Question-1 What is the definition and concept of Business?

Explain the
nature and scope of business?

Ans : BUSINESS
Business is an economic system in which goods and services are exchanged for one another
or money, on the basis of their perceived worth. Every business requires some form of
investment and a sufficient number of customers to whom its output can be sold at profit on
a consistent basis.
Business can also be defined as the Activities connected with the production or purchase and
sale of goods or services with the object of earning profit are called business activities. Mining,
manufacturing, trade, transportation, insurance, banking are business activities. Thus business
may be defined as an economic activity involving regular production or purchase and
distribution of goods and services with the objectives of earning profits.

A Business is also known as company, enterprise, or firm. It is a legally recognized

organization designed to provide goods, services, or both to consumers or tertiary business in
exchange for money.[1] Businesses are predominant in capitalist economies, in which most
businesses are privately owned and typically formed to earn profit that will increase the
wealth of its owners. The owners and operators of private, for-profit businesses have as one of
their main objectives the receipt or generation of a financial return in exchange for work and
acceptance of risk. Businesses can also be formed not-for-profit or be state-owned.

The etymology of "business" relates to the state of being busy either as an individual or society
as a whole, doing commercially viable and profitable work. The term "business" has at least
three usages, depending on the scope — the singular usage (above) to mean a particular
company or corporation, the generalized usage to refer to a particular market sector, such as
"the music business" and compound forms such as agribusiness, or the broadest meaning to
include all activity by the community of suppliers of goods and services. However, the exact
definition of business, like much else in the philosophy of business, is a matter of debate and
complexity of meanings.

Nature and characteristics of Business:

Business is very complex and dynamic in nature as it has very far reaching impacts on society,
nation and rather the whole world as now Business has become a global activity because of
easy communication and wider connectivity. The nature of business is best understood on the
basis of its characteristics or features which are as follows:

1. Business is an economic activity

2. It includes the activities of production or purchase and distribution.

3. Business deals in goods, ideas and services.

4. It implies regularity of transactions.

5. It aims at earning profits through the satisfaction of human wants.

6. It involves risk; it is not certain that adequate profit will be earned.

7. Business creates utilities and utilize societal resources..

8. Business serves a social purpose by improving people’s standard of living.

9. Business creates employment opportunities for the people in the society.

10. Business keeps a society and a nation economically independent and strong.

Question-2 Distinguish the Business, Profession and Employment or

sevices as economic activities.

Ans : Business, Profession and Employment or Services are the significant types of
Economic Activities. When a person is regularly engaged in a particular economic activity, it is
known as his or her occupation or vocation. Occupations may be classified into three
categories —

(i) Business,

(ii) Profession and

(iii) Employment (Service).

Business:
Activities connected with the production or purchase and sale of goods or services with the
object of earning profit are called business activities. Mining, manufacturing, trade,
transportation, insurance, banking are business activities. Thus business may be defined as an
economic activity involving regular production or purchase and distribution of goods and
services with the objectives of earning profits.

The main characteristics of Business are as follows ;

1. Business is an economic activity

2. It includes the activities of production or purchase and distribution.

3. Business deals in goods, ideas and services.

4. It implies regularity of transactions.

5. It aims at earning profits through the satisfaction of human wants.

6. It involves risk; it is not certain that adequate profit will be earned.

7. Business creates utilities and utilize societal resources..

8. Business serves a social purpose by improving people’s standard of living.

9. Business creates employment opportunities for the people in the society.

10. Business keeps a society and a nation economically independent and strong.

Profession:
Any activity which requires special knowledge and skill to be applied by an individual to earn a
living is known as profession. For example doctors, teachers, lawyers, engineers and
accountants are engaged in profession. Profession involves intellectual activity. It is not a
mechanical or routine operation.

The main characteristics of profession are

(i) Every profession requires special knowledge and training.

(ii) The primary objective is to render service.

(iii) The service cannot be substituted by another individual.

(iv) Every profession is regulated by a professional body. For example the profession of
Chartered Accountants is regulated by the Institute of Chartered Accountants of India.

Employment
When a person works regularly for others and gets wages/salary in return, he is said to be in
employment. Thus factory workers, office assistants and managers are said to be in
employment. Those in employment are called employees. Employment may be in government
department or in private organisation. It may be full-time or part-time, permanent or
temporary. The main features of employment are :
(i) Employees always work for others.
(ii) There are certain terms and conditions of work.
(iii) The people involved earn fixed income.
 Vocation
Vocation means an occupation which involves the use of some basic skills which can be
developed by practice. Type-writing, tailoring, laundering, carpentry etc. are some
examples of vocation. Those who wish to get employed after completing secondary
education may acquire the basic skills required for any vocation.
Distinction between Business, Profession and Employment
Basis Business Profession Employment
1. Primary Earning Rendering Earning
Objective profit paid service wages/salary
2. Reward Profit Professional fee Salary/wages
3. Nature of Production of Expert Job
work purchase and sale service performance
4. Qualifications Undefined Professional As per the need
training of the employer

Question- 3 Define and explain the concept of Business as a systems. What

is the scope of Business in this modern corporate world?
Or
Question-4 What do you mean by the Concept of Business as a system? In
this highly competitive world how the scope of business can be explained?
Ans : Business as a System-The concept of Business as a system is a concept which is very
dynamic and comprehensive. If we have to understand the concept of Business as a system we
have to know about both Business Processes and Business system in detail so that we can
understand the concept of Business as a System.
.
Business Process
“A business process is a kind of process in the domain of business organizational structure and
policy for the purpose of achieving business objectives.” Most people intuitively understand
a business process to be a procedure or event with the purpose of reaching a goal. When looking at
our UML Airport we can find many different business processes and goals:
 The goal of our passenger is to go on vacation. To achieve this goal, he has to book a flight and
hotel, pack his bags, drive to the UML Airport, check in and board his airplane, exit the plane at
his destination airport, go to the hotel, move into his room, and unpack his bags.

 The owner of the newsstand at the UML Airport wants to sell her goods. For this, she buys
items inexpensively and sells them to her customers at a higher price.

 In order for passengers to check in at the UML Airport, an employee of passenger services
accepts their tickets and luggage, inquires about their seat preferences, and uses an IT system.
By the end of the procedure, the passengers receive their boarding passes on which their
reserved seats and the appropriate gates are marked.

As we can see, business processes are often completed in several steps. These steps are also
referred to as activities, and have to be completed in a predetermined order. The newsstand
owner cannot sell any goods unless she has purchased them before hand.

A passenger packs his or her suitcase before he or she drives to the airport. The employee of
passenger services at the check-in counter can only issue a boarding pass after check-in is
completed :

Figure - Activity of the business process “Passenger Services”

Activities can run sequentially or in parallel. Thus, a passenger can buy a bottle of whiskey in
the duty-free shop, while his or her luggage is being loaded into the Airbus 320 to London.

Individual activities can be organizationally distributed. The check-in procedure takes place at
the check-in counter and is performed by an employee of passenger services, while the
subsequent boarding occurs at a different location and is performed by different employees of
passenger services.

Usually, the activities of a business process are interdependent. This interdependency is

created by the interaction of all the activities belonging to a business process that pursue one
common goal.
“A process is a coordinated (parallel and/or serial) set of process activity(s) that are connected in
order to achieve a common goal. Such activities may consist of manual activity(s) and/or
workflow activity(s).”

According to this definition, a process is a set of activities that occur in a coordinated manner,
either in parallel or one after another, and that pursue one common goal. These activities can
be performed manually or when supported by an IT system. “A business process is a kind of
process in the domain of business organizational structure and policy for the purpose of
achieving business objectives.”

Business Systems

So far, we have explained business processes. Business processes are dynamic in nature and
involve activities. However, if we want to look at the entire business system, we also have to
consider the static aspects. This involves, for instance, the organizational structures within
which business processes are conducted. This also involves various business objects and
information objects, such as tickets or orders. For the static and dynamic aspects as a whole,
we use the term business system.

In business terminology, a business system refers to the value-added chain, which describes the
value-added process, meaning the supply of goods and services. A business can span one or
several business systems.

Each business system, in itself, generates economic benefit. Thus, the business administrative
meaning of business system does not differ very much from our use of the term business
system. We also refer to the ‘results’ of a business system as ‘functionality’.

For the analysis and modeling of a business system it is important to define system limits. A
business system that is to be modeled can span an entire organization. In this case, we talk
about an organization model. It is also possible to consider and model only a selected part of an
organization. In our case study, an IT system is to be integrated into the Passenger Services
operation. Therefore, it is sufficient to observe this operation and to narrow the business
system to Passenger Services only.

Passenger Services is a division within the UML Airport, with employees, organizational
structure, an IT system, and defined tasks (Figure). The surrounding divisions, such as baggage
transportation or catering, also belong to the UML Airport, but not to our business system. So,
we will treat them like other, external, business systems:

Figure - System boundary during analysis of the business system

We are not interested in any of the external business systems as a whole, but only in
the interfaces between them and our business system. For instance, the staff of passenger
services need to know that they have to transfer passengers’ luggage to baggage
transportation, so that it can be loaded into the airplane. Of course, for this, passenger services
have to know how baggage transportation accepts luggage, so that it can be made available
accordingly. It is possible that the IT systems of passenger services and baggage transportation
will have to be connected, meaning that interfaces will have to be created. On the other hand,
passenger services are completely unconcerned with how baggage transportation is organized,
and whether each suitcase is individually carried across the runway or carts are used to
transport luggage to the airplane.

Using UML to Model Business Processes and Business Systems

Before we move on to the modeling of business processes and business systems with UML, we
should ask ourselves whether UML is even suitable for the modeling of business processes and
business systems. For this purpose we will take a look at UML’s definition by OMG (Object
Management Group Inc.—the international association that promotes open standards for
object-oriented applications, which publishes each version of UML that is submitted for
standardization at www.omg.org):
This definition indicates that UML is a language for the modeling and representation of
systems in general, and thus, also of business systems.

In any case, UML fulfills at least one of the requirements of business-system modeling: it
reflects various views of a business system, in order to capture its different aspects. The
various standardized diagram types of UMLmeet this requirement, because every diagram
gives a different view of the modeled business system.

Scope of Business:
The scope of business is very wide. It includes a large number of activities which may be
classified under two broad categories, namely, Industry and Commerce. A description of the
activities which come under these two broad categories is given below.

1.6.1 Industry : The activities of extraction, production, conversion, processing or fabrication of

products are described as industry. These products of an industry may fall under any one of
the following three categories:

(a) Consumers Goods : Goods used by final consumers are called consumers goods. Example of
consumer goods Edible Oils, Cloth, Jam, Television, Radio, Scooter, Motor Car, Refrigerator, Cell
phone etc. come under this category.

(b) Capital Goods : Goods used in the production of other goods are described as produces’
goods. Steel produced by steel plant is used for fabrication into a variety of products such as
motor cars, scooters, rail Locomotive engines, ships, surgical instruments, blades, etc. Similarly
machine tools and machinery used for manufacturing other products also come under this
heading. These are also called capital goods.

(c) Intermediate Goods : There are certain materials which are the finished products of one
Industry and become the intermediate products of other industries. A few examples of this
kind are the copper industry, the finished products of which are used in manufacturing
Electrical Appliances, Electricity Wires, Toys, Baskets, Containers, and Buckets.
Question -5 What are the major characteristics of business and briefly
explain the nature of business?
Ans :
Business may be defined as an enterprise engaged in the production and distribution of goods
for sale in the market or rendering service at a price. Business may be defined as human
activities directed towards providing or acquiring wealth through buying and selling goods".
This definition includes activities relating to the production of goods. A vital omission is
'services'. Business includes rendering of services also. The main characteristics of business
are;

1. Entrepreneur:- There must be someone to take initiate for establishing a business. The
person who recognises the need for a product or service is known as entrepreneur. The
entrepreneur is a key figure in the process of economic growth. The quality of
entrepreneurship exiting in any region determines to a large growth. The quality of
entrepreneurship existing in any region determines to a large extent the development of that
region. The entrepreneur visualizes a business, combines various factors of production and
puts them into a going concern.

2. Economic Activities:- A Business includes only economic activities. All those activities
relating to the production and distribution of goods and services are called economic activities.
These activities are under-taken with economic motive. Business is carried on with a profit
motive. Any activity undertaken without economic consideration will not be a part business.
So, business covers only economic activities.

3. Exchange of Goods and Services: A business must involve exchange of goods and services.
The goods to be exchanged my either be produced or procured from other sources. The
exchange of goods and services is undertaken with profit motive. Production or purchasing of
goods and services for personal consumption do not constitute business. The purchase of
goods by a retailer constitutes business while the purchase of goods by a consumer is not
business. The purchase of goods should be to sell them again. The same principle is applicable
to services. If a person cooks his food at home it is not business, but if the same person cook at
a restaurant, it is business, because he exchange his services for money.

4. Profit Motive:- The profit motive is an important element of business. Any activity
undertaken without profit motive is not business. A businessman tries to earn more and more
profits out of his business activities. The incentive for earning profits keeps a person in
business and is also necessary for the continuity of the business. This does not mean that there
will not be losses in business. The object of starting a business is to earn profit through there
may be losses. The profit motive does not entitle a businessman to start exploiting the
consumers. The responsibility of business towards society restricts a businessman from
earning exorbitant profit. The business activity will flourish more when the business serves
the society.
5. Risk and Uncertainty:- The business involves larger element of risk and uncertainty. In fact
a business tries to foresee any future uncertainties and plan his business activities accordingly.
The factors on which business depends are never certain, so the business opportunities will
also be uncertain. These may be shift in demand, strike by employees, floods, war, fall in prices,
fluctuations in money market etc. If a businessman is able to foresee uncertainties and is able
to bear them then he will successful, otherwise he may be forced out of business. The risk
element in business keeps a person vigilant and he tries to ward off his risk by executing his
policies properly.

6. Continuity of Transactions:- In business, only those transactions are included which have
regularity and continuity. An isolated transaction will not be called business, even if the person
earns from that deal. A person builds a house for himself, but later on sells it on profit. We will
not sell them, this will be called business. So the transactions should have continuity and
regularity, otherwise they will not be a part of business.

7. Creation of Utility:- The goods are provided to the consumers as per their linkings and
requirements. Business crates various types of utilities ion goods so that consumers may use
them. The utility may be form utility, place utility, time utility etc. When raw materials are
converted into finished goods, it creates from utility. The goods are transported from the
places of production to the ultimate consumers; it creates place utility. In the present
industrial world, production is not done only for the present but it is undertaken for the future
also. The process of storing goods when they are not required and supplying them at a time
when they are needed is called creation of time utility. So the business creates many utilities in
goods so that the consumers may use them according to their preferences and needs.

8. Organisation:- Every enterprise need an organisation for its successful working. Various
business activities are divided into departments, sections, and jobs. An organisation creates
the framework for managerial performance and helps in coordinating various business
activities. A proper oganisation is helpful in the smooth running of the business and helps to
achieve its objectives.

9. Financing:- Business enterprises cannot move a step without finance. The finances are
required for providing fixed and working capital. The availability of other factors of production
also depends upon the availability of finances. After estimating its financial requirements, the
businessman tries to find out the sources from which these requirements will be met. A proper
capital structure is must for the success of the business.

10. Consumer Satisfaction:- The utilities of business is to supply goods to the consumers. The
foods are produced for the consumers. If the consumer is satisfied, then he will purchase the
same thing again, otherwise he will for in for an alternative commodity. The business should
try to satisfy the consumer so that the demand for his products is maintained. The existence
and expansion of business depends upon the liking of the consumers for the products of that
business. The businessman should try to produce goods according to the linkings and tastes of
consumers. The commodities should be made available when they are needed. Business and
consumers exist for each other.

11. Satisfying Social Need:- The business should aim at serving the society at large. The
business is a socio-economic institution. It must look to the public good. A great emphasis is
laid, now-a-days, on the social aspect of business and social obligations of business. It is not
only the public which needs business but business also needs public support. S business must
serve public purpose.

Nature of Business
Business by nature is a decision-making organization involved in the process of using inputs
to produce good and/or provide services.. Businesses exist to satisfy the needs and wants of
people, organizations, and governments. The nature of business is best understood on the
basis of its characteristics or features which are as follows:

1. Business is an economic activity

2. It includes the activities of production or purchase and distribution.

3. It deals in goods and services.

4. It implies regularity of transactions.

5. It aims at earning profits through the satisfaction of human wants.

6. It involves risk; it is not certain that adequate profit will be earned.

7. It creates utilities.

8 . It serves a social purpose by improving people’s standard of living

9. Business denotes creation of utility and service for satisfaction of human wants. Business
helps in the creation, distribution and production of utilities.

