BST Book

CHAPTER - 1
NATURE AND PURPOSE OF BUSINESS

• Introduction:
All Human beings where ever they may be require different type of goods and services to
satisfy their needs. Business is a major economic activity in all modern societies concerned
with production and sale of goods and services required by the people. It is aimed at earning
money by satisfying human demands.
• Meaning:
Literal meaning of Business is “BUSY”.
Business is defined as an economic activity
involved in the production and sales of goods and services
undertaken with the motive of earning profit
by satisfying human needs in the society.
• Characteristics of Business activities:
An Economic activity: It means an activity aimed at earning money. Business is also aimed
at earning money or livelihood by satisfying human needs.
Production and procurement of goods and services: Every business enterprise must either
manufacture the goods or it acquires from producers. Goods may be consumer goods or
Capital goods. Services means facility offered to consumers like banking, insurance etc.
Sale or exchange of goods and services: Business involves transfer or exchange of goods
and service for value.
Dealing in goods and services on a regular basis: It should be a regular activity. One time
sale or exchange will not be considered as business.
Profit earning: Business always aims at earning profit.
Uncertainty of earning: There is always a possibility of less amount of profit or even loss in
business.
Element of Risk: There is always a possibility of Uncertainty of earnings.
Material Downloaded From SUPERCOP 1/8

1 / 141
• Comparison of Business, Profession and Employment:
Basis Business Profession Employment
1. How to Start? Based on Getting membership Getting an

entrepreneurs of a professional body appointment letter
/owners decision
2. What is its nature? Providing goods Rendering of Performing work as

and services to personalized expert per service contract
the public services
3. Qualification/Who can No minimum Requires qualification Requires

start? qualification and training in a qualification and
specific field training
4. Return/What will you Profit Professional Fees Salary

get?
5. Capital/How much you Requires capital Requires limited No capital required
need to start? as per the size of capital
the Business
6. Risk involved More risk Less risk No risk
7. Transfer of Interest – Can Is possible with Not possible Not possible

you transfer? some formalities
8. Code of conduct No code of Professional code of Code of conduct is

conduct is conduct to be prescribed by the
prescribed followed employer to be
followed

2 / 141
• Classification of Business Activities:
• Industry: Production or processing of goods and services. It is concerned with changing

the form of the products. It gives form utility to the products. It is classified into the
following:
Industry
(Producing or processing of Goods as well as breeding of animals)
1. Primary 2. Secondary 3. Tertiary
Extraction and Processing the Support services

production of materials got in the to primary and
natural resources primary industries secondary
and reproduction industries
and development
of living organisms,
plants etc.
1. Primary Industry
a. Extractive Industry b. Genetic Industry
Mining, lumbering, Breeding plants

hunting and fishing and animals,
operations Poultry farming
and fish hatchery

3 / 141
2. Secondary Industry
a. Manufacturing Industry b. Construction Industry
Production and Construction of

processing of Buildings, dams,
goods creating bridges, etc.,
form utilities
2.a. Manufacturing Industry
(i). Analytical (ii). Synthetical (iii). Processing (iv). Assembling

Industry Industry Industry Industry
Separates Combines Involves series Assembles

different various of activities different
elements from ingredients Eg., Sugar and components
the same Eg., Cement, Paper Eg., Television,
materials Textiles, etc., Car,
Eg., Petrol, Computer,
Diesel,etc.,
• Commerce: It includes all those activities which are concerned with removing all the
hindrances in the movement of goods from the manufacturer to the consumers. It includes
the following activities.
COMMERCE
INDUSTRY TRADE
Commerce includes the following activities :

4 / 141
1. Industry
2. Trade – Export, Import
3. Transport and communication
4. Banking
5. Insurance
6. Advertisement
7. Packaging
8. Warehousing etc.,
• Trade : Trade means exchange of goods and services between sellers and buyers with
profit motive.
• Auxiliaries to Trade:
1. Transport and communication : Physical movement of goods from the place

where there is no demand to the place where there is demand. Creates place
utility to the product.
2. Banking and Finance : Helps in removing financial hindrances. Facilitates

production, buying and selling by providing funds by way of loans.
3. Insurance: It facilitates business by ensuring compensation for various types of

risks.
4. Warehousing: It keeps the goods in tact till they are in demand. It creates
time utility to the product.
5. Advertising: It provides information about availability of goods and services. It

induces the consumers to buy the product.

5 / 141
• Role of Profit in Business:
• It is source of income for the business man.
• It provides funds for expansion
• It is an indicator of efficiency of business man.
• It builds up reputation.
Innovation
Productivity
Physical and
financial
Objectives of Business
• Earning profits
Manager performance
and development
Worker performance and

attitude
Social Responsibility
• Business Risk: It refers to the possibility of inadequate profits or even losses due to
uncertainties or unexpected events.
Nature Of Business Risks
• Business risks arise due to uncertainties

• Risk is an essential part of business
• Degree of risk depends upon the nature and size of
business
• Profit is the reward for risk taking.
• Causes of Business Risks:

1. Natural Causes : Risk may be due to Flood, earth quake, lightning, heavy rains etc.

6 / 141
2. Human Causes: It includes dishonesty, carelessness or negligence of employees,
strikes, riots, etc.
3. Economic Causes: It includes uncertainties relating to demand for goods,
competition, price, collection of dues from customers, changes in economic
policies etc.
4. Other Causes: It includes political disturbances, mechanical failures etc.
• Basic factors to be considered before starting a Business:

1. Selection of Line of Business: Based on the requirements in the market nature and
type of business to be selected.
2.Size of the Firm: Based on the amount of funds available and demand for the
product in the market size of the firm i.e small scale or medium or large scale to be
decided.
3.Choice of form of ownership: Based on the amount of capital required, legal
formalities to be filled in, liability of the owner, etc. the form of ownership is to be
decided.
4.Location of the Business enterprise: Based on the availability of raw material and
infrastructure facilities location of the Business is to be selected.
5.Financing the Proposition: Requirement of Capital and its sources must be decided.
6.Physical facilities: Availability of physical facilities including machines and
equipment, building and supportive services to be considered before starting a
business.
7. Plant layout: Plant layout should draw to show the arrangement of these facilities.
8.Competent and committed worked force.: Every business needs work force. So
careful planning should be about selection, training and motivation of employees.
9. Tax Planning: Tax liability and its impact on business to be considered.
10. Launching the enterprise: After fulfilling the formalities entrepreneur can launch
the business.
Short Answer type Questions :

1. State the different types of economic activities.
Ans. Business, profession and Employment. (1)
2. Name the trade where the goods are bought from the foreign country.
Ans. Import trade. (1)
3. State examples of Analytical industries.
Ans. Petrol, diesel (1)
4. Which industry provides services to primary and secondary industry?
Ans. Tertiary industry (1)

7 / 141
5. What is meant by Business Risk? Explain the features of it.
Ans. Meaning and Features (3)
6. Describe the meaning of Commerce. (3)
Ans. Meaning of commerce.
Long Answer type Questions:
7. Profit play an important role in business. Give four reasons to justify the statement.
Ans. Role of profit in business (4)
8. Give the meaning and two examples of Economic activities. (4)
Ans. Meaning. Ex. A person selling tea and coffee in the railway station 2. Doctor
treating patients at his clinic. (4)
9. Explain the meaning and causes of business risk.
Ans. Meaning and causes. (5)
10. Compare the business, profession and employment.
Ans. Table showing the comparison above. (5)
11. Explain the factors to be considered before starting a business. (6)
12. Explain the features of business. (6)
HOTs:
13. Harish produces wheat for personal consumption. Will it be a business activity?
Ans. No.As it is not for performed for earning profit. (1)
14. A person sells his old car at a profit. Can it be termed as a business activity?
Explain. (4)
Ans. No. because business involves dealing in goods on regular basis. Brief
Explanation of features of business.
15. Risk is an inherent element of a Business. Do you agree? Explain. (4)
Ans. Meaning and Nature of Business Risks .
• Gist of the lesson:
Concept and characteristics of business.
Comparison of business, profession and employment
Classification of business activities
Classification of industry and commerce
Objectives of business
Meaning, nature and causes of business risk
Factors to be considered before starting a business.

8 / 141
1. NATURE & PURPOSE OF BUSINESS
1. Hundi payable to the party named in the hundi or his order. The party, however, has a
right to endorse it in favour of any other person as can be done in case of any other bill
of exchange.
a) Darshani hundi
b) Jokhmi hundi
c) Shahjog hundi
d) Namjog hundi
2. This is a hundi payable at sight. It must be presented for payment within a reasonable
time after its receipt by the holder. Thus, it is similar to a demand bill.
a) Firman jog
b) Namjog
c) Darshani
d) Jawabee hundi
3. Business refers to:
a) The exchange of goods and services takes place, for adequate consideration.
b) The organized effort of individuals to produce and sell, for a profit, the goods
and services that satisfy society's needs.
c) A human activity directed toward producing or acquiring wealth through buying
and selling goods.
d) All of these
4. Objectives of business do not include:
a) Higher returns to investors
b) Employee satisfaction
c) Maximum price-from consumers
d) Market standing.
5. It is a campaign launched by the Government of India to ensure that the Government's
services are made available to citizens electronically through improved online
infrastructure and by increasing Internet connectivity or making the country digitally
empowered in the field of technology.
a) Skill India
b) Make in India
c) Digital India
d) Start-up India
6. Business must involve the transfer of goods to the customer for value, through selling,
meaning that if the goods are acquired for personal consumption, then the transaction
will not amount to business activity. Identify which characteristics of business are being
highlighted in above case.
a) Economic Activity
b) Buying and Selling
c) Continuity in Dealings
d) Profit Earning
7. From the following pictorial presentations, identify the type of activities.
9 / 141
a) Economic activities
b) Non-economic activities
c) Both (a) and (b)
d) None of these
8. It was launched in 2015, to prepare Indian youth from rural and urban areas for
employment. It aims to empower India's youth by providing them with the necessary
skills and training to increase their chances of finding work in various sectors. This also
increases a person's productivity and knowledge. The initiative aims to educate over 40
million people and create a workforce by 2022. It accomplishes this by providing free
courses and classes.
a) Make in India
b) Skill India
c) Digital India
d) None of these
9. Assertion (A): Warehousing facilitates the availability of goods as and when required.
Reason (R): Warehousing removes this hindrance of place by providing facility of
storage of goods.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
c) Assertion (A) is True but Reason (R) is False.
d) Assertion (A) is False but Reason (R) is True.
10. Service-based industry that is not involved in production and manufacturing,insteadit
provides services that help in the development of the primary and secondary industries.
Activities like banking, insurance, healthcare, transportation etc., are covered in this
Industries. Identified which type of industries is being highlighted in above case.
a) Assembling industry
b) Tertiary Industry
c) Analytical Industry
d) Secondary industry
11. Which of the following is not an unsustainable risk?
a) Risk of theft
b) Risk of fire
c) Risk of change in pattern of demand
d) All of these
12. These industries developed products from natural sources. These industries supply
some basic raw materials that are mostly products of the geographical or natural
environment. Products of these industries are usually transformed into many other
10 / 141
useful goods by manufacturing industries. Identify which type of industries is
highlighted in above case.
a) Extractive Industry
b) Assembling Industry
c) Construction Industry
d) Analytical Industry
13. Identify the persons who are conducting a non-economic activity.
a) Riya, a doctor, in a medical college.
b) Yogesh, a computer expert, running an Internet cafe.
c) Sahiba, a teacher, conducting free tuitions for poor students.
d) Prithvi, a lawyer, practicing in a court.
14. ______________type of Hundi was payable who present or bearer.
a) Sah Jog
b) DekhanHar
c) Firman Jog
d) Dhani Jog
15. Find the odd one out: ___________
a) Offering goods at a reasonable price.
b) Giving fair wages to workers.
c) Keeping the environment pollution-free.
d) Expecting a high profit from the business.
16. Mr. Vijayshankar a businessman incurred some financial loss due to the dishonesty of
his workers. This loss is caused due to __________.
a) Natural cause
b) Financial reason
c) Human cause
d) Economic cause
17. Cochin Refineries Ltd. imports crude oil and separates different products like petrol,
diesel, etc. Name the type of manufacturing industry.
a) Synthetic
b) Analytical
c) Processing
d) Assembling
18. Match column A with column B.
COLUMN-A COLUMN-B
i. Extractive industry a. Building work
ii. Genetic industry b. Cement
iii. Constructive industry c. Animal husbandry
iv. Manufacturing industry d. Fishing
a) i-b, ii-d, iii-a, iv-c

b) i-c, ii-a, iii-d, iv-b
c) i-d, ii-c, iii-a, iv-b
d) i-d, ii-c, iii-b, iv-a
19. Which of the following is an economic activity?
a) Cooking food for self-consumption
b) Cooking food for sale
11 / 141
c) Cooking food for donation
d) All of these
20. Assertion (A): Every profession restricts the entry on the basis of examination or
education.
Reason (R): A strict code of conduct exists in every profession.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
c) Assertion (A) is true but Reason (R) is False.
d) Assertion (A) is False but Reason (R) is true.
21. From the following picture, identified the hindrance of commerce highlighted.
a) Hindrance of person
b) Hindrance of financing
c) Hindrance of Place
d) Hindrance of time
22. People work for others and get remuneration”.
i. Identify the economic activity involved in the above statement.
ii. Write any two features of that economic activity.
23. What is business risk? What is its nature?
24. Explain any two business activities which are auxiliaries to trade.
25. Why is business considered an economic activity?
26. How would you classify business activities?
27. No business is risk free in the light of this statement. Explain the concept of risk and its
any three causes.
28. What factors are important to be considered while starting a business? Explain.
29. Harsh is a well-known orthopedic doctor in Agra. He runs his private clinic under the
name 'Joint and Bone Clinic'.
In context of the above case:
i. Identify the type of economic activity that Harsh is engaged in.
ii. State the feature of the type of economic activity as identified in part (a) of the
question
30. Prince is desirous of starting a readymade shop exclusively for men in the city. He is not
aware of the hindrances he may face in his trading activities. Point out any four
hindrances and their possible remedies.
12 / 141
31. Abhinav Sharma wants to start a business of fashionable items. But he ishesitating to
go ahead with his plans because of the risk which areinherent in this business. He
consults his friend Abhimanyu in this regard for guidance about ways to overcome such
situationseffectively in his business.In context of the above case.
i. Identify the types of business risk associated with suchbusinesses.
ii. State any one suggestion which Abhimanyu is likely to give to Abhinavto
overcome such situations effectively in his business.
iii. Explain briefly any two causes of business risk.
32. Shivam and Surya were classmates in a Law College. After completing his law degrees,
ShivamMaurya joined the Malabar Spinning Mill as a law officer on a full-time basis with
a monthly salary of ₹ 20,000. However, Surya Singh started practicing as an advocate in
the High Court. According to their neighbour Akash, both of them earn money. But he
does not know the differences between their economic activities. Can you make the
neighbour aware of the names of the two different economic activities and any three
differences between them?
Answer Sheet
1. D 8. B 15. D
2. C 9. C 16. C
3. D 10. B 17. B
4. C 11. C 18. C
5. C 12. A 19. B
6. B 13. C 20. B
7. B 14. B 21. C
22. Employment refers to that type of economic activity in which people engage in some work
for others regularly and get salary or wages in return for their services.
Features of Employment
▪ There must exist the employer-employee relationship
▪ There must be a service contract between the employer and employee
▪ Employees get salary or wages for their services
▪ Regularity in service.
23. Business risk is the possibility of failing to earn sufficient profits or incurring losses as a
result of various unforeseen circumstances which are beyond the control of a business.
The nature of business risk are:
• Business risks arise due to uncertainties,
• Risk is an essential part of every business,
• Degree of risk depends mainly upon the nature and size of business,
• Profit is the reward for taking risk. Business risks arise due to a variety of causes
including natural, human, economic and other causes.
24. Two business activities which auxiliaries to trade are:
• Insurance: Business involves various types of risks. Factory building, machinery,
furniture etc. must be protected against fire, theft and other risks also employees
13 / 141
are required to be protected against the risks of accident and occupational
hazards. Insurance provides protection in all such cases. On payment of a nominal
premium, the amount of loss or damage and compensation for injury, if any, can be
recovered from the insurance company.
• Advertising: It is one of the most important methods of promoting the sale of
products, particularly, consumer goods like electronic goods, automobiles, soaps,
detergents etc. This provides a medium to reach a large number of potential
buyers and increase the number of sales.
25. Business is considered to be an economic activity because it is undertaken with the object
of earning money or livelihood and not because of love, affection, sympathy or any other
sentimental reason.
26. The business activities can be classified as:
• Industry: It refers to economic activities, which are connected withconversion of
resources into useful goods. These included activitiesrelating to producing or
processing of goods as well as breeding and raising of animals.Among the major
activities that are performed by an industry are production, processing and
manufacturing. Industries are classified into the three categories as primary,
secondary and tertiary.
• Commerce: It does not involve manufacturing or production. itbasically involves
trading and its related activities. It includes both,buying and selling of goods as
well as auxiliaries such astransportation, banking, etc. It provides the
necessarylink between producers and consumers. It includes all those
activities,which are necessary for maintaining a free flow of goods and services.
27. Yes, we agree. We cannot think of any business which is risk free. You start a general
storethe simplest business. There is a risk of things you buy getting wasted due to
changes in demand pattern. You start a garments shop, fashion may change making your
stock a waste and so on. There is not even a single business where there is no risk.
It will be clear when we look at the nature and causes of risk.
• Nature of Business Risks Business risks arise due to uncertainties: Natural
calamities, change in demand and prices, change in technology, etc. are some of
the examples of uncertainty which create risks.
• Risk is an essential part of every business: No business can avoid the risk. Risk
can be minimised, but cannot be eliminated.
• Degree of risk depends mainly upon the nature and size of business: For small
scale business it is less and for large scale business it is more.
• Profit is the reward for risk taking: An entrepreneur bears risks and in
consideration, he gets rewarded in the form of profit. Greater the risk higher is the
chance of profit.
Causes of Business Risk
• Natural causes: These are beyond human control, e.g., flood, earthquake, heavy
rains, famine, etc. Human causes: It includes carelessness or negligence of
employees, e.g. theft, strikes, riots, misappropriation of cash and goods, etc.
• Economic causes: These are related to a chance of loss due to changes in market
condition, e.g., fluctuations in demand and prices, competition, change in
technology etc.
14 / 141
• Physical causes: Mechanical defects or failures may also lead to losses, e.g.
Bursting of the boiler or machine may cause death or destruction. Legal and
• Political Causes: These causes of business risk include:
▪ Changes in government policies regarding foreign trade
▪ Entry of multinational companies
▪ Changes in laws affecting the business like to license, taxation, etc
▪ Changes in consumer laws and labour laws. Think of any business. Risk in
one way or the other must be applied to it. Hence, we may conclude that no
business is risk free.
28. The following are important factors needs to be considered whilestarting a business:
i. Selecting the line of business: The line of business is the foremostdecision that
involves choosing the kind of product to produce,analysing its existing and future
market demand, profit considerationsand the level of technical knowhow
possessed by the entrepreneur.
ii. Scale of the business: Once the line of business is selected, theentrepreneur
needs to decide the scale of the business, i.e., the businesssize, whether to
operate on large scale or small scale. The choice of scaleof business is made on
the degree of risk embedded in
• the line of business
• the ease of obtaining capital and
• the projected demand for the product
A larger scale of business is preferred if the risk involved is low and
theentrepreneur is confident about the high demand for the product.Similarly,
the greater the ease of obtaining capital, the greater is the easeof operating a
business on a large scale and vice versa.
iii. Location: The choice of business location is dependent on numerousfactors such
as easy and cheap availability of raw material and labour,well-connected
transportation facilities, and power and otherinfrastructure facilities. Generally,
locations where good infrastructureavailable are preferred.
iv. Financial requirement: Finance is required for every aspect ofbusinessfrom the
purchase of raw material and machinery to furtherinvestment for the growth of the
business. Therefore, while starting abusiness, the availability of alternatives to
raise funds must be carefullyanalysed.
v. Efficient workforce: A competent and trained workforce is the basicinput to carry
on various business activities. In this regard, theentrepreneur must appropriately
identify the requirement of humanresources for the business, both at the worker
level and at the manageriallevel.
vi. Physical requirements: These requirements include machinery, other equipment,
tools and technology that add to the efficiency of a business.The entrepreneur
must carefully consider and decide the physicalrequirements on the basis of the
nature and production scale of thebusiness.
29.
i. Professional
ii. Features of profession:
15 / 141
▪ Every professional body has a code of conduct which every member
must follow. It contains norms of behaviour for members.
▪ Professionals charge fees from clients for providing their services
▪ A professional cannot advertise himself if it is banned by the
professional body.
▪ The membership of a particular professional body is compulsory before
entering that profession. A Chartered Accountant must be a member of
the Institute of Chartered Accountants of India and this is necessary for
other professions also.
30. The various hindrances (Functions of commerce) are
i. Hindrance of person: There is a wide gap between producers and consumers.
Traders help the exchange of goods by acting as a link between producers and
consumers. Trade removes the hindrance of a person.
ii. Hindrance of place: Goods are produced in one place and they are consumed in
various parts of the world. So goods must be moved from the production centre to
the consumption centre. This is done with the help of transportation. Transport
removes the hindrance of place.
iii. Hindrance of time: Goods are produced at one time and they are consumed at
another time. Goods must be stored till they are consumed by the consumers. This
function is performed by warehouses. Warehousing removes the hindrance of
time.
iv. Hindrance of risk: There may be chances of loss in trade due to fire, theft, accident,
etc. Insurance removes the hindrance of risk.
31.
i. Business enterprises face two types of risks namely, Speculative and pure risks
Speculative risks may arise due to change in market conditions that are caused
by fluctuations in demand and supply, price change and also based on changes
in tastes of consumers. Favourable conditions may result in profits in business
while unfavourable conditions may result in losses. Pure risks include only the
possibility of two conditions, loss or no loss. For example, the situations of theft,
fire and strike. Their occurrence may result in loss or their non-occurrence may
result either in loss or gain
ii. Abhimanyu may give suggestions to Mr. Abhinav Sharma that every business
has certain degree of risks and it is highly dependent on volume of production,
and may also advise him to start the business in small scale with small volume
of production and can increase if the market for the products pick up in the
market.
32.
➢ ShivamMaurya: Employment
➢ Surya Singh: Profession
Difference between Employment and Profession
16 / 141
CHAPTER - 2
FORMS OF BUSINESS ORGANISATION
• Introduction:
Decision relating to the form of organization plays an important role if one has to start a
business. The forms of organization are (i) Sole proprietorship (ii) Partnership (iii)
Joint Hindu Family business. (iv) Co-operative society (v) Joint Stock Company.
• Important Concept
• Meaning of Sole Proprietorship: It refers to a form of business organization which is

owned, managed and controlled by an individual who is in receipt of all profits and bearer
of all risks.
Features:
(i) Easy to form and close (ii) Liability (iii) Only bearer of profit and loss (iv) Control
(v) No separate entity. (vi) Lack of business continuity. Merits:
(i) Quick decision making (ii) Personal satisfaction (iii) Information will be kept secretly (iv)
Direct incentive (v) Ease of formation and closure. Demerits:
(i) Limited resources (ii) Limited life of a business concern. (iii) Unlimited liability (iv)
Limited managerial ability.
• Meaning of Joint Hindu Family Business: Karta eldest member of the family controls the
business. Features:
(i) Formation (ii) Liability (iii) Control (iv) Continuity (v) Minor members. Merits:
(i) Effective control (ii) Continuity of business (iii) limited liability of members (iv) Increased
loyalty. Demerits:
(i) Limited resources (ii) unlimited liability of karta (iii) Karta’s dominance (iv)limited
managerial skills.
• Meaning of Partnership: Relation between persons to share the profits of the business
carried on by all the partners or any one of the partner acting on behalf of all the other
partners
Features:
(i) Formation (ii) Liability (iii) Risk bearing (iv) decision making (v) continuity (vi) Member
Merits:
17 / 141
(i) Easy to start and close (ii) proper decision making (iii) More money (iv)secrets are
maintained.
Limitations:
(i) Unlimited liability (ii) Fights exist (iii) Chances for closure (iv) No public confidence. Types
(i) Active (ii) sleeping (iii) secret (iv) Nominal (v) partner by behaviors (vi) partner by holding
out.
Kinds of partnership:
(i) At Interest (ii) Formed for completing a work
Partnership deed: It contains the rules and regulations for carrying on partnership.
• Meaning of Cooperative Society: It is a voluntary association of persons formed for

protecting the consumers from middlemen. Features:
(i) Voluntary association (ii) service motive (iii) power to take decisions (iv) limited
liability.(v) Registration is compulsory so they have legal status. Merits:
(i) Equal voting rights. (ii) Continuous existence (iii) low cost of operation (iv) Government
support (v) Easy to start (vi) limited liability. Limitations:
(i) Resources are little (ii) Difference of opinion. (iii) Management is not proper (iv) Strict
rules from the government. Types:
(i) Consumer (ii) Producer (iii) Marketing (iv) Farmer’s (v) Credit (vi) Cooperative housing
societies.
• Meaning Of Joint Stock Company: Company is an artificial person with continuous

existence& common seal.
Features:
(i) Artificial person (ii) Formation is difficult (iii)Company has separate
identity.(iv)Continuous existence (v) Control of the company is made by directors.(vi)liability
is limited.(vii) Common seal. Merits:
(i) Liability is limited (ii) Chances are there for expansion (iii) Managed by professional
people (iv) Continuous existence (v) Shares can be easily transferred from one person to
another person. Demerits:
(i) Very difficult to form (ii) No secrecy (iii) No personal involvement.(iv)More rules and
regulations. (v) very slow in decision making (vi) owners have less control. Types of
Companies:
(i) Private company (ii) Public company.
Choice of form of Business organization: (i) less costly in setting up the organization
(ii) Limited liability (iii) continuous existence (iv) Form of raising capital (v) Control to
be made (vi) Nature of business.
18 / 141
• Formation of a Company
STAGES
Promotion: Functions of a Promoter:
(i) Finding out a business opportunity (ii) Conducting studies (iii) Getting the name
approved. (iv) Fixing up persons to sign Memorandum of association (v) Appointment of
professionals.(vii) preparation of necessary documents. Documents: Memorandum of
association:
(i) Name clause (ii) Registered office clause (iii) Objects clause (iv) Liability clause (v)Capital
clause (vi) Association clause. (vii) Articles of association. (viii) Consent of directors (ix)
Agreement with managing director or whole time director (x) Statutory declaration
Incorporation: The memorandum of association must be duly stamped, signed and
witnessed. (ii) The articles of association duly stamped and witnessed. (iii)Written
permission of the directors. (iv) Agreement with the managing director/manager.(v)A copy
of the registrar’s letter giving permission for the name. (vi) A declaration that all the legal
requirements are followed.(vii) A notice about the exact office of the registered office. (viii)
Documents showing the payment of fees. Capital subscription:
(i) SEBI approval (ii) Filing of prospectus. (iii) Appointment of brokers, bankers etc., (iv)
Collection of minimum subscription (v) Application to stock exchange (vi) Allotment of
shares.
• Commencement of Business:
(i) A declaration about meeting minimum subscription requirement. (ii) A declaration
regarding the application and allotment money paid by the directors as same as others. (iii)
A declaration that no money is payable to the applicants because of the failure of the
company. (iv) A statutory declaration that the above particulars are followed. (v) The
registrar shall examine the documents if these are found satisfactory a certificate of
commencement of business will be issued.
• Key Concepts in Nutshell:
19 / 141
FORMS OF BUSINESS ORGANISATION
Sole proprietorship Partnership Hindu Undivided Co operative Company

