will be huge in public sector, when compare with the private sector, and employee’s welfare will be taken care by the government.
5. Socialistic pattern of society: The Indian constitution aims on socialistic society. For that concentration of economic power is to be prevented and in equalities are to be reduced. It is possible through the public sector only.
6. Promotion of public welfare: Private enterprises works with profit motive. But government organisations work with welfare as first choice. By the public sector only public welfare will be promoted.

2. Discuss the merits and demerits of public sector undertakings.
The organisation which is owned and run by the state on behalf of public is known as public sector. The control of government may direct or indirect. Public sector firms will be started to protect the interests of the people (public) and accountable to the government.
In simple words ‘a public sector enterprise is an industrial or other economic unit owned and managed by the central or state or jointly bo both.
Merits: The following are the merits of public sector.
1. Share in national income: Public sector is contributing of India’s GDP. In the past 45 years the public sector has practically doubled its share in the net domestic product.
2. Commanding heights of the economy: The public sector is in command in almost all the strategic sectors of the economy, like coal, electricity, iron and steel etc., it controls more than 80% of the total installed capacity.
3. Share in the capital formation: Public sector is playing a leading role in the formation of capital. Where as private sector investing in the consumer durables, public sector investing in the production of essential infrastructure for the development of the nation.
4. Employment generation: Of the total employment in the organised sector, public sector account for more than 75% public sector enterprises are working as a mode employer.
5. Foreign exchange earnings: Public sector has contributed significantly to export earnings of the country. Exports by the public sector have shown a steady growth.
6. Balanced regional development: Majority of the public sector units have been set up in backward regions. Balanced regional development is possible through public enterprises only.
Demerits (or) Problems of public sector:
1. Political interference: In public sector undertakings a huge political interference will be there. Political leaders used to interfere in all major decisions. By that delay may be occur, and it will effect the economical structure of the public sector enterprises.
2. Overstaffing: In most of the public enterprises man power is in excess of actual requirement. In a dilute training facilities and poor man power planning are the causing inefficiency. These points are seriously effecting the development.
3. Under utilisation of capacity: Public enterprises are running below the installed capacity. By that fixed expenses are increasing day by day. By that competitiveness is lacking. By that public enterprises are lacking the profitability.
4. Over-capitalisation: In adequate planning wasteful expenditures are pulling public enterprises in to the mud of over-capitalisation. It is causing for huge losses.
5. Delay in project competition: Most of the public sector projects are taking very long for their competition. By the time being the costs of the materials are increasing. Automatically the losses are coming for public sector.
6. Lack of efficiency: When compare with the private sector, public sector undertakings are less efficient, because of decision making, implementation and redtapism. The flexibility is needed for the government sector.
7. Rigid financial control: Public enterprises are subjected to strict financial control by the government auditors. Hence, managerial personal have to fear about the auditor objections.

3. Explain the merits and demerits of departmental undertakings.
The enterprise is run by a government department, with a minister as the responsible person to the parliament. These departments works largely for government itself. The estimation of these enterprises will be shown in the national budget. Budget and audit controls are applicable. Without concerning to the government nobody can put a case in court, against these departmental undertakings.
Merits / characteristics / features:
1. Management will be under the control of a minister at the top and he is responsible to the Parliament.
2. All departmental undertakings will be managed by the civil servants (IAS, IPS--). They are will knowledged and skillful persons.
3. Financial control lies with the government.
4. All the activities and accounts comes under the audit control by CAG (Controller and Auditor General of India).
5. Departmental undertakings produce largely or fully for the need of State(Nation)only.
Demerits:
1. These undertaking works under the mercy of political leaders those who has not having enough knowledge.
2. The managers of these undertakings (civil servants) may lack of business orientation.
3. Departmental organisation lacks of flexibility.
4. These organisations are filled with redtapism.
5. By these undertakings may give negative impact on the government.