10. Business activities are recurring in nature. Recurring purchase and sales are regarded as
identifying marks of the business.

11. Business provides a way of living to the businessman because he intends to earn profit.

12. Business activities are not sided affairs because both the parties are benefited.
Question-6 What are the various major objectives of Business?
Or
Question-7 What do you understand by economic and social objectives of
business?
Ans :
Objectives of Business - Meaning
An objective is something you want to achieve. You may have many objectives in mind; one
could be to perform well in the examination. Similarly, business objectives are something
which a business organization wants to achieve or accomplish over a specified period of time.
These may be to earn profit for its growth and development, to provide quality goods to its
customers, to protect the environment etc.
These are the objectives of business. In the following section let us classify the objectives of
Business
Classification of Objectives of Business
It is generally believed that a business has a single objective, that is, to make profit. But it
cannot be the only objective of business. While pursuing the objective of earning profit,
business units do keep the interest of their owners in view. However, any business unit cannot
ignore the interests of its employees, customers, the community, as well as the interests of
society as a whole.
For instance, no business can prosper in the long run unless fair wages are paid to the
employees and customer satisfaction is given due importance. Again a business unit can
prosper only if it enjoys the support and goodwill of people in general. Business objectives also
need to be aimed at contributing to national goals and aspirations as well as towards
international well-being. Thus, the objectives of business may be classified as -

a. Economic Objectives
b. Social Objectives
c. Human Objectives
d. National Objectives
e. Global Objectives
Now we shall discuss all these objectives in details.
Economic Objectives
Economic objectives of business refer to the objective of earning profit and also other
objectives that are necessary to be pursued to achieve the profit objective, which include,
creation of customers, regular innovations and best possible use of available resources. Let us
learn about these.
i. Profit earning
Profit is the lifeblood of business, without which no business can survive in a competitive
market. In fact profit making is the primary objective for which a business unit is brought into
existence. Profits must be earned to ensure the survival of business, its growth and expansion
over time. Profits help businessmen not only to earn their living but also to expand their
business activities by reinvesting a part of the profits.
In order to achieve this primary objective, certain other objectives are also necessary to be
pursued by business, which are as follows:
Creation of customers
A business unit cannot survive unless there are customers to buy the products and services.
Again a businessman can earn profits only when he/she provides quality goods and services at
a reasonable price. For this it needs to attract more customers for its existing as well as new
products. This is achieved with the help of various marketing activities.
b) Regular innovations
Innovation means changes, which bring about improvement in products, process of production
and distribution of goods. Business units, through innovation, are able to reduce cost by
adopting better methods of production and also increase their sales by attracting more
customers because of improved products. Reduction in cost and increase in sales gives more
profit to the businessman. Use of power-looms in place of handlooms, use of tractor in place of
hand implements in farms etc. are all the results of innovation.
c) Best possible use of resources
As you know, to run any business you must have sufficient capital or funds. The amount of
capital may be used to buy machinery, raw materials, employ men and have cash to meet day-
to-day expenses. Thus, business activities require various resources like men, materials,
money and machines. The availability of these resources is usually limited. Thus, every
business should try to make the best possible use of these resources. This objective can be
achieved by employing efficient workers, making full use of machines and minimizing wastage
of raw materials.
Social Objectives
Social objectives are those objectives of business, which are desired to be achieved for the
benefit of the society. Since business operates in a society by utilizing its scarce resources, the
society expects something in return for its welfare. No activity of the business should be aimed
at giving any kind of trouble to the society. If business activities lead to socially harmful effects,
there is bound to be public reaction against the business sooner or later. Social objectives of
business include production and supply of quality goods and services, adoption of fair trade
practices and contribution to the general welfare of society and provision of welfare amenities.
i. Production and supply of quality goods and services
Since the business utilizes the various resources of the society, the society expects to get
quality goods and services from the business. The objective of business should be to produce
better quality goods and supply them at the right time and at a right price. It is not desirable on
the part of the businessman to supply adulterated or inferior goods which cause injuries to the
customers. They should charge the price according to the quality of the goods and services
provided to the society. Again, the customers also expect timely supply of all their
requirements. So it is important for every business to supply those goods and services on a
regular basis.
ii. Adoption of fair trade practices
In every society, activities such as hoarding, black-marketing and over-charging are considered
undesirable. Besides, misleading advertisements often give a false impression about the
quality of products. Such advertisements deceive the customers and the businessmen use them
for the sake of making large profits. This is an unfair trade practice. The business unit must not
create artificial scarcity of essential goods or raise prices for the sake of earning more profits.
All these activities earn a bad name and sometimes make the businessmen liable for penalty
and even imprisonment under the law. Therefore, the objective of business should be to adopt
fair trade practices for the welfare of the consumers as well as the society.
iii. Contribution to the general welfare of the society
Business units should work for the general welfare and upliftment of the society. This is
possible through running of schools and colleges for better education, opening of vocational
training centres to train the people to earn their livelihood, establishing hospitals for medical
facilities and providing recreational facilities for the general public like parks, sports
complexes etc.
Human Objectives
Human objectives refer to the objectives aimed at the well-being as well as fulfillment of
expectations of employees as also of people who are disabled, handicapped and deprived of
proper education and training. The human objectives of business may thus include economic
well-being of the employees, social and psychological satisfaction of employees and
development of human resources.
i. Economic well being of the employees
In business employees must be provided with fair remuneration and incentives for
performance, benefits of provident fund, pension and other amenities like medical facilities,
housing facilities etc. By this they feel more satisfied at work and contribute more for the
business.
ii. Social and psychological satisfaction of employees
It is the duty of business units to provide social and psychological satisfaction to their
employees. This is possible by making the job interesting and challenging, putting the right
person in the right job and reducing the monotony of work. Opportunities for promotion and
advancement in career should also be provided to the employees. Further, grievances of
employees should be given prompt attention and their suggestions should be considered
seriously when decisions are made. If employees are happy and satisfied they can put their
best efforts in work.
iii. Development of human resources
Employees as human beings always want to grow. Their growth requires proper training as
well as development. Business can prosper if the people employed can improve their skills and
develop their abilities and competencies in course of time. Thus, it is important that business
should arrange training and development programmes for its employees.
iv. Well being of socially and economically backward people
Business units being inseparable parts of society should help backward classes and also people
those are physically and mentally challenged. This can be done in many ways. For instance,
vocational training programme may be arranged to improve the earning capacity of backward
people in the community. While recruiting it staff, business should give preference to
physically and mentally challenged persons. Business units can also help and encourage
meritorious students by awarding scholarships for higher studies.
National Objectives
Being an important part of the country, every business must have the objective of fulfilling
national goals and aspirations. The goal of the country may be to provide employment
opportunity to its citizen, earn revenue for its exchequer, become self-sufficient in production
of goods and services, promote social justice, etc. Business activities should be conducted
keeping these goals of the country in mind, which may be called national objectives of
business. The following are the national objectives of business.
i. Creation of employment
One of the important national objectives of business is to create opportunities for gainful
employment of people. This can be achieved by establishing new business units, expanding
markets, widening distribution channels, etc.
ii. Promotion of social justice
As a responsible citizen, a businessman is expected to provide equal opportunities to all
persons with whom he/she deals. He/She is also expected to provide equal opportunities to all
the employees to work and progress. Towards this objective special attention must be paid to
weaker and backward sections of the society.
iii. Production according to national priority
Business units should produce and supply goods in accordance with the priorities laid down in
the plans and policies of the Government. One of the national objectives of business in our
country should be to increase the production and supply of essential goods at reasonable
prices.
iv. Contribute to the revenue of the country
The business owners should pay their taxes and dues honestly and regularly. This will increase
the revenue of the government, which can be used for the development of the nation.
v. Self-sufficiency and Export Promotion
To help the country to become self-reliant, business units have the added responsibility of
restricting import of goods. Besides, every business units should aim at increasing exports and
adding to the foreign exchange reserves of the country.
Global Objectives
Earlier India had a very restricted business relationship with other nations. There was a very
rigid policy for import and export of goods and services. But, now-a-days due to liberal
economic and export–import policy, restrictions on foreign investments have been largely
abolished and duties on imported goods have been substantially reduced. This change has
brought about increased competition in the market. Today because of globalisation the entire
world has become a big market. Goods produced in one country are readily available in other
countries. So, to face the competition in the global market every business has certain objectives
in mind, which may be called the global objectives. Let us learn about them.
i. Raise general standard of living
Growth of business activities across national borders makes available quality goods at
reasonable prices all over the world. The people of one country get to use similar types of
goods that people in other countries are using. This improves the standard of living of people.
ii. Reduce disparities among nations
Business should help to reduce disparities among the rich and poor nations of the world by
expanding its operation. By way of capital investment in developing as well as underdeveloped
countries it can foster their industrial and economic growth.
iii. Make available globally competitive goods and services
Business should produce goods and services which are globally competitive and have huge
demand in foreign markets. This will improve the image of the exporting country and also earn
more foreign exchange for the country.

Question-7 What is the inter-linkage between business and environment

and how it can be established to maintain global standards?
Or
Question-8 Explain the business and environment interface and how it is
important to be established for global existance?
Ans : Business Environment
Conditions or situations that affect business activities may be regarded as the environment of
business. In other words, business environment refers to the surroundings and circumstances,
which influence business operations. This environment consists of forces and factors internal
or external to a business firm. The skill and ability of employees, their attitude to work,
relations between managers and subordinates etc. may be regarded as internal environment of
business. These are important factors, which may affect business operations. But these are
within the control of the businessman. By taking suitable steps the conditions can be
improved. On the other hand, external environment refers to all those aspect of the
surrounding of business, which are not within the control of the managers and may affect
business activities to a great extent. You may have noticed that sometimes there is less demand
of goods produced by a particular firm. It may be due to better quality substitutes which
customers find more useful. Again, if the government policy changes so as to allow foreign
goods to be imported at lower rates of customs duty, similar good produced in India may not
sell, as the prices of imported goods may be lower. These conditions are generally not within
the control of the businessmen.
Let us discuss about the external factors which influence or affect business activities and
operations and are not controllable by businessmen. We may classify these factors as
economic factors, social factors, political factors and technological factors.
(i) Economic factors
Economic factors include those factors which affect the business environment due to changes
in income level of the people, rates of interest on borrowing, availability of capital, tax rates,
demand and supply of goods and also changes in government economic policies, etc. For
example, you may have noticed that if the level of income of people goes up, there is increased
demand for goods and services. Similarly when interest rates on loans are lower people spend
more on buying durable goods like, car, home etc. Growth of business naturally takes place as a
result of increased spending by consumers.
(ii) Social factors
The nature of goods and services in demand depends upon the changes in habits and customs
of people in the society. With rise in population the demand for household as well as other
goods has increased. The nature of food and clothing has also changed to a great extent.
Demand for packaged food and ready-made garment has increased in recent times. All these
force the business to produce goods accordingly. So the social and cultural factors have also
affected the production pattern of business.
(iii) Political factors
Business environment is adversely affected by the absence of political stability. The workers’
union may demand higher wages, may indulge in frequent strike etc., which affect the normal
functioning of business. Problems of law and order situation in border areas, conflicts between
countries, absence of favourable economic as well as export–import policy also affect the
business activities. Business activities suffer serious set backs under such circumstances.
(iv) Technological factors
Technological advancement always leads to improvement in the process of production,
transportation and communication. Change in technology is mostly associated with better
service and cost efficiency. In recent years, information processing and storage with the use of
computers and telecommunication facilities have developed rapidly. People now prefer to use
mobile phones in place of landline phones. Now-a-days electronic appliances have replaced
electrical equipments very widely. Business activities are bound to suffer if enterprises do not
adopt upto-date technology as and when necessary.

BUSINESS AND ENVIRONMENT INTERFACE

Business environment is the overall climate created by internal and external forces within
which an enterprise operate

1) Awareness of the socio-economic situation.

2) To estimate the availability of resources.

3) To estimate present and future production.

4) Changing the methodology of production

5) To analyse the consumer behaviour

6) To understand cultural changes.

7) Impact of economic and social institutions.

8) To understand and appreciate public policy.

9) Tackle problems of taxation.

10) Impact of Liberalization, Globalization and Privatization.

11) Environmental issues.

12) Involvement in social responsibility activities.

Question-9 Write short notes on (i) Business (ii) Commerce & (iii) Trade
Or
Question-10 How can a Comparative statement of Business, Commerce and
Trade be carried out?
Or
Question-11 How can you make a meaningful distinction among Business,
Commerce and Trade?
Ans : Business
Business may be defined as an enterprise engaged in the production and distribution of goods
for sale in the market or rendering service at a price. Business may be defined as human
activities directed towards providing or acquiring wealth through buying and selling goods".
This definition includes activities relating to the production of goods. A vital omission is
'services'. Business includes rendering of services also. A business is an organization engaged
in the trade of goods, services, or both to consumers. Businesses are predominant
in capitalist economies, where most of them are privately owned and administered to
earn profit to increase the wealth of their owners. Businesses may also be not-for-
profit or state-owned. A business owned by multiple individuals may be referred to as
a company, although that term also has a more precise meaning.

The etymology of "business" relates to the state of being busy either as an individual or society
as a whole, doing commercially viable and profitable work. The term "business" has at least
three usages, depending on the scope — the singular usage to mean a particular organization;
the generalized usage to refer to a particular market sector, "the music business" and
compound forms such as agribusiness; and the broadest meaning, which encompasses all
activity by the community of suppliers of goods and services. However, the exact definition of
business, like much else in the philosophy of business, is a matter of debate and complexity of
meanings.

Although forms of business ownership vary by jurisdiction, there are several common forms:

 Sole proprietorship: A sole proprietorship is a for-profit business owned by one person.

The owner may operate on his or her own or may employ others. The owner of the
business has unlimited liability for the debts incurred by the business.
 Partnership: A partnership is a for-profit business owned by two or more people. In most
forms of partnerships, each partner has unlimited liability for the debts incurred by the
business. The three typical classifications of partnerships are general partnerships, limited
partnerships, and limited liability partnerships.
 Corporation: A corporation is a limited liability business that has a separate legal
personality from its members. Corporations can be either government-owned or privately-
owned, and corporations can organize either for-profit or not-for-profit. A privately-owned,
for-profit corporation is owned by shareholders who elect a board of directors to direct the
corporation and hire its managerial staff. A privately-owned, for-profit corporation can be
either privately held or publicly held.
 Cooperative: Often referred to as a "co-op", a cooperative is a limited liability business that
can organize for-profit or not-for-profit. A cooperative differs from a for-profit corporation
in that it has members, as opposed to shareholders, who share decision-making authority.
Cooperatives are typically classified as either consumer cooperatives or worker
cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

Commerce
While business refers to the value-creating activities of an organization
for profit, commerce means the whole system of an economy that constitutes an environment
for business. The system includes legal, economic, political, social, cultural, and technological
systems that are in operation in any country. Thus, commerce is a system or an environment
that affects the business prospects of an economy or a nation-state. We can also define it as a
second component of business which includes all activities, functions and institutions involved
in transferring goods from producers to consumers

Some commentators trace the origins of commerce to the very start

of communication in prehistoric times. Apart from traditional self-sufficiency, trading became
a principal facility of prehistoric people, who bartered what they had for goods and services
from each other. Historian Peter Watson dates the history of long-distance
commerce from circa 150,000 years ago.

In historic times, the introduction of currency as a standardized money facilitated a wider

exchange of goods and services. Numismatists have collections of these monetary tokens,
which include coins from some Ancient World large-scale societies, although initial usage
involved unmarked lumps of precious metal. The circulation of a standardized currency
provides the major disadvantage to commerce of overcoming the "double coincidence of
wants" necessary for barter trades to occur. For example, if a man who makes pots for a living
needs a new house, he may wish to hire someone to build it for him. But he cannot make an
equivalent number of pots to equal this service done for him, because even if the builder could
build the house, the builder might not want the pots. Currency solved this problem by allowing
a society as a whole to assign values and thus to collect goods and services effectively and to
store them for later use, or to split them among several providers.

Today commerce includes a complex system of companies that try to maximize their
profits by offering products and services to the market (which consists both of individuals and
other companies) at the lowest production cost. A system of international trade has helped to
develop the world economy but, in combination with bilateral or multilateral agreements to
lower tariffs or to achieve free trade, has sometimes harmed third-world markets for local
products

Trade
Trade is the transfer of ownership of goods and services from one person or entity to another.
Trade is sometimes loosely called commerce or financial transaction or barter. A network that
allows trade is called a market. The original form of trade was barter, the direct exchange of
goods and services. Later one side of the barter were the metals, precious metals (poles, coins),
bill, paper money. Modern traders instead generally negotiate through a medium of exchange,
such as money. As a result, buying can be separated from selling, or earning. The invention of
money (and later credit, paper money and non-physical money) greatly simplified and
promoted trade. Trade between two traders is called bilateral trade, while trade between more
than two traders is called multilateral trade.