Family Society
• Meaning Of Sole Proprietorship:

Sole means only
Proprietor means owner
Merits of sole proprietorship:
1. A sole proprietor can take decision quickly.
2. Information can be kept secretly without any leakage.
3. No need to share profits.
4. He gets self satisfaction for the work he has done.
5. Easy to start and to close because of less rules and regulations.
• Partnership
Types of Partners :
1. Active partner: An active partner is a partner who gives capital, participates in
management, shares the profits and losses and has unlimited liability.
2. Sleeping partner: A Partner who do not take part in the business activities.
3. Secret partner: A partner who has association with the firm but unknown to the
public.
4. Nominal partner: A partner who allows his name to be used by the firm
5. Partner by estoppel: A person who by behaviour sets an impression to others that
he/she is a partner of the firm.
6. Partner by holding out: A person who is not a partner but allows himself to be
represented as partner in a firm.
Consequences of Non Registration:
20 / 141
1. A Partner of an unregistered firm cannot file a case against the firm or other
partners.
2. The firm cannot file a case against third parties.
3. The firm cannot file a case against the partners.
Types Of Companies
COMPANY
PRIVATE PUBLIC
• Public Company:
1. Members: Minimum 7, Maximum unlimited
2. Minimum number of directors: 3
3. Minimum paid up capital: 5 lakhs.
4. Index of members: Compulsory.
5. Transfer of shares: Shares can be transferred easily from one person to another.
6. Invitation to public: It can invite the public to purchase the share and debentures
• Private Company:
1. Members: Minimum 2, Maximum -50.
2. Minimum number of directors: 2
3. Minimum paid up capital: 1 lakh
4. Index of members: Not compulsory.
5. Transfer of shares: Shares cannot be transferred from one person to another.
6. Invitation to public: It cannot invite the public to purchase the share and debentures.
• Memorandum of Association:
1. It defines the objects for which the company is formed.
2. This is the main document of the company.
3. This defines the relationship of the company with outsiders.
4. Every company has to file Memorandum of Association.
5. Alteration of Memorandum of Association is difficult.
• Articles of Association:
1. It defines the objectives of the company that are to be achieved.
2. This is the subsidiary document of the company.
3. Articles define the relationship of the members and the company.
21 / 141
4. It is not necessary for the public limited company.
5. It can be altered by passing a special resolution.
• Very Short Answer type Questions: (1 Mark)

1. Varun is the only owner of his restaurant. Name the form of business
organization. Ans: Sole proprietorship.
2. Name the form of organization found only in India Ans: JHF
3. List two merits of Sole proprietorship.
Ans: (i) Single ownership (ii) Full control.
4. Name any one business in which sole proprietorship is most suitable.
Ans: Tailoring
5. Name the type of partnership which is formed to accomplish a specific project for a
specific time.
Ans: Particular partnership
6. State any one consequence of non registration of a partnership firm.
Ans: An unregistered firm cannot file a case against third parties.
7. What is the minimum number of persons required to form a cooperative society?
Ans: Ten
8. Name the type of company which can invite the public to subscribe for the shares or
debentures. Ans: Public.
9. Name the process by which a joint stock company is registered. Ans: Incorporation.
10. Name the document which defines the object and powers of the company.
Ans: Memorandum of Association.
• Short Answer Type Questions: (3 or 4 Marks)

1. State three advantages of joint Hindu Family business.
Ans (i) Effective control (ii) Continuity of business (iii) limited liability of
members (iv) Increased loyalty. (any three)
2. Explain the features of a Joint Hindu Family business. Ans: (i) Formation (ii) Liability
(iii) Control
3. List any three advantages of partnership.
Ans: (i) Easy to start and close (ii) proper decision making (iii) More money (iv)
secrets are maintained.
4. State the important features of partnership.
Ans: (i) Formation (ii) Liability (iii) Risk bearing (iv) decision making
(v) continuity (vi) Member .
5. What are the consequences of nonregistration of a partnership firm?
22 / 141
Ans: A Partner of an unregistered firm cannot file a case against the firm
or other partners.
The firm cannot file a case against third parties.
The firm cannot file a case against the partners.
6. Explain any three features of a company.
(i) Artificial person (ii) Formation is difficult (iii) Company has separate
Identity.
7. Enumerate the various types of cooperative societies.
(i) Consumer (ii) Producer (iii) Marketing (iv) Farmer’s (v) Credit
(vi) Cooperative housing societies
8. What are the functions of a promoter?
(i) Finding out a business opportunity (ii) Conducting studies (iii) Getting the
name approved. (iv) Fixing up persons to sign Memorandum of Association.
(v)Appointment of professionals.(vii) preparation of necessary Documents.
• Long Answer Type Questions: (5 or 6 Marks)

1. Distinguish between Memorandum of Association and Articles of Association.
Answer :
Memorandum of Association
1. It defines the objects for which the company is formed.
2. This is the main document of the company.
3. This defines the relationship of the company with outsiders.
4. Every company has to file Memorandum Of Association.
5. Alteration of Memorandum of Association is difficult.
Articles of Association
6. It defines the objectives of the company that are to be achieved.
7. This is the subsidiary document of the company.
8. Articles define the relationship of the members and the company.
9. It is not necessary for the public limited company.
10. It can be altered by passing a special resolution.
2. Distinguish between a private company and public company.
Answer :
PUBLIC COMPANY:
Members: Minimum 7, Maximum unlimited
Minimum number of directors: 3
Minimum paid up capital: 5 lakhs.
Index of members: Compulsory.
Transfer of shares: Shares can be transferred easily from one person to another.
23 / 141
Invitation to public: It can invite the public to purchase the share and
debentures
PRIVATE COMPANY:
Members: Minimum 2, Maximum -50.
Minimum number of directors: 2
Minimum paid up capital: 1 lakh
Index of members: Not compulsory.
Transfer of shares: Shares cannot be transferred from one person to another.
Invitation to public: It cannot invite the public to purchase the share and
debentures.
3. Describe the various partners in a partnership firm.
Answer :
TYPES OF PARTNERS
Active partner: An active partner is a partner who gives capital, participates in
management, shares the profits and losses and has unlimited liability.
Sleeping partner: A Partner who do not take part in the business activities.
Secret partner: A partner who has association with the firm but unknown to the
public.
Nominal partner: A partner who allows his name to be used by the firm Partner
by estoppel: A person who by behaviour sets an impression to others that he/she is
a partner of the firm.
Partner by holding out: A person who is not a partner but allows himself to be
represented as partner in a firm.
4. Why is company form of organization preferred than other forms of

organization?
Answer :
Merits: (i) Liability is limited (ii) Chances are there for expansion iii) Managed by
professional people (iv) Continuous existence (v) Shares can be easily transferred
from one person to another person.
5. List and explain the factors which help in choosing an appropriate form of
Organization. Answer :
Choice of form of Business organization: (i) less costly in setting up the
Organization.(ii) Limited liability (iii) continuous existence (iv) Form of
raising capital (v) Control to be made (vi) Nature of business.
HOTs
1. “One man control is the best in the world if that man is big enough to manage
everything”. Explain.
24 / 141
Answer :
Merits of sole proprietorship:
1. A sole proprietor can take decision quickly.
2. Information can be kept secretly without any leakage.
3. No need to share profits.
4. He gets self satisfaction for the work he has done.
5. Easy to start and to close because of less rules and regulations.
2. “A private company avoids many of the defects of a public company”. Explain.
Answer :
Merits: (i) Liability is limited (ii) Chances are there for expansion
(iii) Managed by professional people (iv) Continuous existence (v) Shares can
be easily transferred from one person to another person.
3. State the reasons for issuing prospectus:
Answer :
1. It serves as an invitation to the public to invest in the shares and debentures
of the company.
2. It acts as an advertisement for inducing the investors to invest in the
company.
3. It serves as an record of the terms and conditions on which shares and
debentures are issued.
4. It helps to protect the interest of the investors.
4. “A company is said to be an artificial person created by law, having a separate entity
with perpetual succession and a common seal”. Discuss the above statement.
Answer :
Features: (i) Artificial person (ii) Formation is difficult (iii)Company has separate
identity.(iv)Continuous existence (v) Control of the company is made by
directors.(vi)liability is limited.(vii) Common seal.
5. Describe the steps involved in the floatation of the company.
Answer :
Capital subscription:
1. SEBI Approval.
2. Filing of prospectus.
3. Appointment of bankers, brokers and underwriters.
4. Minimum subscription.
5. Application of stock exchange.
6. Allotment of shares.
• Gist of the Lesson:
25 / 141
Sole proprietorship – one owner
Partnership – 2 or more partners.
Joint Hindu Family Business- at least 2 persons.
Cooperative society – At least 10 adults. Company
– Minimum 2 Maximum 50 (Private) Company-
Minimum 7 Maximum-unlimited.
Memorandum of Association- External rules and regulations.
Articles of Association – Internal rules and regulations.
26 / 141
2. FORMS OF BUSINESS ORGANISATION
1. Amandeep involves in selling School and College Uniforms at his retail outlet located at
Ambala. It is his family business, now controlled and managed by him. In the Covid-19
period, schools and colleges are mostly closed all around the state. Due to this pandemic
situation, he records a very little business of negligible volume. He is paying staff salaries,
electricity bills and other fixed expenses every month. He is facing huge financial losses
because of Covid-19 and its effects. Which features of sole trading business is highlighted
in the above case?
a) Easy formation
b) Profit
c) Secrecy
d) Risk and Uncertainties
2. From the following pictorial presentations, identify the forms of organisations.
a) Joint stock company

b) Partnership
c) Sole proprietorship
d) Joint Hindu Undivided Family
3. What do you understand by the term unlimited liability?
a) The personal assets of the owner can be sold when the assets of the business are
not enough
b) The personal assets of the owner cannot be sold at all.
c) The personal assets of the owner can be sold, according to the wish of the
creditors
d) The personal assets of the owner can be sold, only to a limited extent
4. Assertion (A) In partnership firm the liability of all the partners is unlimited.
Reason (R) The partners are individually as well as jointly responsible for paying off
businessdebts.
a) Both A and R are true. R is the correct explanation of A
b) Both A and R are true, but R is not the correct explanation of A
c) A is correct, but R is incorrect
d) A is incorrect, but R is correct
5. Which of the following is probably the most important reason for incorporating?
a) Limited liability of shareholders.
b) More money for investment.
c) Increased flexibility.
d) sharedmanagement.
27 / 141
6. Registered office clause in MOA contains the legal and recognized name of the company,
which has been approved by the registrar of companies.
a) True
b) False
c) Can't say
d) Partly false
7. The documents for registration of a company were filed on 21st March, 2021. The
Certificate of Incorporation was issued on 28th March, 2021. But the date mentioned on
the Certificate of Incorporation was 27th March, 2021. From which date will the company
be considered to be in existence and the contracts signed will be considered valid.
a) 21st March, 2021
b) 28th March, 2021
c) 27th March, 2021
d) None of these
8. Unlike sole proprietorship and partnership, a company has large financial resources and
therefore there is a scope for________ of the company:
a) Earning more profit
b) Expansion
c) More recruitment
d) None of these
9. Match the following:
COLUMN-A COLUMN-B
i. Joint Stock Company a. It is a primary declaration of the
company's nature, purpose and
ends which, along with the
Memorandum of Association,
forms together the company's
constitution
ii. Active partner b. It is the one who contributes
capital and also takes an active
part in the management of the firm.
iii. Article of Associations c. When a person is declared as a
partner but he does not deny this
fact even after becoming aware of
it, he becomes liable to third
parties who lend money or credit
to the firm on the basis of such a
declaration.
iv. Partner by Holding Out d. A business owned by its
shareholders, who can buy and
sell shares freely
a) i-b, ii-d, iii-a, iv-a
b) i-c, ii-a, iii-b, iv-d
c) i-a, ii-c, iii-d, iv-b
d) i-d, ii-b, iii-a, iv-c
28 / 141
10. From the following pictorial presentations, identify the forms of organisations.
a) Joint Hindu Undivided Family

b) Partnership
c) Sole proprietorship
d) Joint Stock Company
11. Why does the cooperative societies have a merit of government support:
a) Because these societies exemplify the idea of democracy
b) Because these societies are formed for the welfare of the members
c) Because these societies help in the development of the country
d) Because government wants to increase the number of such societies
12. One person company is defined as:
a) A company with only one shareholder, as its members are recognized as the
company's shareholders.
b) A company that comprises a single person as a shareholder and can be
contrasted with private companies.
c) A non-registered, unincorporated business run solely by one individual proprietor
with no distinction between the business and the owner.
d) Only (a) and (b)
13. A partner who may be an active manager but does not want his or her identity disclosed
to the general public is known as
a) Active partner
b) Secret Partner
c) Sleeping partner
d) Nominal Partner
14. Assertion (A): Personal assets of the partner may be used to pay off business debts in
case of insufficiency of business assets
Reason (R): Partners of me firm have unlimited liability
a) Both the statements (A) and (R) are correct and (R) is the correct explanation of
(A)
b) Both the statements (A) and (R) are correct and (R) is not the correct explanation
of (A)
c) Statement (A) is correct but (R) is incorrect
d) Statement (A) is incorrect but statement (R) is correct
15. It is a corporate form of organization. It provides the benefits of limited liability but allows
its partners the flexibility of organizing thefirm's internal structure as a partnership based
on agreements. Therefore, it enables professional expertise and entrepreneurial initiative
to combine, organize and operate in a flexible and efficient manner. Identify the type of
partnership being highlighted in above case.
a) Particular partnership
29 / 141
b) General partnership
c) Limited liability partnership
d) Partnership at will
16. The Indian Partnership Act, 1932 defines Partnership as:
a) The relation between persons who have agreed to share the profits of the
business carried on by all or any one of them acting for all.
b) The relation between persons who have agreed to carry on business activities
together.
c) The relation between persons who have agreed to share the profits of the
business carried on by all of them together.
d) None of these
17. Yogesh is running a retail shop of grocery items under the sole proprietorship form of
business Yogesh's son wants him to expand the shop and deal in other types of goods as
well but Yogesh does not agree with his son's plan. Do you think that Yogesh's son can
execute his plan without Yogesh's consent?
a) Yes
b) No
c) Yes, but after completing a few legal formalities
d) None of these
18. Assertion (A): The managing committee elected by members of the cooperative society
are generally not professionally equipped to handle the management functions effectively.
Reason (R): Co-operative societies are unable to employee experts because of their
inability to pay them higher salaries.
a) Both assertion and reason are true and reason is the correct explanation of
assertion.
b) Both assertion and reason are true and reason is not the correct explanation of
assertion.
c) Assertion is true but reason is false.
d) Assertion is false but reason is true.
19. Sudhanshu is an active partner in a partnership firm, where, liability of partners is
unlimited. Partners are allowed to participate in the management of the firm business. All
the partners are bound by the rules framed in the partnership. Registration of partnership
firm is optional and the firm business may come to an end on the event of death,
insolvency and lunacy of any partner. Which type of partnership referred in the above
case?
a) General Partnership
b) Partnership at will
c) Limited Liability Partnership
d) Special Partnership
20. Cooperative Societies are compulsorily registered under which of the following Act:
a) The Companies Act, 2013
b) The Cooperative Societies Act, 1922
c) The Indian Contract Act, 1872
d) The Cooperative Societies Act, 1912
21. The business assets of an organization amount to Rs. 50,000 but the debts that remain
unpaid are Rs. 80,000. What course of action can the creditors take if
i. The organization is a sole proprietorship firm
30 / 141
ii. The organization is a partnership firm with Anthony and Akbar as partners. Which
of the two partners can the creditors approach for repayment of debt? Explain
giving reasons
22. Which value is of utmost importance when partnership form of business is used?
23. Compare the status of a minor in a Joint Hindu Family Business with that in a partnership
firm.
24. In what ways does the cooperative society exemplify secularism and democracy?
Describe in brief points.
25. If registration is optional, why do partnership firms willingly go through this legal formality
and get themselves registered? Explain.
26. Why is partnership considered by some to be a relatively unpopularform of business
ownership? Explain the merits and limitations ofpartnership.
27. Despite limitations of size and resources, many people continue to prefer sole
proprietorship over other forms of organization. Why?
28. Amul is an Indian dairy cooperative, based at Anand in the state of Gujarat. It was formed
in 1946 and is a brand managed by a cooperative body, the Gujarat Co-operative Milk
Marketing Federation Ltd. (GCMMF), which today is jointly owned by 3.6 million milk
producers in Gujarat. Amul spurred India's White Revolution, which made the country the
world's largest producer of milk and milk products. In the process, Amul became the
largest food brand in India and has ventured into markets overseas.
i. What is a cooperative society?
ii. Why do you think Amul was promoted in the form of cooperative? Explain by
giving any four merits of a cooperative society form of business organization.
ANSWER SHEET
1. D 6. B 11. A 16. A
2. C 7. C 12. D 17. B
3. A 8. B 13. B 18. A
4. A 9. D 14. A 19. A
5. A 10. B 15. C 20. D
21.
i.
Sole proprietor has unlimited liability in case of sole proprietorship. In the case of
loan repayment, creditors can claim the personal property of the owner.
ii. Creditors can contact both partners and are required to pay according to their
share in the partnership. If one partner goes bankrupt, the other partner can be
approached to repay the debt.
22. Maintaining trust and confidentiality of information is of utmost importance in a
partnership business. It is also important to use mutual agency in utmost good faith
keeping in mind the interests of all partners.
23. A minor becomes a member of Joint Hindu Family Business by virtue of his birth. On the
other hand, in partnership, minor can be a partner only in profits.
24. The number of ways through which cooperative society exemplifies secularism and
democracy is mentioned in points below:
• In a democracy, a cooperative society gives equal treatment to all its members
and also provides equal rights to all its members.
• The members of the managing committee are elected by the members of the
society which shows the secularist system.
31 / 141
• 'one member, one vote' principle prevents the domination of the richer members
in the decision-making process of the society.
25. Although registration is optional, partnership firms willingly go through this legal
formality and get themselves registered because it has some merits:
• Settlement of Claims: Registered firms can file suit against the third parties. So
the rights of registered firms are safeguarded by law. But an un-registered firm or
its partner cannot enforce its claim against the third parties or its co-partner.
• Protection of Rights: The rights and privileges of new partner are also protected
in registered firm. But if the incoming partner fails to register himself, he will incur
great risk, because he will not be in a position to file suit for his dues against his
firm or his co-partners.
• Protection of Property: The property of the retired or deceased partner continues
to be liable for the acts firm does after his death or retirement until public notice
is served for the change to registrar, So there is strong inducement for partners
of registered firms to have the changes noted in the register. But if there is
unregistered firm, the private property of the out-going partner will be considered
liable to charge the debts in spite of retirement.
• Protection to Creditors: Registered firm has to maintain correct, complete and up-
to-date record of its partners who will be liable for the obligations of the firm. The
statement recorded in the register regarding constitution of firm would afford a
strong safeguard against untrue refusal of partnership and the evasion of liability
to persons who want to deal with the firm.
26. Partnership considered by some to be a relatively unpopular form ofBusiness ownership
as it has several limitations. But it has certain merits too. So here are some of them:
Merits:
• Formation of a partnership firm is easy and its closure is also not adifficult task.
One can form by signing an agreement.
• The decision-making process in a partnership form is more balanced.as compared
to another form of business.
• A large number of funds can be raised due to several partnersinvolved in the
business. This can help in the growth of the business.
• The risk involved in the business is shared by all the partners andhence helped in
reducing risk by one only.
• Confidentiality is an important feature of partnership firm and themembers
maintain secrecy in its operations.
Limitation
• Partners have to repay debts from personal assets in case
ofinsufficientresources.
• There is a restriction on the number of partners involved for whichthey cannot
support large scale operation due to lack of resources.
• In partnership farm, the power of decision making is shared by themembers. The
differences in opinion result in conflict.
• A fresh agreement is required by the members to run their business if their
partnership comes to an end.
• There is a lack of public confidence as a partnership firm are notlegal binding.
32 / 141
27. Despite limitations of size and resources, many people continue to prefer sole
proprietorship over other forms of organization because of the following merits:
• Easy to start and close: It can be easily started and closed without any legal
formalities.
• Quick decision making: As a sole trader is not required to consult or inform
anyone about his decisions.
• Secrecy: He is not expected to share his business decisions and secrets with
anyone.
• Direct incentive: Direct relationship between efforts and reward provide incentive
to the sole trader to work hard.
• Personal touch: The sole trader can maintain personal contacts with his
customers and employees.
• Social utility: It provides employment to persons with limited money who are not
interested to work under others. It prevents concentration of wealth in a few
hands.
33 / 141
CHAPTER - 3
PUBLIC, PRIVATE AND GLOBAL ENTERPRISES
• Introduction:
Soma, a student of class XI was reading a newspaper. There was the news item that Government
planned to disinvest its shares in some PSUs as they were incurring heavy losses. At the same
time, it was written that some private companies and MNCs were earning so much of profits.
Maruthi Suzuki Ltd which a joint venture of Maruthi Company and Suzuki Company of Japan
was launching a new car in the market. She was curious to know about these terms like PSUs,
joint venture etc.
Forms of Business Organisations
Public Sector Private

Sector
a. Departmental Undertakings
b. Statutory Corporations
c. Government Companies
a. Departmental Undertakings - Features

Part of Government-Central or State
Under direct control of the ministry Funds
comes directly from Govt.Treasury
Employees are Govt. employees.
Examples:- Railways
Defence
Post and Telegraphs
Merits
Effective control
Public Accountability
Suitable for national security
Demerits
Lack of flexibility
Delay in decision making
34 / 141
Red tapism
Political interference
Unable to take advantage of opportunities
b. Statutory Corporations
They are created by Special Acts of the Parliament which contains their powers and functions,
rules and regulations regarding their employees and its relationship with government
departments.
Features
Statutory Corporation is fully owned by the Government.
It is having a separate legal entity.
Its employees are not government employees.
Board of Directors are appointed by the government
It prepares its own budget and can retain its earnings which can be used for its business.
Profit is not the main motive.
It has public accountability.
Usually it is free from all types of interference.
Merits
Free from undesirable government
The government does not interfere in their financial matters.
It is relatively free from red tapes and can take quick decisions.
Its policies are subject to parliamentary control which ensures protection of public
interest.
Limitations
A statutory corporation’s actions are subject to many rules and regulations.
Government and political interference have always been there where huge funds are
involved or in major decisions.
Where there is dealing with public, corruption exists at a larger level.
The Board of Directors may misuse their powers and indulge in undesirable practices.
c. Government Company
Meaning: - According to The Indian Companies Act, 1956, a government company is a company
in which not less than 51% of the paid up capital is held by the central or state government or
both.
Subsidiary of a government company is also considered as a government company. Eg:
1) Hindustan Machine Tools Ltd. (HMT)
2) Bharat Heavy Electricals Ltd (BHEL)
3) Steel Authority of India Ltd.
35 / 141
Features
It is created by the Indian Companies Act, 1956.
It is having a separate legal identity.
Its employees are are appointed according to the rules contained in the
Memorandum and Articles of Association of the company.
It is exempted from the accounting and audit rules and procedures.
It obtains funds from government shareholdings, private shareholders and capital
market.
Merits
It can be easily established.
It has a separate legal entity.
There is no undue departmental interference in the working of the company.
It can curb unhealthy business practices by providing goods and services at
reasonable prices.
• Changing Role of Public Sector