4. What is statutory Corporation? Explain its merits and demerits.
It is also called as public corporation. It is a body corporate, created by the legislature (assembly or parliament) under a special act. All the description will be specified out in the acts itself. These companies formed to carry out the national needs. Ex: LIC, ONGC, FCI,RBI,SBI etc.,
Merits:
1. Statutory corporations are created by a special legislation in parliament or assembly with all its powers, duties etc.,
2. These are fully owned by the state. The entire capital is going to be subscribed by the state or nation.
3. Corporations will have its own legal entity.
4. These organisations will enjoy full financial autonomy.
5. For the day to day management these are fully free from government control.
6. The motto of these organisation is service.

Demerits:
1. These organisations must be registered under the companies act of 1956, and all the formalities must be completed.
2. The powers will be according to the memorandum of association which is not easy.
3. The working of statutory corporations will be highly influenced by the government policies.

5. What are the features, merits and demerits of Government company? Explain.
A company which is not having less than 51% of share of paid up capital by any government (State, Central, both, or by local governments). The subsidiary to the government is also known as government company. This is also a business concern but its policies are related to public interest only. Ex: BHEL, HMT, Indian Telephone Industries Ltd.etc,
Merits / Features:
1. Appointment of auditors will be done by the central government, on the advise of CAG.
2. Annual reports of these companies must be presented before the parliament.
3. Government can give some exemptions to these companies.
4. These companies can get finance from both the government and public.
Limitations / demerits:
1. The autonomy (freeness in taking decisions) of a company lies only for the name sake. All decisions will be taken by the government only.
2. Directors may not take interest because they are salaried persons in the company.
3. In the government companies answerability will be less.
4. Some directions may commit unethical practices (working beyond the rules and regulations).

6. What are the reasons for adopting Government Company form of organisation?
A company which is not having less than 51% of share of paid up capital by any government (State, Central, both, or by local governments). The subsidiary to the Government is also known as government company. This is also a business concern but its policies are related to public interest only. Ex: BHEL, HMT, Indian Telephone Industries Ltd.etc,
The following ar the reasons to adopt government company form of organisation.
1. Due to an emergency created by a financial or employment crisis, the Government have to acquired shares of an existing company.
2. The state may wish to launch an enterprise in association with certain other interests, national or foreign as in India.
3. The government may wish to start an enterprise eatiney as a public enterprise, as is being done in India.

7. What are the characteristics of Public sector?
The organisation which is owned and run by the state on behalf of public is known as public sector. The control of government may direct or indirect. Public sector firms will be started to protect the interests of the people (public) and accountable to the government.
In simple words ‘a public sector enterprise is an industrial or other economic unit owned and managed by the central or state or jointly by both’.

Features:
1. Public sector promotes the economic development by creating and expanding infrastructure facilities.
2. They generate funds for rapid development.
3. They create employment opportunities.
4. They Promote balanced regional development.
5. They encourage exports.
6. They work for the socialistic pattern of society.
7. They concentrate to decrease the economic inequalities.


    12. PRIVATE SECTOR UNDERTAKINGS
1. Explain the need for Private Sector in India.
In the private sector business units are owned and managed by individual proprietors, the ownership and control lies in the hands of private persons. Their motive is profit. These organisations will be managed by the professionals. Government launches some rules, just private firms has to follow these.
Presently in India private sector contributing 80% of GDP and 90% of employment. In these days private sector concentrated on expansions, development and social welfare rather than profit motive.
Need:
1. There is a need of more and more funds to fasten the growth. Public sector singly cannot effort for that. So private sector also has to take a part. Then the development process will be fasten.
2. Professional management is possible only through the private sector.
3. Decision making is very fast when compare with the government sector.
4. Under the private sector management resources will be used efficiently.
5. Priority of resources and helping hands are present for the private sector for its    financial needs like IDBI, IFC,ICICI etc.,
6. The private sector receives some direct incentives from the government.