Trade exists for man due to specialization and division of labor, most people concentrate on a
small aspect of production, trading for other products. Trade exists between regions because
different regions have a comparative advantage in the production of some tradable
commodity, or because different regions' size allows for the benefits of mass production. As
such, trade at market prices between locations benefits both locations.

Retail trade consists of the sale of goods or merchandise from a very fixed location, such as
a department store, boutique or kiosk, or by mail, in small or individual lots for
direct consumption by the purchaser. Wholesale trade is defined as the sale of goods
or merchandise to retailers, to industrial, commercial, institutional, or other
professional business users, or to other wholesalers and related subordinated services.[2]

Trading can also refer to the action performed by traders and other market agents in
the financial markets.
Trade originated with the start of communication in prehistoric times. Trading was the main
facility of prehistoric people, who bartered goods and services from each other before the
innovation of the modern day currency. Peter Watson dates the history of long-distance
commerce from circa150,000 years ago.

Trade is believed to have taken place throughout much of recorded human history. There is
evidence of the exchange of obsidian and flint during the stone age. Materials used for
creating jewelry were traded with Egypt since 3000 BC. Long-range trade routes first appeared
in the 3rd millennium BC, when Sumerians in Mesopotamia traded with the Harappan
civilization of the Indus Valley. The Phoenicians were noted sea traders, traveling across
the Mediterranean Sea, and as far north as Britain for sources of tin to manufacture bronze. For
this purpose they established trade colonies the Greeks called emporia. From the beginning
of Greek civilization until the fall of the Roman empire in the 5th century, a financially lucrative
trade brought valuable spice to Europe from the far east, including India and China. Roman
commerce allowed its empire to flourish and endure. The Roman empire produced a stable
and secure transportation network that enabled the shipment of trade goods without fear of
significant piracy.

The fall of the Roman empire, and the succeeding Dark Ages brought instability to Western
Europe and a near collapse of the trade network in the western world. Trade however
continued to flourish among the kingdoms of Africa, Middle East, India, China and Southeast
Asia. Some trade did occur in the west. For instance, Radhanites were a medieval guild or
group (the precise meaning of the word is lost to history) of Jewish merchants who traded
between the Christians in Europe and the Muslims of the Near East.

During the Middle Ages, Central Asia was the economic center of the world.
The Sogdians dominated the East-West trade route known as the Silk Road after the 4th
century AD up to the 8th century AD, with Suyab and Talas ranking among their main centers
in the north. They were the main caravan merchants of Central Asia.

Unit-II
Question- 12 What do you mean by Business Organization and what are
various forms of Business Organizations?
Or
Question-13 Explain briefly Sole Proprietorship, Partnership Firm and
Joint Stock Company as the forms of Business Organizations.
Ans :
Forms of Business Organisation
While establishing a business the most important task is to select a proper form of
organisation. This is because the conduct of business, its control, acquisition of capital, extent
of risk, distribution of profit, legal formalities, etc. all depend on the form of organisation. The
most important forms of business organisation are as follows:

• Sole Proprietorship

• Joint Hindu Family Business

• Partnership

• Joint Stock Company

• Co-operative Society

Sole Proprietor:

A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type
of business entity that is owned and run by one individual and in which there is no legal
distinction between the owner and the business. The owner receives all profits (subject to
taxation specific to the business) and has unlimited responsibility for all losses and debts.
Every asset of the business is owned by the proprietor and all debts of the business are the
proprietor's. This means that the owner has no less liability than if they were acting as an
individual instead of as a business. It is a "sole" proprietorship in contrast with partnerships.

A sole proprietor may use a trade name or business name other than his or her legal name. In
many jurisdictions there are rules to enable the true owner of a business name to be
ascertained. In the United States there is generally a requirement to file a doing business
as statement with the local authorities. In the United Kingdom the proprietor's name must be
displayed on business stationery, in business emails and at business premises, and there are
other requirements.
Advantages of Sole Proprietorship

There are many advantages of corporations that are described in that article; chiefly they are
the ability to raise capital either publicly or privately, to limit the personal liability of the
officers and managers, and to limit risk to investors

Disadvantages of Sole Proprietorship

Raising capital for a proprietorship is more difficult because an unrelated investor has less
peace of mind concerning the use and security of his or her investment and the investment is
more difficult to formalize; other types of business entities have more documentation.

As a business becomes successful, the risks accompanying the business tend to grow. One of
the main disadvantages of sole proprietors is unlimited liability where the owner's personal
assets can be taken away. This is particularly true for doing or liabilities created by employees;
a corporation only partially shields an owner or officer for his own actions according to the
principle of piercing the corporate veil. Also, being alone in business, sole proprietors generally
lack money which leads to failure. The small size of the business limits the breadth of
management skills because there are fewer people working together. As employees generally
seek stable employers, small independent businesses that have a high chance of failing have
more difficulty attracting skilled people.

Lack of continuity. The enterprise may be crippled or terminated if the owner becomes ill or
dies.

Relative difficulty obtaining long-term financing. Because the enterprise rests exclusively on
one person, it often has difficulty raising long-term capital.

At the time of startup the entrepreneur usually has to handle all functional responsi- bilities of
the venture and handles production, marketing, personnel, finance himself. As a result the vast
majority of new businesses start as sole proprietors. This form has the added merit of being
free from formalities regarding incorporation or maintenance of accounts or auditing etc.

Sole proprietors are unincorporated businesses. They are also called independent
contractors, consultants, or freelancers. There are no forms you need to fill out to start this
type of business. The only thing you need to do is report your business income and expenses
on your Form 1040 Schedule C. This is the easiest form of business to set up, and the easiest to
dissolve.

Joint Hindu Family Business :

The Joint Hindu Fami ly ( JHF) bus iness is a form of bus iness organisat ion found only
in India . In this form of business , all the members of a Hindu undivided family own
the business jointly. The affairs of business are managed by the head of the family, who is
known as the “KARTA”.

A Joint Hindu Family business comes into existence as per the Hindu Inheritance Laws of India.
In a joint Hindu family business only the male members get a share in the business by virtue of
their being part of the family. The membership is limited up to three successive generations.
Thus, an individual, his sons(s), and his grandson(s) become the members of a Joint Hindu
Family by birth. They are also called “Co-parceners”. The term co-parceners implies that such
an individual has got the right to ask for a partition of the Joint Hindu Family business and to
have his separate share. A daughter has no right to ask for a partition and is, therefore, not a
co-parcener.

Characteristics :

1. Legal Status : The Joint Hindu Family business is a jointly owned business just like a jointly
owned property. It is governed by Hindu Law. It can enter into partnership agreement with
others.

2. Membership : There is no membership other than the members of the joint family. Inside the
family also, it is restricted only to male members who are co-parceners by birth.

3. Profit Sharing : All co-parceners have equal share in the profits of the business. In the event
of death of any of the co-parcener, his wife can claim share of profit.

4. Management : The management of a joint Hindu family business is in the hands of the
senior-most family member who is known as the karta. He has the authority to manage the
business and his ways of managing can not be questioned by the co-parceners.

5. Liability : The liability of each member of the Joint Hindu Family business is limited to the
extent of his share in the business. But the liability of the karta is unlimited as, it extends to his
personal property.

6. Fluctuating Share : The individual share of each co-parcener keeps on fluctuating. This is
because, every birth of a male child in the family adds to the number of co-parceners and every
death of a co-parcener reduces the number.

7. Continuity : A Joint Hindu Family business continues to exist on the death of any co-
parcener. Even on the death of the karta, it continues to exist as the next seniormost family
member becomes karta. However, a Joint Hindu Family business can be dissolved any time
either through mutual agreement between members or by partition.26 :: Commerce (Business
Studies)
Advantages of Joint Hindu Family Business :
1. Assured share in profits : Every co-parcener is assured a share in the profits irrespective of
his contribution to the successful running of the business. This , in a way safeguards the
interests of some members of the family like minors, sick, disabled and widows.

2. Freedom in managing : The karta enjoys full freedom in conducting the family business. It
enables him to take quick decisions without much interference.

3. Sharing of knowledge and experience : A Joint Hindu Family business provides opportunity
for the young members of the family to get the benefit of knowledge and experience of the
elder members and also helps in inculcating virtues like discipline, self-sacrifice, tolerance etc.

4. Unlimited liability of the karta : The liability of the co-parceners is limited, except for that of
the karta. This makes the karta to manage the business in the most efficient manner.

5. Continued existence : A Joint Hindu Family business is not affected by the insolvency or
death of any member including that of karta. Thus it can continue for a long period of time.
Disadvantages of Joint Hindu Family Business :
1. Limited resources : Joint Hindu Family business has generally limited financial and
managerial resource. Therefore, it can not undertake big and risky business.

2. Lack of motivation : There is always a lack of motivation among the members to work hard.
It is because the benefit of hard work does not go entirely to any individual member but shared
by all the co-parceners.

3. Scope for misuse of power by the karta : Since the karta has absolute freedom to manage the
business, there is scope for him to misuse it for his personal gains. An inefficient karta can also
do harm to the business.

4. Scope for conflict : In a Joint Hindu Family business the male members of three successive
generations are involved. It always leads to conflict between generations.

5. Instability : The continuity of business is always under threat. It may be due to a small rift
within the family and if a co-parcener ask for a partition the business is closed.
Suitability of Joint Hindu Family Business:
The success of Joint Hindu Family business is mostly dependent upon the efficiency of the
karta and the mutual understanding between the co-parceners. Nevertheless, this type of
business is losing its ground with the gradual decline in the joint Hindu family system.

Partnership Firm:
As the business grows the requirements for funds and management will also increase which
might lead him to enter into partnership with one or more persons. It is always preferable to
have a written agreement in the form of a partnership deed which clearly indicates the names
and addresses of the partners, their ages, contribution to capital, profit sharing ratio etc. This
form also makes for pooling of skills and responsibilities and spread of risk.
A partnership is an arrangement where parties agree to cooperate to advance their mutual
interests. Since humans are social beings, partnerships between individuals, businesses,
interest-based organizations, schools, governments, and varied combinations thereof, have
always been and remain commonplace. In the most frequently associated instance of the term,
a partnership is formed between one or more businesses in which partners (owners) co-labor
to achieve and share profits and losses (see business partners). Partnerships are also common
regardless of and among sectors. Non-profit, religious, and political organizations, may partner
together to increase the likelihood of each achieving their mission and to amplify their reach.
In what is usually called an alliance, governments may partner to achieve their national
interests, sometimes against allied governments who hold contrary interests, such as occurred
during World War II and the Cold War. In education, accrediting agencies increasingly evaluate
schools by the level and quality of their partnerships with other schools and a variety of other
entities across societal sectors. Partnerships also occur at personal levels, such as when two or
more individuals agree to domicile together, while others are not only personal but private,
known only to the involved parties.

Partnerships present the involved parties with special challenges that must be navigated unto
agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of authority
and succession, how success is evaluated and distributed, and often a variety of other factors
must all be negotiated. Once agreement is reached, the partnership is typically enforceable
by civil law, especially if well documented. Partners who wish to make their agreement
affirmatively explicit and enforceable typically draw up Articles of Partnership.

While partnerships stand to amplify mutual interests and success, some are considered
ethically problematic. When a politician, for example, partners with a corporation to advance
the corporation's interest in exchange for some benefit, a conflict of interest results. Outcomes
for the public good may suffer.

Partnerships may enjoy special benefits in tax policies. Among developed countries, for
example, business partnerships are often favored over corporations in taxation policy,
since dividend taxes only occur on profits before they are distributed to the partners. However,
depending on the partnership structure and the jurisdiction in which it operates, owners of a
partnership may be exposed to greaterpersonal liability than they would as shareholders of a
corporation. In such countries, partnerships are often strongly regulated via anti-trust laws, so
as to inhibit monopolistic practices and foster free market competition. Governmentally
recognized domestic partnerships typically enjoy tax benefits, as well.

Characteristics:

1. Number of Partners : A minimum of two persons are required to start a partnership

business. The maximum membership limit is 10 in case of banking business and 20 in case of
all other types of business.

2. Contractual Relationship : The relation between the partners of a partnership firm is created
by contract. The partners enter into partnership through an agreement which may be verbal,
written or implied. If the agreement is in writing it is known as a ‘Partnership Deed’.

3. Competence of Partners : Since individuals have to enter into a contract to become partners,
they must be competent enough to do so. Thus, minors, lunatics and insolvent persons are not
eligible to become partners. However, a minor can be admitted to the benefits of partnership
i.e. he can have a share in the profits.

4. Sharing of Profit and Loss : The partners can share profit in any ratio as agreed. In the
absence of an agreement, they share it equally.

5. Unlimited Liability : The partners have unlimited liability. They are liable jointly and
severally for the debts and obligations of the firm. Creditors can lay claim on the personal
properties of any individual partner or all the partners jointly. Even a single partner may be
called upon to pay the debts of the firm. Of course, he can get back the money due from other
partners. The liability of a minor is, however, limited to the extent of his share in the profits, in
case of dissolution of a firm.
6. Principal-Agent Relationship : The business in a partnership firm may be carried on by all
the partners or any one of them acting for all. This means that every partner is an agent when
he is acting on behalf of others and he is a principal when others act on his behalf. It is,
therefore, essential that there should be mutual trust and faith among the partners in the
interest of the firm.

7. Transfer of Interest : No partner can sell or transfer his interest in the firm to anyone
without the consent of other partners.

8. Legal Status : A partnership firm is just a name for the business as a whole. The firm means
partners and the partners mean the firm. Law does not recognise the firm as a separate entity
distinct from the partners.

9. Voluntary Registration : Registration of partnership is not compulsory. But since registration

entitles the firm to several benefits, it is considered desirable. For example, if it is registered,
any partner can file a case against other partners, or a firm can file a suit against outsiders in
case of disputes, claims, disagreements, etc.

10. Dissolution of Partnership : Dissolution of partnership implies not only a complete closure
or termination of partnership business, but it also includes any change in the existing
agreement among the partners due to a change in the number of partners.

Company:
A company can be a private limited company, in which case it can have a minimum of 2 and a
maximum of 50 members. It can be a public limited company, which has to have a minimum of
7 members, and there is no maximum limit. This form of organisation provides vast amounts of
capital as they, unlike the private limited company, invite the general public to subscribe to its
shares and also provide limited liability. The Companies Act of 1956 governs the companies.

A company is a form of business organization. It is an association or collection of individual

real persons and/or other companies, who each provide some form of capital. This group has a
common purpose or focus and, usually, an aim of gaining profits. This collection, group or
association of persons can be made to exist in law and then a company is itself considered a
"legal person". The name company arose because, at least originally, it represented or was
owned by more than one real or legal person.

A company is a corporation—or, less commonly, an association, partnership, or union—to

carry out an enterprise. Generally, a company may be a "corporation, partnership,
association, joint-stock company, trust, fund, or organized group of persons, whether
incorporated or not, and (in an official capacity) any receiver, trustee in bankruptcy, or similar
official, or liquidating agent, for any of the foregoing."

In English law and in the Commonwealth realms a company is a body corporate or corporation
company registered under the Companies Acts or similar legislation. It does not include
a partnership or any other unincorporated group of persons, although such an entity may be
loosely described as a company.

A company can be defined as an "artificial person", invisible, intangible, created by Law, with
a discrete legal entity, perpetual succession and a common seal. It is not affected by the death,
insanity or insolvency of an individual member.

Types of Companies

1 Private Company

2.Public company

3. Government Company

4.Foriegn company

5.Limited Company

6. Multinational Company

7. Global Company

Co-operative:
A co-operative is an enterprise owned and controlled by people working in it. Generally they
are formed for some specific purpose like a housing cooperative society.

A cooperative (also co-operative or co-op) is a business organization owned and operated by

a group of individuals for their mutual benefit. A cooperative is defined by the International
Cooperative Alliance'sStatement on the Cooperative Identity as "an autonomous association of
persons united voluntarily to meet their common economic, social, and cultural needs and
aspirations through jointly owned and democratically controlled enterprise". A cooperative
may also be defined as a business owned and controlled equally by the people who use its
services or by the people who work there. Various aspects regarding cooperative enterprise
are the focus of study in the field of cooperative economics.

A cooperative is a legal entity owned and democratically controlled by its members. Members
often have a close association with the enterprise as producers or consumers of its products or
services, or as its employees.