Public Sector was started to achieve the following objectives:
To speed up the economic growth of the country
To achieve a more equitable distribution of income
To create infrastructure facilities
To develop all parts the country equally
Performance of the Public Sector was poor due to unorganized plants, out dated technology,
underutilization of capacity, over staffing, trade unionism, political interference etc., So the
government, in the Industrial Policy 1991, introduced the following reforms in the public sector.
The number of industries reserved for the public sector was reduced from 17 to 3
industries namely atomic energy, arms and rail transport.
The Memorandum of Understanding signed between a public sector and its
administrative ministry defines its autonomy and the targets to be achieved.
Equity shares of public sector units are sold to private sector and the public which is
known as Disinvestment.
Loss making public sectors which are potentially viable will be restructured and revived
through the Board of Industrial and Financial Reconstruction (BIFR). Public sector units
which cannot be revived will be closed down.
A National Renewal Fund was created to retrain and redeploy retrenched labor and to
compensate employees seeking voluntary retirement.
36 / 141
• Global Enterprises/Multinational Companies
Meaning:- A global enterprise is one which owns and manages business in two or more
countries.
Eg:- Unilever Ltd, Coca cola, LG, Samsung, Hyundai Motors, Proctor and Gamble, etc.
Features
A global enterprise has huge capital resources.
It operates through a network of subsidiaries, branches and affiliates in host countries
It has its headquarters in the home country which controls all branches and
subsidiaries.
It uses advanced technology to provide world class products and services.
It employs professionally trained managers.
It has vast access to international markets.
It has advanced research and development departments which are engaged in
developing new products and superior designs of existing products.
It uses aggressive marketing strategies.
It usually enters into agreements with local firms in the host countries.
• Joint Ventures
Meaning: A joint venture is a business partnership between two or more companies for a
specified purpose.
Eg : Hero Honda, Maruti Udyog, Birla Yamaha Ltd, etc.
Benefits
A joint venture has greater resources and capacity.
It has access to advanced technology It has access
to new markets.
It can produce products at a lower cost.
It has ideas and technologies to develop innovative products and services.
When one party in a joint venture has well established brands and goodwill, the other
party gets its benefits.
• Public Private Partnership (PPP)

Public Private Partnership means an enterprise in which a project or service is financed and
operated through a partnership between Government and private sectors.
Features
It facilitates partnership between public and private sector. It
is related to high priority projects.
37 / 141
It is suitable for big projects whose gestation period is long.
Revenue is shared between government and private enterprise in the agreed ratio. It
is used in the government projects targeted at public welfare.
• Very Short Answer type Questions (1 Mark)

1. Name the types of public sector enterprises?
Ans. i) Departmental undertakings ii) statutory corporations
iii) Government company
2. Name the organization which is considered as a part of Government Company only?
Ans. Departmental undertakings
3. Where national security is concerned, which form of public enterprises is most suitable?
Ans. Departmental undertakings, because they are under the direct control and
supervision of the ministry.
4. Mention any two examples of departmental undertakings?
Ans. i) Post and Telegraphs
ii) Indian railways
5. Name the organization formed by passing a special act of the parliament? Ans. Statutory
Corporation
6. Mention any two examples of statutory corporation?
Ans. i) Food Corporation of India
ii) Life Insurance Corporation
7. Name the company in which at least 51% shares are kept by the government? Ans.
Government Company
8. In whose name the shares of a government Company are purchased? Ans. The President
of India
9. Why is the ‘Government company’ form of public enterprise preferred to other types of
organizations?
Ans. Because it enjoys maximum autonomy in all management decisions and actions.
There is no undue departmental interference in the working of a government company.
10. Mention any two examples of a government company?
Ans. i) Bharat Heavy Electricals Limited
ii) Hindustan Machine Tools Limited
• Long Answer type Questions

11. What is public, private partnership? Explain its features.
Ans:-The following points should be explained
Helps partnership public sector and private sector
Related to high priority projects
Suitable for big projects
38 / 141
Public welfare
Sharing revenue
12) “Multinational companies are a blessing to the developing countries.” Comment
on this statement.
Ans:-The following points should be explained
Huge capital resources
Centralized capital
Expansion of market territory
Advanced technology
Product innovation
12. What are the benefits of entering into joint ventures? Ans:-
The following points should be explained
1. Increased resources and capacity
2. Access to new market and distribution networks
3. Access to technology
4. Innovation
5. Low cost of production
6. Established brand name
15. Name the form of public sector enterprises that is constituted as an autonomous unit
by an Act of Parliament? Explain any five features of such an organizations?
Ans:- Statutory Corporation.
The following points should be explained
Statutory Corporation is fully owned by the Government.
It is having a separate legal entity.
Its employees are not government employees.
Board of Directors are appointed by the government
It prepares its own budget and can retain its earnings which can be used for its
business.
Profit is not the main motive.
16. (a) Mention six causes responsible for inefficiency of government enterprises? (b) Give
any three distinctions between a statutory corporation and a government company?
Ans:-a) The following causes should explained
Performance of the Public Sector was poor due to
unorganized plants, out dated
technology, underutilization of capacity,
over staffing, trade unionism, political
interference inefficient management
39 / 141
b) The differences between Statutory Corporation and Government Company
Basis Statutory Corporation Government Company
Formation By an Act of Parliament Under the Companies Act
Management Nominated board of directors board of directors may contain

Control private individuals
Wholly owned by Only 51% of shares owned by
Ownership
Government Government
17. What was the role of public sector before 1991?

Ans:- Public Sector was started to achieve the following objectives:
To speed up the economic growth of the country
To achieve a more equitable distribution of income
To create infrastructure facilities
To develop all parts the country equally
Generation of employment
Defence Requirements
Check over concentration of economic power
18. What are the benefits available to the government company? Ans:- 1. Easily
established
2. Separate legal entity
3. Enjoys autonomy
4. Curbs unhealthy business practices
• HOTS (Higher Order Thinking Skills)

1. Can the public sector companies compete with the private sector in terms of profit & loss
efficiency? Give reasons for your answer.
Ans. No, public sector companies cannot compete with the private sector in terms of profit &
efficiency. Following are the reasons for this:
1. Public sector enterprises (PSEs) are owned by the government which has social
services as the main motive. They do not operate fully on commercial basis. They are launched
to achieve social objective like development of backward region, creation of employment
opportunities, etc.
2. Working of public sector enterprise is subject to interference of the government.
Autonomy &flexible enjoyed by PSEs are only in name.
3. Due to the bureaucratic control, the management is very poor inefficient. They
are managed by bureaucrats & not by professional.
40 / 141
2. Public sector enterprises have played vital role in the economic development of
india.however; government of India vigorously pursues the policy of disinvestment of such
units. What is the rationale of disinvestment at this time?
Ans. Public sector enterprises played a significant role in the economic development of India
by filling gaps in the industrial sector, generating employment opportunities, balance regional
development, check over concentration of economic power & so on. despite their impressive
role, public sector undertaking (PSUs) in India suffered several problems shortcoming such as
excessive overhead, under- utalisation of production capacity, inefficient management, low
return on investment or even losses, etc.therefore, government of India pursued the policy of
disinvestment of sick PSUs.disinvestment involves the sale of the equity shares to the private
sector& the public, i.e., reducing equity of the government.
3. State any three situations wherein Government Company is the most suitable form of
organizing public enterprises?
Ans. Government Company is the most suitable form of organizing public enterprises in the
following situations:
1. When the government wants to control a company in the private sector without
nationalization because of financial or employment crises, e.g., Indian iron steel co.
2. When the government feels necessary to promet & develops a field of economic
acidity, e.g., STC.
3. When the government wishes to launch an enterprises in association of certain
private interests, domestic or foreign, e.g., Hindustan Machine Tools.
4. What motivates a company to go global?

Ans. desire to expand its business motivates a company to go global. If a company wants to
enjoy the fruits of larges-cable production (i.e., increased profit reduces costs), it needs a bigger
market spread over to many countries.
• Gist of the Lesson

Private sector vs. public sector enterprises
Private sector enterprises are owned, managed and controlled by individuals or
a group of individuals. Their main objective is to earn profit.
Public sector enterprises are owned, managed and controlled by the government.
The forms organization which a public enterprises may take are departmental
undertakings, statutory corporations and government companies.
Departmental undertakings
This is the oldest and most traditional forms of organizing public enterprises. The
government functions through this department. Examples: - Post and Telegraphs, Indian
Railways, etc.
41 / 141
Statutory Corporation
Statutory corporations are public enterprises brought into existence by a special act of
the parliament. Egs: - Indian Airlines, LIC, RBI, etc.
Government Company
A government company means any company in which not less than 51% of the paidup
capital is held by the central government or state government or bother:HMT,maruti dog
ltd.,BHEL,etc.
Global enterprises
A multi-national company (MNC) may be defined as a company that operates in several
companies that operates in several countries. Egs:- Pepsi, Samsung, Honda, etc Joint
ventures
When two businesses agree to join together for a common purpose and mutual benefits
it is known as joint venture Public Private Partnership
It means a busied in which a project or service is financed and operated through a
partnership of government and private enterprises
42 / 141
3. PUBLIC, PRIVATE & GLOBAL ENTERPRISES
1. Assertion (A): Political interference is a demerit of government company.
Reason(R): The operational policies of the government companies are formed according to
the whims and fancies of the ministers.
a) Both Assertion and Reason are correct and the Reason is a correctexplanation of
the Assertion.
b) Both Assertion and Reason are correct but Reason is not a correctexplanation of the
Assertion.
c) The Assertion is correct but Reason is incorrect.
d) Both the Assertion and Reason are incorrect.
2. Which of the following types of organizations has the capability of expanding the market
territory and operating through a network of subsidiaries, branches, and affiliates?
a) MOFA – Ministry of Foreign Affairs
b) MNC – Multinational Companies
c) Public Sector Enterprises
d) Private Sector Enterprises
3. Which of the following enterprises may benefit the most from an established brand name at
the time of incorporation?
a) Departmental Undertaking
b) Government Company
c) Statutory corporations
d) Joint Venture
4. A corporate body created by the legislature with defined powers and functions and is
financially independent:
a) Statutory corporations
b) Joint ventures
c) Government Companies
d) Both A and C
5. The Public Private Partnership model is suitable for capital projects with short operating
requirements.
a) True
b) False
c) Partly True
d) None of these
6. The Post and Telegraph department is part of a government ministry. It is fully managed,
controlled and funded by the concerned ministry. The annual budget of the ministry makes
provision for the funds needed by the government. The ministry is answerable to the
Parliament for its functioning. Name the sector under which the Post and Telegraph
department comes.
a) Private sector
b) Public sector
c) Joint Sector
d) None of these
7. Which form of public sector undertaking is established purely to do business and compete
with the private sector?
a) Departmental undertaking
43 / 141
b) Statutory corporation
c) Government company
d) None of these
8. A government company is any company in which the paid up capital held by the government
is not less than
a) 49 per cent
b) 51 per cent
c) 50 per cent
d) 52 per cent
9. If a public sector was making losses continuously, it was referred to the__________ for
complete overhauling or shut down:
a) Board for Industrial and Financial Reconstruction
b) Reserve Bank of India
c) Private sector
d) Government
10. MNCs have a feature called 'Centralised Control', what does that mean:
a) They have a central department that keeps a check on rest of the departments
b) They have their headquarters in their home country and exercise control over all
branches and subsidiaries
c) They follow the communication system in which each department has to report to a
central department
d) None of these
11. Employees of which of the following are considered as government employees?
a) Departmental Undertaking
b) Government Company
c) Statutory Corporation
d) None of these
12. A Contractual Joint Venture is one in which:
a) Two companies come together and form a new company
b) No new company is formed there is only an agreement between two existing
companies to work together
c) Parties owner share of business
d) The relationship between the parties is transaction to transaction
13. Which one of these was initially a public sector undertaking in the communication industry:
a) Reliance Jio
b) Airtel
c) Idea
d) BSNL
14. It refers to disinvestment in public sector units.
a) Sale of equity shares to private/public sector
b) Discontinuance of operations
c) Investing in new areas
d) By purchasing shares of public sector units.
15. The funding of which of the following enterprises comes directly from the government
treasury, is under an annual appropriation from the budget of the government, and the
revenue earned by it is also paid into the treasury?
a) Departmental undertaking
44 / 141
b) Statutory corporation
c) Government company
d) Cooperatives
16. Assertion (A): The central Government of India has established a department which is
considered as an extension of the ministry itself.
Reason(R): LIC is the example of such department.
a) Both Assertion and Reason are correct and the Reason is a correctexplanation of
the Assertion.
b) Both Assertion and Reason are correct but Reason is not a correctexplanation of the
Assertion.
c) The Assertion is correct but Reason is incorrect.
d) Both the Assertion and Reason are incorrect
17. Which of the following is a merit of a Statutory Corporation:
a) It has a separate legal entity, apart from the Government
b) They are able to control the market and curb unhealthy business practices.
c) They enjoy independence in their functioning and a high degree of operational
flexibility
d) The revenue earned by the enterprise goes directly to the treasury of its ministry
18. Why is the government company form of organization preferred to other types in the public
sector?
19. How does the government maintain a regional balance in the country?
20. Can the public sector companies compete with the private sector in terms of profits and
efficiency? Give reasons for your answer.
ANSWER SHEET
1. A 7. C 13. D
2. B 8. B 14. A
3. D 9. A 15. A
4. A 10. B 16. C
5. A 11. A 17. C
6. B 12. B
18. Government company form of organization is preferred to other forms of organizations due
to it advantages over other forms. These advantages are as follows:
• It is registered or incorporated under Companies Act.

• It has a separate legal entity.
• Management is regulated by the provision of Companies Act.
• Employees are recruited and appointed as per the rules and regulations
contained in Memorandum and Articles of Association.
• The government company obtains its funds from government shareholdings and
other its private shareholdings. It can also raise funds from capital market.
• It can be easily formed as per the provision of Companies Act. Only an executive
decision of government is required.
• It enjoys autonomy in management decisions and flexibility in day to day
working.
• It can appoint professional managers on high salaries.
45 / 141
19. The government of India has been laying emphasis on the balanced regional development of
the country various industrial policy statements and five year plans have emphasized the
development of all regions in a planned way. Balanced regional development implies
uniform distribution of planned investment among different regions of the country. The
investments should be so planned that regional growth rates should be equal. To develop
underdeveloped areas, the rate of growth should be more at those places so that disparities
are removed. The balanced economic growth of a country is possible only when all the
areas are developed in a planned way. The entrepreneurs can play an important role in
bringing about the balanced development. The Government can play an important role in
overcoming this problem. The govt. can play the role of entrepreneur by setting up public
sector units in underdeveloped regions. It can also play the role of a promoter by extending
various incentives to those who set up units at less developed regions.
20. The public sector companies cannot compete with private sector in terms of profits and
efficiency because of the following reasons as drawbacks of public sector companies –
i. Delay in completion: Public enterprises take long period for completion. The delay
may be due to non-release of funds in time, too much time taken in completing etc.
This delay escalates cost estimates and difficulties crop up in completing these
units. The benefits expected from such units are also delayed and it upsets various
calculations on demand and supply side.
ii. Faulty Evaluation: Public enterprises are sometimes set up on political
consideration. There are no clear cut objectives to be formed and everything is done
in a hurry. The projects are not properly evaluated on sound industrial principles.
Faulty evaluation of projects results in their failure and wastage of national
resources.
iii. Heavy Overhead costs: Public enterprises spend heavy amounts on unproductive
expenses. Large amounts are first spent on providing housing facilities and other
amenities to employees even before the unit starts production. This takes away a
large chunk of investments and the project suffers from financial difficulties. Though
such investments are useful for the employees but these should come out of
profit/supplies from the units.
iv. Inadequate Returns: The past experience in India shows that public enterprises have
failed to earn a fair return on investments. In spite of many privileges enjoyed by
these units many of them are either running into losses or are earning inadequate
returns on compared to investments.
v. Political Interference: There is frequent interference in the working of such units
from politicians: The members, of party in power try to influence the policies of
public enterprises. These units are not allowed to be run on sound business
policies.
46 / 141
CHAPTER - 4
BUSINESS SERVICES
• Introduction (10 Marks)
The chapter Business Services gives you a brief introduction to the characteristics of
business services, the difference between services and goods, classification on types of
business services, the concept of e-banking, identification and classification of types of
insurance policies and the description of different types of warehouses.
• Definition
Auxiliaries to trade are also known as business services. Service sector includes commercial
firms engaged in banking, communication, transport, insurance and warehousing. Business
cannot be even imagined in the absence of these services. All these services collectively
constitute the Service Sector.
• Nature/Features/Characteristics of services
• Difference between Services and goods

Basis Services Goods
An activity or a process. e.g., A physical object. e.g., a video
Nature watching a movie in a cinema cassette of movie
hall
Type Heterogeneous Homogeneous

Intangible e.g., doctor Tangible e.g., medicines
Intangibility treatment
Different customers having Different customers getting
Inconsistency different demands e.g. standardized demands
mobile services fulfilled
47 / 141
Simultaneous production and Separation of production and
Inseparability consumption e.g., eating an consumption e.g., purchasing
ice-cream in a restaurant ice cream from a store
Bank is an institution that accepts deposits, withdrawal by cheques and makes loans and
advances for the purpose of earning profits.
Types of banks
Commercial banks Co-operative banks specialized banks Central banks
Private Sector Public sector
Functions of Commercial Banks
48 / 141
Acceptance of Lending of E-Banking Remittance Cheque Facilities
deposits funds of funds
Electronic Fund Automatic Teller Debit Card Credit Card Online

Transfer (EFT) Machine (ATM) banking
I. E-BANKING: E-banking means banking transactions carried out with the help of computer
systems (i.e., that is banking over the internet).
1. Electronic Fund Transfer (EFT): Under this system, a bank transfers wages and salaries
directly from the company’s account to the accounts of employees of the company.
2. Automatic Teller Machine (ATM): It refers to an electronic terminal that allows people
with plastic card to perform simple banking transactions like withdrawal of cash 24x7 without
any help of human teller.
3. Debit Card: It refers to a plastic card that allows the bank to take money from the
customer’s account and transfer it to a seller’s account.
4. Credit Card: It refers to a plastic card that allows the customer to buy now and payback the
loaned amount to bank at a future date.
5. Online Banking: Under this system, when the customer gives instruction on his computer,
the bank computer transfers money from/ to customer’s account to biller’s account.
• Insurance:
It is a contract where by in exchange of fixed consideration one party promises to pay a fixed
amount either at happening of an event or at the expiry of certain period.
• Functions of Insurance
49 / 141
• Fundamental Principles of insurance:
Principle of utmost faith: refers that no material or important facts should be concealed by
both the parties of insurance contract.
Principle of Insurable Interest: There must be some pecuniary interest in the subject matter
of the insurance contract.
Principle of Indemnity: Refers that the insured can get only the compensation against actual
loss and he cannot make profit out of the insurance.
Principle of proximate cause: It refers to the direct cause and not the remote cause.
Principle of mitigation of loss: states that it is the duty of the insured to take reasonable
steps to minimize the loss/damage to the insured property.
• Types of Insurance
50 / 141
Life Insurance General Insurance
Fire Marine Miscellaneous
Life Insurance: It is a contract under which the insurer, in consideration of a premium,

undertakes to pay a fixed sum of money on the death of the insured or on the expiry of a
specified period of time, which ever is earlier.
Fire insurance: it is a contract whereby the insurer undertakes to make good any loss/ damage
caused by fire during a specified period.
Marine Insurance: A marine insurance is an agreement where by the insurer undertakes to
indemnify the insured loss against perils of the sea.
• Difference between life, fire and marine insurance
BASIS OF LIFE INSURANCE FIRE INSURANCE MARINE
DIFFERENCE INSURANCE
1 Subject matter Human life Assets Ship, cargo or
freights
2 Element Both protection and Protection only Protection only
investment
3 Insurable interest Must be present at Must be present Must be present at
the time of effecting both at the time of the time when
the policy effecting the policy claim falls due
as well as when the
claim falls due
4 Duration Usually exceeds a Does not exceed a Period or voyage or

year year mixed
5 Indemnity Not based on Is a Is a
principle of contract contract
indemnity of indemnity of indemnity
6 Surrender value Has a surrender Does not have any Does not have any
value surrender value surrender value
Types of Life Insurance Policies (Insurance Products)
51 / 141
Communication services:
These are helpful to business for establishing links with outside world. The main service is postal
and telecommunication.
• Transportation:
It refers to the physical movement of goods from one place to another.
Modes of transport
Roadways Railways Airways Shipping
52 / 141
• Warehousing:
It refers to that activity under which goods are kept safely and systematically at a particular
place.
Warehouse: It refers to the specially built building where the raw materials and finished goods
are kept safely till their owner does need them.
Functions of warehousing:
Consolidation Breaking the bulk Stock piling Price stabilization Financing
• Types of Warehouses:
Very Short Answer type Questions

1. Give two examples of e-banking.
2. Who can get an overdraft from a bank?
3. Give full form of ATM.
4. In which type of insurance, insurable interest must exist only at the time of insurance?
5. Name two companies that offer DTH services in our country.
6. List two main functions of warehousing.
7. Name the oldest mode of transportation.
SA (3/4 m)
1. Distinguish between goods and services.
2. Explain any two kinds of life insurance policies.
53 / 141
3. State any two benefits of transportation.
4. Explain any three types of warehouses.
LA (5/6m)
1. Explain the functions of commercial banks.
2. Distinguish between life insurance and fire insurance.
3. Explain the various functions of warehouses.
4. Explain the main modes of transport.
• HOTS (High Order Thinking Skill)

1. Name the type of banking under which ATM, Credit card and EFT facilities are available.
2. Mala obtained a life insurance policy of her husband. After 3 years, Mala divorced her
husband. After one year of divorce, her husband died in a car accident. Can Mala claim
the amount of policy from the insurance company?
3. Ships carrying oil are called _________.
4. Cellular companies offer satellite based media service. The service can be viewed on
________.
Auxiliaries to trade are also known as business services.