2. Discuss the merits of Private Sector
Merits:
1. Private enterprise derived many special benefits from the plans and policies of the government.
2. The plan documents of the government reveal the specific areas of investment. These documents provide valuable guidelines for the private sector enterprises.
3. Private sector gives a chance for the development of entrepreneurship skills in the country.
4. Various institutions were established to provide financial assistance to the private sector undertakings like SFC,ICICI,IDBI,SFC etc.,
5. The private enterprises receive some direct incentives from the government.


3. Explain the demerits of private sector.
Demerits:
1. Private sector works with the profit motive. They invest only in small gestation industries. They need quick returns. Important sectors may be left.
2. Private sector concentrates more on consumer goods rather than producer goods.
3. Basically it is a capitalistic pattern, so monopoly concentration may be occur.
4. Compared to the public sectors, in private sector, there is more chance for the industrial disputes.
5. For the technological need private sector imports more and more technology. This will reflect as trade deficit.

4. Industrial sickness in Private Sector.
This is a serious problem concerning to the small, medium and large units in the private sector. The more loans given by the financial institutions effecting the growth of the industries negatively. Interest burdens are increasing heavily for the private sector undertakings. Lots of resources are going to be invested on wasteful projects, or they have been kept idle.

5. Tax incentives in private sector.
The private sector enterprises receive some direct incentives from the government. Income tax Act (1969) also provides some financial incentives to the individual and corporate sectors.

6. Trade deficit.
The difference value of exports and imports is known as trade balance. This balance may show positive or negative value. If it is positive it is trade surplus, if it is negative it is deficit. In simple:
Exports - Imports = Trade surplus
Imports - Exports = Trade deficit


    13. MULTINATIONAL CORPORATIONS

1. Define MNC and explain its characteristics.
The word ‘Multi National’ is a combination of two words i.e, ‘Multi’ means many ‘National’ means country. ‘If company runs its operations in more than one country is known as Multi National Corporation’. These are also known as ‘Transitional Corporations’.
There are approximately 900 MNC’s are working all over the world. Among those 50% of MNC’s are based in USA. MNC’s creating huge employment opportunities, 30% of MNC employment is based from Asian Countries.
Based on the above definition of multinational corporation’s features are as follows.
Characteristics / features:
1. Global operations: MNC’s carry its operations in different countries of the world.
2. Size: The size of assets and operations of the MNC’s are very large. Their turn will would be in million of dollars.
3. Centralized control: MNC’s are managed from its head quarters in the home country. IT may have many branches in various countries. But master control lies in one country.
4. Latest technology: MNC’s uses the latest technology for its operations.
5. Professional management: In order to co-ordinate the global operations MNCs appoint professionals only, that they are will trained.

2. Explain how the MNCs are useful for Host and Home countries. (Merits of MNCs)
Merits:
1. Transfer of technology: MNC’s works like a vehicle to transfer the technology from developed countries to developing countries.
2. Generation of employment: MNC’s create huge employment opportunities, where ever their branches exist.
3. Foreign exchange: MNCs enable the host countries to increase their exports. By that they may get foreign exchange.
4. Innovation: MNCs works with innovative in the fields of production and distribution. By this cost of production will be reduced, consumer will get best goods at cheaper prices.
5. Provides capital: MNCs provide required capital to the developing countries.
6. Better standard of living: MNCs provides the qualitative products at cheaper prices. By this purchasing power of consumer will increase and his living standards will be improved.

3. Discuss the demerits of MNCs.
Demerits:
1. A large amount of foreign exchange is remitted back to the parent country in the form of dividend, royalty etc., by the MNC. By this host countries will loose their foreign exchange reserves.
2. MNCs take away the top brain of host countries by offering attractive salaries. Host countries will get the negative impacts.
3. Generally MNCs largely deal with the consumers and non-essential commodities. They are not useful for the development of the country.
4. MNCs normally transfer the out dated technologies.
5. MNCs may interfere with the political affairs of the country.
6. MNCs join with big business houses. They give raise to monopoly.













































1 comment:

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