In some countries, e.g. Finland and Sweden, there are specific forms of incorporation for
cooperatives. Cooperatives may take the form of companies limited by shares or by guarantee,
partnerships or unincorporated associations. In the USA, cooperatives are often organized as
non-capital stock corporations under state-specific cooperative laws. However, they may also
be unincorporated associations or business corporations such as limited liability companies
or partnerships; such forms are useful when the members want to allow:

1. some members to have a greater share of the control, or

2. some investors to have a return on their capital that exceeds fixed interest,

neither of which may be allowed under local laws for cooperatives. Cooperatives often share
their earnings with the membership as dividends, which are divided among the members
according to their participation in the enterprise, such as patronage, instead of according to the
value of their capital shareholdings (as is done by a joint stock company).

Types of Co-operative Societies

On the basis of objectives, various types of co-operatives are formed :

a. Consumer co-operatives : These are formed to protect the interests of ordinary consumers
of society by making consumer goods available at reasonable prices. Kendriya Bhandar
in Delhi, Alaka in Bhubaneswar and similar others are all examples of consumer co-
operatives

b. Producers co-operatives : These societies are set up to benefit small producers who face
problems in collecting inputs and marketing their products. The Weavers co-operative
society, the Handloom owners cooperative society are examples of such co-operatives.

c. Marketing co-operatives : These are formed by producers and manufactures to eliminate

exploitation by the middlemen while marketing their product. Kashmir Arts Emporium,
J&K Handicrafts, Utkalika etc. are examples of marketing co-operatives.
d. Housing Co-operatives : These are formed to provide housing facilities to its members.
They are called co-operative group housing societies

e. Credit Co-operatives : These societies are formed to provide financial help to its members.
The rural credit societies, the credit and thrift societies, the urban co-operative banks
etc. come under this category.

f. Forming Co-operatives : These are formed by small farmers to carry on work jointly and
thereby share the benefits of large scale farming. Besides these types, other co-
operatives can be formed with the objective of providing different benefits to its
members, like the construction co-operatives, transport co-operatives, co-operatives to
provide education etc.
Characteristics:
1. Voluntary association : Individuals having common interest can come together to form a co-
operative society. Any person can become a member of such an organisation and leave
the same.

2. Membership : The minimum membership required to form a co-operative society is ten and
the maximum number is unlimited. At times the cooperatives after their formation fix a
maximum membership limit

3. Body corporate : Registration of a society under the Co-operative Societies Act is a must.
Once it is registered, it becomes a body corporate and enjoys certain privileges just like a joint
stock company. Some of the privileges are:

(a) The society enjoys perpetual succession.

(b) It has its own common seal.
(c) It can own property in its name.
(d) It can enter into contract with others.
(e) It can sue others in court of law.

4. Service Motive : The primary objective of any co-operative organisation is to render services
to its members in particular and to the society in general.

5. Democratic Set up : Every member has a right to take part in the management of the society.
Each member has one vote. Generally the members elect a committee known as the Executive
Committee to look after the day to day administration and the said committee is responsible to
the general body of members.
6. Sources of Finances : A co-operative organisation starts with a fund contribute by its
members in the form of units called shares. It can also raise loans and secure grants from the
government easily. One fourth of the profits of the co-operative are transferred to its fund
every year.

7. Return on capital : The return on capital subscribed by the members is in the form of a fixed
rate of dividend after deduction from the profit.
Advantages of Co-operative Society:
1. Easy Formation : Formation of a co-operative society is easy as compared to a company. Any
10 persons can voluntarily form an association and get themselves registered with the
Registrar of Co-operative societies.

2. Limited Liability : The liability of the members is limited to the extent of capital contributed
by them.

3. Open Membership : There is no restriction on any individual to be a member of any co-

operative.

4. State Assistance : Co-operatives get a lot of patronage in the form of exemptions and
concessions in taxes and financial assistance from the state governments which no other
organisation gets.

5. Middleman’s Profit Eliminated : Through the co-operative the consumers control their own
supplies and by this means the middleman’s profit is eliminated.

6. Management : A co-operative functions in a democratic manner. Each member has only one
vote.

7. Winding up : The dissolution of a co-operative firm is quite difficult. It does not cease to exist
in case of death, or insolvency or resignation of a member. It has thus a fairly stable life.

Disadvantages of Co-operatives :

1. Limited Capital : The amount of capital that a co-operative can generate is limited because of
the membership remaining confined to a locality or region or a particular section of people.

2. Problems in Management : Generally it is seen that co-operative do not function efficiently

due to lack of managerial talent.

3. Lack of Motivation : Co-operatives are formed to render service to its members than to earn
profit. This does not provide enough motivation to manage the co-operatives effectively.
4. Lack of Co-operation : Co-operatives are formed with the very idea of co-operation. But, it is
often seen that there is lot of friction and bickering among the members due to personality
differences, ego clash etc.

5. Lack of Secrecy : Maintenance of business secrecy is one of the important factors for the
success of enterprise which the co-operatives always lack.

6. Dependence on Government : The inadequacy of capital and various other limitations make
co-operatives dependant on the government for support and patronage in terms of grants,
loans and subject themselves to interference.

Joint-Stock Company (JSC)

A Joint Stock Company form of business organisation is a voluntary association of persons to

carry on business. Normally, it is given a legal status and is subject to certain legal regulations.
It is an association of persons who generally contribute money for some common purpose.
The money so contributed is the capital of the company. The persons who contribute capital
are its members. The proportion of capital to which each member is entitled is called his share,
therefore members of a joint stock company are known as shareholders and the capital of the
company is known as share capital. The total share capital is divided into a number of units
known as ‘shares’. You may have heard of the names of joint stock companies like Tata Iron &
Steel Co. Limited, Hindustan Lever Limited, Reliance Industries Limited, Steel Authority of
India Limited, Ponds India Limited etc.
The companies are governed by the Indian Companies Act, 1956. The Act defines a company
as an artificial person created by law, having separate entity, with perpetual succession and a
common seal.
Characteristics:
1. Artificial Person : A Joint Stock Company is an artificial person in the sense that it is created
by law and does not possess physical attributes of a natural person. However, it has a legal
status.
2. Separate Legal Entity : Being an artificial person, a company has an existence independent of
its members. It can own property, enter into contract and conduct any lawful business in its
own name. It can sue and can be sued in the court of law. A shareholder cannot be held
responsible for the acts of the company.
3. Common Seal : Every company has a common seal by which it is represented while dealing
with outsiders. Any document with the common seal and duly signed by an officer of the
company is binding on the company.
4. Perpetual Existence : A company once formed continues to exist as long as it fulfils the
requirements of law. It is not affected by the death, lunacy, insolvency or retirement of any of
its members.32 :: Commerce (Business Studies)
5. Limited Liability : The liability of a member of a Joint Stock Company is limited by guarantee
or the shares he owns. In other words, in case of payment of debts by the company, a
shareholder is held liable only to the extent of his share.
6. Transferability of Shares : The members of a company are free to transfer the shares held by
them to anyone else.
7. Formation : A company comes into existence only when it has been registered after
completing the formalities prescribed under the Indian Companies Act 1956. A company is
formed by the initiative of a group of persons known as promoters.
8. Membership : A company having a minimum membership of two persons and maximum fifty
is known as a Private Limited Company. But in case of a Public Limited Company, the minimum
is seven and the maximum membership is unlimited.
9. Management : Joint Stock Companies have democratic management and control. Even
though the shareholders are the owners of the company, all of the them cannot participate in
the management process. The company is managed by the elected representatives of
shareholders known as Directors.
10. Capital : A Joint Stock Company generally raises a large amount of capital through issue of
shares.
Advantages of Joint Stock Company:
1. Limited Liability : In a Joint Stock Company the liability of its members is limited to the
extent of shares held by them. This attracts a large number of small investors to invest in the
company. It helps the company to raise huge capital. Because of limited liability, a company is
also able to take larger risks.
2. Continuity of existence : A company is an artificial person created by law and possesses
independent legal status. It is not affected by the death, insolvency etc. of its members. Thus it
has a perpetual existence.
3. Benefits of large scale operation : It is only the company form of organisation which can
provide capital for large scale operations. It results in large scale production consequently
leading to increase in efficiency and reduction in the cost of operation. It further opens the
scope for expansion.
4. Professional Management : Companies, because of complex nature of activities and
operations and large volume of business, require professional managers at every level of
organisation. And because of their financial strength they can afford to appoint such managers.
This leads to efficiency.
5. Social Benefit : A joint stock company offers employment to a large number of people. It
facilitates promotion of various ancillary industries, trade and auxiliaries to trade. Sometimes
it also donates money for education, health, community service and renders help to charitable
and social institutions.
6. Research and Development : A company generally invests a lot of money on research and
development for improved processes of production, designing and innovating new products,
improving quality of product, new ways of training its staff, etc.
Disadvantages of Joint Stock Company:
1. Formation is not easy: The formation of a company involves compliance with a number of
legal formalities under the companies Act and compliance with several other Laws.
2. Control by a Group: Companies are controlled by a group of persons known as the Board of
Directors. This may be due to lack of interest on the part of the shareholders who are widely
dispersed; ignorance, indifference and lack of proper and timely information. Thus, the
democratic virtues of a company do not really exist in practice.
3. Speculation and Manipulation : The shares of a company are purchased and sold in the stock
exchanges. The value or price of a share is determined in terms of the dividend expected and
the reputation of the company. These can be manipulated. Besides there is excessive
speculation which is regarded as a social evil.
4. Excessive government control : A company is expected to comply with the provisions of
several Acts. Non-compliance of these invites heavy penalty. This affects the smooth
functioning of the companies.
5. Delay in Policy Decisions : A company has to fulfill certain procedural formalities before
making a policy decision. These formalities are time consuming and, therefore, policy decisions
may be delayed.
6. Social abuses : A joint stock company is a large scale business organisation having huge
resources. This provides a lot of power to them. Any misuse of such power creates unhealthy
conditions in the society e.g. having monopoly of a particular business, industry or product;
influencing politicians and government in getting their work done; exploiting workers,
consumers and investors.

Question-14 What is the difference between Sole Proprietorship and

Partnership?
Ans :
Difference between various forms of Business Organizations
We have learnt about the various forms of business organisation. If we analyse their
characteristics we find that each one is different from the other. Let us try to distinguish
between these different forms of organisation.
Sole Proprietorship and Partnership
Basis Sole Proprietorship
1. Membership Only one member
2. Functioning A sole trader manages
his business at his free
will.
3. Formation Easy and can be formed
at any time the owner
decides.
4. Secrecy Business secrets are
not open to anyone
other than the proprietor
5. Finance Scope for raising
capital is limited
6. Continuity Comes to an end with
of business the death of the
sole trader.
7. Decision Owner alone takes
Making decision and so it is
quick.
8. Liability Unlimited and the
burden is heavy.
Partnership
Minimum membership is two,
maximum membership is ten in
case of banking business and
twenty in other business
May be managed by all partners
or any one on behalf of all
others.
An agreement is required
between the partners to start a
business.
Business secrets are open to
every partner.
Scope for raising
capital is relatively more.
The business of a firm does
not come to an end if
a partner leaves the firm.
All partners must agree to
important decisions and so
decision making may take time.
Unlimited but less burdensome
as it is shared by partners.
Question- 15 What do you understand by a Company and what are the
various types of companies ?
Ans :

Company:
A company can be a private limited company, in which case it can have a minimum of 2 and a
maximum of 50 members. It can be a public limited company, which has to have a minimum of
7 members, and there is no maximum limit. This form of organisation provides vast amounts of
capital as they, unlike the private limited company, invite the general public to subscribe to its
shares and also provide limited liability. The Companies Act of 1956 governs the companies.

A company is a form of business organization. It is an association or collection of individual

real persons and/or other companies, who each provide some form of capital. This group has a
common purpose or focus and, usually, an aim of gaining profits. This collection, group or
association of persons can be made to exist in law and then a company is itself considered a
"legal person". The name company arose because, at least originally, it represented or was
owned by more than one real or legal person.

A company is a corporation—or, less commonly, an association, partnership, or union—to

carry out an enterprise. Generally, a company may be a "corporation, partnership,
association, joint-stock company, trust, fund, or organized group of persons, whether
incorporated or not, and (in an official capacity) any receiver, trustee in bankruptcy, or similar
official, or liquidating agent, for any of the foregoing."

In English law and in the Commonwealth realms a company is a body corporate or corporation
company registered under the Companies Acts or similar legislation. It does not include
a partnership or any other unincorporated group of persons, although such an entity may be
loosely described as a company.

A company can be defined as an "artificial person", invisible, intangible, created by Law, with
a discrete legal entity, perpetual succession and a common seal. It is not affected by the death,
insanity or insolvency of an individual member.

Types of Companies

1 Private Company

2.Public company
3. Government Company
4.Foriegn company

5.Limited Company

6. Multinational Company

7. Global Company

1. "Private company" is defined in section 3(1)(iii) of the Act and it means a company
which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital
as may be prescribed, and by its articles,

(a) restricts the right to transfer its shares, if any;

(b) limits the number of its members to fifty (50) not including —

(i) persons who are in the employment of the company; and

(ii) persons who, having been formerly in the employment of the company, were members of
the company while in that employment and have continued to be members after the
employment ceased; and

(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the
company: and

(d) prohibits any invitation or acceptance of deposits from persons other than its members,
directors or their relatives:

Provided that where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this definition, be treated as a single member;

2. "Public company" is defined in section 3(1)(iv) of the Act and it means a company
which —

(a) is not a private company;

(b) has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be
prescribed;

(c) is a private company which is a subsidiary of a company which is not a private company.

3. "Government company" is defined in section 617 of the Act and it means any
company in which not less than fifty-one per cent of the paid-up share capital is held by
the Central Government, or by any State Government or Governments, or partly by the
Central Government and partly by one or more State Governments and includes a
company which is a subsidiary of a Government company as thus defined.
As provided by section 620 of the Act, the Central Government may, by notification in
the Official Gazette, exempt Government companies from certain provisions or certain
provisions of the Act shall apply to them with exceptions, modifications and adaptations.

4. "Foreign company" is defined in section 591 of the Act and it means a company which

(a) is incorporated outside India and

(b) has established a place of business within India.

Within 30 days of establishment of such place of business within India, the Foreign Company is
required to submit documents/details under section 592. Alterations and changes in these
documents/details are required to be notified within 30 days.

The provisions of sections 118 (right to obtain copies of trust deed), 124 to 145 (registration of
charges), 159 (annual returns to be made by company), 209 (Books of account to be kept by
company), 209A (inspection of books of account of company), 233A (power of Central
Government to direct special audits in certain cases), 233B (audit of cost accounts in certain
cases), 234 to 246 (power of Registrar to call for information etc.) apply to such foreign
company.

5. "Company limited by guarantee" is defined in section 12(2)(b) of the Act and it

means a company having the liability of its members limited by the memorandum to
such amount as the members may respectively undertake by the memorandum to
contribute to the assets of the company in the event of its being wound up. Such
company could be a "company limited by guarantee and not having share
capital" or a "company limited by guarantee and having a share capital".

The Memorandum and Articles of Association of such companies are as per Tables C and D of
Schedule I of the Act, respectively.

6. "Unlimited Company" is defined in section 12(2)(c) of the Act and it means a

company not having any limit on the liability of its members. The liability of a member
extends to the whole amount of company’s debts and liabilities but the member will be
entitled to claim contribution from other members. The Memorandum and Articles of
such company is as per Table E of Schedule I of the Act.
7. "Producer Company" is defined in section 581A of the Act and it means a body
corporate having objects or activities specified in section 581B and registered as
Producer Company under this Act.

Section 581B

(1) The objects of the producer company shall relate to all or any of the following matters,
namely–
(a) production, harvesting, procurement, grading, pooling, handling, marketing, selling, export
of primary produce of the Members or import of goods or services for their benefit.

Provided that Producer Company may carry on any of the activities specified in this clause
either by itself or through other institution.

(b) processing including preserving, drying, distilling, brewing, vinting, canning and packaging
of produce of its members.

(c) manufacture, sale or supply of machinery, equipment or consumables mainly to its

members.

(d) providing education on the mutual assistance principles to its members and others;

(e) rendering technical services, consultancy services, training, research and development and
all other activities for the promotion of the interest of its members;

(f) generation, transmission and distribution of power, revitalisation of land and water
resources, their use, conservation and communications relatable to primary produce;

(g) insurance of producers or their primary produce;

(h) promoting techniques of mutuality and mutual assistance;

(i) welfare measures or facilities for the benefit of members as may be decided by the Board;

(j) any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to
(i) or other activities which may promote the principles of mutuality and mutual assistance
amongst the members in any other manner;

(k) financing of procurement, processing, marketing or other activities specified in clauses (a)
to (j) which include extending of credit facilities or any other financial services to its members.