Service sector include commercial firms engaged in banking, communication,
transportation, insurance and warehousing.
Business can’t be even imagined in the absence of these services.
All the services collectively constitute the service sector.
54 / 141
4. BUSINESS SERVICES
1. Mr. Yogesh Mathur desires to have two benefits from his bank account first, to earn higher interest on
balance and second to face minimum risk of dishonoring a cheque. Which type of account should be
opened by him in Union Bank of India?
a) Savings account
b) Current account
c) Multiple options account
d) Fixed deposit account
2. From the following pictorial presentations, identify the categories of business services.
a) Insurance
b) Communications
c) Warehousing
d) Transportation
3. Sneha saves Rs.3,000 every month. Which type of Bank Account should she open with the bank?
a) Current Account
b) PPF Account
c) Recurring Deposit Account
d) Savings Account
4. The insured is expected to disclose all the important facts relating to the property insured. Which
principle is discussed here?
a) Mitigation
b) Insurable interest
c) Indemnity
d) Utmost Good Faith
5. Assertion (A): RTGS is suitable for high value transactions.
Reason(R): Minimum value of transactions in RTGS should be rupees 5lakhs.
a) Both Assertion and Reason are correct and the Reason is a correct explanation of the
Assertion.
b) Both Assertion and Reason are correct but Reason is not a correct explanation of the
Assertion.
c) Assertion is correct but Reason is incorrect.
6. In the new digital market place banks and financial institutions have started providing services over
the Internet. This type of service is provided by the banks on the Internet, lowers the transaction cost,
adds value to the banking relationship and empowers the customers. Name the service provided by
the banks.
a) Electronic fund transfer
b) Automatic teller machine
c) Credit card
d) All of these
7. Warehouses that are licensed by the government to keep imported goods prior to the payment of taxes
and custom duty are:
55 / 141
a) Government warehouses
b) Private warehouses
c) Bonded warehouses
d) Cooperative houses
8. Why is there a need for insurance:
a) Because everybody does it
b) Because it provides profits to the insurance industry
c) Because it minimizes the impact of any kind of uncertainties
d) None of these
9. Services are intangible means that:
a) Services have to be performed differently according to the demand of the customers
b) The production and consumption of services cannot be separated
c) Services cannot be stored for future use
d) Services cannot be touched or seen
10. Which is not characteristics of private courier service:
a) Fastest means of communication.
b) Transports gold from one place to another
c) They provide both National and International services
d) They take responsibility of transferring goods and services at the proper time.
11. Insurance removes the uncertainties which causes loss and the assured receives payment of loss,
which feature of insurance is this:
a) Protection
b) Risk sharing
c) Providing certainty
d) None of these
12. Wheat is harvested in the month of spring and is stored in the warehouses to be used for the whole
year, which function of warehouse apply here:
a) Consolidation
b) Price stabilization
c) Value added services
d) Stock pilling
13. From the following pictorial presentations, identify the categories of business services.
a) Communications
b) Warehousing
c) Banking
d) Insurance
14. The insurer must have some pecuniary interest in the subject matter of interest. It is the principle of:
a) Mitigation
b) Contribution
c) Utmost Good Faith
56 / 141
d) Insurable interest
15. In case of double insurance, the insurers are to share the losses in proportion to the amount assured
by each of them. Which principle of insurance is this?
a) Proximate Cause
b) Mitigation
c) Contribution
d) Subrogation
16. Assertion (A): The word Assurance is related with life insurance.
Reason(R): The word Insurance is related with general insurance.
a) Both Assertion and Reason are correct and the Reason is a correct explanation of the
Assertion.
b) Both Assertion and Reason are correct but Reason is not a correct explanation of the
Assertion.
c) Assertion is correct but Reason is incorrect.
17. A plant manager gets his stock of goods insured but he hides the fact that the electricity board has
issued him statutory warning letter to get his factory wiring changed. Later on, the factory catches fire
due to short circuit. Which principle is violated in the case?
a) Principle of Subrogation
b) Principle of Utmost Good Faith
c) Principle of Indemnity
d) Principle of Insurable Interest
18. A person took an insurance policy and did not disclose that he is a patient of cancer. Which value is
missing in this case?
19. A person gets his stock of goods insured, but he hides the fact that the electricity board has issued
him statutory warning letter to get his factory's wiring changed. Later on, the factory catches fire due
to short circuit. Can he claim compensation? Also identify the principle of insurance discussed in
above.
20. Mr. Jaiswal is running a textile shop. He insured the shop for ₹1,00,000 against natural calamities.
After this the shop was completely destroyed by fire due to electrics short circuit. He claimed for
compensation. But the insurance company refused to admit the claim on the ground that the shop
was insured against natural calamities.
i. Can you justify the decision of the insurance company.
ii. Which principle of insurance is applicable here.
21. What is recurring deposit scheme of Postal Department?
22. What is e-banking? What are the advantages of e-banking?
23. The postal department of India is one of the lifelines of Indian prosperity. Give reason.
24. Mrs. Sarika has a medical shop and it is insured with two insurers for ₹ 50,000 each against natural
calamities. During the rainy season, the subject matter was partially destroyed by flood. The total
amount of loss was estimated at? 30,000. She claimed compensation from both the insurance
companies for ₹30,000 each.
i. Can she get the claim from both the insurers?
ii. Justify your answer with regard to the relevant principle of insurance.
25. Define the terms ‘Double insurance’ and ‘Reinsurance’ as well as the differences between the two.]
26. Write a note on various telecom services available for enhancing business.
27. Banking is essential to any economy's survival. Mention banking's function or significance in the
economy.
28. Distinguish between the following: Current account & Recurring deposit account
29. Discuss the facilities that the post office offers for remitting money from one place to another.
30. Do a project on banking services. Approach a nearby bank and collect information about various
services offered by them and also collect leaflets about salient features of different schemes. Compile
and suggest what additional services you may like to propose.
57 / 141
ANSWER
1. C 7. C 13. C
2. B 8. C 14. D
3. C 9. D 15. C
4. D 10. D 16. B
5. C 11. C 17. B
6. D 12. D
18. Honesty is missing in this case and the principle of utmost good faith is violated and hence the
person's beneficiary cannot get the claim for his policy.
19. No, he cannot claim the compensation because the principle of utmost good faith is not followed.
According to this principle, it is the duty of the insurer and insured to voluntarily make full accurate
disclosure of all facts, material to the insurance contract.
20.
i. Yes.
ii. Causa Proxima. It states that the insurance company will admit the claim only if the
mishap has resulted directly by an event covered by under insurance.
21. A deposit scheme under which a person can open a recurring deposit account with the post office and
deposit a specific amount every month for five years is called the recurring deposit scheme.
22. Electronic banking often known as e-banking, is the use of an electronic medium to execute various
financial operations such as money transfers, account balance checks, applying for a check book,
and applying for loans. Banks provide these services to assist their consumers in accessing financial
services anywhere, anytime.
The following are some of the benefits of e-banking:
• It guarantees that most financial services are available 24 hours a day, seven days a week,
making life easier for consumers.
• Banking transactions may be completed at any time using a mobile device, PC, or laptop.
• It eases the burden on banks by allowing transactions to be completed online.
23.
i. Sending messages, documents both private and government, exchanging written information
and communication services, etc. has always been one of the top most priority of trade and
commerce. This task lies on the shoulder of postal department.
ii. The Indian postal department called the India Post has been providing information and
communication services for more than 150 years.
iii. Over and above postal services, our postal department provides a variety of – services like,
money order, accepting several government forms, postal life insurance, rural insurance
schemes, mutual funds, etc.
iv. The postal department has also got a license to work as a bank and hence it provides banking
facilities as well.
v. Today there are about 1,50,000 post offices in India out of which 90% are in rural areas.
Owing to the several services that the postal department provides daily to crores of Indians
since years has worked as the lifeline of Indian prosperity.
24.
i. No. She cannot get claim from both the insurance.
ii. According to the principle of contribution, the insured is eligible to receive a claim
only up to the amount of actual loss suffered by him.
25. Double Insurance: Anyone can purchase several insurance policies for the same property or items.
However, because an insurance policy is an indemnity contract, one can only collect the amount of
damage they sustained. Double insurance is when you insure the same risk with two or more
businesses. A claim can be submitted with any insurer, although it is limited to an actual loss in the
case of fire and marine coverage. Each insurer will contribute a proportion to the amount covered.
Reinsurance: When an insurer faces risks beyond his control, he may choose to have all or part of
his risk reinsured with other insurers. This De-risking is referred to as reinsurance. It's a sub-insurance
58 / 141
agreement between the insurer and the reinsurer. The insured will file a claim with the original insurer,
who will then file a claim with the reinsurers. Reinsurers are not compelled to contribute to losses in
any way.
26.
i. Cellular Mobile Services: These companies provide all types of telecom services like voice
and non-voice messages, data services, PCO connectivity etc.
ii. Radio Paging Services: It is one way information broadcasting solution and has spread its
reach to a large area. It includes services including tone only, numeric only and alpha/numeric
only.
iii. Fixed Line Services: These services utilize any type of network equipment connected through
fiber optic cable laid across the length and breadth of the country.
iv. Cable Services: These are linkages and switched services within a licensed area of operation
to operate media services.
v. VSAT Services: VSAT stands for Very Small Aperture Terminal. It is a satellite based
communication service which is highly flexible and reliable communication solution in urban
as well as rural areas. It is being used for tele-medicine, newspaper online, tele-education,
online trading, e-banking etc.
vi. DTH Services: DTH stands for Direct to Home. It is also a satellite based service provided by
cellular companies which allows one to receive media services through a satellite with the
help of a small dish antenna and a set up box.
27. Banking is the economy's backbone, just as capital is the pillar of trade, commerce, and industry.
Banking's significance can be defended on the following grounds:
Without financial services, the modern economy is powerless. Banking has taken on the following
signs as the economy's lifeblood:
i. Credit creation: Banks collect deposits, keep a little portion of the money as a cash reserve,
and lend the remainder to trade, industry, and commerce at a higher interest rate. Credit
creation is the term for it.
ii. Safe custody of possessions: Banks provide locker services and store our valuables such as
jewellery, notes, and papers, which we may access anytime we need them.
iii. Savings mobilization: Banking accepts excess savings and returns them with interest when
needed. It instills in people the habit of saving. It's in charge of capital formation.
iv. Foreign trade promotion: Finance is the lifeblood of all business activity, including
international commerce. Banks serve as a source of finance, assisting with payments and
money transfers, providing foreign exchange, issuing letters of credit, and assisting with
international trade in various ways.
v. Social and National welfare: People's surplus money is taken as deposits by banks and used
as loan for trading, commerce, and industry for constructive uses, resulting in social and
national welfare. It works to improve people's lives.
28.
BASIS OF DIFFERENCES CURRENT ACCOUNT RECURRING ACCOUNT
MEANING It is opened by business In this type of account, people
persons and others who do save a fixed amount regularly
regular banking transactions. for a specific period.
Mode of withdrawing money Withdrawal is made through The customer cannot withdraw
cheques. the money before the expiry of
the fixed period.
Restriction on number of There are no restrictions on the The customer can receive the
withdrawals number of withdrawals till the amount only after the expiry of
balance in the customer's the specified period.
account is more than that
required.
59 / 141
Interest rate No interest is given. Interest rate is comparatively
higher than that given in the
savings account but less than
that given in the fixed deposit
account.
Overdraft facility Overdraft facility is given Overdraft facility is not given
29. The post offices offer different methods for remitting money from one place to another. The following
are the different methods of remitting money from one place to another.
i. Money Order: The post offices provide facilities to the society in general to transmit money
from one place to another safely. A form is available with the post offices on payment of a
small amount. The printed form contains the different columns for the addressee, sender and
payee. The form duly filled in with the amount in words as well as in figures is submitted at
the post office by the sender. The amount to be remitted and commission charges of the post
office are deposited along with the form. A receipt is issued to the sender mentioning the
amount deposited and postal charges. The money order form is sent to the nearest post office
of the payee. The amount is handed over to the payee and his signature is obtained as
evidence of getting money at the specified place of the money order form. The
acknowledgment receipt signed by the payee is sent back to the sender. This method of
remitting money is useful for small amounts only because the commission charged by the
post office is very high in comparison to some other methods of remitting money through
bank etc. The post offices also provide facilities for remitting money very quickly through
telegraphic money order. The method is very useful when money is to be remitted within a
short time and quickly. The post offices also provide facilities for remitting money through ai
mail money orders. This method of sending money is quick as compared to ordinary money
order but this service is available only in India.
ii. Postal Order: This is another method of sending money which is commonly used. This
method is generally used in sending application to the government when some fees are to be
paid as application fee. In this method the sender gets the postal order from the post office
after depositing money in the post office. Then necessary particulars are to be filled in and
send it to the payee. The postal order may also be crossed.
iii. Postal Stamps: The small amount money can be remitted through postal stamps. The postal
stamps may be sent in envelop. The addressee can use these stamps for using postal
services. The addressee cannot get cash against these stamps. This method is used in getting
the postal services by the Govt. offices.
iv. By Insurance: Another facility provided by the post office in remitting money from one place
to another is through insured registered post. The amount can be put in a cloth lined envelope
available in the post office. The envelops will have to be sealed with wax on various sides so
that nothing should come out without breaking the seal. The postal authority do not verify the
contents inside the envelopes. A charge is made for registration plus insurance fees on the
basis of declared value of the envelope. The postal authority ensures safe delivery of the
insured post. In case the envelope is lost on the envelope of the concerned party. This method
of transmitting money is most transit the postal authority pays the amount mentioned in the
appropriate when large sums of money are to be remitted.
30. A bank is a money-handling financial entity. The Indian Banking Regulation Act of 1945 governs it. A
commercial bank institution is defined as one that accepts money from the public for the purpose of
lending or investing. Commercial banks are divided into two categories. Banks in both the public and
private sectors.
I had approached a government-owned bank. A public bank is one in which the government owns a
significant part and which operates on the premise of public good rather than profit.
The following are the services provided by the bank:
60 / 141
• Deposits: A bank's primary function is to accept public deposits. There are three different
types of deposits:
▪ Current Account Deposit: These are deposits that can be withdrawn at any moment
up to the amount of the balance.
▪ Savings Account: The main goal of this type of account is to encourage people to
save more. On deposits held in these banks, the bank pays a rate of interest. The
country's central bank determines this rate of interest. There are limits on the number
of withdrawals and the amount of withdrawals that can be made in a given time
period.
▪ Fixed Account Deposit: Because they are for a specific length of time, these deposits
are also known as time deposits. The bank pays a larger rate of interest on this type
of deposit account than on a savings account.
• Lending Fund: The central bank uses the deposits it has gathered to make loans and
advances. Overdrafts, cash credits, discounting trade bills, term loans, consumer credits, and
other miscellaneous advances are all examples of this.
• Check Facility: The check is the most developed tool for withdrawing deposits and is a unique
characteristic of banks. It is a very practical and cost-effective form of exchange. There are
two types of cheques: paper checks and electronic cheques.
▪ Bearer Cheques: These checks can be cashed right away at a bank.
▪ Crossed Cheques: These checks must be deposited solely in the account of the
payee.
• Funds Remittance: Due to the interconnectedness of branches, banks offer the ability to move
funds from one location to another. On a commission basis, this is done by bank drafts, pay
orders, and mail transfers.
• Ancillary: Bill payment, locker facility, underwriting service, buying and selling of shares and
debentures, dividend collecting, and insurance premium payment are examples of linked
services. There are no other services that I want to propose which the bank should provide.
61 / 141
CHAPTER - 5
EMERGING MODES OF BUSINESS
• Introduction
Few decades back one can’t think of sitting in one’s own drawing room and getting railway
ticket/ Air Ticket booked but now it is very common:-
- Yes, You need not travel from your residence to railway station - Yes, You
need not bother about traffic, signals etc. on your
way to railway station
- You need not wait for a long time in the long queue
- Above all, You need not waste your most precious
time
Yes we are discussing about online booking. ….

Now let us think of…..how it will be…..if we are able to get our needs delivered at our doorstep.
• Concept Mapping
- e – Business
- e – Business vs. e – Commerce
- Scope of e – Business
- Online Transactions
- e – Business Risks
- Resources required for successful e – Business implementation
- Outsourcing – Meaning
- Features of Outsourcing
- Scope of Outsourcing
- Need for Outsourcing
- Concerns over Outsourcing
• Basic & Key Concepts Explanation Key Terms e – Business e – Business refers to the process
of performing Business activities electronically through the means of internet.
Virus
Virus stands for Vital Information & Resources Under Siege e – Trading e – Trading involves
securities trading, i.e. online buying & selling of shares and other financial instruments.
62 / 141
Digital Cash
Digital Cash refers to electronic cash instead of actual money which exists only in cyberspace
(also known as cyber currency) Sweat Shopping
Firms that outsource seek to reduce their costs and get maximum benefit from the low –cost
manpower. This is known as “Sweat Shopping”.
e – Commerce e – Commerce refers to a firm’s interactions with its customers and suppliers
over internet.
Secure Sockets Layer (SSL)
It is the technology used in encrypting and securing vital user information such as Credit/Debit
card details etc. which are used in online transactions.
e – Procurement
It involves internet based – sales between business firms forming digital marketplaces
facilitating online trading between multiple buyers and sellers. Business Process Outsourcing
(BPO)
The process of contracting out non-core business activities to 3rd parties in order to reduce
costs and time involved.
Online Trading
The act of selling and buying anything online.
e – Bidding
Most shopping sites have “Quote your price” option whereby you can bid for goods and
services. This refers to process of conducting auctions online.
Call Centres
Firms generally outsource their customer support to 3rd parties, which
provide 24x7 Customer Support by the means of tele calling. The 3rd
parties to whom this process is outsourced are called “Call
Centres”.
Captive BPO units

The outsourced - units over which the outsourcing firm has control.
Horizontals
The 3rd parties which undertake outsourcing contracts from many firms and doing a wide
variety of jobs and processes are known as “Horizontals”. Verticals
The 3rd parties which undertake outsourcing contracts from other firms but are specialized to
do only certain specific non-core to core activities.
B2B Commerce
Refers to electronically conducted business transactions between business to business.
B2C Commerce
63 / 141
Refers to electronically conducted Business transactions to Customers.
Intra-B Commerce
Refers to electronically conducted business transactions within a given business firm.
C2C Commerce
Refers to electronically conducted Business transactions between Consumer to
Consumer.
• e – Business vs. Traditional Business
Basis of distinction Traditional Business e - Business
Ease of formation Difficult Simple
Physical Presence Required Not Required
Location Requirements Need to be near market None

or Raw Materials
Cost of Setting Up High Low
Operation Cost High Low
Nature of Contact with Indirect – Through Direct

suppliers & Customers Intermediaries
Nature of Internal Hierarchical -From top Direct to all levels

Communication level management
Response time for Long Instant

meeting requirements
Shape of Organizational Vertical Horizontal

Structure
Business Processes & Sequential Simultaneous

Length of Cycle
Opportunity for Inter- Much More Less

Personal Touch
Opportunity for Pre- Much More Less

Sampling of Products
64 / 141
Ease of Going Global Less Much
Government Support Reducing Much & Increasing
Nature of Human Capital Semi Skilled or Unskilled Technically highly

Manpower needed qualified professionals
needed
Transaction Risk Low High
• e – Business e – Business refers to all business transactions and functions conducted

electronically.
• e – Business vs. e – Commerce e – Business is more inclusive term than e –

Commerce while e – Commerce refers to a firm’s interactions with its customers and its
supplier over the internet. e – Business, apart from e – Commerce includes all other
electronically conducted business activities such as inventory management, production,
product development, accounting, finance, etc.,
• Scope of e – Business
The scope of e – Business is quite vast, it includes the following :-
1. B2B Commerce :- Refers to electronically conducted business transactions
between business to business.
2. B2C Commerce :- Refers to electronically conducted Business transactions to
Customers.
3. Intra-B Commerce:- Refers to electronically conducted business transactions
within a given business firm.
4. C2C Commerce :- Refers to electronically conducted Business transactions
between Consumer to Consumer.
• Benefits of e – Business
65 / 141
Easy to Form
Benefits of
e –Business Require Less Investment
1. Easy to form
Convenience
Speed
Global Reach/ Access
Movement towards
paperless society
1. Easy to form
Very easy to start e – business because host of procedures required for
traditional business are not required for e – Business
2. Requires Less Investment

Both big and small business gets the benefits of internet equally. Thus even one
start of small business with less investment can derive the benefit of e –
Business.
3. Convenience
Internet offers the convenience of 24 hours X 7 days a week with a less
investment – i.e. one can access anything, anywhere, any time.
4. Speed
Any business transaction can be made simply at the click of the mouse button,
for e.g. Electronic Funds Transfer takes place at the speed of light
5. Global reach/access
In e – Business both businessmen and consumers have no national boundaries because
internet is without such boundaries. In absence of such internet, globalization may be
restricted in scope and speed.
6. Movement towards paperless society

Cutting thousands and thousands of trees to make paper adversely affects the
environment but internet has considerably reduced the dependence on paper.
66 / 141
• Limitations of e – Business
Low Personal Touch
Delayed Delivery
Limitations
of Need for Technological
e –Business
Capabilities
Risk of non – traceability of

parties
People’s Resistance
Ethical Fallouts
1. Low Personal Touch

Interpersonal touch between businessmen and the consumer is very important. e –
Business may be high tech but the lacking interpersonal interaction is truly one of
its shortcomings.
2. Delayed Delivery
Sometimes order may be placed at once through internet but delivery may be
delayed, which may disturb the customers.
3. Need for technological capability and competence of parties
If any one party – either buyer or seller is not familiar with digital technology, e –
Business becomes difficult.
4. Risk of Non-Traceability of parties
Cyber personalities participate in e – Business, when any one is in remote area –
Traceability may be one the biggest problem.
5. People’s Resistance
In general, people resist changes and halt will be more if any organization prefers to
go fully online.
6. Ethical Fallout
In e – Business, unless until you have high degree of protection, any one can keep
an electronic eye on your transaction, even intrude into your privacy – which is
ethically incorrect.
67 / 141
• Despite limitations, e – Commerce is the way
Yes, it is absolutely true, because when you wish to buy something especially from other
countries or from distant seller, problems faced by you in traditional business is more than e –
Commerce – thinking in terms of travelling – carrying money – time required – speed involved
– mode of payment etc.
Therefore, despite limitations e – Commerce is the way.
• Online Transactions
Involves three stages:-
1. Pre-Purchase/ Sale Stage – Including advertising and information seeking.
2. Purchase / Sale Stage – Comprising of price negotiation, closing deal & payment.
3. Delivery Stage – Involves physical delivery of goods.
The first two steps – involves only interaction and thus can be effectively done online.
• Steps involved in online purchase 1. Registration

Register yourself with online vendor by filling up registration form – i.e. now you
have an account with the online vendor and you receive your account’s
password and an online shopping cart.
2. Placing an Order
You can pick and drop the items of your choice in the online ‘shopping cart’ (Just an
online record) – choose check out and payment option.
3. Payment Options
a. Cash on Delivery(COD)
Pay cash at the time of physical delivery of goods
b. Cheque
Vendor arranges the pick up of the buyer’s cheque(s) – Upon realization
the delivery is made
c. Net-Banking Transfer
Electronic transfer of funds from the buyer to the seller, after which the
seller makes the delivery
d. Credit/Debit Cards
These are also called ‘Plastic Money’, the buyer enters the respective
card’s details and the transaction is made. Credit cards allow the buyer
to make purchases on credit, whereas Debit cards make use of the
buyer’s existing money.
e. Digital Cash
68 / 141
This form of currency exists only in cyberspace. The buyer deposits
money into the Digital Cash account and this money are utilized for
making purchases online.
• e – Business Risks
There are three types of possible risks as listed below:
1. Transactions Risks
• Seller may deny that customer ever placed the order or the customer may deny
that he ever placed the order. It is called “Default on Order taking/ Giving”.
• Goods may be delivered at wrong address or wrong goods may be delivered
which is referred as “Default on Delivery”.
• Seller may claim/complain that he didn’t receive payment while customer may
claim that payment was over. This is referred as “Default on Payment”.
2. Data Storage and Transmission Risk
• VIRUS – Virus can create annoyance, disrupt functioning, damage target data
even may cause complete destruction of the system.
• Interception – Data maybe intercepted in the course of transmission by others.
If it goes in the wrong hands it may be detrimental to the business.
3. Threat to intellectual property & Privacy
• Once the information is made available over the internet, it moves out of the
private domain. So any secret formulae or research findings, improved/ new
method of production and other such intellectual properties may be stolen by
others.
• When data furnished goes in the hands of others they may start dumping with
lot of advertising & promotional literature into our e-mail box.
• Outsourcing
Features of Outsourcing
1. Outsourcing involves contracting out
Non – Core activities such as maintaining cleanliness, gardening, housekeeping
etc. maybe contracted out to the outside agencies so that the business can
concentrate on core activities.
2. Generally non-core business activities are outsourced
For some organizations, non-core activities may be their core activities e.g.
House Keeping for hotel business, so every organization used to identify its own
non – core activities and outsource them.
3. Processes may be outsourced to a captive unit or 3rd Party
69 / 141
Multinational Companies (MNCs) normally outsource different processes such
as recruitment, selection, training, pay roll, customer support etc. to business
units created especially for this purpose and ensure efficiency.
• Scope of Outsourcing
Outsourcing comprises four key segments:
• Contract Manufacturing
• Contract Sales
• Contract Research
• Informatics
The following diagram shows the scope of outsourcing in each segment
• Need for Outsourcing

Outsourcing is being resorted to not out of compulsion but also out of choice. The major
reasons of outsourcing are as follows:
1. Focusing of attention
By contracting out some of the non – core activities, the business may have
sufficient time to focus its attention on core-activities.
2. Quest for excellence
70 / 141
Outsourcing does not mean contracting out some of our work to any outsider
but it means contracting out to a specialist who can perform the contracted work
in an excellent way.
3. Cost Reduction
Due to global competition, not only a firm needs to ensure global quality but also
global competitive pricing. For this the company needs to reduce its cost of
operation by contracting out the work to specialists who are cost-efficient.
4. Growth through alliance
A business may have a ownership stake in the other business to whom it is
interested to contract out its own work. By doing so not only the profit of the
outsourcing business goes up but it can have a share in the profit of the
contracted business, as it is a stakeholder in that.
5. Fillip to economic development
Outsourcing stimulates entrepreneurship, employment & exports thus it helps
the economy to develop. For example, as far as global outsourcing in software
development and IT enabled services are concerned, India has 60% of the global
outsourcing share.
• Concerns over Outsourcing

Outsourcing has its own benefits and has to stay globally but it has its own limitations as
discussed below:
1. Confidentiality
Outsourcing depends on sharing a lot of vital information and knowledge. If the
outsourcing partner passes it on to competitors it can harm the business to a
greater extent. Not only that even the outsourcing partner may start a
competent business.
2. Sweat Shopping
As the firms that outsource seek to lower their costs, they try to get the
maximum from the low-cost manpower of the host countries, this may result in
sweat shopping and the firm that goes in for outsourcing may look for ‘doing’
skill rather than development of ‘thinking’ skill.
3. Ethical Concerns
In the name of cost cutting, unlawful activities such as child labour, wage
discrimination maybe encouraged in other countries.
4. Resistance in home countries
71 / 141
Contracting out ultimately result in contracting out of employments; this may
create resistance in the home countries. Particularly if the home country is
suffering from problem of unemployment.
Short Answer type Questions For
answers, refer “Key Terms”
1. What is e – Business?
2. What does VIRUS stands for?
3. What is meant by e – Trading?
4. What is called Digital Cash?
5. What do you mean by Sweat Shopping?
6. What is e – Commerce?
7. What is SSL or Secure Sockets Layer?
8. What is meant by e – Procurement?
9. What is meant by the term “BPO”?
10. What is Online Trading?
11. What is meant by e – Bidding?
12. What are called Call Centres?
13. What are called Captive BPO units?
14. What are called ‘Horizontals’?
15. What are called ‘Verticals’?
16. What does B2B - Commerce stands for?
17. What does B2C – Commerce stands for?
18. What does Intra-B Commerce mean?
19. What does C2C stands for?
Long Answer type Questions

1. Briefly explain benefits of e – Business.
2. Briefly explain any 5 limitations of e – Business.
3. Briefly explain different payment mechanisms available for online shopping.
4. Briefly explain the “Need for Outsourcing”.
5. Briefly explain the “Concerns of Outsourcing”.
6. State any five differences between Traditional Business & e – Business
7. Differentiate between Traditional Business & e – Business on the basis of:
a. Ease of Formation
b. Physical Presence
c. Opportunity for Interpersonal touch
d. Opportunity for Pre-Sampling of Products
72 / 141
e. Ease of going Global
Possible 6Mark Questions

1. Explain the need for Outsourcing
Ans. Refer to Concepts Explanation – Need for Outsourcing
2. State the Concerns over Outsourcing
Ans. Refer to Concepts Explanation – Concerns over Outsourcing
• Question of Higher Order Thinking Skills (HOTS)