(2) Every Producer Company shall deal primarily with the produce of its active Members for
carrying out any of its objects specified in this section.

8. Companies with licence under section 25

(1) Where it is proved to the satisfaction of the Central Government that an association—

(a) is about to be formed as a limited company for promoting commerce, art, science, religion,
charity or any other useful object, and

(b) intends to apply its profits, if any, or other income in promoting its objects, and to prohibit
the payment of any dividend to its members,
the Central Government may, by licence, direct that the association may be registered as a
company with limited liability, without the addition to its name of the word "Limited" or the
word "Private Limited".

(2) The association may thereupon be registered accordingly and on registration shall enjoy all
the privileges and (subject to the provisions of this section) be subject to all the obligations, of
limited companies.

Such companies are generally associations, clubs or chambers of commerce.

The Central Government has conferred powers under section 25(6) to exempt or modify
certain provisions of the Act in relations to such companies.

9. Holding & Subsidiary Company

According to Sec. 2(19) "holding company" means a holding company within the meaning of
section 4 of the Act;

According to Sec. 2(47) "subsidiary company" or "subsidiary" means a subsidiary company

within the meaning of Section 4 of the Act.

Sec. 4. of the Act states,

(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section
(3), be deemed to be a subsidiary of another if, but only if —

(a) that other controls the composition of its Board of directors; or

(b) that other —

(i) where the first-mentioned company is an existing company in respect of which the holders
of preference shares issued before the commencement of this Act have the same voting rights
in all respects as the holders of equity shares, exercises or controls more than half of the total
voting power of such company;

(ii) where the first-mentioned company is any other company, holds more than half in nominal
value of its equity share capital; or

(c) the first-mentioned company is a subsidiary of any company which is that other’s
subsidiary.

9. Limited Liability Partnership (LLP)

It may be noted that LLP is not a Company under the Companies Act, 1956 but it is defined
under section 2(1)(n) of the Limited Liability Partnership Act, 2008 as a "partnership formed
and registered under the Limited Liability Partnership Act, 2008".
Question-16 What are Co-operative Societies and Multinational
Companies?
Ans :
Co-operative Society :
A co-operative is an enterprise owned and controlled by people working in it. Generally they
are formed for some specific purpose like a housing cooperative society.

A cooperative Society(also co-operative or co-op Society) is a business organization owned

and operated by a group of individuals for their mutual benefit. A cooperative is defined by
the International Cooperative Alliance'sStatement on the Cooperative Identity as
"an autonomous association of persons united voluntarily to meet their common economic,
social, and cultural needs and aspirations through jointly owned and democratically
controlled enterprise". A cooperative may also be defined as a business owned and controlled
equally by the people who use its services or by the people who work there. Various aspects
regarding cooperative enterprise are the focus of study in the field of cooperative economics.

A cooperative is a legal entity owned and democratically controlled by its members. Members
often have a close association with the enterprise as producers or consumers of its products or
services, or as its employees.

In some countries, e.g. Finland and Sweden, there are specific forms of incorporation for
cooperatives. Cooperatives may take the form of companies limited by shares or by guarantee,
partnerships or unincorporated associations. In the USA, cooperatives are often organized as
non-capital stock corporations under state-specific cooperative laws. However, they may also
be unincorporated associations or business corporations such as limited liability companies
or partnerships; such forms are useful when the members want to allow:

1. some members to have a greater share of the control, or

2. some investors to have a return on their capital that exceeds fixed interest,

neither of which may be allowed under local laws for cooperatives. Cooperatives often share
their earnings with the membership as dividends, which are divided among the members
according to their participation in the enterprise, such as patronage, instead of according to the
value of their capital shareholdings (as is done by a joint stock company).

Types of Co-operative Societies

On the basis of objectives, various types of co-operatives are formed :

a. Consumer co-operatives : These are formed to protect the interests of ordinary consumers
of society by making consumer goods available at reasonable prices. Kendriya Bhandar
in Delhi, Alaka in Bhubaneswar and similar others are all examples of consumer co-
operatives

b. Producers co-operatives : These societies are set up to benefit small producers who face
problems in collecting inputs and marketing their products. The Weavers co-operative
society, the Handloom owners cooperative society are examples of such co-operatives.

c. Marketing co-operatives : These are formed by producers and manufactures to eliminate

exploitation by the middlemen while marketing their product. Kashmir Arts Emporium,
J&K Handicrafts, Utkalika etc. are examples of marketing co-operatives.

d. Housing Co-operatives : These are formed to provide housing facilities to its members.
They are called co-operative group housing societies

e. Credit Co-operatives : These societies are formed to provide financial help to its members.
The rural credit societies, the credit and thrift societies, the urban co-operative banks
etc. come under this category.

f. Forming Co-operatives : These are formed by small farmers to carry on work jointly and
thereby share the benefits of large scale farming. Besides these types, other co-
operatives can be formed with the objective of providing different benefits to its
members, like the construction co-operatives, transport co-operatives, co-operatives to
provide education etc.
Characteristics:
1. Voluntary association : Individuals having common interest can come together to form a co-
operative society. Any person can become a member of such an organisation and leave
the same.

2. Membership : The minimum membership required to form a co-operative society is ten and
the maximum number is unlimited. At times the cooperatives after their formation fix a
maximum membership limit

3. Body corporate : Registration of a society under the Co-operative Societies Act is a must.
Once it is registered, it becomes a body corporate and enjoys certain privileges just like a joint
stock company. Some of the privileges are:
(a) The society enjoys perpetual succession.
 (b) It has its own common seal.
(c) It can own property in its name.
(d) It can enter into contract with others.
(e) It can sue others in court of law.

4. Service Motive : The primary objective of any co-operative organisation is to render services
to its members in particular and to the society in general.

5. Democratic Set up : Every member has a right to take part in the management of the society.
Each member has one vote. Generally the members elect a committee known as the Executive
Committee to look after the day to day administration and the said committee is responsible to
the general body of members.

6. Sources of Finances : A co-operative organisation starts with a fund contribute by its

members in the form of units called shares. It can also raise loans and secure grants from the
government easily. One fourth of the profits of the co-operative are transferred to its fund
every year.

7. Return on capital : The return on capital subscribed by the members is in the form of a fixed
rate of dividend after deduction from the profit.
Advantages of Co-operative Society:
1. Easy Formation : Formation of a co-operative society is easy as compared to a company. Any
10 persons can voluntarily form an association and get themselves registered with the
Registrar of Co-operative societies.

2. Limited Liability : The liability of the members is limited to the extent of capital contributed
by them.

3. Open Membership : There is no restriction on any individual to be a member of any co-

operative.

4. State Assistance : Co-operatives get a lot of patronage in the form of exemptions and
concessions in taxes and financial assistance from the state governments which no other
organisation gets.

5. Middleman’s Profit Eliminated : Through the co-operative the consumers control their own
supplies and by this means the middleman’s profit is eliminated.

6. Management : A co-operative functions in a democratic manner. Each member has only one
vote.
7. Winding up : The dissolution of a co-operative firm is quite difficult. It does not cease to exist
in case of death, or insolvency or resignation of a member. It has thus a fairly stable life.

Disadvantages of Co-operatives :

1. Limited Capital : The amount of capital that a co-operative can generate is limited because of
the membership remaining confined to a locality or region or a particular section of people.

2. Problems in Management : Generally it is seen that co-operative do not function efficiently

due to lack of managerial talent.

3. Lack of Motivation : Co-operatives are formed to render service to its members than to earn
profit. This does not provide enough motivation to manage the co-operatives effectively.

4. Lack of Co-operation : Co-operatives are formed with the very idea of co-operation. But, it is
often seen that there is lot of friction and bickering among the members due to personality
differences, ego clash etc.

5. Lack of Secrecy : Maintenance of business secrecy is one of the important factors for the
success of enterprise which the co-operatives always lack.

6. Dependence on Government : The inadequacy of capital and various other limitations make
co-operatives dependant on the government for support and patronage in terms of grants,
loans and subject themselves to interference.
Multi-National Companies
The

A multinational corporation (MNC) or enterprise (MNE), is a corporation or an enterprise

that manages production or delivers services in more than one country. It can also be referred
to as an international corporation. The International Labour Organization (ILO) has
defined an MNC as a corporation that has its management headquarters in one country, known
as the home country, and operates in several other countries, known as host countries.

The Dutch East India Company was the second multinational corporation in the world (the
first, the British East India Company, was founded two years earlier) and the first company to
issue stock, and it was the largest of the early multinational companies. It was also arguably
the world's first mega corporation, possessing quasi-governmental powers, including the
ability to wage war, negotiate treaties, coin money, and establish colonies.
Some multinational corporations are very big, with budgets that exceed some nations' GDPs.
Multinational corporations can have a powerful influence in local economies, and even
the world economy, and play an important role in international relations and globalization.
 A corporation that has its facilities and other assets in at least one country other than its home
country. Such companies have offices and/or factories in different countries and usually have a
centralized head office where they co-ordinate global management. Very large multinationals
have budgets that exceed those of many small countries.
Nearly all major multinationals are either American, Japanese or Western European, such as
Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW. Advocates of multinationals say
they create jobs and wealth and improve technology in countries that are in need of such
development. On the other hand, critics say multinationals can have undue political influence
over governments, can exploit developing nations as well as create job losses in their own
home countries.

Just because a large company is very successful in one country, it doesn’t mean that it will be
successful in another country, especially if that country has a completely different culture.
McDonalds is one of the largest companies in the world. However, it has adapted to the
different cultures to make sure it is successful. In France, ‘McDonald's added tablecloths and
candles to improve the ambience at some eateries and introduced waiter service at certain
outlets because they found that most Europeans prefer leisurely rather than fast food dining’
In addition to space, McDonald’s has changed its menus from one country to another, offering
food that locals usually eat: in France, a burger has mustard and ciabatta rolls instead of
regular buns. In Japan, fried egg burgers were offered. In Saudi Arabia, in accordance with the
religious beliefs there, Starbucks has changed its logo and removed the girl from the picture. In
addition, Starbucks branches there usually have two sections, one for the females and one for
the males. This is the case with most stores since men aren’t allowed to sit with women.

Question-17 How can you distinguish among Global, Transnational,

International and Multinational Companies?
Ans :

Difference among Global, Transnational, International and Multinational

Companies
We tend to read the following terms and think they refer to any company doing business in
another country.

 Multinational
 International
 Transnational
 Global

Andrew Hines over at BNET has brief and clear definitions of each of these terms, Get your
international business terms right.

Each term is distinct and has a specific meaning which define the scope and degree of
interaction with their operations outside of their “home” country.

 International companies are importers and exporters, they have no investment outside of
their home country. International companies are importers and exporters, they have no
investment outside of their home country

Multinational companies have investment in other countries, but do not have coordinated
product offerings in each country. More focused on adapting their products and service to each
individual local market. Multinational companies have investment in other countries, but do
not have coordinated product offerings in each country. More focused on adapting their
products and service to each individual local market.

Global companies have invested and are present in many countries. They market their
products through the use of the same coordinated image/brand in all markets. Generally one
corporate office that is responsible for global strategy. Emphasis on volume, cost management
and efficiency. Global companies have invested and are present in many countries. They
market their products through the use of the same coordinated image/brand in all markets.
Generally one corporate office that is responsible for global strategy. Emphasis on volume, cost
management and efficiency.

 Transnational companies are much more complex organizations. They have invested in
foreign operations, have a central corporate facility but give decision-making, R&D and
marketing powers to each individual foreign market. Transnational companies are much more
complex organizations. They have invested in foreign operations, have a central corporate
facility but give decision-making, R&D and marketing powers to each individual foreign market

Unit - III
Question- 18 What do you mean by Entrepreneurs and Entrepreneurship
and how these can be differentiated?
Ans :

Entrepreneur is an owner or manager of a business enterprise who makes money through

risk and initiative. The term was originally a loanword from French and was first defined by
the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a
person who is willing to help launch a new venture or enterprise and accept full responsibility
for the outcome. Jean-Baptiste Say, a French economist, is believed to have coined the word
"entrepreneur" in the 19th century - he defined an entrepreneur as "one who undertakes an
enterprise, especially a contractor, acting as intermediatory between capital and labour". A
broader definition by Say: "The entrepreneur shifts economic resources out of lower and into
higher productivity and greater yield

The entrepreneur leads the firm or organization and also demonstrates leadership qualities by
selecting managerial staff. Management skill and strong team building abilities are essential
leadership attributes for successful entrepreneurs. It is considered that leadership,
management ability, and team-building as essential qualities of an entrepreneur

Entrepreneurs emerge from the population on demand, and become leaders because they
perceive opportunities available and are well-positioned to take advantage of them. An
entrepreneur may perceive that they are among the few to recognize or be able to solve a
problem. Joseph Schumpeter saw the entrepreneur as innovators and popularized the uses of
the phrase creative destruction to describe his view of the role of entrepreneurs in changing
business norms. Creative destruction encompasses changes entrepreneurial activity makes
every time a new process, product or company enters the markets.

The most significant influence on an individual's decision to become an entrepreneur is

workplace peers and the social composition of the workplace. Entrepreneurs also often
possess innate traits such as extroversion and a propensity for— risk-taking.—Nanda, R and
Sorensen, J (2008) Workplace Peers and Entrepreneurship . According to Schumpeter, an
entrepreneur characteristically innovates, introduces new technologies, increases efficiency,
productivity, or generates new products or services. An entrepreneur acts as a catalyst for
economic change and research indicates that entrepreneurs are highly creative individuals
who imagine new solutions by generating opportunities for profit or reward.

There is a complexity and lack of cohesion between research studies that explore the
characteristics and personality traits of, and influences on, the entrepreneur. Most studies,
however, agree that there are certain entrepreneurial traits and environmental influences that
tend to be consistent. Although certain entrepreneurial traits are required, entrepreneurial
behaviours are dynamic and influenced by environmental factors. The entrepreneur is solely
concerned with opportunity recognition and exploitation; however, the opportunity that is
recognised depends on the type of entrepreneur which argue there are many different types
dependent on their business and personal circumstances.
studies show that the psychological propensities for male and female entrepreneurs are
more similar than different. Perceived gender differences may be due more to gender
stereotyping. There is a growing body of work that shows that entrepreneurial behavior is
dependent on social and economic factors. For example, countries which have healthy and
diversified labor markets or stronger safety nets show a more favorable ratio of opportunity-
driven rather than necessity-driven women entrepreneurs. Empirical studies suggest that
women entrepreneurs possess strong negotiating skills and consensus-forming abilities.

Entrepreneurship
Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who
undertakes innovations, finance and business acumen in an effort to transform innovations
into economic goods". This may result in new organizations or may be part of revitalizing
mature organizations in response to a perceived opportunity. The most obvious form of
entrepreneurship is that of starting new businesses (referred as Start up Company); however,
in recent years, the term has been extended to include social and political forms of
entrepreneurial activity. When entrepreneurship is describing activities within a firm or large
organization it is referred to as intra-preneurship and may include corporate venturing, when
large entities spin-off organizations.
According to Entrepreneurship scholars and creator of the Global Entrepreneurship Monitors,
"by the time they reach their retirement years, half of all working men in the United States
probably have a period of self-employment of one or more years; one in four may have
engaged in self-employment for six or more years. Participating in a new business creation is a
common activity among U.S. workers over the course of their careers." And in recent years has
been documented by scholars such as to be a major driver of economic growth in both the
United States and Western Europe.

Entrepreneurial activities are substantially different depending on the type of organization and
creativity involved. Entrepreneurship ranges in scale from solo projects (even involving the
entrepreneur only part-time) to major undertakings creating many job opportunities. Many
"high value" entrepreneurial ventures seek venture capital or angel funding (seed money) in
order to raise capital to build the business. Angel investors generally seek annualized returns
of 20-30% and more, as well as extensive involvement in the business. Many kinds of
organizations now exist to support would-be entrepreneurs including specialized government
agencies, business incubators, science parks, and some NGOs. In more recent times, the term
entrepreneurship has been extended to include elements not related necessarily to business
formation activity such as conceptualizations of entrepreneurship as a specific mindset (see
also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g. in the form of social
entrepreneurship, political entrepreneurship, or knowledge entrepreneurship have emerged.