1. ‘Outsourcing results in cost reduction’. How? Explain with an example.
Ans. Refer to Concepts Explanation –> Need For Outsourcing – Cost Reduction
2. Mr. X placed an online order with Mr. Y, vendor of vacuum cleaner but even after ten
days the product was not delivered. On enquiry he comes to know that it was delivered
at a wrong address. Identify the risk involved in it and briefly explain other such possible
risks.
Ans. Refer to Concepts Explanation – Transaction Risks
3. Your friend is of that opinion that ‘Traditional business involves handling and carrying
more cash by both buyers and sellers which was highly risky but online payment
mechanism is safer’. Is he correct? Explain any four such online payment mechanisms.
Ans. Refer to Concept Explanation – Steps involved in Online Purchase – Payment
Options/Mechanisms
Traditional way of conducting business activities is very slow, unsafe and costly,
require more investment, require physical presence of parties involved and going
global is tough.
Emerging modes of business, e – Business is faster, safer and economical, requires
lesser investment & doesn’t require physical presence of parties involved and
facilitates going global.
Thus every business is switching over to electronic mode.
e – Business has its own risks too like transaction risks (delivery to wrong address,
place), data storage and transmission risk and threat to intellectual property and
privacy.
In spite of various risks e- commerce is the way because going global is a must for
survival and only e – business can help us to do so.
73 / 141
Outsourcing refers to contracting out non-core activities, it helps the firm to
focus its attention onto core activities, cost reduction & fulfill their quest for
excellence.
Outsourcing has its limitations too such as lack of confidentiality, sweat shopping,
ethical concerns, resistance from home countries because it may aggravate
unemployment.
74 / 141
5. EMERGING MODES OF BUSINESS
1. When a customer claims that he has made payment but the seller does not receive it, it is called:
a) Default on Delivery
b) Default on Order Taking
c) Bed Debts
d) Default on Payment
2. Assertion: The length of business cycle is longer in case of e-business.
Reason: Various processes rub simultaneously.
a) Assertion is correct, reason is not
b) Assertion is incorrect, reason is correct.
c) Assertion and reason both are correct.
d) Assertion and reason both are incorrect.
3. From the following pictorial presentations, identify the scope of business.
a) B2B
b) C2C
c) C2B
d) B2C
4. Outsourcing
a) Restricts only to the contracting out of Information Technology Enabled Services (ITES)
b) Restricts only to the contracting out of non-core business processes
c) Includes contracting out of manufacturing and R&D as well as service processes – both core
and non-core – but restricts only to domestic territory
d) Includes off-shoring
5. ——– is the largest captive BPO unit in India for providing certain kinds of services to the parent
company in the United States as well as to its subsidiaries in other countries.
a) Infosys
b) General Electric (GE)
c) Accenture
d) None of these
6. When parties involved in the electronic transactions are from within a given business firm, it is called:
a) B2B Commerce
b) Intra B Commerce
c) C2C Commerce
d) B2C Commerce
7. In India————-and ——–are referred to as emerging modes of business.
a) E-Business and E-Commerce
b) Outsourcing and E-business
c) Outsourcing and E-Commerce
d) Online Trading and Networking.
8. Match the following:
COLUMN-I COLUMN-II
1. C2C a. After-sale service
2. B2C b. Collaborations
3. B2B c. Selling antique items
75 / 141
a) 1-c, 2-a, 3-b
b) 1-a, 2-b, 3-c
c) 1-b, 2-c, 3-a
d) 1-c, 2-b, 3-a
9. Assertion: There is more risk in the traditional business.
Reason: Parties have no personal interaction while buying and selling.
a) Assertion is correct, Reason is not
b) Assertion is incorrect, Reason is correct.
c) Assertion and Reason both are correct.
d) Assertion and Reason both are incorrect.
10. Traditional form of business can take us towards a paperless society. The above statement is:
a) Partly true
b) Completely true
c) False
d) Can't say
11. Work from home using internet is covered under:
a) Online Networking
b) Virtual Private Network
c) Electronic Data Exchange
d) PayPal
12. IRCTC's portal for ticket booking is an example of which of the following categories of business?
a) B2B
b) B2C
c) C2C
d) Intra B
13. From the following pictorial presentations, identify the scope of business.
1,200 × 675
a) B2A
b) B2C
c) B2B
d) C2C
14. Mail sent by the Marketing department to the Purchase department is an example of:
a) B2B
b) B2C
c) C2C
d) Intra B
15. ____________ refers to contracting out some of its activities to a third party which was earlier
performed by the organisation.
a) BPO
b) E-commerce
c) Outsourcing
d) E-Banking
16. E-Commerce does not include:
a) A business's interactions with its suppliers
76 / 141
b) A business's interactions with its customers
c) Interactions among the various departments within the business
d) Interactions among the geographically dispersed units of the business.
17. Statement I: E-business is broader in scope than e-commerce.
Statement II: E-commerce is a part of e-business.
a) Both the statements are correct
b) Both the statements are incorrect
c) I statement is true, II statement is false
d) I statement is false, II statement is true
18. Which values are of utmost importance while we get involved in e-business?
19. State any two directions in which firm electronic transactions are extended.
20. What are the ethical concerns involved in outsourcing?
21. Pratik, an NRI businessman, sends money to his wife, Pratiksha. She in turn deposits all this money
in her bank account. She is very thankful for technology and can withdraw money whenever she is in
need of money even after banking hours. What type of technology she might be using? Explain.
22. Majority of people in India, even internet users, hesitate shopping through internet. Can you cite a few
reasons for their hesitation to buy online?
23. How does outsourcing represent a new model of business?
24. Why are e-business and outsourcing referred to as the emerging modes of business? Discuss the
factors responsible for the growing importance of these trends.
25. Discuss the limitations of electronic mode of doing business. Are these limitations severe enough to
restrict its scope? Give reasons for your answer.
26. What is digital divide? How is it relevant in context of e-business?
27. Yogita Ltd. is specialized in consultancy service. The company make software for a reputed bank of
USA. It is also specialized in making accounts of that bank. To carry on this work, Yogita Ltd., hired
professionals like engineers, CA, etc., who are very competent in providing such services.
i. Name the kind of business carried on by Yogita Ltd.
ii. Explain the features of business mentioned above.
ANSWER
1. D
2. B
3. D
4. B
5. B
6. B
7. C
8. D
9. D
10. C
11. B
12. B
13. D
14. D
15. C
16. D
17. B
18. Following values are of utmost importance when we get involved in e-business:
• Confidentiality: We must keep information of our clients confidential.
• Business ethics: Electronic eye should not be kept for personal use. Its use must be
minimized only for critical situations and in critical areas.
77 / 141
• No Undesirable Information: Our website must not advertise or promote any such thing which
is not desirable from society point of view.
• Take all safety precautions: We must take safety precautions to ensure safety of data and to
protect against risks of data storage.
19.
i. B2B is a firm's interactions with other businesses.
ii. B2C is a firm's interactions with its customers.
20. Outsourcing has raised certain ethical concerns which need to be considered. In search of cheap
labour, manufacturing processes are being outsourced to developing countries where they use child
labour/women in the factories and working conditions are unhygienic and even unsafe. The
companies cannot do so in their developed home countries due to stringent laws forbidding use of
child labour.
21. This raises the ethical concern whether this sort of cost cutting by using child labor is justified.
Similarly, there is a concern over the ethical aspect'of outsourcing the work to countries where gender
based wage discrimination is done and hence women are paid lower wages.
22. ATM. From the ATM, customers can withdraw cash from the account by using ATM card. ATM card is
a plastic card bearing a number for each customer. The card is to be entered into the machine and
enter the PIN. This opens the account and we can deposit cash into it or withdraw from it at any time.
23. The important reasons for the hesitation of shopping through internet are:
i. Time to deliver goods is too long.
ii. Disclosure of credit card details is not safe.
iii. Choices are not very interesting.
24. It refers to a long-term contracting out of business activities to captive or third-party specialists with
a view to benefiting from their experience, expertise, efficiency, and even investment. Generally, non-
core business activities are outsourced. Global competitive pressures for higher quality products at
lower costs, demanding customers and emerging technologies have induced a re-look at business
processes and hence resulted in outsourcing as a new model of business which is now being reported
to not out of compulsion but out of choice.
E-business and outsourcing are referred to as 'emerging modes of business' as these have brought –
about new changes in the way or manner in which business is conducted and it is believed that these
trends are likely to continue.
E-business may be defined as the conduct of industry, trade, and commerce using the computer
networks, e-business covers a firm's interactions with its customers and suppliers over the internet
and also other electronically conducted business functions such as production, inventory
management, product development, accounting and finance, and human resource management.
Outsourcing represents a new model of business as it is a departure from the traditional thinking of
self-sufficiency in business. It refers to a long-term contracting out of business activities to captive or
third-party specialists with a view to benefiting from their experience, expertise, efficiency, even
investment. Generally, the non-core business activities are outsourced but of late even some of the
core activities have started being outsourced.
25. The limitations of electronic mode of doing business are given below:
i. Low personal touch: Sometimes a customer prefers human interaction and warmth to better
understand the product for example, products which need personal touch like beauty
products, garments, fashion accessories etc. can be difficult to trade through e-business.
ii. Product Mismatch and delay: There might be a situation where the product ordered and the
product delivered may have a mismatch or the delivery of the product gets delayed.
Sometimes even websites take a long time to open which may frustrate the user
iii. Need for technology: For e-commerce both the parties need to be well versed with the use of
applications and payment gateways. Those who are not familiar with digital technology find
it difficult to place online orders and restrict e-business growth.
iv. Increased risk: Risk arises due to parties being unknown to each other and situation arises
where the buyer may provide false information and may not make the payment promised. It
78 / 141
makes e-business risky. There may also be problems of virus and hacking. The risk of
customer's information being leaked is also a problem.
v. People Resistance: Some businesses have a set customer base and people are resistant to
change their ways and adopt new technology which may impact the organization's plan to
enter into e-business. Change is perceived as a source of stress and insecurity by many.
vi. Ethical Concerns: Data theft or breach can be destructive for a company if it reaches the
wrong person. There is a risk that the data might be manipulated or exposed to the risk of
Virus and hacking. Another risk involved is interception of data in the course of transmission.
To protect data against this, cryptography is used.
26. It is division of society on the basis of familiarity with digital technology and non-familiarity with digital
technology. The digital divide causes a significant problem in many struggling parts of the world. “As
of 2003, only seven percent of the world's 6.4 billion people have had access to the World Wide Web”
[Ryder M, 2005]. The parts of the world that have a predominant amount of internet access are the
Western World, the United States, Europe and Northern Asia, whereas access is more restricted in the
poorer less developed parts of the world such as Africa, India and southern parts of the world. Asia.
These poorer nations are unable to afford the initial start-up cost to be able to invest in technology to
allow their nation to be able to have and maintain internet access. This puts these countries at a
competitive and economic disadvantage. This is due to the fact that it impacts on society at many
levels. By a country not having internet access, it means that schools are unable to teach IT skills and
take advantage of the vast amount of information available on the web. With the lack of IT skills people
from these countries are unable to compete at an international level.
27.
i. Knowledge process outsourcing (KPO), 9
ii. It is the upward shift of BPO
• It focuses on knowledge expertise instead of process expertise.
• It provides all non-case activities
• It has no pre-determined process to reach a conclusion.
79 / 141
CHAPTER - 6
SOCIAL RESPONSIBILITIES OF BUSINESS & BUSINESS ETHICS
• Introduction
A business enterprise should always do business keeping the people in mind, business is a part
& parcel of the society and it draws all the necessary resources from the society only so it should
have some social responsibilities. It should not do anything which is harmful to interest of the
society. It must not resort unethical means to increase profits. Here we shall see a few ethics to
be followed by businesses.
• Concept Mapping
- Concept of social responsibility
- Need for social responsibility
- Arguments for social responsibility
- Arguments against social responsibility
- Reality of Social responsibility
- Kinds of Social Responsibility
- Social Responsibility towards different interest groups
- Business and Environmental Protection
- Types of Pollution
- Causes of Protection
- Need for Pollution Control
- Role of Business in Environmental Protection
- Business Ethics
- Concepts of Business Ethics
- Elements of Business Ethics
• Key Terms
Social Responsibility
Social Responsibility of business refers to its obligation to take those decisions and perform
those actions which are desirable in terms of objectives and values of our society.
Environment
80 / 141
The environment is defined as a totality of natural & man-made things existing around us. It is
from the environment that the business draws its resources.
Business Environment
It is a totality of all external forces with which the business interacts constantly but over which
it does not have any control. The environment influences the business directly to a great extent.
Environmental Protection
It is the deliberate process of protecting the environment from existing or potential threats of
any nature.
Pollution
It is the process of emission or release of harmful substances into the environment which harms
human life, the life of other species and wasting or depleting scarce sources.
Ethics
Ethics is concerned with what is wrong & what is right in a society based on its moral values &
beliefs.
Business Ethics
It refers to the socially determined moral principles which should govern the business activities.
Legal Responsibility
It is the obligation of the business to abide by the laws governing the place at which it exists.
Code of Ethics
Enterprises with effective ethics programs do define their principles of conduct for the whole
organization which is called the ‘Code of Ethics’.
• Concepts Explanation
Concept of Social Responsibility

Social Responsibility of business refers to its obligation to take those decisions and perform
those actions which are desirable in terms of objectives and values of our society.
Need for Social Responsibility

Opinions are divided over this issue, for some - Business is responsible only to its owners & for
others - It needs to be responsible for social welfare also. Anyhow a better business can survive
& grow only in a better society because it takes all resources from the society and serve to the
81 / 141
society. So businesses become integral part of the society, therefore they should assume social
responsibility.
• Arguments for social responsibility
Justification for existence and growth

The ultimate motive of business is profit, as only profit can help the business grow and expand.
Profit should be made as an outcome of service to the society by means of producing goods
and services to satisfy human needs.
Long term interest of the firm

A firm and its image stand to gain maximum profits in the long run when it has its highest goal
as ‘service to society’. When increasing number of members of society feel that business
enterprise is not serving its best interest, they will tend to withdraw their cooperation to the
enterprise concerned. Therefore, it is in its own interest if a firm fulfills its social responsibility.
Avoidance of government regulations

When a particular business is not socially responsible, government regulations tend to limit its
freedom. Therefore, it is believed that if businessmen are socially responsible, they can avoid
government regulations.
Maintenance of Society
Law alone can’t help out people with all the difficulties they face. When businesses turn socially
responsible they take care of the society’s need, the society is at peace. That means business
houses also have some responsibility to contribute something for social peace & harmony.
Availability of Resources with Business

The business enterprises have huge financial resources, very efficient managers & contacts and
thereby they can ensure that a social problem can be solved easily, in the best way possible.
Converting problems with opportunities

Business with its glorious history of making risky situations into profitable deals can not only
solve social problems but also make them effectively useful.
Better environment for doing business

If the business is to run in a society with diverse problems, the success of the business is limited.
Therefore, if the business takes measures to resolve the social problems, the business can
create a better environment for its functioning and thereby earn more profits.
82 / 141
Holding business responsible for social problems
It is argued that many problems are created by the existence of business enterprise themselves
– like environmental pollution, discriminated employment, corruption etc. Therefore it is the
duty of business to set right the problems caused by them.
• Arguments against social responsibility
Violation of maximization of profit motive

This statement argues that business exist only for maximizing profits and businesses fulfill their
social responsibility best by maximizing profits by increasing efficiency and reducing costs. They
need not take up any additional obligations.
Burden on Consumers
Taking social care and tackling social problems require huge financial investments and
businesses tend to increase their cost and put the burden on the consumer for their charitable
expenses.
Lack of social skills

Businessmen lack understanding of social problems and can’t solve them efficiently.
People’s resistance
People tend to dislike interference from businesses in their problems.
Reality of Social Responsibility

Whatever maybe the argument, either in favour of or against social responsibility, the reality is
in favour of social responsibility. Let us discuss some of them below.
Threat of Public Regulations

Democratically elected governments, through their law enforcing agencies continuously trying
to ensure the welfare of the society and thus they have a watchful eye over all business
operations. So to avoid government action business organizations should behave in a socially
responsible manner.
Pressure of labour movement

Labour, is not only the active factor but also activates other factors of production. Nowadays,
they are more educated and their movement becomes more powerful in the world. No more
‘hire and fire’ policy will work; this made the businessmen to take up social responsibility
towards their employees.
Impact of Consumer Consciousness
83 / 141
Consumers are more conscious about quality, price etc. of the product and services. Even for
small discrepancies, nowadays they prefer to file a suit in the consumer court.
Development of Social Standard for business

New social standards consider business enterprises as legitimate but with a condition they must
also serve social needs.
Development of Business Education

Business education created much awareness about the social responsibility in the minds of
investors, consumers, employees etc. and they became more sensitive towards social issues.
Relationship between social interest and business interest

Now people come to realize that social interest and business interest are complementary. This
ensures long term benefit of the business.
Development of professional, managerial class

Earlier managers of business houses aimed at only profit maximization but professional
management educational institutions created a new class of managers who gives equal
importance to social responsibility too.
Conclusion
From the above seen ‘Realities of Social Responsibility’ it is clear that business houses must
assume social responsibility for their survival and growth.
• Kinds of Social Responsibility
Economic Responsibility
Maximizing profit by producing and selling goods and services required for the society.
Legal Responsibility
Every business needs to operate within the laws of the land. A law abiding enterprise is a socially
responsible enterprise as well.
Ethical Responsibility
This includes the behavior of the firm that is expected by the society but not included in law.
Eg. Should respect religious sentiment and dignity of people while advertizing
Discretionary Responsibility
This refers to the voluntary obligations that an enterprise assumes.
E.g. Charitable contributions, providing relief during natural calamities etc.,
84 / 141
Social Responsibility towards different interest groups
A business unit has to decide in which areas it should carry out social good. Few areas are
explained below.
Responsibility towards shareholders or owners

To provide fair return on their investment, ensure safety of their investment and to provide
regular, accurate and full information about the business.
Responsibility towards the workers

To provide opportunities for meaningful work, create the right kind of working conditions,
respect the democratic rights of the workers and ensure a fair wage deal from the management.
Responsibility towards the consumer

To provide right quality and quantity of goods and services at reasonable prices and to avoid
adulteration, hoarding, dishonest and misleading advertisements.
Responsibility towards the government & community

To respect the laws of the country and pay taxes regularly and honestly and act according to
well accepted values of the society and to protect environment.
Business & Environmental Protection

Protection of the environment is a serious issue that confronts business
managers and decision makers. Business organizations are major
pollutants so they have to do something to control pollution.
Causes of Pollution
Waste generated by various industries, agriculture, mining, construction, energy
production, transportation etc., cause pollution.
Environmental Problems
Pollutions results in following environmental problems identified by UNO
1. Ozone Depletion 5. Deforestation
2. Land Degradation 6. Global Warming
3. Solid & Hazardous Wastes 7. Water Pollution
4. Danger to biological diversity 8. Fresh water quality and quantity
• Types of Pollution
85 / 141
Air Pollution
Carbon monoxide emitted by automobiles, smoke and other chemicals from
manufacture and pollutes the air & lowers its quality. It also created a hole in
the ozone layer leading to global warming.
Water Pollution
This is primarily from chemical and waste dumping into water bodies. This lead to death of
several animals and posed a serious threat to human life.
Land Pollution
Dumping of toxic wastes reduces the quality of land and making it unfit for agriculture or
plantation.
Noise Pollution
Noise caused by the running of factories and vehicles create a serious health hazard such as loss
of hearing, malfunctioning of the heart and mental disorders.
• Need for Pollution Control

To preserve precious environmental resources & improve the quality of
human life pollution control becomes essential. Let us list out some
reasons for pollution control.
Reduction of health hazard

Pollution control measures can check diseases like cancer, heart attack & lung complications and
support a healthy life on earth.
Reduced Risk of Liability

When people are affected by toxicity released by any business, the business is liable to pay
compensation. If the business installs pollution control devices, it can escape from such a
liability.
Cost Saving
Pollution control needs improved production technology which automatically reduces cost.
Improved Public Image
86 / 141
A firm that promotes the cause for environment will enjoy public confidence and good
reputation.
Other social benefits

Cleaner buildings, cleaner roads, clearer visibility, better quality of life, availability of natural
products in a purer form are some of the other social benefits the society can get through
proper pollution control system.
• Role of business in environmental protection

Most of the pollution is caused by business enterprises and therefore they should take the lead
in providing their own solutions to environmental problems. Some of the specific steps that can
be taken by a business are as follows.
1. A definite commitment by top management to
systematically protect environment.
2. Involving all divisions and sections of employees in environmental protection.
3. Developing clear cut policies and programs with regards to quality, method and
process of production and disposal of waste.
4. Complying with laws of the land in relation to environmental protection.
5. Participation in government programs such as management of waste, forestation
etc.
6. Periodical assessment of pollution control programs of their own, with a view to
improve them.
7. Arranging educational workshops and training materials to share technical
information with everyone involved in pollution control.
• Business Ethics
Business ethics refers to the socially determined moral principles which should govern business
activities.
Examples of Business Ethics

- Charging fair prices
- Using correct/accurate weights - Giving fair treatment to all
employees - Avoiding adulteration, hoarding etc.
- Not engaging in any illegal methods of operation and not doing anything which is being
considered as undesirable by the society.
- Using environmentally friendly products, methods and processes.
87 / 141
Which businesses need to behave ethically?
All businesses irrespective of size (big or small), nature and location should behave ethically.
Why should businessmen behave ethically?

The businessman gets access to all resources such as finance, human capital, land etc. from the
society and makes profits by selling the same to the society. Therefore he needs to be ethical
and shouldn’t make profit at the cost of society.
Benefits of doing Ethical Business

- Ethical business is good business
- It improves public image and support
- Earns people’s confidence and trust
- Leads to greater success
- Helps in long-term standing
• Elements of Business Ethics

Top Management commitment
Higher level managers need to be openly and strongly committed to ethical conduct. They
should continuously try and uphold the values of the organization and the society.
Publication of a ‘code’
‘Code’ refers to the written ethical programs followed by a particular business or industry –
which normally covers the areas of honesty, adherence to laws, product’s safety and quality and
fairness in all dealings.
Establishment of Compliance Mechanism

Simply having a written ‘Code of Ethics’ is not sufficient, the business needs to ensure its
effective implementation at all levels & throughout the life of the business.
Involving employees at all levels

To make ethical business a reality, employees at all levels must be involved.
Measuring Results
Measuring the results of ethics programs maybe difficult but can have an audit at regular
intervals to monitor compliance with ethical standards and decide about further course of
action.
Short Answer type Questions For

answers, please refer to Key terms.
1. What is Social Responsibility?
88 / 141
2. Define Environment.
3. Define Business Environment.
4. What is Environmental Protection?
5. Define Pollution.
6. What are Ethics?
7. Define Business Ethics.
8. What is meant by ‘Legal Responsibility’?
9. What do you mean by ‘Code of Ethics’?
Long Answer type Questions

1. Briefly explain any five points in favour of Social Responsibility of Business. Ans. Refer
to Arguments for Social Responsibility
2. What is meant by Social Responsibility? & Briefly explain the responsibility of
business towards
i. Shareholders ii.
Employees iii.
Consumers and iv.
Government
Ans. Refer to Key Term – Social Responsibility & Concepts Explanation - Social
Responsibility towards different interest groups
Possible 6Mark Questions

1. Argue for (any 3 points) & against (any 3 points) ‘Social Responsibility of Business’. Ans.
Refer to Arguments for & against social Responsibility in Concepts explanation
2. Recent changes in the attitude of business people towards social responsibility are
based on the realities. Explain any four of such realities.
Ans. Refer to Concepts Explanation – Realities of Social Responsibility
• Higher Order Thinking Skills Questions (HOTS)

Q1.You are appointed as a CEO of a leading manufacturing company having many branches
across the country. Explain the steps which you can take to ensure business ethics in your
organization.
Ans. Refer to Concepts Explanation – ‘Elements of Business Ethics’
Q2. ‘Installation of effective pollution control system will reduce the cost and risk of liability
and improve public image’. Explain.
Ans. Refer to ‘Need for Pollution Control’
89 / 141
Q3. A business indulges in following activities. Say, social responsibility towards of which group
is being violated.
a) Pay lesser wages than what is fair
b) Providing product of substandard quality
c) Manipulates its accounts to show lesser profits and to pay lesser tax
d) Releases toxic waste material into the air
e) Indulges in price discrimination
Ans. Social responsibility towards employees, consumers, government, society & consumers.

Business draws all the required resources & facilities from the society and therefore it
is obliged to show its responsibility by the means of acting in the society’s best values.
Societal interest & Business interest are not contradictory but complimentary so the
long run interest of the business lies in the societal interest only therefore apart from
profit maximization business must take into consideration social well being also.
A socially responsible business is one which is not only ensuring higher return to the
owners by the way of profit maximization but also one which is
- Using environment friendly production process
- Paying fair salary to employees
- Producing and selling quality goods and services
- Paying tax properly to the government
Socially responsible business unit should have its own ‘Code of Business Ethics’ to
respect and fulfill the values of the society and seriously pursue business ethics at all
levels and among all employees in the organization.
A better business can be established only in a peaceful & harmonious society.
90 / 141
6. SOCIAL RESPOSIBILITY OF BUSINESS
1. Assertion: Businesses must procure supplies from large enterprises.

Reason: Large enterprises earning economies of scale can provide more discounts and contribute
towards balanced regional development.
a) Assertion is correct, reason is not
2. Some social responsibilities require huge financial investments and business firms charge higher
prices of goods from customers to overcome the needs of such financial investments. This is stated
under which heading of arguments against social responsibility?
a) Lack of social skills
b) Lack of broad public support
c) Burden on consumers
d) Violation of profit maximization objective
3. From the following pictorial presentations, identify the causes of pollution.
a) Land pollution
b) Noise pollution
c) Water pollution
d) Air pollution
4. If business is to operate in a society which is full of diverse and complicated problems, it may have
a) Little chance of success
b) Great chance of success
c) Little chance of failure
d) No relation with success or failure
5. Social responsibility is against the objective of maximizing profits in the business. Which argument
against social responsibility states this:
a) Lack of social skills
b) Violation of profit maximization objective
c) Burden on consumers
d) Lack of broad public support
6. Primary social responsibility of business is________ which means producing goods and services
according to the wants of the society and selling them at a profit:
a) Legal
b) Economy
c) Ethical
d) Discretionary
7. Objectives of the environment protection act are
a) To co-ordinate the activities of the various regulatory agencies already in existence
b) To appoint environment officers to check environmental pollution
91 / 141
c) To improve the quality of life
d) All of these
8. That an enterprise must behave as a good citizen is an example of its responsibility towards
a) Owners
b) Employees
c) Consumers
d) Community
9. From the following pictorial presentations, identify the Social Responsibility Towards Different Interest
Group.
a) Responsibility Towards Owners and Shareholders

b) Responsibility Towards the Government and the Community
c) Responsibility Towards Consumers
d) All of these
10. Which of the following is not the social responsibility of business firms towards its investors:
a) To ensure safety of capital
b) To give appropriate safety
c) To ensure proper utilization of capital
d) To give proper dividend
11. Which of the following alone can ensure effective ethics program in a business enterprise?
a) Publication of code
b) Involvement of employees
c) Establishment of compliance mechanisms
d) None of these
12. Assertion: Like an individual, a business enterprise should also be a loyal citizen of the state.
Reason: The business is also a part of the system. It makes use of the resources of society.
a) Assertion is correct, reason is not.
13. When employees are not satisfied with the business enterprise they can withdraw their contribution
to the business firm, which argument in favor of social responsibility states this:
a) Long-term interest of the firm
b) Justification for existence and growth
c) Avoidance of government regulation
d) Converting problems into opportunities
14. When business firms use eco-friendly methods of production, then they are performing social
responsibilities towards which group?
a) Customer
b) Employees
c) Community
d) Shareholders
15. Which of the following alone can ensure effective ethics program in a business enterprise?
a) Publication of a code
b) Involvement of employees
c) Establishment of compliance mechanisms
d) None of these
92 / 141
16. The concept of social responsibility is ultimately in the interest of the business committee itself”, do
you agree, give reasons.
17. Ganesh is working in the manufacturing industry. The manager compels him to do 10hrs work
continuously without giving any additional benefits. Do you agree with the manager? Give your
suggestions.
18. ‘Business is essentially a social institution and not merely a profit making activity’. Explain.
19. How does an organization have a social responsibility towards owners’ and shareholders’?
20. How can a business enterprise improve its public image by performing social responsibilities?
21. Explain how the labour movement has helped companies to fulfill their social responsibility?
22. ‘To avoid government regulation, businessmen follow the concept of social responsibility’. How much
do you agree with this statement?
23. What are the major areas of social responsibility of business?
24. Abhay Ltd. is providing facilities for their female staff like day care centers for kids and work from
home facilities. By doing this they are following social responsibilities towards which interest group?
Also, what values are they presenting?
25. What do you mean by social responsibility in business? How is it different from legal responsibility?
26. Mr. Dhanraj, a readymade garment manufacturer, is of the view that “different interest groups always
claim some sort of protection from the business as such. These interest groups, no doubt consist of
persons connected with business in one way or the other, such as shareholders, employees, society
and so on”. Do you agree with this statement? Explain.
27. Discuss the guidelines enumerated by the Companies Act 2013 for Corporate Social Responsibility.
ANSWERS
1. D 6. B 11. C
2. C 7. B 12. C
3. C 8. D 13. A
4. A 9. B 14. C
5. B 10. B 15. B
16. ‘The concept of social responsibility is ultimately in the interest of the business community itself. I
agree with this statement because business is an organ of society and it operates in a socio-economic
environment. It can justify its existence by fulfilling its obligations to society. No thought business is
an economic institution and it cannot survive without economic performance. But economic result
depends upon the goodwill and support of the society'. Business gains support only when it assumes
its social responsibilities.
17. No. We cannot agree with the decision of the manager. It is against the social responsibility of the
business. Ganesh has to work only 8 hours a day. Compelling to do 10 (without any additional benefits)
hours is a violation of human right. Managers cannot ask a worker to do work continuously without
giving remuneration. It is also a violation of human rights.
18. The primary objective of any business enterprise is profit maximization. This is because profit acts as
a measure of success and at the same time is the main source of income for an enterprise. Also, profits
are often used to finance the expansion projects of a business enterprise. However, it is argued that
business enterprises are not mere profit making entities because:
i. They are considered as social institutions, too, as they are created by society.
ii. As every business makes use of society's resources in terms of human and physical capital,
it cannot work in isolation from society.
iii. A business needs consumers to buy its products or services. It needs some suppliers to
source raw materials and equipments. It needs to maintain a good relationship with its
suppliers and consumers so that it can smoothly conduct business.
Thus, a need arises to create a balance between the business interests and social interests of a
business enterprise, such that it can grow by doing the maximum good to society. Hence, we say that
a business enterprise is a social institution and not merely a profit-making entity.
19. An organization should provide full and detailed information about the present financial status and
well-being of the company and future plans.
93 / 141
20. Public relations is a potent tool for shaping consumer perception and building a company's image.
Corporations that actively promote their social responsibility activities often take steps to publicize
these efforts through the media. Getting the word out about corporate donations, employee volunteer
programs, or other CSR initiatives is a powerful branding tool that can build publicity for you in both
online and print media.
21. Labor movement for extracting gains for the working class throughout the world has become very
powerful. This has compelled businesses to consider the welfare of their employees rather than
adopting a "hire and fire" strategy.
22. I agree with this statement.
The government regulations and legal restrictions limit the freedom and autonomy of the business
enterprises, the businessmen are thought to be able to escape the problem of government restrictions
by voluntarily taking on social duties, hence reducing the need for new legislation. For example, the
Central Pollution Control Board takes care of issues related to environmental pollution, and if a
business firm follows appropriate measures to avoid environmental pollution, then the interference of
the said board could be reduced.
23. When the business commenced, social objective of the firm recognized and they are able to know to
whom and for what the business and its management are responsible. The major areas of Social
responsibility of business includes the following:
i. Economic responsibility: A business enterprise is basically an economic entity and therefore,
its primary social responsibility is economic i.e., produce goods and services that society
wants and sells them at a profit. There is little discretion in performing this responsibility.
ii. Legal responsibility: Every business has a responsibility to operate within the laws of the
land. Since these laws are meant for the good of the society, a law abiding enterprise is a
socially responsible enterprise as well.
iii. Ethical responsibility: This includes the behavior of the firm that is expected by society but
not codified in law. For example, respecting the religious sentiments and dignity of people
while advertising for a product.
iv. Discretionary responsibility: This responsibility is completely voluntary in nature. It means
that a business enterprise may choose to open a charitable school or hospital for the poor,
grant aid to people affected by natural calamities, provide employment opportunities to the
physically challenged and soon.
24. They are following social responsibility towards the staff or employee group. The right kind of
working conditions to be given so that it can win the cooperation of the staff. The company is
providing work from home opportunities to female staff, along with day care facilities, hence the
company is being empathetic towards its staff, and treating them with dignity and respect.
In the above case, the company us showcasing the following values:
Social Values: By treating the female staff with dignity and respect, and providing for the day care
facilities and work from home opportunity, the company is showcasing the social values of
cooperation, understandability, empathy etc.
Also, the values of autonomy and freedom are also showcased towards women. As mothers and
professionals at the same time, the woman feels more empowered and autonomous to work and
continue their professional careers without worrying about their children.
25. It refers to an organization corporate's obligations and responsibilities to society and its
constituents. Additionally, it demands that the business engages in several socially valuable actions.
As a result of the constant exploitation of social resources by businesses, it is part of their duty to
contribute to society's advancement.
Legal obligations can only be fulfilled according to the law. Still, social responsibilities are more
focused on improving society by creating work opportunities for women, the physically challenged,
and the impoverished.
26. Social Responsibility towards different interest groups:-
I. Responsibility towards shareholders or owners:
• Provide a fair and regular return on the investment of shareholders.
94 / 141
• Provide regular and accurate information on the financial position of the firm.
• To ensure the safety of their investment.
II. Responsibility Towards the workers:
• Providing fair wages
• Providing good working conditions and welfare amenities.
• Respect democratic rights of workers to form unions.
III. Responsibility towards consumers:
• Supply right quality and quantity of goods and services at reasonable prices.
• Avoiding unfair trade practices like adulteration, poor quality, misleading
advertisement etc.
• Inform them about new products, its features, uses and other matters related to the
products.
• To handle the customer's grievance promptly.
IV. Responsibility Towards Government:
• Respect the laws of the country
• Pay taxes regularly and honestly.
• Act according to the well accepted values of society.
V. Responsibility towards community:
• Create employment opportunities
• Protect the environment from pollution.
• To uplift the weaker sections of society
27. Corporate Social Responsibility is a business model used by companies to enhance society and the
environment through concerted efforts. It is a great way for business organizations' to build morale
in the workplace and build a good image in the market. There is no singular widely accepted
meaning of CSR; rather, each definition that currently exists underpins the impact that businesses
have on society as a whole and the societal expectations that they have.
i. The European Commission describes CSR as “the accountability of enterprises for their
social impact”.
ii. The World Business Council for Sustainable Development describes CSR as “the ongoing
dedication by business to contribute to economic development while enhancing the
standard of life of the workers and their family members, along with that of the community
and society at large”.
The guidelines enumerated by the Companies Act 2013 for Corporate Social Responsibility are as
follows:
In India, the notion of CSR is regulated by Clause 135 of the Companies Act, 2013, which was approved
by both Houses of Parliament and got the President's approval on August 23, 2013. The Act's CSR
provisions apply to businesses with an annual turnover of ₹1,000 crores or more, or a net worth of ₹500
crores or more, or a net profit of ₹5 crores or more.
i. The new regulations, which take effect in the fiscal year 2014-15, also require companies to form
a CSR group consisting of their board members, including at least one independent director.
ii. The Act encourages companies to spend 2% of their average net profit over the previous three
years on CSR activities.
iii. Schedule VII of the Act specifies the indicative activities that can be undertaken by a company
under CSR.
iv. Only CSR activities carried out in India will be considered.
v. CSR does not apply to activities that are solely for workers and their families.
95 / 141
CHAPTER - 7
SOURCES OF BUSINESS FINANCE
• Introduction: (14 Marks)
Business cannot be run without money. Funds required to carry out business is called
Business Finance. This chapter throws light on how the finances for the business can be
arranged, what are the sources of funding and what terms and conditions are governed with
each type of funding.
• Sources of Funds :
96 / 141
• Share: The amount of capital to be raised from public is divided into units of equal values.
These units are known as SHARE.
Equity (Ordinary) shares are those which do not carry any special or preferential rights. Equity
Share
Merits Demerits
1. Convenience 1. Low dividend
2. No charge on assets 2. Uncertain
3. No obligation 3. Unbalanced growth
4. Dependable 4. Misuse and Speculation
5. Growth and Expansion
Debenture: It constitutes the borrowed funds of the company. It is an acknowledgement of

debt. Debenture capital may be called DEBT CAPITAL.
Types Of Debentures
• Secured Unsecured
• Redeemable Irredeemable
97 / 141
• Convertible Non- Convertible
• Registered Bearer
Debentures
Merits Demerits
1. Regular return 1.Charge on assets
2. Safety of investment 2.No voting rights
3. Economic sources 3.Permanent burden of
4. Flexibility interests
5. Tax relief
• Differences between Shares and Debentures

BASIS SHARES DEBENTURES
1.Types of funds Owner's funds Borrowed funds
2.Return Flexible Fixed
3.Voting rights Available No voting rights
4.Status of holders
Owners of the company Creditors of the company
5. Redemption Not redeemable Mostly Redeemable
6.Charge No charge on assets Charge on assets
7. Degree of risk for

holders High Low
• Public deposits:
Refers to the unsecured deposits invited by companies from the public. It can invite for a
period of six months to 3 years. Public deposit cannot exceed 25% of its share capital &
resources.
98 / 141
MERITS DEMERITS
1. Simplicity 1. Uncertainty
2. Economical 2. Temporary finance
3. No charge on assets 3.Unsuitable for new
4. No loss on control company
• Lease financing: A lease is a contractual agreement where by the owner of an asset grants
rights to use the asset to other party for rent.
• Short term funds:
1. Trade credit: refers to the credit extended by one trader to another for purchasing goods
or service. Small and new firms are usually more dependent on trade credit.
2. Factoring: It has emerged as a popular source of short term finance. It is a financial

service where by the factor responsible for all credit control and debt collection from
the buyers and provides protection against any bad debt losses to the firm.
Two methods of Factoring
Recourse factoring Non- Recourse factoring

3. Commercial Paper (C.P.): It is an unsecured promissory note issued by firm to raise funds
for a short period says 90 days to 364 days. Only firms having good credit rating can issue
the C.P.
• Loans From Commercial Banks
Business can raise finance from commercial banks in the following ways
99 / 141
Term Loan: Cash Credit: Discount of bill: Overdraft:
For medium Interest is Banks provide Current Account
term charged on short term finance holders is allowed
the amount in exchange for to overdraw his
actually bill. A/c.
withdrawn.
• Loans from financial Institutions:
Institutional finance means finance arranged from financial institutions other than commercial
banks like IFCI, ICICI, IDBI, SFI etc.
• International Sources of Finance:
Financial institutions and investors in foreign countries can invest in the shares and debentures
of Indian companies. Two main instruments used by Indian companies to tap international
sources of finance are:
International Sources of Finance
ADR GDR
(American Depository Receipt) (Global Depository Receipt) 1.
Rose from equity markets in USA. 1. Traded on a stock exchange
2. Funds from ADR are available in in Europe or US or both.
US Dollars.
3. No broker is needed. Issued only to 2. No voting right American citizens
• Factors affecting choice of Source of Funds
100 / 141
1 TIME PERIOD Long term finance is raised through shares and debentures.
Short term finance is raised through trade credit,

commercial paper, etc.
2 RISK There is least risk on Equity shares as the capital need not be
repaid. But in case of loan, interest has to be paid
3 CONTROL Issue of equity shares may lead to dilution of control but

debt involves no dilution of control.
4 EARNINGS Stability of earnings are important because loan should be

raised only when earning are sufficient.
5 TASK IMPACT Interest on debenture is tax deductible.
Dividend is not tax deductible.
VSA (Very short Answer type questions ) (1mark)

1. What is commercial paper?
2. What is ADR?
3. What is meant by convertible debenture?
4. Explain the term ‘Factoring’?
SA (Short Answer type questions ) (3 or 4 marks)

1. Describe the various types of finance?
2. Explain three sources of owned funds.
3. Explain any two types of preference shares.
4. Explain the advantages of equity share.
LA (Long Answer type questions ) (5 or 6 marks)

1. Distinguish between Equity shares and Preference shares.
2. What are retained profits? Discuss their merits and demerits.
3. Explain the disadvantages of shares.
4. Explain the merits and demerits of public deposits.
HOTS
1. Name the capital invested in permanent assets.
101 / 141
2. What is self financing?
3. Name the agreement where by the owner of the asset grants another party
the right to use the asset in return for a periodic payment.
4. Name the funds needed for day to day operations of business.
Finance is the life blood of business.

Business finance is of three types – Long term, Medium term, Short term
There are two sources of business finance – Owned funds, Borrowed funds
Shares are of two types – Equity and Preference shares
Retained profits refer to the undistributed profits which are re-invested in business.
Debentures are creditor ship security.
ADRS and GDRS are the main International sources of finance.
102 / 141
7. SOURCES OF BUSINESS FINANCE
1. Which of the following document is to be submitted for getting the company registered?
a) Memorandum of Association
b) Articles of Association
c) Both (a) and (b)
d) None of these
2. Among the following documents, which are not mandatory to be submitted to the registrar along with
an incorporation application by a private company?
a) Address of registered office and undertaking\
b) Undertaking and statement of capital
c) Statement of capital, address of the office, and list of directors
d) List of directors and statement of capital
3. As per the SEBI guidelines, the minimum subscription has to be 90% of the shares to be issued to be
public.
a) True
b) False
c) Partly true
d) Partly false
4. If the proposed nominal capital is more than 25 lakhs at the time of incorporation, then the company
needs to submit ________________ along with the application.
a) Statement of capital
b) Certificate of incorporation
c) Certificate of capital
d) Certificate of incorporation
5. Which one of the following statements is false?
a) A private as well as public company without a share capital can start its business immediately
after getting the certificate of incorporation.
b) All private and public companies having a share capital is required to obtain certificate of
commencement of business to start its business.
c) A company can be created without incorporation.
d) One person company can be formed by only one person.
6. If a company is instructed to change its name, which resembles the name of an existing company then
the company can change the name by ______.
a) Passing a special resolution
b) Obtaining permission from the Central Government
c) Passing an ordinary resolution
d) Both (a) and b
7. Application of approval of name of a company is to be made to
a) SEBI
b) Registrar of Companies
c) Government of India
d) Government of the state in which the company is to be registered.
8. If a company suffers heavy issues and its assets are not enough to pay off its liabilities, the balance
can be recovered from the private assets of its members.
a) True
b) False
c) Partly true
d) Partly false
9. A proposed name of company is considered undesirable of
a) It is identical with the name of an existing company.
b) It closely resembles the name of an existing company.
103 / 141
c) It is an emblem of Government of India, United Nations etc.
d) In case of any of the above.
10. Promoter is a person who---
a) Who has been named as such in a prospectus
b) Who is identified by the company in the annual return referred to in section 92
c) Who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director, or otherwise
d) All of these
11. Contracts signed by promoters with third parties before the incorporation of the company is called---
a) Preliminary contracts
b) Provisional Contracts
c) Memorandum of Association
d) Articles of Association
12. Statement in lieu of prospectus can be filed by a public company going for a public issue.
a) True
b) False
c) Partly true
d) Partly false
13. This clause is in the form of a declaration, it states that the subscribers express the willingness and
agreement to form a company. Name the clause of memorandum of association.
a) Objective clause
b) Liability clause
c) Capital clause,
d) Association clause
14. Identify the document in which the following information about a company can be found.
i. Object with which the company is formed.
ii. Rules and regulations of internal management
iii. Investing deposits from the public
iv. Acknowledgment of debt in a company
15. Statement in lieu of prospectus can be filed by a public company going for a public issue.
16. For incorporating a private limited company, Parvati Pvt. Ltd., the directors submit all relevant
documents to the registrar of company except Articles of Association. But the registrar insists that,
registration will not be granted without filing Articles of Association. But the directors of Parvati Pvt.
Ltd., argues that the provisions of 'Table A' can be adopted in the absence of Articles of Association.
Whose argument is correct? Justify your answer.
17. Nikita, Shweta and Sangeeta are promoters of a public company. But they do not want to raise capital
by approaching the public. They decide to raise capital by issuing shares to a few persons. Is it
possible? If yes, what document is used for raising capital?
18. ‘Directing is the least important function of management.’ Do you agree with this statement? Give any
two reasons in support of your answer.
19. “Managerial functions cannot be carried out without an efficient system of communication.” Do you
agree? Give any three reasons in support of your answer.
20. Pragati and Vishal are working in the same organization but different departments. One day at lunch
time Vishal informed Pragati that due to computerization many people are going to be retrenched soon
from the organization.
21. It is through motivation that managers can inspire their subordinates to give their best to the
organisation’. In the light of this statement, explain, in brief, the importance of motivation.
22. Is it necessary for a public company to get its shares listed on a stock exchange? What happens if a
public company going for a public issue fails to apply to a stock exchange for permission to deal in
its securities or fails to get such permission.
23. I govern the internal affairs of the company. Explain who am 'I'? List out my contents.
24. At which stage in the formation of a company does it interact with SEBI?
104 / 141
25. Mr. Mohan conceived an idea to start a garment business. He consulted a company secretary to get
the details. Company secretary helped listing down Mr. Mohan's function in the process of starting up
the business. Explain briefly the function of promoter?
ANSWERS
1. C 5. C 9. D
2. A 6. C 10. D
3. A 7. B 11. A
4. C 8. B 12. A
13. D
14.
i. Memorandum of Association
ii. Articles of Association
iii. Mutual funds
iv. Debentures
15. False, a public limited company seeking applications from the general public for the subscription of
its shares or debentures must fill the prospectus with the Registrar of Companies.
16. The argument of the Registrar of Companies is correct because filing of Articles of association is
compulsory for Pvt. Ltd company by shares.
17. Yes. They can raise capital by issuing shares to a few persons. For this they can issue Statement in
lieu of prospectus.
18. No, I don’t agree with this statement. Importance of direction: Direction may be regarded as the heart
of the management process. It is explained under the following parts:
i. Initiates action: All organizational activates are initiated through direction.
ii. Integrates employees efforts: At all levels of management the subordinates under the
managers. Managers integrate the work of subordinates.
iii. Means of motivation: Directing helps in motivating employees towards organizational goals.
19. Yes, I agree with this statement. Communication is important because of the following reasons.
i. Communication facilitates planning in a number of ways
ii. Communication helps management in arriving at vital decisions
iii. Communication is necessary in creating unity of action of action
20. It is an example of informal communication.
Limitations of informal communication:
i. Messages tend to be distorted
ii. It often carries rumours
iii. It is unsystematic.
21. Importance of motivation:
i. Motivation sets in motion the action of people: Motivation builds the will to work among
employees and puts them into action.
ii. Motivation includes the efficiency of work performance: Performance of employees depend
not only on individual abilities but also on his willingness.
iii. Motivation ensures achievement of organizational goals: If employees are not motivated, no
purpose can be served by planning organizing and staffing.
iv. Motivation creates friendly relationships: Motivation creates friendly and supportive
relationships between employer and employees.
v. Motivation leads to stability in the employees: Motivation helps in reducing absenteeism. and
turnover.
vi. Motivation helps to change negative or indifferent attitudes of an employee.
22. Yes, it is necessary for a public company to get its shares listed on a stock exchange. If a public
company going for a public issue facts to apply to a stock exchange for permission to deal in its
securities or fails got such permission, this the certificate of commencement of business will not be
issued to that public company because a declaration that no money is payable or liable to become
105 / 141
payable to the applicants because of his failure of the company to either apply for or obtain permission
to deal in its securities on a stock exchange.
23. Articles of Association:
The Articles of Association is the second important document of a company. The Articles define the
rights, duties and powers of the officers and the board of directors. It contains the rules regarding
internal management of the company. It shows the relationship between the company and its
members.
Contents of Articles of Association:
i. The share capital of the company and its division.
ii. Rights of each class of shareholders.
iii. Details of contracts made with different parties.
iv. Procedure for making allotment of shares.
v. Procedure for issuing share certificate.
vi. Procedure for transfer and transmission of shares.
vii. Procedure for forfeiture and reissue of shares.
viii. Procedure for conducting meetings, voting, proxy and poll
ix. Procedure for appointment, removal and remuneration of directors.\
x. Procedure for declaration of and payment of dividend.
xi. Keeping books of account and audit of the company
xii. Procedure regarding alteration of share capital.
xiii. Procedure regarding winding up of the company.
Table A: A public limited company may adopt Table A which is a model set of articles given in the
Companies Act. Table A is a document containing rules and regulations for the internal management
of a company. If a company adopts Table A, there is no need to prepare separate Articles of
Association.
24. SEBI is a regulatory body controlling the capital market of India with the aim of protecting the interest
of investors. A company interacts with the Securities and Exchange Board of India (SEBI) during the
third stage of the formation of the company; i.e., Capital Subscription. In this stage, a Public Company
raises the required funds from the public through the issue of shares and debentures. While raising
funds, the company must submit every relevant information with the SEBI, before issuing its securities
in the capital market. The companies should not hide any material fact from SEBI; otherwise,
according to the 'Guidelines for disclosure and investor protection 2000', the company's registration
will get cancelled.
25.
Identification of business opportunity
• The opportunity may be in respect of producing a new product or service or making some
product available through a different channel or any other opportunity having an investment
potential.
• Opportunity is then analyzed for its technical and economic feasibility.
Feasibility studies
• It may not be feasible or profitable to convert all identified business opportunities into
real projects. The promoters, therefore, undertake detailed feasibility studies
• The following feasibility studies may be undertaken:
➢ Technical feasibility: an idea may be good but technically not possible to execute.
It may be so because the required raw material or technology is not readily
available
➢ Financial feasibility: Every business activity requires funds. The promoters have
to estimate the fund requirements for the identified business opportunity. If not
able to arrange funds, then project needs to be given up
➢ Economic feasibility: Project is technically viable and financially feasible but the
chance of it being profitable is very little.
106 / 141
Name approval
• The promoters have to select a name for it and submit, an application to the registrar of
companies of the state in which the registered office of the company is to be situated, for
its approval
• Proposed name is not accepted but some alternate name may be approved.
• Three names in order of their priority are given in the application to the Registrar of
Companies
Fixing up signatures to the Memorandum of Association:
• Promoters have to decide about the members who will be signing the Memorandum of
Association of the proposed company.
• People signing memorandum are also the first Directors of the Company.
• Their written consent to act as Directors and to take up the qualification shares in the
company is necessary.
Appointment of professionals:
• Certain professionals such as mercantile bankers, auditors etc., are appointed by the
promoters to assist them in the preparation of necessary documents which are
required to be with the Registrar of Companies
Preparation of necessary documents:
• The promoter takes up steps to prepare certain legal documents, which have to be
submitted under the law, to the Registrar of the Companies for getting the company
registered.
• These documents are Memorandum of Association, Articles of Association and
Consent of Directors.
107 / 141
CHAPTER - 8 SMALL BUSINESS
• Introduction:
Small Business enterprises exist in e very country of the world. But in a developing country like
India, they occupy a special place in the industrial structure because they provide better
opportunities for generating employment, for better utilization of local resources, for equitable
distribution of national income.
• Meaning:
Small Scale Industry is one in which investment in plant and machinery does not exceed rupees
one core.
An ancillary industrial unit is one which supplies not less than 50% of its output to another
parental unit.
Export-Oriented unit is one which exports more than 50% of its output and wherein investment
in plant and machinery does not exceed rupees one core.
Small Scale Unit owned and managed by Women Entrepreneur is one in which women have a
share capital of not less than 51%.
Tiny Industrial unit is an enterprise having investment in plant and machinery of not more than
Rs.25 laths.
Micro Business unit is one where investment in plant and machinery of not more than Scone
laky.
Village Industry means any industry located in a rural area which produces any goods, renders
any service with or without the use of power and in which fixed capital investment per head
does not exceeds Rs.50,000.
Cottage Industry refers to industrial units which are traditional rural industries located in
residential premises and in which manual techniques and simple tools are used.
• Role of Small Business in India (With Special Reference to Rural Areas)

Small industries provide employment opportunities in rural areas
They are the second largest employers of human resources
They contribute nearly 40% of the gross industrial value added
The development of village & rural industries leads to industrialization in rural areas
They ensure equitable distribution national income & wealth by reducing income
inequalities between rural & urban areas
They help in mobilization & utilization of local resources & skills
They help generate multiple sources of income to the rural house holds
They prevent migrations of rural population to urban areas in search of employment.
• Problems Of Small Scale Industries

Small scale industries find it difficult to get loans from banks & other financial institutions.
108 / 141
They are not able to get quality raw materials at reasonable prices.
They are usually run by people who may not have managerial skills.
They cannot pay higher salaries to employees so they leave the business.
They face competition from global enterprises.
They use outdated machineries & technologies.
Their quality of goods is low.
Due to lack of marketing skills & lack of demand, half of the capacity is not utilized so the
operating cost is more.
• Government Schemes and Agencies for Small-Scale Industries (SSI) Government

Measures and Schemes
Land is supplied at a concessional rate to industries setup in back ward areas.
Power is supplied at a concessional rate.
Water is supplied on no profit no loss basis.
In all union territories SSI’s are exempted from sales tax.
Scarce raw materials are supplied on priority basis.
Loans are offered at concessional rate.
They are exempted from payment of tax for 5 or 10 years. 800
items are reserved for exclusive production by SSI’s.
• Institutional support
1. National small industries corporation

It supplies imported machines and raw materials to SSI’s on easy hire purchase
schemes
It exports the products of SSI’s
It provides technologies to SSI’s and creates awareness on technological up
gradation
2. District Industrial centers
They provide an integrated administrative frame work at the district level
They provide all the services and support facilities to the entrepreneurs for setting
up small and village industries
3. Small industries development bank of India
It was setup in 1989 for promotion, financing and development of small business
in India.
It provides term loans to SSI units for modernization, technology up gradation and
diversification.
It provides assistance for working capital requirements for SSI’s and tiny
industries.
109 / 141
It provides assistance for rehabilitation of potentially viable sick units in SSI sector.
It undertakes discounting of bills for small business.