The entrepreneur is a factor in micro-economics, and the study of entrepreneurship

reaches back to the work of Richard and Adam Smith in the late 17th and early 18th centuries,
but was largely ignored theoretically until the late 19th and early 20th centuries and
empirically until a profound resurgence in business and economics in the last 40 years.

In the 20th century, the understanding of entrepreneurship owes much to the work of
economist Joseph Schumpeter in the 1930s and other Austrian economists such as Carl
Menger, Ludwig von Mises and Friedrich von Hayek. In Schumpeter, an entrepreneur is a
person who is willing and able to convert a new idea or invention into a successful
innovation.[4] Entrepreneurship employs what Schumpeter called "the gale of creative
destruction" to replace in whole or in part inferior innovations across markets and industries,
simultaneously creating new products including new business models. In this way, creative
destruction is largely responsible for the dynamism of industries and long-run economic
growth. The supposition that entrepreneurship leads to economic growth is an interpretation
of the residual in endogenous growth theory and as such is hotly debated in academic
economics. An alternate description posited by Israel Kirzner suggests that the majority of
innovations may be much more incremental improvements such as the replacement of paper
with plastic in the construction of a drinking straw.

Entrepreneurship resulted in new industries but also in new combinations of currently

existing inputs. Schumpeter's initial example of this was the combination of a steam engine and
then current wagon making technologies to produce the horseless carriage. In this case the
innovation, the car, was transformational but did not require the development of a new
technology, merely the application of existing technologies in a novel manner. It did not
immediately replace the horsedrawn carriage, but in time, incremental improvements which
reduced the cost and improved the technology led to the complete practical replacement of
beast drawn vehicles in modern transportation. Despite Schumpeter's early 20th-century
contributions, traditional microeconomic theory did not formally consider the entrepreneur in
its theoretical frameworks (instead assuming that resources would find each other through a
price system). In this treatment the entrepreneur was an implied but unspecified actor, but it
is consistent with the concept of the entrepreneur being the agent of x-efficiency.

Question- 19 What are the significant traits of successful Entrepreneurs?

Ans :
 Entrepreneurs are very unique in nature as they have some special Traits. What are the traits
of successful entrepreneurs? That's quite a challenge. What, besides the obvious, do successful
entrepreneurs have in common? We can get the idea started. As an entrepreneur, one have a
lot of freedom and choosing this path was one of the best decisions One has ever made.
Everything is done on your own time, where you want it and how you want it. It feels good to
be able to simply turn your day into night and your night into day. The joy of being an
entrepreneur is endless. Even though the entrepreneurial lifestyle is great, there are some
key traits and characteristics all successful entrepreneurs must hold.

1. Get Things Done Quickly

One of the most important characteristics of an entrepreneur is to not waste time – never put
off what you can accomplish today for tomorrow. Successful entrepreneurs don’t procrastinate
because they know it is always great to get things done faster. The best feeling is when you
complete something off of your to-do list. The most productive people are the ones who make
the most with the allotted time. Be sure that you plan ahead and focus on what matters.

2. Self- Confident

Since every business success revolves around taking risks, successful entrepreneurs are
always ready to take risks when it comes to their business. When trying to succeed and attain
greater heights as an entrepreneur it is always advisable to take risks. The best and most
profitable investments require the most risk.

3. Ability to Effectively Manage Money

Many entrepreneurs today don’t even think twice before doing anything, and often lose sight of
how to invest their money properly.

As an entrepreneur it is very important to effectively manage your money and plan for the
future. You don’t want to be too cheap with your money and not look to expand, but you also
need to remember to keep a percentage. Spending money frequently requires a risk, but don’t
spend the money if the risks exceeds the possible return.

4. Network

Another great characteristic of successful entrepreneurs is that they always network with each
other. Successful entrepreneurs have realized the power of working together and they always
team up with each other to get great results for their business. The best advice anyone can give
you is to look for advice from others. Don’t be afraid to initiate a conversation with someone
that has more experience than you.

When trying to succeed as an entrepreneur, never do it alone and try to find other people in
your field. Brainstorm ideas together, support each other and learn from each other.
5. Adaption to Changes

Many of the top entrepreneurs of our time are always adapting to changes, specifically in
regards to new technologies. Everything is improving day by day and it is very important not
to just expect things to be as they used to be.

Adapting to changes is very important and it can lead to a major breakthrough of your
business. Are you an entrepreneur who does not have your business online? Why not take
advantage of the vast audience of the internet and expand your business.

Becoming a successful entrepreneur is no easy task. If you consistently get things done early,
remain confident even when times are tough, manage your money wisely, network with others
and adapt properly to new changes you will find that things will come easier.

6.Curiosity

It’s such a wonderful trait in business. To want, no, need to know what’s next, how something
works, why people aren’t buying, or how to do something just a little faster is a trait I look for
in any potential employee and one that successful entrepreneurs are almost plagued with.
(Insatiable curiosity is often encumbered with boredom of the routine.)

7.Risk Averse

This one throws people, but successful entrepreneurs are not any more wired to take risks
than most, but they are wired to spot opportunities and possess the confidence that something,
perhaps not what was originally envisioned, can be made of the opportunity. They are often
better at letting something that’s clearly a bad idea go, limiting the ultimate risk.

8. Planners

This goes hand in hand with risk. Successful entrepreneurs enjoy the planning process, not
necessarily completing a plan, but this is what makes them averse to taking foolish risks. They
often so value the plan for their life that they always hold a glimmer of the vision of the
business that can serve that plan.

8.Trusting

Successful entrepreneurs are trustworthy. They keep their promises, but more than that, they
are trusting. In other words, they extend trust to others and focus on results instead of blame
when something goes wrong.

9. Judgment Power
 It’s tough to succeed long-term as an entrepreneur when you judge one or most of your
actions as failed. Successful entrepreneurs have an uncanny ability to look at every misstep
(and there will be plenty) as a learning opportunity. The key question is what did we learn
from this as opposed to why did this fail.

10.Spatial

We might get some challenges on this one as my research is a bit shaky here, but most of the
successful entrepreneurs I’ve worked with view things from a different point of view than the
general population. They can do puzzles. This includes seeing how seemingly random sets of
ideas fit together in simple and elegant ways. If they excel at math, it’s probably geometry over
calculus.

11.Pragmatic

Here’s another one that I think is misunderstood. Successful entrepreneurs I’ve met are very
realistic about what’s possible and are very practical in terms of getting there. That doesn’t
mean that they choke off growth by being overly cash sensitive, but it does usually mean that
they have a great sense of how many units they can really move next quarter and what action
steps are needed to do it.

Question- 20 Explain various types of Entrepreneurs and what are their

important characteristics?
Ans : The Various Types of Entrepreneurs are as follows

Social entrepreneur
A social entrepreneur is motivated by a desire to help, improve and
transform social, environmental, educational and economic conditions. Key traits and
characteristics of highly effective social entrepreneurs include ambition and a lack of
acceptance of the status quo or accepting the world "as it is". The social entrepreneur is driven
by an emotional desire to address some of the big social and economic conditions in the world,
for example, poverty and educational deprivation, rather than by the desire for profit. Social
entrepreneurs seek to develop innovative solutions to global problems that can be copied by
others to enact change.
Social entrepreneurs act within a market aiming to create social value through the
improvement of goods and services offered to the community. Their main aim is to help offer a
better service improving the community as a whole and are predominately run as non profit
schemes. Zahra et al. (2009: 519) said that “social entrepreneurs make significant and diverse
contributions to their communities and societies, adopting business models to offer creative
solutions to complex and persistent social problems”.

Serial entrepreneur
A serial entrepreneur is one who continuously comes up with new ideas and starts new
businesses. In the media, the serial entrepreneur is represented as possessing a higher
propensity for risk, innovation and achievement. Serial entrepreneurs are more likely to
experience repeated entrepreneurial success. They are more likely to take risks and recover
from business failure.
Lifestyle entrepreneur
A lifestyle entrepreneur places passion before profit when launching a business in order to
combine personal interests and talent with the ability to earn a living.
Many entrepreneurs may be primarily motivated by the intention to make their business
profitable in order to sell to shareholders. In contrast, a lifestyle entrepreneur intentionally
chooses a business model intended to develop and grow their business in order to make a
long-term, sustainable and viable living working in a field where they have a particular
interest, passion, talent, knowledge or high degree of expertise. [6] A lifestyle entrepreneur may
decide to become self-employed in order to achieve greater personal freedom, more family
time and more time working on projects or business goals that inspire them. A lifestyle
entrepreneur may combine a hobby with a profession or they may specifically decide not to
expand their business in order to remain in control of their venture. Common goals held by the
lifestyle entrepreneur include earning a living doing something that they love, earning a living
in a way that facilitates self-employment, achieving a good work/life balance and owning a
business without shareholders. Many lifestyle entrepreneurs are very dedicated to their
business and may work within the creative industries or tourism industry,[7] where a passion
before profit approach to entrepreneurship often prevails. While many entrepreneurs may
launch their business with a clear exit strategy, a lifestyle entrepreneur may deliberately and
consciously choose to keep their venture fully within their own control.
Lifestyle entrepreneurship is becoming increasing popular as technology provides small
business owners with the digital platforms needed to reach a large global market.[8] Younger
lifestyle entrepreneurs, typically those between 25 and 40 years old, are sometimes referred to
as Treps.
Fabian Entrepreneurs
A Fabian Entrepreneur is one who is very cautious in taking the decisions, very skeptical, and
takes calculative steps.
Drone Entrepreneur
Drone Entrepreneurs suffer losses, as they refuse to make any modifications in the existing
production methods. These entrepreneurs are conservative or orthodox in outlook. They never
like to get noticed.

Question-21 What is the Concept and nature of Entrepreneurship?

Ans Concept of Entrepreneurs
It has assumed super importance for accelerating economic growth both in developed and
developing countries. It promotes capital formation and creates wealth in country. It is hope
and dreams of millions of individuals around the world. It reduces unemployment and poverty
and it is a pathway to prosper. Entrepreneurship is the process of exploring the opportunities
in the market place and arranging resources required to exploit these opportunities for long
term gain. It is the process of planning, organising, opportunities and assuming. Thus it is a risk
of business enterprise. It may be distinguished as an ability to take risk independently to make
utmost earnings in the market. It is a creative and innovative skill and adapting response to
environment of what is real.
Nature of Entrepreneurship
Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who
undertakes innovations, finance and business acumen in an effort to transform innovations
into economic goods". This may result in new organizations or may be part of revitalizing
mature organizations in response to a perceived opportunity.

The most obvious speciality of entrepreneurship is that of starting new businesses (referred
as Start up Company); however, in recent years, the term has been extended to include social
and political forms of entrepreneurial activity.

When entrepreneurship is describing activities within a firm or large organization it is referred

to as intra-preneurship and may include corporate venturing, when large entities spin-off
organizations.
Entrepreneurial activities are substantially different depending on the type of organization
and creativity involved.

Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only
part-time) to major undertakings creating many job opportunities.

Many "high value" entrepreneurial ventures seek venture capital or angel funding (seed
money) in order to raise capital to build the business. Angel investors generally seek
annualized returns of 20-30% and more, as well as extensive involvement in the business.

Many kinds of organizations now exist to support would-be entrepreneurs including

specialized government agencies, business incubators, science parks, and some NGOs. In more
recent times, the term entrepreneurship has been extended to include elements not related
necessarily to business formation activity such as conceptualizations of entrepreneurship as a
specific mindset (see also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g.
in the form of social entrepreneurship, political entrepreneurship, or knowledge
entrepreneurship have emerged.

The entrepreneurship is a factor in microeconomics, and the study of entrepreneurship

reaches back to the profound resurgence in business and economics in the last 40 years.

Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to

replace in whole or in part inferior innovations across markets and industries, simultaneously
creating new products including new business models. In this way, creative destruction is
largely responsible for the dynamism of industries and long-run economic growth.

The supposition that entrepreneurship leads to economic growth is an interpretation of the

residual in endogenous growth theory and as such is hotly debated in academic economics. An
alternate description suggests that the majority of innovations may be much more incremental
improvements such as the replacement of paper with plastic in the construction of a drinking
straw.

Entrepreneurship resulted in new industries but also in new combinations of currently

existing inputs. Schumpeter's initial example of this was the combination of a steam engine and
then current wagon making technologies to produce the horseless carriage. In this case the
innovation, the car, was transformational but did not require the development of a new
technology, merely the application of existing technologies in a novel manner. It did not
immediately replace the horse drawn carriage, but in time, incremental improvements which
reduced the cost and improved the technology led to the complete practical replacement of
beast drawn vehicles in modern transportation.
Traditional microeconomic theory did not formally consider the entrepreneur in its theoretical
frameworks (instead assuming that resources would find each other through a price system).
In this treatment the entrepreneur was an implied but unspecified actor, but it is consistent
with the concept of the entrepreneur being the agent of x-efficiency.

Promotion of Entrepreneurs
Given entrepreneurship's potential to support economic growth, it is the policy goal of many
governments to develop a culture of entrepreneurial thinking. This can be done in a number of
ways: by integrating entrepreneurship into education systems, legislating to encourage risk-
taking, and national campaigns. An example of the latter is the United Kingdom's Enterprise
Week, which launched in 2004.

Outside of the political world, research has been conducted on the presence of entrepreneurial
theories in doctoral economics programs. Dan Johansson, fellow at the Ratio Institute in
Sweden, finds such content to be sparse. He fears this will dilute doctoral programs and fail to
train young economists to analyze problems in a relevant way.[9]

Many of these initiatives have been brought together under the umbrella of Global
Entrepreneurship Week, a worldwide celebration and promotion of youth entrepreneurship,
which started in 2008.

Question-22 What do you understand by contemporary business

environment and what are the entrepreneurial opportunities in
contemporary business environment?
Ans :
Business Environment
The business environment is the aggregate of all conditions, events, and influences that
surround and affect a business firm. Business environment generally refers to the external
factors affecting, either positively or negatively, the operation of a firm. The most important
external factors include economic, legal, political, social and technological factors.

Contemporary Business Environment

The term Contemporary Business Environment is composed of three words ‘Contemporary,’
‘Business’ and ‘Environment’. In simple terms, Contemporary means the present time the state
in which a person remains busy is known as Business. The word Business in its economic
sense means human activities like production, extraction or purchase or sales of goods that
are performed for earning profits.
On the other hand, the word ‘Contemporary Environment’ refers to the aspects of
surroundings. Therefore, Business Environment may be defined as a set of conditions – Social,
Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the
functioning of organization. Business Environment has two components:

1. Internal Environment
2. External Environment

Internal Environment: It includes 5 Ms i.e. man, material, money, machinery and

management, usually within the control of business. Business can make changes in these
factors according to the change in the functioning of enterprise.
External Environment: Those factors which are beyond the control of business enterprise are
included in external environment. These factors are: Government and Legal factors, Geo-
Physical Factors, Political Factors, Socio-Cultural Factors, Demo-Graphical factors etc. It is of
two Types:
1. Micro/Operating Environment
2. Macro/General Environment
Micro/Operating Environment: The environment which is close to business and affects its
capacity to work is known as Micro or Operating Environment. It consists of Suppliers,
Customers, Market Intermediaries, Competitors and Public.
(1) Suppliers: – They are the persons who supply raw material and required components to
the company. They must be reliable and business must have multiple suppliers i.e. they should
not depend upon only one supplier.
(2) Customers: - Customers are regarded as the king of the market. Success of every business
depends upon the level of their customer’s satisfaction. Types of Customers:
(i) Wholesalers
(ii) Retailers
(iii) Industries
(iv) Government and Other Institutions
(v) Foreigners
(3) Market Intermediaries: - They work as a link between business and final consumers.
Types:-
(i) Middleman
(ii) Marketing Agencies
(iii) Financial Intermediaries
(iv) Physical Intermediaries
(4) Competitors: - Every move of the competitors affects the business. Business has to adjust
itself according to the strategies of the Competitors.
(5) Public: - Any group who has actual interest in business enterprise is termed as public e.g.
media and local public. They may be the users or non-users of the product.
Macro/General Environment: – It includes factors that create opportunities and threats to
business units. Following are the elements of Macro Environment:
(1) Economic Environment: - It is very complex and dynamic in nature that keeps on
changing with the change in policies or political situations. It has three elements:
(i) Economic Conditions of Public
(ii) Economic Policies of the country
(iii)Economic System
(iv) Other Economic Factors: – Infrastructural Facilities, Banking, Insurance companies, money
markets, capital markets etc.
(2) Non-Economic Environment: - Following are included in non-economic environment:-
(i) Political Environment: - It affects different business units extensively. Components:
(a) Political Belief of Government
(b) Political Strength of the Country
(c) Relation with other countries
(d) Defense and Military Policies
(e) Centre State Relationship in the Country
(f) Thinking Opposition Parties towards Business Unit
(ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors, not
within the control of business, is known as Socio-Cultural Environment. These factors include:
attitude of people to work, family system, caste system, religion, education, marriage etc.
(iii) Technological Environment: - A systematic application of scientific knowledge to
practical task is known as technology. Everyday there has been vast changes in products,
services, lifestyles and living conditions, these changes must be analysed by every business
unit and should adapt these changes.
(iv) Natural Environment: - It includes natural resources, weather, climatic conditions, port
facilities, topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must
look for these factors before choosing the location for their business.
(v) Demographic Environment :- It is a study of perspective of population i.e. its size,
standard of living, growth rate, age-sex composition, family size, income level (upper level,
middle level and lower level), education level etc. Every business unit must see these features
of population and recongnise their various need and produce accordingly.
(vi) International Environment: - It is particularly important for industries directly
depending on import or exports. The factors that affect the business are: Globalisation,
Liberalisation, foreign business policies, cultural exchange.
Characteristics:-
1. Business environment is compound in nature.