It provides services like factoring, leasing, etc.
It extends financial support to various institutions engaged in the promotion of
small business, such as the state financial corporation (SFC), state industrial
development corporations (SIDC), etc.
It has formulated a credit guarantee fund trust (CGFT) for small industries for
guaranteeing the loans and advance up to Rupees 10 laky.
• Very Short Answer Type Questions:

1. Name the two categories of village and small industries sector in India.
Ans. Traditional small industries –handlooms, handicrafts, coir, sericulture, khaki, and
village industries
Modern small industries- small scale industries and power looms.
2. Name the small scale unit in which investment in plant and machinery does not exceed
rest 25 laths.
Ans. Tiny industrial units.
3. How much do small industries in India account for the total industrial units? Ans. 95%.
4. How much do small industries contribute to total export from India?
Ans. 45%.
5. Give the full form of NABARD.
Ans. National Bank for Agriculture and Rural Development.
• Short Answer Type Questions:

1. How would you differentiate between an ancillary unit and tiny unit?
Ans. Aspin ancillary unit the investment in plant and machinery is up to 1 core and
supplies 50% of its production to the parent unit
In tiny unit the investment in plant and machinery is up to 25 laths
2. What is the difference between small scale enterprise and cottage industries?
Ans. In small scale industry in investment in fixed assets is up to 1 core where as in
cottage industry produce simple products by using indigenous technology and the
investment per person is RS 50,000.
3. Explain four important problems of small business in India.
Ans. The following points should be explained
Finance
Management skills
Marketing
Quality
110 / 141
4. Explain any 3 incentives offered by got to small scale enterprise so that they can
contribute
in the development of overpopulated country like India.
Protective measures Credit and finance
Marketing assistance
Incentives
Institutional support
• Long Answer Type Questions:

1. The path of small scale industries is full if hurdles.” In the light of this statement,
discuss the problems faced by small scale industries.
Ans. The following Problems of small scale industries should be explained
Finance
Management skills
Marketing
Quality
Under utilization of capacity
Raw materials
Labor
Technology
Global competition
2. Describe the role of small business in rural India.
Ans. The following points should be explained
Generation of employment in rural areas
Multiple source of income
Prevent migration
Mobilization of local resources
Rural industrialization
Reduction in income inequalities
Equitable distribution of national income
3. Identify any 6 major industry groups in the small sector in India.
Ans. 1. Food products
2. Chemicals and chemical products
3. Hosiery and garments
4. Leather and leather products
5. Repair services
6. Beverages, tobacco and tobacco products.
4. Mention the forms of support to small industries by the govt.
111 / 141
Ans.1. Institutions for credit facilities.
2. Provision of training facilities.
3. Supply of machinery on hire purchase system.
4. Technical assistance.
5. Financial assistance for technological up gradation.
6. Incentives for setting up enterprises in backward areas.
• Gist of the Lesson

Role of small scale industries in socio economic development of India
Employment generation
Output generation
Export promotion
Balance regional development
Development of entrepreneurship
Complementary to large scale industries
Role of small scale industries in rural India
Generation of employment in rural areas
Multiple source of income
Prevent migration
Mobilization of local resources
Rural industrialization
Reduction in income inequalities
Equitable distribution of national income
Problems of small scale industries
Finance
Management skills
Marketing
Quality
Under utilization of capacity
Raw materials
Labor
Technology
Global competition
Measures taken by the government
Protective measures
Credit and finance
Marketing assistance
Incentives & Institutional support
112 / 141
8. SMALL BUSINESS
1. _____ is defined as one in which the investment in fixed assets of plant and machinery does not
exceed rupees one crore.
a) Limited Companies
b) Small Scale Industries
c) Large scale industry
d) None of these
2. As per the notification issued by the Ministry of Commerce and Industry, a start-up means, with
reference to the period
a) not older than 5 years
b) not older than 10 years
c) not older than 12 years
d) not older than 13 years
3. The limit for investment in plant and machinery in manufacturing unit Which does not exceed Rs.5
lakh? The company falls under which category
a) Micro-enterprise
b) Small enterprise\
c) Medium enterprise
d) Large enterprise
4. As per the government of India size of small-scale industry can be decided on the basis of
a) Number of employees working
b) Volume of output
c) Power consumed for business
d) Investment in plant and machinery
5. A call center conducts –
a) Both customer-oriented and back-office business
b) Both inbound and outbound voice-based business
c) Only inbound voice-based business
d) Only outbound voice-based business
6. A small scale services and business enterprise is one whose investment in fixed assets of plant and
machinery excluding land and building does not exceed ______
a) Rs. 25 Lakhs
b) Rs. 30 Lakhs
c) Rs. 10 Lakhs
d) Rs. 15 Lakhs
7. In case of service enterprise, where investment in equipment is more than 10 lakhs rupees but does
not exceed 2 crore rupees is
a) Micro enterprise
b) Small enterprise
c) Medium enterprise
d) Cottage industry
8. Outsourcing
a) Provides both vital and non-vital contracts for service processes and also production and
research and development, outside. It is limited only to the domestic sector.
b) Outsourcing outside geographical boundaries of the countries is also included in it.
c) Prohibits contracting non-vital commercial processers outside.
d) Only prohibits information technology derived services to be contracted outside.
9. The small-scale industry can enjoy the status of ________ if it supplies not less than 50% of its
production to another industry, referred to as the parent unit.
a) Village industries
b) Micro business industry
113 / 141
c) Export oriented unit
d) Ancillary small industries
10. This is not included in e-commerce –
a) A business or mutual contract with its suppliers
b) The mutual contract of a business with its customers
c) The contract of a business with its geographically spread-out units
d) A mutual contract between various departments of a business
11. Government of developed countries encourage many people to start small scale industries in rural
and under developed areas, so that these areas can be developed and people of these areas can get
employment and their economic conditions can improve.
i. State the benefit of SSI referred in above case
ii. State any five benefits of SSI.
12. Give any two incentives offered by the government to small scale industries.
13. Discuss the role and significance of small businesses in India's economic growth
14. What is the definition used by the Government of India for small scale industries?
15. State any two objectives for the establishment of the National Commission for Enterprises in the
Unorganized Sector (NCEUS).
16. What is the role of District Industries Center for the growth of small business in India?
17. What is the parameter used by the government to identify service enterprise?
18. MSME and entrepreneurship are connected. Do you agree? Give two reasons.
19. What are the measures taken by the Government to solve the problem of finance in the small scale
sector?
20. What are the incentives provided by the government for industries in backward and hilly areas?
21. Small scale industrial sector has an important role in Indian economy. To meet the financial and
developmental needs of small business in India a separate bank had been set up.
i. Give the name of the bank.
ii. What are its major functions?
22. How do small scale industries contribute to the socio-economic development of India?
23. Laxmi food Industries set up a food and beverages processing plant in the rural area of Jaipur and
opted for labour intensive techniques due to easy availability of labour and to provide employment
to local people. Board of directors decided to invest 50 lakhs to acquire plant and machinery, Rs. 1
crore to buy land, Rs. 20 Lakhs to buy raw material and Rs. 20 lakhs to maintain day to day
expenses.
a) Name the Act of Industries which is applicable to the above industry.
b) Which category of part (a) will the above industry come from?
c) State the investment limit in this category.
d) What values has been followed by the above company.
24. Write notes on the following:
i. NABARD
ii. SFURTI
iii. RSBDC
iv. DIC'S
v. SIDBI
vi. NCEUS
ANSWERS
1. B 6. c
2. A 7. B
3. A 8. A
4. D 9. D
5. C 10. D
114 / 141
11.
i. Balanced regional growth.
ii.
• Personal Character. A small-scale unit is generally owned by a single entrepreneur
or partnership, so personal character is the main feature of this enterprise.
• Independent Management. Small-scale enterprises are generally managed by the
owners only so there is the advantage of direct motivation, personal care, secrecy,
flexibility etc.
• Dominance of Labour. Small-scale enterprises generally use labor-intensive
techniques. These units do not prefer mechanized methods of production.
• Limited investment. A small-scale enterprise requires less capital investment
because it does not employ highly mechanized means of production.
• Limited Area of Operation. A small-scale enterprise generally operates in a compact
area however products are exported all over the world
• Located in Rural and Semi-urban Areas. Most of the small-scale enterprises are
located in rural or semi-urban areas due to easy availability of labour.
12.
i. Land: In order to encourage the establishment of industries in backward areas, the
government provides land plots at concessional rates, especially to industrialists in backward
regions.
ii. Power: Power is an essential requirement for the functioning of business enterprises.
13. The small-scale sector is crucial to the Indian economy since it fosters entrepreneurship and aids in
generating foreign cash.
The following points will highlight the importance of small businesses.
i. Small businesses are the ones that drive innovation and productivity even if they don't have
their research and development departments. Individual preferences, style, and individualized
service: Small-scale businesses are adaptable to changes in client preferences and trends
and may modify their manufacturing processes appropriately.
ii. National identification markers: They are locally owned and managed. They can support
India's social structure and cultural heritage. They are seen as significant markers of national
identity.
14.
i. To recommend measures considered necessary for improving the productivity of small
enterprises in the informal sector.
ii. Providing social security for the workers in the informal sector.
15. As per the Government of India, small scale industries are those industries where manufacturing,
rendering and production of services are done on a small scale. Here the investment is one time and
the value is around 1 crore. The investment is done on machinery and plants. However, some export
oriented units make use of modern machinery for production and the costs can go up to 5 crore for
the same.
16. District Industries Centers program was launched on May 1, 1978 with a view to providing an
integrated administrative framework at the district level which looks at the problem of industrialization
in the district.
17. An industry is a micro enterprise if investment in equipment does not exceed Rs 10 lakhs. An industry
is a small enterprise if investment in equipment is more than Rs 10 lakhs but does not exceed Rs 2
crore. An industry is a medium enterprise if investment in equipment is more than Rs 2 crore but does
not exceed Rs 5 crore.
18. Yes, there is a relationship between MSME and entrepreneurship.
Reason: MSMEs provide banks with financing support. By building specialized training facilities, they
promote the expansion of entrepreneurship and the upgrading of skills. MSMEs are renowned for
offering sincere support in breaking into both local and foreign markets.
115 / 141
19. Following Measures have been taken by the government to solve the problem of finance in small scale
sector:
i. Small Industries Development Bank of India (SIDBI): It was set up on April 2, 1990 under an
Act of Indian Parliament, is the principal financial institution for the promotion, financing and
development of the Micro, Small and Medium Enterprise (MSME) sector and for coordination
of the functions of the institutions engaged in similar activities. Financial support is provided
by way of refinance to eligible Primary Lending Institutions (PLIs) such as banks, State
Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs), State
Small Industries Development Corporations (SSIDCs) etc. for onward lending to MSMEs,
financial assistance in the form of loans, grants, equity and quasi-equity to Non-Government
Organizations/ Micro Finance Institutions (MFIs) for on-lending to micro enterprises and
economically weaker sections of society, enabling them to take up income generating
activities on a sustainable basis and direct assistance to MSMEs which is channelized
through the bank's network of 130 branch offices.
ii. The National Commission for Enterprises in the Unorganized Sector (NCEUS): It was
established by the Government of India as an advisory body on the informal sector to bring
about improvement in the productivity of informal enterprises for generation of large-scale
employment opportunities on a sustainable basis, particularly in the rural areas. The
Commission was mandated to recommend appropriate measures to enhance the
competitiveness of the informal sector in the global economy and to link the sector with the
institutional framework in areas such as credit, raw material, infrastructure, technology
upgradation, skill development, and marketing.
20. The following incentives are offered by the Government in backward and hilly areas:
i. Land: The government has offered lands at reduced rates in order to encourage setting up of
small industries.
ii. Banking and Finance: The Government is offering subsidies in loans, amounting up to 10-
15% for establishing business in backward areas. This is done to encourage business, as
capital is essential to start any business.
iii. Raw Materials: Availability of raw materials for setting up industries in hilly or backward areas
is very scarce, so the government has made sure to provide the raw materials such as cement,
steel and iron to expedite industry set up.
iv. Tax exemption: The Government has encouraged new business by promising tax exemption
for industries in backward areas.
v. Power: Electricity is essential for a business and to operate machinery, so to help more
businesses to start, the government is providing electricity at 50% discounted rate.
21.
i. SIDBI: Small Industries Development Bank of India (SIDBI). SIDBI was set up in 1980.
SIDBI is the main financial institution for financing and development of small business in
India.
ii. Functions of SIDBI:
• Helps SSI unit for modernization and technology upgradation by providing loan
• Meet working capital requirements of SSI.
• Provides means for the rehabilitation of sick units
• Provides service like leasing, hire purchase, venture capital financing etc.
• Provide equity support to small entrepreneurs.
22. Role of small business in India:
• Small industries are labor intensive and less capital intensive. They generate more number of
employment opportunities.
• The share of product from small industries is 45% of total export from India. So it earns
valuable foreign exchange.
• Small scale Industries produces a wide variety of goods e.g. readymade garments, stationery,
soaps, leather goods, plastic and rubber goods.
116 / 141
• The contribution of small industries to the balanced regional development of the country is
very significant.
• Small industries provide ample opportunity for entrepreneurship.
• It enjoys the advantage of low cost of production because they used local resources in their
product.
• Due to the small size of the organization, quick and timely decisions can be taken without
consulting many people.
• Small industries are best suited for the products which are designed according to the taste,
needs and preferences of the customers.
• Small industries maintain good personal relations with both customers and employees.
23.
a) The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 addresses these
issues relating to definition, credit, marketing and technology upgradation. Medium scale
enterprises and services related enterprises also come under the purview of this Act. The
MSMED Act, 2006 came into force w.e.f., October, 2006. Accordingly, enterprises are classified
into two major categories viz., manufacturing and services.
b) It is a small-scale industry.
c) In the case of enterprises engaged in the manufacture or production of goods belonging to
any industries specified in the first schedule to the Industries (Development and Regulation)
Act, 1951, small enterprise have a limit of investment in plant and machinery to be more than
twenty-five lakh rupees but less than exceed five crore rupees.
d) Values followed by the company are as follows:
• Employment generation: The company opted for labor intensive technique due to
easy availability of labor and to provide employment to local people.
• Balanced Regional Development: The company set up food and beverages
processing plant in the rural area of Haryana thereby helping in balanced regional
development.
• Concern for society: The company opted for labor intensive technique thereby
showing concern towards the society.
24.
i. NABARD: NABARD stands for National Bank for Agriculture and Rural Development, and it
is the Indian rural banking system's apex regulatory organisation. It is a development bank
with the mission of providing and regulating loans in rural areas. In the Indian rural sector,
NABARD promotes and develops agriculture, small scale enterprises, cottage industries,
and other rural crafts.
Apart from agriculture, it supports small industries, cottage and village industries, and rural
artisans using credit and non-credit approaches. It provides counseling and consulting
services to rural entrepreneurs, as well as training and development programmes.
ii. SFURTI: SFURTI was launched by the Ministry of Micro, Small and Medium Enterprises
(MSME) to promote MSME cluster growth in the country. It was launched to make the
MSME's competitive, lucrative, and sustainable. Also, it works for the provision of long-
term job prospects in traditional sectors, as well as to create sustained employment
opportunities in traditional industries.
iii. RSBDC: The Rural Small Business Development Center (RSBDC) is a non-profit
organization that provides management and technical assistance to present and potential
micro and small business owners in rural areas. RSBDC has held a number of rural
entrepreneurial seminars, skill development workshops, mobile clinics and trainers training
programmes, as well as awareness and counseling camps.
iv. DIC'S: The District Industries Centers (DICs) give entrepreneurs all of the services and
support they need to start small and village industries. The identification of feasible
schemes, the preparation of feasibility reports, the organization of financing, the provision
117 / 141
of machinery and equipment, the provision of raw materials, and other extension services
are the main functions of these centres.
v. SIDBI: The Small Industries Development Bank of India (SIDBI) was established as an apex
bank to give direct and indirect financial assistance to small businesses through several
initiatives. In comparable operations, it coordinates the functions of other institutions.
vi. NCEUS: The National Commission for Enterprises in the Unorganized Sector (NCEUS) was
established to make recommendations for actions that would improve the productivity of
small businesses in the informal sector as well as to increase long-term job opportunities,
especially in rural areas.
118 / 141
CHAPTER - 9
INTERNAL TRADE
• Introduction:
Buying and selling the goods and services within the boundaries of a nation are referred to as
internal trade.
• Important Concept:
Meaning of Internal Trade: Buying and selling of goods and services within the boundaries
of a nation are referred as internal trade. Internal trade can be classified into two (i)
Wholesale trade (ii) Retail trade.
Whole sale trade: Whole sale trade is concerned with the activities of those persons which
sell to retailers but who do not sell to ultimate consumers.
Services of Wholesalers:
Wholesalers provide various services to manufacturers as well as to retailers.
Services to Manufacturers:
(i) Facilitating large scale production.
(ii) Bearing risk.
(iii) Financial assistance.
(iv) Expert advice
(v) Help in marketing function.
(vi) Facilitate production continuity.
(vii) Storage.
Services To Retailers:
(i) Availability of goods.
(ii) Marketing support.
(iii) Credit facilities.
(iv) More knowledge about products.
(v) Sharing of risk.
Retail Trade: A retailer is a business enterprise that is engaged in the sale
of goods and services directly to the customers.
Services of Retailers:
Retailers provide various services to manufacturers as well as to consumers.
Services to Manufacturers/Wholesalers:
(i) Help in distribution of goods.
(ii) Personal selling.
(iii) Helps in carrying large scale production.
(iv) Collecting market information.
119 / 141
(v) Helps in increasing sales.
Services to Consumers:
(i) Regular availability of products.
(ii) New product information.
(iii) Purchasing made conveniently.
(iv) More selection of products.
(v) After sales service.
(vi) Giving credit facilities.
• Types of Retailing Trade:

Itinerant retailers: These are traders who do not have fixed place of business and
they keep moving from place to place.
(a) Hawkers and peddlers: They are small producers who carry the products on a bicycle or
heard. They deal in low value products.
(b) Market traders: These are small retailers who open their shops on fixed days example on
Saturday, Friday etc.,
(c) Street traders: These are traders found where there are huge crowds.
(d) Cheap jacks: They keep on changing their places frequently as they deal with repair of
watches etc.,
Fixed shop retailers: They have permanent shops and they do not move from one place to
another.
(a) They have more money when compared to itinerant retailers.
(b) These retailers may be dealing in different type of products.
(c) These retailers provide greater services to the customers.
Types:
(i) General stores:
(ii) Specialty shops.
(iii) Street stall holders.
(iv) Second hand goods shop.
Departmental stores:
(i) It is a large store with different types of products.
(ii) There will be separate departments like medicines, furniture, clothing etc., (iii) These
stores are located at the heart of the city.
(iv) These stores are managed by the board of directors.
(v) These stores have storing facilities also.
Advantages:
(i) Attract large number of customers.
(ii) Buying is made easier.
120 / 141
(iii) More services are provided.
(iv) Benefits of large scale operations.
(v) Sales get increased by advertising.
Limitations:
(i) No personal attention is there.
(ii) More cost of operating the store.
(iii) More chances for loss.
(iv) Far away from home.
Chain stores:
(i) These shops are located in popular localities.
(ii) Goods are dispatched from the head office.
(iii) Each shop is under the supervision of a branch manager.
(iv) All the branches are controlled by the head office.
(v) All sales are made on cash basis.
(vi) The head office appoints the inspectors who do supervision.
Advantages:
(i) Large scale production takes place.
(ii) Middlemen are avoided.
(iii) Cash basis.
(iv) Risk is reduced.
(v) Low cost due to avoidance of middlemen.
(vi) Place can be changed if there are no profits.
Limitations:
(i) Limited varieties are available.
(ii) No personal touch.
(iii) Losses in case of change in demand.
(iv) Delay in decisions.
Mail order houses: These retailers sell their products through mail.
Advantages:
(i) Less capital.
(ii) Middlemen are avoided.
(iii) No bad debt.
(iv) More customers are reached.
(v) Goods are delivered at the door step.
Limitations:
(i) No personal contact.
(ii) Heavy expenditure on advertisements.
(iii) No after sales service.
121 / 141
(iv) No credit facilities.
(v) Delivery is delayed.
(vi) Dependence on postal services.
Consumer cooperative store: This store is an organization managed and controlled by
consumers. The cooperative society generally buy in large quantity directly from the
wholesalers or manufacturers.
Advantages:
(i) Easy to form.
(ii) Limited liability.
(iii) Equal treatment to all.
(iv) Lower prices.
(v) Cash sales.
(vi) Convenient location.
Limitations: (i) No personal contact. (ii) More advertisements. (iii) No after sales service (iv) No
credit facilities (v) Delay in delivery (vi) More dependence on postal services.
Consumer Cooperative store: It is owned and managed by the consumers. This is started to
avoid middlemen.
Advantages: (i) Easy to form (ii) Limited liability (iii) Equal treatment to all (iv) Low cost (v) Sales
is made in cash only (vi) Location are there in public places.
Limitations: (i) Lack of motivation (ii) Less funds (iii) No business training (iv) No patronage.
Super market: A super market is a big store selling large variety of products.
Advantages: (i) One roof low cost (ii) Central location (iii) Wide selection (iv) No bad debts (v)
Benefits of large scale.
Limitations: (i) No credit (ii) No personal contact (iii) Mishandling of goods (iv)Huge capital (v)
More overhead expenses. Vending machines:
Vending machines are proving in selling pre packed brands of low priced products which have
high turnover and which are uniform in size and weight.
Role of Indian chambers of commerce and industry in promotion of internal trade:
1. Interstate movement of goods.
2. Local taxes act as an income.
3. Value added tax.
4. Marketing agricultural products.
5. Using proper weights and measures.
6. Prevention of duplication brands.
7. Providing proper roads, electricity, railways.
8. Flexible labour laws.
• Key Concepts in Nutshell
122 / 141
Meaning of Wholesale Trade:
Purchase and sale of goods and services in large quantities for the purpose of resale
.
Wholesalers perform a number of functions in the process of distribution of
Goods and services and provide valuable services to manufacturers and
Retailers.
Meaning Of Retail Trade:

A retailer is a business enterprise what is engaged in the sale of goods and services
directly to the ultimate consumers.
Retailers serve as a link between producers and final consumers.
They provide useful service to consumers, wholesalers and manufacturers in the
distribution of goods and services.
DISTRIBUTION OF GOODS
PRODUCER WHOLESALER RETAILER CONSUMER
Departmental stores:
Departmental stores are located at the heart of the city.
They aim at satisfying all the needs of the customers under one roof.
They provide services like restaurant to the consumers.
Their price policies are not uniform.
They satisfy the needs of the higher income group.
Goods are sold only on credit basis also.
Multiple shops:
Multiple shops are located at residential areas.
These shops offer only specialized products.
They provide only limited service to the customers. The
pricing policies are uniform.
These shops satisfy the needs of all income groups.
Goods are sold only on cash basis.
Mail Order Houses:

They sell their goods through mail.
123 / 141
They do not have any personal contact with the customers.
They need not have a big place for selling goods.
They are mainly started to avoid middlemen.
They do not offer credit facilities.
Super Markets:
The super market sells a large variety of products.
Customers can choose from a wide variety of products.
All the products are available under one roof.
They enjoy the advantage of large scale production.
Since goods are sold only on cash basis no bad debts.
They are located centrally i.e., at the heart of the city.
• Very Short Answer typeQuestions: (1 Mark)

1. Name the trader who serves as the link between producers and retailers.
Ans: Wholesaler.
2. Name the trader who directly deals with the consumers:
Ans: Retailer.
3. Give the full form of FICCL.
Ans: Federation of Indian Chamber of Commerce and Industry.
4. Name the retailers who do not have a fixed place for business.
Ans: Itinerant retailers.
5. Name the large retail business unit selling a wide variety of consumer goods on
selfservice basis.
Ans: Super market.
6. Who are cheap jacks?
Ans: Cheap jacks are petty retailers who have temporary shops in a business locality.
7. Name the network of retail shops that are owned and operated by a manufacturer or
dealer.
Ans: Chain stores or multiple shops.
8. Name the large establishment offering a wide variety of products classified into well
defined departments under one roof. Ans: Departmental stores.
9. Name the retail outlets that sell merchandise through mail.
Ans: Mail order houses.
10. Who are itinerants?
Ans: Itinerant are small scale retailers who do not have a fixed place of business.
• Short Answer type Questions: (3 or 4 Marks)