2. Business environment is constantly changing process.

3. Business environment is different for different business units.

4. It has both long term and short term impact.

5. Unlimited influence of external environment factors.

6. It is very uncertain.

7. Inter-related components.

8. It includes both internal and external environment.

The entrepreneurial process begins with identifying an opportunity and evaluating it through
an initial screening process. If it appears reasonable a detailed business plan can be made. If
not it can be discarded.
SEARCH FOR BUSINESS IDEA
Clearly, except in very rare cases, opportunities just do not ‘occur’ to the individual. These have
to be actively searched/ scouted for. Hence, the start up process for a new venture creation
begins with scouting for opportunities. The process may start from an arm’s length, that is, one
may just look around one’s immediate context- family, community, and job and build up a case
for business from the bottom-up. Else, one may take a top-down approach, Clearly, except in
very rare cases, opportunities just do not ‘occur’ to the individual. These have to be actively
searched/ scouted for. Hence, the start up process for a new venture creation begins with
scouting for opportunities. The process may start from an arm’s length, that is, one may just
look around one’s immediate context- family, community, and job and build up a case for
business from the bottom-up. Else, one may take a top-down approach, starting from the
scanning of the international and macro economic environment and conducting/using
industrial/consumer surveys and identifying appropriate business ideas. An entrepreneur can
sense and intelligently seize opportunities, which exist in the environment. Often it is said that
necessity is the mother of all inventions. However, in the context of entrepreneurship,
opportunities besides existing in the environment in the form of needs and problems of people
around might have to be ‘created.’ Thus, the entrepreneurs meet not only the existing needs;
they create the new needs as well!
It is also possible to create opportunities. Maggi noodles, Credit cards, FM radio are all
examples of needs which were created either out of demographic changes e.g. with more
women opting for employment the need for a quick snack was created resulting in the
phenomenal success of the two minute noodles and packaged food. Hectic work schedules,
frequent corporate traveling created the need for fast banking services and hence the ATM,
credit card, debit card and telephone banking came in vogue.

Entrepreneurial Opportunity Scanning

Once the entrepreneur perceives opportunities, it becomes important for him to scan the
environment. It is quite possible that many of the promising opportunities might not make
commercial sense. Scanning involves close examination of the environmental conditions and
their impact upon the business idea. It is not a cursory exercise but rather an attempt to look
beyond the immediate opportunities to the emerging trends. An attempt can be made to
modify, adapt, rearrange, substitute, combine, reverse etc.

Entrepreneurship does not exist in a vacuum. It is affected by and affects the environment.
 Entrepreneurship is directly linked to Contemporary Business Environment

Relationship Between Entrepreneurship And Environment

As the economies are getting internationally integrated, for an analysis of the environment of
entrepreneurship you would be required to develop an understanding of international,
domestic macro-economic, and industry/sector specific factors.

Question-23 What is a Business Enterprise? Explain briefly the process of

setting up a Business Enterprise.
Ans :
Business Enterprise
A Business Enterprise is a Commercial organization engaged in the trade of goods, services,
or both to consumers. Business Enterprises are predominant in capitalist economies, where
most of them are privately owned and administered to earn profit to increase the wealth of
their owners. Business Enterprise may also be not-for-profit or state-owned. A Business
Enterprise owned by multiple individuals may be referred to as a company, although that term
also has a more precise meaning.
The etymology of “Business Enterprise" relates to the state of being busy either as an
individual or society as a whole, doing commercially viable and profitable work. The term "
Business Enterprise" has at least three usages, depending on the scope — the singular usage to
mean a particular organization; the generalized usage to refer to a particular market sector,
"the music business" and compound forms such as agribusiness; and the broadest meaning,
which encompasses all activity by the community of suppliers of goods and services. However,
the exact definition of business, like much else in the philosophy of Business Enterprise, is a
matter of debate and complexity of meanings.

Small and Medium-sized Business Enterprises

Small and medium enterprises or small and medium-sized enterprises (also: Small and
Medium-sized Enterprises; acronym in the plural: SMEs; small and medium
businesses or small and medium-sized businesses, acronym: SMBs; and variations thereof)
are companies whose headcount or turnover falls below certain limits.
 The abbreviation "SME" occurs commonly in the European Union and in international
organizations, such as the World Bank, the United Nations, and the WTO. The term "small and
medium businesses" or "SMBs" is predominantly used in the USA.

In most economies, smaller enterprises are much greater in number than large companies.
SMEs are often said to be responsible for driving innovation and competition in many
economic sectors.
How to Set Up an Business Enterprise
Setting up a Business Enterprise requires time, money and energy. Your enterprise doesn't
necessarily have to make money, though. Non-profit organizations or social enterprises -- such
as Red Cross and YMCA -- play a role in society that is no lesser than that of for-profit
businesses. Whatever the enterprise you want to set up, approach it professionally
Steps of the Process of Setting up a Business Enterprise
o 1
Come up with an idea of what your enterprise will be about. Think about who will be the
customers of your business. If you plan your enterprise to be a non-profit organization, define
the beneficiaries of its work. Also, consider how to finance your organization and where it will
get money to grow.
o 2
Write a business plan. This formal document describes the structure of the organization, its
financial aspects, the products it will produce or services it will provide and many other details
relating to how the organization will work. Social enterprises also need a business plan as it
will make the enterprise more professional. Instead of profits, they can measure their success
in terms of people fed, children saved from HIV/AIDs or other measurements of their social
impact.
o 3
Raise capital to start your enterprise. If you want to start a business enterprise, contact local
banks and venture capital funds. If your enterprise is of social nature, ask for funding from
charity organizations, the government or philanthropic foundations.
o 4
Register the enterprise's name at the local authority, typically the office of the Secretary of
State. As name registration differs from state to state, consult business.gov for how to do it in
your state.
o 5
Obtain an Employer Identification Number, or EIN, from the U.S. Revenue and Internal
Revenue Service. You can apply for this number online at irs.gov. The site includes information
on tax state registration you may need to go through, depending on the state in which you
registered the enterprise.

The major factors affecting how a Business Enterprise is organized are usually:
 The size and scope of the Business Enterprise and its structure, management, and
ownership, broadly analyzed in the theory of the firm. Generally a smaller business is more
flexible, while larger businesses, or those with wider ownership or more formal structures,
will usually tend to be organized as corporations or (less often) partnerships. In addition, a
Business Enterprise that wishes to raise money on a stock market or to be owned by a wide
range of people will often be required to adopt a specific legal form to do so.
 The sector and country. Private profit-making businesses are different from government-
owned bodies. In some countries, certain Business Enterprises are legally obliged to be
organized in certain ways.
 Limited Liability Companies (LLC), limited liability partnerships, and other specific types of
business organization protect their owners or shareholders from business failure by doing
business under a separate legal entity with certain legal protections. In contrast,
unincorporated Business Enterprise or persons working on their own are usually not so
protected.
 Tax advantages. Different structures are treated differently in tax law, and may have
advantages for this reason.
 Disclosure and compliance requirements. Different Business Enterprises structures may
be required to make less or more information public (or report it to relevant authorities),
and may be bound to comply with different rules and regulations.
Many Business Enterprises are operated through a separate entity such as a corporation or a
partnership (either formed with or without limited liability). Most legal jurisdictions allow
people to organize such an entity by filing certain charter documents with the relevant
Secretary of State or equivalent and complying with certain other ongoing obligations. The
relationships and legal rights of shareholders, limited partners, or members are governed
partly by the charter documents and partly by the law of the jurisdiction where the entity is
organized. Generally speaking, shareholders in a corporation, limited partners in a limited
partnership, and members in a limited liability company are shielded from personal
liability for the debts and obligations of the entity, which is legally treated as a separate
"person". This means that unless there is misconduct, the owner's own possessions are
strongly protected in law if the business does not succeed.

Where two or more individuals own a Business Enterprise together but have failed to organize
a more specialized form of vehicle, they will be treated as a general partnership. The terms of a
partnership are partly governed by a partnership agreement if one is created, and partly by the
law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to
create a partnership, and without an agreement, the relationships and legal rights of the
partners will be entirely governed by the law of the jurisdiction where the partnership is
located.

A single person who owns and runs a Business Enterprise is commonly known as a sole
proprietor, whether that person owns it directly or through a formally organized entity.

A few relevant factors to consider in deciding how to operate a Business Enterprise

include:

1. General partners in a partnership (other than a limited liability partnership), plus

anyone who personally owns and operates a Business Enterprise without creating a
separate legal entity, are personally liable for the debts and obligations of the business.
2. Generally, corporations are required to pay tax just like "real" people. In some tax
systems, this can give rise to so-called double taxation, because first the corporation
pays tax on the profit, and then when the corporation distributes its profits to its
owners, individuals have to include dividends in their income when they complete
their personal tax returns, at which point a second layer of income tax is imposed.
3. In most countries, there are laws which treat small corporations differently than large
ones. They may be exempt from certain legal filing requirements or labor laws, have
simplified procedures in specialized areas, and have simplified, advantageous, or
slightly different tax treatment.
4. To "go public" (sometimes called IPO) -- which basically means to allow a part of the
business to be owned by a wider range of investors or the public in general—you must
organize a separate entity, which is usually required to comply with a tighter set of
laws and procedures. Most public entities are corporations that have sold shares, but
increasingly there are also public LLCs that sell units (sometimes also called shares),
and other more exotic entities as well. However, you cannot take a general partnership
"public."

Question-24 What are the various factors affecting the appropriate choice
of a suitable form of Business Organization?
Or
Question-25 What do you understand by a Suitable form of Business
Organization and how the choice can be made for this?
Ans :
Choosing a Form of Business Organisation

A business enterprise can be owned and organized in several forms. Each form of organization
has its own merits and demerits. The ultimate choice of the form of business depends upon the
balancing of the advantages and disadvantages of the various forms of business. The right
choice of the form of the business is very crucial because it determines the power, control, risk
and responsibility of the entrepreneur as well as the division of profits and losses. Being a long
term commitment, the choice of the form of business should be made after considerable
thought and deliberation.

The choice of the form of business is governed by several interrelated and

interdependent factors :-

 The nature of business is the most important factor. Businesses providing direct
services like tailors, restaurants and professional services like doctors, lawyers are
generally organised as proprietary concerns. While, businesses requiring pooling of
skills and funds like accounting firms are better organised as partnerships.
Manufacturing organisations of large size are more commonly set up as private and
public companies.
 Scale of operations i.e. volume of business ( large, medium, small) and size of the
market area (local, national, international) served are the key factors. Large scale
enterprises catering to national and international markets can be organised more
successfully as private or public companies. Small and medium scale firms are generally
set up as partnerships and proprietorship. Similarly, where the area of operations is
wide spread (national or international), company ownership is appropriate. But if the
area of operations is confined to a particular locality, partnership or proprietorship will
be a more suitable choice.
 The degree of control desired by the owner(s). A person who desires direct control of
business, prefers proprietorship, because a company involves separation of ownership
and management.
 Amount of capital required for the establishment and operation of a business. A
partnership may be converted into a company when it grows beyond the capacity and
resources of a few persons.
 The volume of risks and liabilities as well as the willingness of the owners to bear it, is
also an important consideration.
  Comparative tax liability.

Entrepreneurs should seriously weigh the pros and cons of various forms of business
organizations. Your small business can be set up as a sole proprietor, corporation, S-
corporation, partnership, non-profit organization, Limited Liability Company, Limited Liability
Partnership, and in some states a Professional Limited Liability Company/Partnership. Such a
dizzying array of choices! Which form of organization is best for your business depends on
several factors, some of which are tax-related, some of which are business-related, and some of
which are influenced by legal concerns. Moreover, you may need a different form of
organization at different times in the life of your business. So don't be afraid to change your
form of business if your needs change.

Question-26 Define and explain a Business Plan? What is the process of

preparation of a proper Business Plan?
Ans : Business Plan
A business plan is a comprehensive, written description of the business of an enterprise. It is
a detailed report on a company's products or services, production techniques, markets and
clients, marketing strategy, human resources, organization, requirements in respect of
infrastructure and supplies, financing requirements, and sources and uses of funds. The
business plan describes the past and present status of a business, but its main purpose is to
present the future of an enterprise. It is normally updated annually and looks ahead for a
period of usually three to five years, depending on the type of business and the kind of entity.
A business plan is a formal statement of a set of business goals, the reasons why they are
believed attainable, and the plan for reaching those goals. It may also contain background
information about the organization or team attempting to reach those goals. Business plans
may also target changes in perception and branding by the customer, client, tax-payer, or
larger community. When the existing business is to assume a major change or when planning a
new venture - a 3 to 5 year business plan is required since investors will look for their annual
return in the 3 to 5 year time.

Business plans may be internally or externally focused. Externally focused plans target
goals that are important to external stakeholders, particularly financial stakeholders. They
typically have detailed information about the organization or team attempting to reach the
goals. With for-profit entities, external stakeholders include investors and customers. External
stake-holders of non-profits include donors and the clients of the non-profit's services. For
government agencies, external stakeholders include tax-payers, higher-level government
agencies, and international lending bodies such as the International Monetary Fund, the World
Bank, various economic agencies of the United Nations, and development banks.

Internally focused business plans target intermediate goals required to reach the
external goals. They may cover the development of a new product, a new service, a new IT
system, a restructuring of finance, the refurbishing of a factory or a restructuring of the
organization. An internal business plan is often developed in conjunction with a balanced
scorecard or a list of critical success factors. This allows success of the plan to be measured
using non-financial measures. Business plans that identify and target internal goals, but
provide only general guidance on how they will be met are called strategic plans.