1. State the important features of supermarkets.
Ans: The super market sells a large variety of products.
124 / 141
Customers can choose from a wide variety of products.
All the products are available under one roof.
2. Explain Mail order houses.
Ans: They sell their goods through mail.
They do not have any personal contact with the customers.
They need not have a big place for selling goods. They
are mainly started to avoid middlemen.
3. What is meant by whole sale trade?
Ans: Purchase and sale of goods and services in large quantities for the purpose
of resale .
Wholesalers perform a number of functions in the process of distribution of
Goods and services and provide valuable services to manufacturers and
retailers.
4. What is meant by retail trade?
Ans:
A retailer is a business enterprise what is engaged in the sale of goods and services
directly to the ultimate consumers.
Retailers serve as a link between producers and final consumers.
They provide useful service to consumers, wholesalers and manufacturers in the
distribution of goods and services.
5. Briefly state the functions of the retailer.
Ans: Services To Manufacturers/Wholesalers:
1. Help in distribution of goods.
2. Personal selling.
3. Helps in carrying large scale production.
4. Collecting market information.
5. Helps in increasing sales. Services
to Consumers:
1. Regular availability of products.
2. New product information.
3. Purchasing made conveniently.
4. More selection of products.
5. After sales service.
6. Giving credit facilities.
6. Discuss in brief the features of departmental stores.
Ans: Departmental stores are located at the heart of the city.
They aim at satisfying all the needs of the customers under one roof.
They provide services like restaurant to the consumers.
Their price policies are not uniform.
125 / 141
They satisfy the needs of the higher income group.
Goods are sold only on credit basis also
• Long Answer type Questions: (5 Or 6 Marks)

1. Distinguish between departmental store and multiple shops. Ans: Departmental
stores:
1. Departmental stores are located at the heart of the city.
2. They aim at satisfying all the needs of the customers under one roof.
3. They provide services like restaurant to the consumers.
4. Their price policies are not uniform.
5. They satisfy the needs of the higher income group.
6. Goods are sold only on credit basis also. Multiple shops:
1. Multiple shops are located at residential areas.
2. These shops offer only specialized products.
3. They provide only limited service to the customers.
4. The pricing policies are uniform.
5. These shops satisfy the needs of all income groups.
6. Goods are sold only on cash basis.
2. Explain the role of Indian chamber of commerce and industry in promotion of internal
trade.
Ans: Role of Indian chambers of commerce and industry in promotion of
internal trade:
1. Interstate movement of goods.
2. Local taxes acts as an income.
3. Marketing agricultural products.
4. Using proper weights and measures.
5. Prevention of duplication brands.
6. Providing proper roads, electricity, railways.
3. “Consumer cooperative stores are formed to protect the consumers common
interest”. Explain.
Ans: Consumer Cooperative store: It is owned and managed by the consumers.
This is started to avoid middlemen.
Advantages: (i) Easy to form (ii) Limited liability (iii) Equal treatment to all
(iv) Low cost (v) Sales are made in cash only (vi) Location are there in public places
4. Explain the following: (i) Street traders (ii) Market traders. (iii) Hawkers and
peddlars.(iv) Cheap jacks.
Ans: Hawkers and peddlers: They are small producers who carry the products on
a bicycle or heard. They deal in low value products.
126 / 141
Market traders: These are small retailers who open their shops on fixed days
example on Saturday, Friday etc.,
Street traders: These are traders found where there are huge crowds.
Cheap jacks: They keep on changing their places frequently as they deal with
repair of watches etc.,
5. Explain any 5 services offered by retailers to consumers. Ans: Services to
Consumers:
1. Regular availability of products.
2. New product information.
3. Purchasing made conveniently.
4. More selection of products.
5. After sales service.
6. Giving credit facilities
6. What is a departmental store? Explain its merits.
Ans: 1. Attract large number of customers.
2. Buying is made easier.
3. More services are provided.
4. Benefits of large scale operations.
5. Sales get increased by advertising.
• HOTs Questions and Answers

1. “Both departmental stores and multiple shops are large retail establishment ,yet
they are different.” Explain how.
Ans: Departmental stores:
1. Departmental stores are located at the heart of the city.
2. They aim at satisfying all the needs of the customers under one roof.
3. They provide services like restaurant to the consumers.
4. Their price policies are not uniform.
5. They satisfy the needs of the higher income group.
6. Goods are sold only on credit basis also. Multiple shops:
1. Multiple shops are located at residential areas.
2. These shops offer only specialized products.
3. They provide only limited service to the customers.
4. The pricing policies are uniform.
5. These shops satisfy the needs of all income groups.
6. Goods are sold only on cash basis.
2. “ Mail order houses provide a lot of convenience to the customers yet they are not
very popular” Explain.
Ans: Limitations:
127 / 141
No personal contact.
Heavy expenditure on advertisements.
No after sales service.
No credit facilities.
Delivery is delayed.
Dependance on postal services

Trade refers to the buying and selling of goods and services with the objective
of earning profit.
Internal trade: Buying and selling of goods within the boundaries of the nation are
referred to as internal trade.
Whole sale trade: Purchase and sale of goods and services in large quantities and
selling in large quantities is known as whole sale trade.
Retail trade: Purchase of goods in large quantities and selling in small quantities is
known as retail trade.
Departmental store: A departmental store is a large establishment offering a wide
variety of products, classified into various departments, and aimed at satisfying
customers need under one roof.
Multiple shops: A number of shops with similar appearance are established in localities
spread over different parts of the country.
Mail order houses: These are the retail outlets who sell their products through mail.
Consumer cooperative stores: It is an organization owned and managed by the
consumer themselves. (ii) The objective of that store is to eliminate middlemen.
Super market: It is a large business selling unit selling variety of products at low prices.
128 / 141
9. INTERNAL TRADE
1. The phrase ‘all shopping under one roof’ defines:
a) Chain stores
b) Departmental stores
c) Second hand shops
d) Multiple stores
2. The main advantage of peddlers and hawkers are:
a) It provides convenient service to the consumers
b) Provides good quality products
c) Provides after-sales services
d) All of these
3. Retailers help in promotion of sale of products, is this a service rendered by retailers to
manufacturers:
a) True
b) Partially true
c) False
d) None of these
4. Ganesh has a retail shop which he opens only on Sunday. According to you under which
category does Ganesh come:
a) Hawker
b) Peddler
c) Street trader
d) Market trader
5. What do you mean by trade:
a) Buying goods and services with the objective of earning profit.
b) Selling of goods and services with the objective of earning profit.
c) Buying and selling goods and services with the objective of earning profit.
d) Buying and selling of goods and services with the objective of social work.
6. It is a network of a number of branches situated at different localities in the city or in different
parts of the country.
a) Multiple shops
b) Consumers cooperative store
c) Hire purchase system
d) Internet marketing
7. ___________ can check the price fluctuations in the market by holding back the goods when
prices fall and releasing the goods when prices rise.
a) Wholesaler
b) Agent
c) Retailer
d) Mercantile agent
129 / 141
8. The risk of bad debts in __________ business is eliminated, particularly when payment is
received through V.P.P.
a) Tele-shopping
b) Mail order trading house
c) Departmental store
d) Cooperative store
9. Retailers who deal in goods on a hand cart near bus stops and railway stations are called as:
a) Street traders
b) Market traders
c) Hawkers
d) Peddlers
10. Which of the following can be treated as a difference between Departmental store and a food
chain:
a) Departmental stores provide different kind of products whereas chain stores provide
specific type of product.
b) Departmental stores provide maximum service to their customers whereas chain stores
provide very limited service
c) Departmental stores have certain flexibility in respect of the line of goods marketed
whereas chain stores do not have such flexibility
d) All of these
11. Which type of retailer provides door-to-door services to their customers?
a) Street traders
b) Peddlers and hawkers
c) General stores
d) Street stallholders
12. Define shops that deal with a specific line product.
13. How would you differentiate between street traders and street shops?
14. Give two features of the supermarket.
15. How do the wholesalers help the manufacturer in availing of the economies of scale?
16. How manufacturer is benefitted by the information provided by the wholesaler?
17. What purpose is served by wholesalers providing warehousing facilities?
18. How does market information provided by wholesalers benefit the manufacturers?
19. Distinguish between single line stores and specialty stores. Can you identify such stores in your
locality?
20. What services are provided by the retailers to the wholesale traders and the customers?
21. Why are consumer cooperative stores considered to be less expensive? What are its relative
advantages over other large-scale retailers?
22. Itinerant traders have been an integral part of internal trade in India. Analyzes the reasons for
their survival in spite of competition from large scale retailers.
23. Imagine a life without your local markets. What difficulties would a consumer face if there was
no retail shop?
130 / 141
ANSWERS
1. B 5. C 9. A
2. A 6. A 10. D
3. A 7. A 11. B
4. D 8. B
12. Specific line product shops refer to the shops that sell only one specific and not different type of
items. These types of shop are located in the main market where a large number of customers can
be attracted.
13. Street traders are the small retailers who sell goods at places where the large floating population
gathers. example of such traders are traders near railway stations and bus stands, and traders of
stationery items. Eatables, readymade garments, newspapers and magazines. These traders do
not change their place time to time.
On the other hand, street shops are generally found at street crossing or other places where flow
of traffic is heavy. These shops attract floating customers and deal mainly in goods of cheap
variety like hosiery products, toys, cigarettes, soft drinks. etc.
14. The two features of the supermarket are
i. Have different types and various products, food item, and grocery
ii. All the products are available under one roof.
15. Wholesalers help manufacturers in avail economics of scale in the following ways:
i. Purchase goods in bulk quantities from manufacturers and distribute them to retailers in
small quantities.
ii. By providing manufacturers with warehousing facilities, they reduce the burden of
storage.
iii. Create time and place utility and enable manufacturers to produce goods on a large scale.
16. Wholesalers remain in direct touch with the retailers and due to which they give advice to the
producers on the different matters. These matters can be related to the choice of the customers,
position of the market, competition in the market and also regarding the need of the customers.
17. Wholesalers purchase goods in bulk from manufacturers, store them and distribute them to
retailers in small quantities for further resale. This bulk purchase of goods enables manufacturers
to undertake production on a large scale without worrying about storage facilities. By offering
warehouses close to the centers of distribution, wholesalers provide what is known as 'place
utility'. Wholesalers not only provide warehousing facilities such as collection, storage and
protection of goods but also facilitate marketing and distribution, creating 'time utility'.
18. Wholesalers provide a variety of information to both manufacturers and customers. To
manufacturers, they provide information about:
i. The tastes and preferences of customers
ii. Conditions prevailing in the market
iii. Level of competition in the market and
iv. Types of goods and features demanded by consumers.
v. This information helps manufacturers to cater to the changing needs of consumers.
19. Single-line stores are small shops that deal in only one product. For example, garments or shoes.
However, single-line stores offer a wide variety of the product. For instance, a single-line store
that deals in garments will have a wide variety of clothes in all sizes for men, women and children.
On the other hand, specialty stores deal only in a particular type of product from a selected
product line. For example, men’s clothing. Such stores generally sell all the brands of the product
in which they specialized. For instance, if a store specialized in men’s clothing, then it will have
all the brands of men’s garments. On the basis of these features, we can identify the different
types of stores in a locality—whether they are single-line stores or specialty stores. Single line
stores are more frequently found in local retail markets while specialty stores are found in
wholesale markets.
20.
131 / 141
i. Retailer provides following services to the wholesalers:
• They provide ready market to wholesalers.
• They provide market information to wholesalers.
• They also help them in dealing of large goods.
• They also take the business risk and help to the wholesalers.
• Helps in distribution work of goods.
ii. Retailer provides following services to die customers:
• Regular availability of goods to customers.
• Information of new goods to customers.
• Facility of choose the goods.
• Home delivery facility.
• Selling in small quantity to customers.
21. Consumer cooperative stores are formed by groups of consumers to provide goods at reasonable
prices to members of consumer societies. In such societies, the role of middlemen is eliminated
as these societies purchase goods from manufacturers or wholesalers directly and sell them to
society members at reasonable rates. As consumer cooperative stores do not aim at profit-
making, the prices of goods offered by them are much lower than the prices of goods at retail
shops. Compared with large-scale retailers, the capital requirement for starting a consumer
cooperative society is very low. Thus, consumer cooperative stores do not require much
investment, and the goods sold by them are priced lower.
The following are some advantages that consumer cooperative stores have over large-scale
retailers:
i. Democratic management: Consumer cooperative stores are democratic organizations as
they are managed and controlled by elected managing committees of consumer societies.
The members of managing committees are elected by the members of consumer societies
on the principle of 'one member, one vote'.
ii. Limited liability: The liability of the members of consumer cooperative societies is limited
to the amount of shares held by them. Thus, in case a society's liabilities increase beyond
the assets, the members will not be liable to repay the debts using their personal assets.
iii. Low price of goods: As the goods offered by consumer cooperatives are directly
purchased from manufacturers and wholesalers, the role of middlemen is eliminated.
Therefore, consumer societies are able to sell goods at lower prices.
22. Itinerant retailers are traders who do not have a fixed place of business to operate from. They keep
on moving with their wares from street to street or place to place, in search of customers.
Followings are the reasons for their survival in spite of competition from large scale retailers:
i. They are small traders and hence rural customers and consumers from backward areas
find themselves more comfortable dealing with them.
ii. They normally deal in consumer products of daily use such as toiletry products, fruits
and vegetables, etc. demand for which does not fall much with time.
iii. The emphasis of such traders is on providing greater customer service by making the
products available at the very doorstep of the customers. This makes it convenient for
the consumers and helps in the survival of itinerant sellers.
23. Retail shops serve as the final step in the distribution channel. It acts as a link between
manufacturers and wholesalers by buying goods from manufacturers and selling them to
consumers. They are important because of the following reasons:
i. Retailers act as an information source for new products, their price and features for
customers. Customers use this information to decide on products that can be bought.
ii. Customers get a wide variety of choices of goods in a retail shop.
iii. Retail shops are conveniently located near residential places that help customers get
easy access to goods.
iv. Retailers offer extra facilities such as goods on credit to regular customers
132 / 141
v. Retail stores ensure the availability of products in a timely manner, thus keeping
customers happy.
133 / 141
CHAPTER - 10
INTERNATIONAL BUSINESS
• Introduction
In this lesson we are going to have overall idea of International Business i.e., how to sell
goods and services to other countries traders/users and how to buy goods and services
from traders of others countries. You are going to learn the formalities and procedures
involved in the process of international trade i.e., both imports and exports.
• Meaning:
• The buying and selling of goods and services beyond the geographical limits of the
country is known as International Business.
• In other words trade between the countries is known as International business.
• It involves not only the international movements of goods and services, but also of
capital, personnel, technology and intellectual property like patents, trademarks,
knowhow and copyrights.
• If our country buys goods from some other country it is called IMPORT and if we sell
goods to some other country it is called Export Trade.
• Problems of International business: There are various complexities or problems involved in

the international business. The major problems faced are as follows:
1. Different currencies:
Every country has its own currency. So importer has to make payment in the currency of
exporter’s country. 2. Legal Formalities:
International business is subject to a large number of legal formalities and restrictions.
The government of every country exercises strict control over business with other
nations.
3. Distance Barriers:
Due to large distance between countries, it is difficult to establish quick and personal
contacts between traders from different countries.
4. Language Barrier:
Due to different languages in different countries, it becomes difficult for traders to
understand the terms and conditions of the contract.
5. Difference in Laws:
134 / 141
International business transactions are subject to laws, rule and regulations of multiple
countries.International business transactions are subject to laws, rule and regulations of
multiple countries.
6. Information Gap:
It is difficult to obtain accurate information about foreign markets and about the
financial position of foreign merchants.
7. Transport Problem:
Water and air transport are the important modes of transport used in international
business. Shipping is less costly but time consuming. On the other hand airways are
faster but the cost involved is very high.
IMPORT PROCEDURE
Trade Enquiry
Procurement of Import License
Obtaining Foreign Exchange
Placing order or Indent
Obtaining Letter of Credit
Arranging for Finance
Receipt of shipment Advice
Retirement of Import Documents
Arrival of Goods
Customs clearance and Release of goods

EXPORT PROCEDURE
Receipt of Enquiry and Sending Quotations

Receipt of Order or Indent
Assessing Importer’s Credit worthiness and securing a guarantee for payments.

Obtaining Export license
Obtaining Pre shipment Finance
Production or Procurement of Goods
135 / 141
Pre shipment Inspection
Excise Clearance
Obtaining certificate of Origin
Reservation of Shipping Space
Packing and forwarding
Insurance of Goods
Customs Clearance
Obtaining Mate’s Receipt
Payment of Freight and issuance of Bill of Lading
Preparation of Invoice and Securing Payment
Documents used in Export Transactions
Documents related to Goods Documents Related to Documents Related to

Shipment Payment
1. Export Invoice: 1. Mate’s Receipt: 1. Letter of Credit:
• It is issued by the • It is issued by the • It is guarantee issued by the
exporter. commanding officer of the importer’s Bank that it will
ship to the exporter after the
honor payment up to a
cargo is loaded on the ship. certain amount of export bills
• It provides information
like quantity of goods sent, • It contains details like to the bank of the exporter.
total value of goods etc. name of the vessel, berth,
date of shipment, description
of packages, marks and
numbers etc.
• It is very important
receipt as shipping company
issues the bill of lading only
after getting this receipt.
136 / 141
2. Packing List: 2. Shipping Bill: 2. Bill of Exchange:
It indicates the number of • It is the main
cases or packs and the details • It is drawn by the
document on the basis of
of the goods contained in exporter on the importer.
which customs office grants
these packs • It contains instruction
permission for the export.
to the importer to pay a
• It contains details specified amount to a certain
regarding goods to be person or the bearer of the
exported, exporter’s name instrument.
and address,
etc.
3. Certificate of Origin: 3. Bill of Lading: 3.Bank Certificate of

• It specifies the country • It is prepared by Payment:
in which the goods are being Shipping company
produced. acknowledging the receipt of • It certifies that necessary
documents relating to the
• It helps to get tariff goods on board the ship.
particular export have been
concessions. • It is a document of
presented to the importer for
• It is also required title of goods and is freely payment.
when there is a ban on transferable by endorsement
imports of certain goods from and delivery.
selected countries • It contains an
undertaking to carry them to
the port of destination.
4. Certificate of 4 Airway Bill:

Inspection:
• It is prepared by the
• It ensures that only airline company to
good quality products are acknowledge the receipt of
exported. goods on board its aircraft.
• Export Inspection • It is also a document
Council of of title to the goods and is
India is one such agency freely transferable by the
endorsement and delivery.
137 / 141
5. Marine Insurance
Policy:
• It is an insurance contract. •
It is an agreement to
indemnify the insured against
any loss caused due to perils
of the sea in consideration of
payment called premium.
6. Cart Ticket:
It is prepared by the
exporter, which provides
details regarding export
cargo, like shipper’s name,

number of packages, shipping
bill number etc.
It is also known as a cart chit,

vehicle pass or gate pass.
• Documents Used In Import Transactions:

1. Trade Enquiry:
It is a written request by the importer to the exporter to provide information regarding
price, terms and conditions etc.
2. Proforma Invoice:
A proforma invoice is a document that contains detailed information regarding price,
quality, grade, grade, size etc.
3. Shipment Advice:
Shipment advice is a document that the exporter sends to the importer.
It informs that the shipment of goods has been made and details regarding it.
4. Bill of Entry:
It is a document prepared by the importer.
It shows the details of goods imported and is used by custom authorities for determining
import duty.
5. Sight Draft:
It is a type of Bill of Exchange.
138 / 141
Through this the exporter instructs the bank to hand over the relevant documents to the
importer only against payment
6. Usance Draft:
It is a type of Bill of Exchange.
Through this the exporter instructs the bank to hand over the relevant documents to the
importer only against Acceptance of Bill of Exchange.
7. Import General Manifest:
It contains details regarding imported goods.
On the basis of this Goods are unloaded from the carrier.
8. Dock Challan:
It is prepared by the importer or his C& F (Clearing and Forwarding agent) IT
specifies the amount of dock dues.
• WORLD TRADE ORGANISATION (WTO)

• It was established on 1st January 1995.
• IT was established to have a permanent institution to promote free and fair trade
amongst nations.
• Role of WTO
• Encouraging member countries to come forward to WTO for mitigating their
grievances
• Laying down a commonly accepted code of conduct in order to reduce trade barriers.
• Acting as a dispute settlement body.
• Ensuring that all rules and regulations prescribed in the Act are duly followed by the
member countries for the settlement of their disputes
• Holding consultations with IMF and IBRD and its affiliated agencies to bring better
understanding and cooperation in global economic policy making
• Regularly supervising the operations of the revised Agreements and Ministerial
declarations relating to goods, services and Trade Related Intellectual Property
Rights (TRIPS).
• Short Answers type questions :
1. This certificate specifies the origin of goods exported. Name the document. (1)
Ans. Certificate of Origin
2. This document is issued by the commanding officer of the ship to the exporter after
the cargo is loaded on the ship. Identify the document. (1) Ans. Mate’s Receipt.
139 / 141
3. This document is prepared by shipping company to acknowledge the receipt of
goods on ship and gives an undertaking to carry them to port of destination. Name
the document. (1)
Ans. Bill of lading.
4. This document is the most appropriate and secure method of payment to settle
international transactions. Name the document. (1)
Ans. Letter of Credit.
5. On the basis of this document, customs office grants permission for the export.
Identify the document. (1)
Ans. Shipping Bill
6. This document is prepared by the importer and it shows the details of goods
imported and is used by custom authorities to determine import duty. State the
name of the document. (1) Ans. Bill
of Entry.
7. On the basis of this document, imported goods are unloaded from the carrier.
Write the name of the document. (1)
Ans. Import general Manifest.
8. What is meant by Bill of Lading? Explain the contents. Of it. (3)
Ans. Meaning of Bill of Lading and its contents.
9. Explain the content and purpose of Bill of Entry.
Ans. Bill of entry (3)
Long Answer type Questions and Answers:
10. Describe the role of WTO.
Ans. Role of WTO (Refer WTO given earlier) (4)
11. Differentiate between
1) Sight and usance draft and Bill of lading and Airway Bill. (4)
Ans. In case of sight draft importer makes payment when relevant documents are
delivered. Whereas in case of usance draft importer accepts the bill of exchange and
makes payment on maturity of bill.
2) Bill of lading is issued by the shipping company when goods are loaded on the ship.
Whereas the airway bill is issued by airline company when goods are loaded on the
aircraft.
12. What is meant by pre shipment finance? (4)
Ans. Meaning of Pre shipment finance. (Refer Pre shipment finance given earlier)
13. List the major countries with whom India trades
Ans. USA, UK, Belgium, Germany, Japan Swizerland, Hong Kong, UAE, China,
Singapore and Malaysia. (4)
140 / 141
14. Explain the meaning of the following documents used in connection with import
transactions: i) Trade Enquiry ii) Import License iii) Shipment advice Ans. (Refer
Import Documents) (5)
15. Trendz industries has received an export order of 5,000 kids jeans from walmart
store, USA. What procedure you will follow to execute this export order?
Ans. Export Procedure. (6)
Concept and Problems of International Trade

Export Import Procedure and documents Role
of WTO
141 / 141

BST Book

Uploaded by

Copyright:

Available Formats

BST Book

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BST Book

Uploaded by

Copyright:

Available Formats

CHAPTER - 1

NATURE AND PURPOSE OF BUSINESS

Literal meaning of Business is “BUSY”.

Business is defined as an economic activity

involved in the production and sales of goods and services

undertaken with the motive of earning profit

by satisfying human needs in the society.

• Characteristics of Business activities:

Material Downloaded From SUPERCOP 1/8

Basis Business Profession Employment

1. How to Start? Based on Getting membership Getting an

2. What is its nature? Providing goods Rendering of Performing work as

3. Qualification/Who can No minimum Requires qualification Requires

4. Return/What will you Profit Professional Fees Salary

6. Risk involved More risk Less risk No risk

7. Transfer of Interest – Can Is possible with Not possible Not possible

8. Code of conduct No code of Professional code of Code of conduct is

Material Downloaded From SUPERCOP 2/8

• Industry: Production or processing of goods and services. It is concerned with changing

1. Primary 2. Secondary 3. Tertiary

Extraction and Processing the Support services

a. Extractive Industry b. Genetic Industry

Mining, lumbering, Breeding plants

Material Downloaded From SUPERCOP 3/8

a. Manufacturing Industry b. Construction Industry

Production and Construction of

2.a. Manufacturing Industry

(i). Analytical (ii). Synthetical (iii). Processing (iv). Assembling

Separates Combines Involves series Assembles

Commerce includes the following activities :

Material Downloaded From SUPERCOP 4/8

1. Transport and communication : Physical movement of goods from the place

2. Banking and Finance : Helps in removing financial hindrances. Facilitates

3. Insurance: It facilitates business by ensuring compensation for various types of

5. Advertising: It provides information about availability of goods and services. It

Material Downloaded From SUPERCOP 5/8

Worker performance and

Nature Of Business Risks

• Business risks arise due to uncertainties

• Causes of Business Risks:

Material Downloaded From SUPERCOP 6/8

• Basic factors to be considered before starting a Business:

Short Answer type Questions :

Material Downloaded From SUPERCOP 7/8

Material Downloaded From SUPERCOP 8/8

a) i-b, ii-d, iii-a, iv-c

• Meaning of Sole Proprietorship: It refers to a form of business organization which is

• Meaning of Cooperative Society: It is a voluntary association of persons formed for

• Meaning Of Joint Stock Company: Company is an artificial person with continuous

• Key Concepts in Nutshell:

Sole proprietorship Partnership Hindu Undivided Co operative Company

• Meaning Of Sole Proprietorship:

Consequences of Non Registration:

• Very Short Answer type Questions: (1 Mark)

• Short Answer Type Questions: (3 or 4 Marks)

• Long Answer Type Questions: (5 or 6 Marks)

4. Why is company form of organization preferred than other forms of

• Gist of the Lesson:

a) Joint stock company