Operational plans describe the goals of an internal organization, working group or

department. Project plans, sometimes known as project frameworks, describe the goals of a
particular project. They may also address the project's place within the organization's larger
strategic goals

Business plans are decision-making tools. There is no fixed content for a business plan.
Rather the content and format of the business plan is determined by the goals and audience. A
business plan represents all aspects of business planning process declaring vision and strategy
alongside sub-plans to cover marketing, finance, operations, human resources as well as a legal
plan, when required. A business plan is a summary of those disciplinary plans.
The Need of a Business Plan
The depth and detail of the business plan depends upon the size of the market, nature of
business [manufacturing/trading/service] and degree of competition. For, e.g., an
entrepreneur planning to market a new washing machine will need a comprehensive business
plan. On the other hand, an entrepreneur who plans to open a general provisions corner store
will not need such a comprehensive business plan. Business plan is important due to the
following reasons:
(i) It helps the entrepreneur to decide where he wants to go.
(ii) It helps him to determine the viability of the venture.
(iii) It provides guidance to the entrepreneur in planning realistic goals and
targets, in organizing and even in identifying possible roadblocks.
(iv) It is a pre-requisite to obtain finance.
The Out line Sketch of a Business Plan
1 Introductory Page
(a) Name and address of business
(b) Name(s) and address (es) of principals
(c) Nature of business
(d) Statement of financing needed
(e) Statement of confidentiality of report
2 Executive Summary
– Three to four pages summarizing the complete business plan.
3 Industry Analysis
(a) Future outlook and trends
(b) Analysis of competitors
(c) Market segmentation
(d) Industry forecasts
4 Description of Venture
(a) Product (s)
(b) Services (s)
(c) Size of business
(d) Office equipment and personnel
(e) Background of entrepreneurs
5 Production Plan
(a) Manufacturing process (amount subcontracted)
(b) Physical plant
(c) Machinery and equipment
(d) Names of suppliers of raw materials
6 Marketing Plan
(a) Pricing
(b) Distribution
(c) Production
(d) Product forecasts
(e) Controls
Organisational Plan
(a) Form of ownership
(b) Identification of partners or principal shareholders
(c) Authority of principals
(d) Management-team background
(e) Roles and responsibilities of members of organization
8 Assessment of Risk
(a) Evaluate weakness of business
(b) New technologies
(c) Contingency plans
9 Financial Plan
(a) Pro forma income statement
(b) Cash flow projection
(c) Pro forma balance sheet
(d) Break-even analysis
(e) Sources and application of funds
10 Appendix (contains backup material)
(a) Letters
(b) Market research data
(c) Leases or contracts
(d) Price lists from suppliers

How to Prepare Your Business Plan

Preparing a business plan draws on a wide range of knowledge from many different business
disciplines: finance, human resource management, intellectual property management, supply
chain management, operations management, and marketing, among others. It can be helpful to
view the business plan as a collection of sub-plans, one for each of the main business
disciplines.
A business plan should not be something you prepare once, then put on a shelf and forget.
Dynamic planning should be an integral part of managing your business. Most successful
ventures prepare a three-to-five year business plan every year. This involves updating last
year’s business plan by comparing the planned figures and goals with results achieved and
taking into account changes, new information, experiences and new ideas. The steps involved
in the business planning process are the following:

1. Assessing the situation

2. Developing a mission
3. Getting ready
4. Setting goals
5. Working out the business plan
6. Setting employee objectives
7. Monitoring the process

1. Assessing the situation

This should be an assessment of how your customers, partners, competitors and suppliers
view your business. It should answer the question “where are we now?” It should also be a
honest and self-critical exercise trying to answer the important questions any businesspersons
should be asking themselves regularly: “What are our important strengths and main
weaknesses?” “What can we do well and what should we not be doing at all?” “What are the
major mistakes we have made in the past and what can we learn from them?” “Do we make a
reasonable number of mistakes?”
2. Developing a mission
Before proceeding further you should formulate a clear mission statement for your enterprise.
Developing your mission is often the most valuable part of the dynamic planning process since
it can change or reconfirm the direction of your business. Missions are intended to provide a
sense of purpose and act as a tool for communicating where the business is heading.
Shareholders, employees and business partners can be better motivated and support the
mission if they know what it is.
• Your vision says how you see yourself in the far future. It expresses what you want your
company to become. A vision shared by all the people concerned with the business is an
important factor for its successful development.
• Your mission defines what you want to achieve. It states the benefits your business will
bring to clients, employees, shareholders and the community as a whole.
• Your philosophy expresses the values and beliefs of your organization's culture.
• Your strategy indicates how to get there.
A business is often founded on the vision of an individual. As the entity grows, the organization
may lose its original raison d’être and its mission may change. The mission should be reviewed
regularly and if necessary adapted. This should be providing an updated picture of what you
are trying to achieve and answering questions such as: UNCTAD, How to Prepare Your
Business Plan

• What business are you in?

• What do you do best?
• Whose needs do you meet?
• What needs do you meet?
• What benefits do you generate?
Philosophies or values should be included in the written business plan. They are an important
foundation that should be communicated to all levels within your organization and to your
outside business partners. A consistent corporate culture and a good understanding of the
entity's direction and values can improve decision- making and staff productivity. Staff may
feel better about what they do.
People are motivated by more than just getting a salary. The vision, mission, philosophy and
strategy of a firm are usually developed by the top management, sometimes at an off-site
location has many benefits (getting away from the day-to-day distractions for the purpose of
this process).
3. Getting ready
After the mission and the philosophical basis have been defined, you need to start the actual
work of preparing the business plan. Some important matters you need to address when
getting ready are:
• Appointing a coordinator. Appoint the staff member who will be responsible for
coordinating the business planning process and for delivering the final document (business
planning project manager) in time.
• Hiring a facilitator. Consider the value of an experienced facilitator. Hire one if you do not
have a staff member who is available and has the relevant experience and talent in guiding
complex business planning processes. Very often an external person - neutral and independent
- can be of value in moderating complex consensus-seeking sessions. This person should be
knowledgeable about the requirements of the readers of the business plan.
• Defining tasks. Define the different tasks and steps involved in the process, the timing of
these and the overall schedule for the work.
• Identifying team members. Identify the people who will be involved in the process and
define their roles, competencies, responsibilities and expected contributions/deliverables.
• Gathering information. Gather and organize all the basic information that will be required
from internal and external sources (market surveys, reports on competition, new technological
developments, etc.). In addition to information available in-house, there are valuable sources
and tools such as industry associations, databases and specialized consultants to be
considered.
4. Setting goals.
Setting goals for the future development of the business is a prerequisite for the preparation of
the business plan. Although these goals will have to be adjusted in the iterative planning
process, they can still be of great value in setting the “tune” and “spirit” for further work. The
goals should be time-bound, realistic and measurable. Examples of such goals can be:
• Over the next three years increase sales volume by an average of 20 per cent per year by
intensifying marketing and sales effort in the neighbouring countries (export);
• In the coming year reduce production costs by 10 per cent through greater automation of
production lines;
• By the end of the second planning year launch three new products on the local market.
5. Working out the business plan
Working out the business plan basically involves synthesizing and harmonizing your
marketing, sales, development, manufacturing, operations and financing targets in such a way
as to enable the enterprise to meet its overall objectives. This “matching work” is usually
conducted in an iterative process until full consistency of all elements of the business is
achieved.

6. Setting employee objectives.

One of the most important actions after your business plan has been completed is to use it as a
basis for setting the objectives of units and individuals in your firm. The objective of your sales
manager is to achieve the sales volumes set in the plan. The production manager has to meet
the quality standards and production rates anticipated. The development staff have, among
other things, to meet the schedules planned for bringing into production the new product.
These individual objectives should be fixed in writing and the results of the work should be
monitored and assessed periodically. These should form the basis for the financial
compensation of the employee.
7. Monitoring the process.
Systematic monitoring of the implementation of your plan is a very important factor for the
success of your business. Action plans, monitoring systems and constant feedback should be
integrated to ensure successful implementation of the plan and achievement of its objectives.
Participation in this process can have a profound effect on the way your team members view
their role in the enterprise, and can have an immediate impact on their performance. If the
business plan is completed and then locked up in a cupboard and forgotten for a year, your
employees will never take business planning seriously again.
If key assumptions change, the plan must be adjusted. Accordingly, mid-term corrections are
recommended. The key to maximizing the benefits of dynamic planning lies in implementation,
action and keeping the plan up to date.

Question-27 What is a Feasibility Report? How Feasibility Report is

prepared for a Business Plan?
Ans :
Feasibility Report
Feasibility literally means whether some idea will work or not. It knows before hand whether
there exists a sizeable market for the proposed product/service, what would be the investment
requirements and where to get the funding from, whether and wherefrom the necessary
technical know-how to convert the idea into a tangible product may be available, and so on. In
other words, feasibility study involves an examination of the operations, financial, HR and
marketing aspects of a business before the venture comes into existence.
Feasibility is a multivariate concept; that is, a project has to be viable not only in
technical terms but also in economic and commercial terms too. Moreover, there always is a
possibility that a project that is technically possible may not be economically viable. For
instance, you can construct a dust free factory in Rajasthan, but it is more economically
sensible to do so in Chandigarh/ Bangalore. So even as we take up the various aspects of
feasibility oneby-one, it must not mislead into believing that there is a sequence and that there
are no interdependencies.
Examination of the feasibility requires skills that you may fall short of. You may take the help
of the Technical Consultancy Organisations (TCOs) such as HARDICON (Haryana-Delhi
Industrial Consultancy Organisation) towards this purpose. There are district-wise industrial
potential surveys available with the SISIs and DICs that may serve as a good starting point. You
may also make use of the Project Reports published by the directorate of industries and
private consulting firms. Obviously, as you use these off-the- shelf project reports, you need to
re-validate their assumptions and findings and resist the temptation of jump-starting.
Whether you use the already published project reports or wish to start afresh, you need to
examine all the facets of the feasibility of the proposed project idea, viz., marketing, technical,
financial, economic and legal.
Marketing Analysis
A market, whether a place or not, is the arena for interaction among buyers and sellers. From
seller’s point of view, market analysis is primarily concerned with the aggregate demand of the
proposed product/service in future and the market share expected to be captured. Success of
the proposed project clearly hinges on the continuing support of the customers. However, it is
very difficult to identify the market for one’s product/service. After all, the whole universe
cannot be your market. You have to carefully segment the market according to some criteria
such as geographic scope, demographic and psychological profile of the potential customers
etc. It is a study of knowing who all comprise your customers, for this you require information
on:
- Consumption trends.
- Past and present supply position
- Production possibilities and constraints
- Imports and Exports
-Competition
- Cost structure
- Elasticity of demand
- Consumer behaviour, intentions, motivations, attitudes, preferences and requirements
- Distribution channels and marketing policies in use
- Administrative, technical and legal constraints impinging on the marketing of the product

FINANCIAL ANALYSIS
The objective of financial analysis is to ascertain whether the proposed project will be
financially viable in the sense of being able to meet the burden of servicing debt and whether
the proposed project will satisfy the return expectations of those who provide the capital.
While conducting a financial appraisal certain aspects has to be looked into like:
- Investment outlay and cost of project
- Means of financing
- Projected profitability
- Break- even point
- Cash flows of the project
 - Investment worthiness judged in terms of various criteria of merit
- Projected financial positions

TECHNICAL ANALYSIS
The issues involved in the assessment of technical analysis of the proposed project may be
classified into those pertaining to inputs, throughputs and outputs.
• Input Analysis: Input analysis is mainly concerned with the identification,
quantification and evaluation of project inputs, that is, machinery and 67 materials. You
have to ensure that the right kind and quality of inputs would be available at the right
time and cost throughout the life of the project. You have to enter into long-term
contracts with the potential suppliers; in many cases you have to cultivate your supply
sources. When Macdonald entered India, they developed sustainable sources of supply of
potatoes, lettuce and other ingredients for their burgers. The activities involved in
developing and retaining supply sources are referred to as supply chain management.
• Throughput Analysis: It refers to the production/operations that you would perform on the
inputs to add value. Usually, the inputs received would undergo a process of transformation in
several stages of manufacture. Where to locate the facility, what would be the sequence, what
would be the layout, what would be the quality control measures, etc. are the issues that you
would learn in greater details in subsequent lessons.
• Output Analysis: this involves product specification in terms of physical features- colour,
weight, length, breadth, height; functional features; chemicalmaterial properties; as well as
standards to be complied with such as BIS, ISI, and ISO etc.
ECONOMIC ANALYSIS
Economics is the study of costs- and- benefits. In regard to the feasibility of the study the
entrepreneur is concerned whether the capital cost as well as the cost of the product is
justifiable vis-à-vis the price at which it will sell at the market place. For example, technically,
silver can be extracted from silver bromide, (a chemical used for processing the X-ray and
photo films); but, the cost of extraction is so high that it would not be economically feasible to
do so. Likewise, until recently cost of harnessing solar power was prohibitively high. This cost-
benefit analysis goes into financial calculations for profitability analysis that we discussed
under financial analysis. At this stage it is also useful to distinguish between the economic and
commercial feasibility; whereas economic feasibility leads one to the unit cost of the product,
commercial feasibility informs whether enough units would sell.
Apart from the cost-benefit analysis as above, which we also refer to as private costbenefit
analysis, it is also useful to do what is known as social- cost-benefit- analysis (SCBA). For
example, the entrepreneur may be getting subsidized electricity in which case private cost
would be less than social cost. Likewise, exporting units earn precious foreign exchange
resulting into social benefits being more than private earnings. Many a time, a project that is
worthy on SCBA may find greater favour with the support agencies.
ECOLOGICAL ANALYSIS
In recent years, environmental concerns have assumed a great deal of significance especially
for projects, which have significant ecological implications like power plants and irrigation
schemes, and for environment polluting industries (like bulk drugs, chemicals and leather
processing). The concerns that are usually addressed include the following:
- What is the likely damage caused by the project to the environment?
- What is the cost of restoration measures required to ensure that the damage to the
environment is contained within acceptable limits?

UNIT-IV

Question- 28 What are Business Policies of Government and what are the
impacts of Government and Government policies on Business?
Or
Question-29 Explain the Government and Business interface.
Ans : Policy
A policy is typically described as a principle or rule to guide decisions and achieve rational
outcome. The term is not normally used to denote what is actually done, this is normally
referred to as either procedure or protocol. Policies are generally adopted by the Board of or
senior governance body within an organization where as procedures or protocols would be
developed and adopted by senior executive officers. Policies can assist in
both subjective and objective decision making. Policies to assist in subjective decision making
would usually assist senior management with decisions that must consider the relative merits
of a number of factors before making decisions and as a result are often hard to objectively test
e.g. work-life balance policy. In contrast policies to assist in objective decision making are
usually operational in nature and can be objectively tested e.g. password policy. A Policy can
be considered as a "Statement of Intent" or a "Commitment". For that reason at least, the
decision-makers can be held accountable for their "Policy".
Public Policy or Government Policy
Public policy as government action is generally the principled guide to action taken by the
administrative or executive branches of the state with regard to a class of issues in a manner
consistent with law and institutional customs. In general, the foundation is the pertinent
national and subnationalconstitutional law and implementing legislation such as the US
Federal code. Further substrates include both judicial interpretations and regulations which
are generally authorized by legislation. Other scholars define it as a system of "courses of
action, regulatory measures, laws, and funding priorities concerning a given topic promulgated
by a governmental entity or its representatives." Public policy is commonly embodied "in
constitutions, legislative acts, and judicial decisions."
Shaping public policy is a complex and multifaceted process that involves the interplay
of numerous individuals and interest groups competing and collaborating to influence
policymakers to act in a particular way. These individuals and groups use a variety of tactics
and tools to advance their aims, including advocating their positions publicly, attempting to
educate supporters and opponents, and mobilizing allies on a particular issue. In this context,
advocacy can be defined as attempting to influence public policy through education, lobbying,
or political pressure. Advocacy groups "often attempt to educate the general public as well as
public policy makers about the nature of problems, what legislation is needed to address
problems, and the funding required to provide services or conduct research. Although
advocacy is viewed as unseemly by some in the professional and research community, it is
clear that public policy priorities are influenced by advocacy. Sound research data can be used
to educate the public as well as policy makers, thereby improving the public policy process."
Government Policy or Public policy-making in India has frequently been characterized
by a failure to anticipate needs, impacts, or reactions which could have reasonably been
foreseen, thus impeding economic development. Policies have been reversed or changed more
frequently than warranted by exogenous changes or new information. This paper is concerned
with why India's policymaking structures have so much difficulty in formulating the "right"
policy and then sticking to it. It goes on to ask, and make a modest beginning in answering, the
question of what can be done to improve the structures and systems involved in the making of
Public Policy or Government Policy in India

Types of Government or public Policies

Policies may be classified in many different ways. The following is a sample of several different
types of policies broken down by their effect on members of the organization.
Distributive policies
Distributive policies extend goods and services to members of an organization, as well as
distributing the costs of the goods/services amongst the members of the organization.
Examples include government policies that impact spending for welfare, public
education, highways, and public safety, or a professional organization's benefits plan.
Regulatory policies
Regulatory policies, or mandates, limit the discretion of individuals and agencies, or otherwise
compel certain types of behavior. These policies are generally thought to be best applied when
good behavior can be easily defined and bad behavior can be easily regulated and punished
through fines or sanctions. An example of a fairly successful public regulatory policy is that of a
speed limit.
Constituent policies
Constituent policies create executive power entities, or deal with laws. Constituent policies
also deal with Fiscal Policy in some circumstances.
Miscellaneous policies
Policies are dynamic; they are not just static lists of goals or laws. Policy blueprints have to be
implemented, often with unexpected results. Social policies are what happens 'on the ground'
when they are implemented, as well as what happens at the decision making or legislative
stage.

When the term policy is used, it may also refer to:

 Official government policy (legislation or guidelines that govern how laws should be put
into operation)
 Broad ideas and goals in political manifestos and pamphlets
 A company or organization's policy on a particular topic. For example, the equal
opportunity policy of a company shows that the company aims to treat all its staff equally.
The actions the organization actually takes may often vary significantly from stated policy. This
difference is sometimes caused by political compromise over policy, while in other situations it
is caused by lack of policy implementation and enforcement. Implementing policy may have
unexpected results, stemming from a policy whose reach extends further than the problem it
was originally crafted to address. Additionally, unpredictable results may arise from selective
or idiosyncratic enforcement of policy.

Impact of Government Policies on Business

ONCE upon a time economists thought government policies has no impact on business. But
after the Great Depression of the 1930s, Keynes, the great economist, showed government
policies could effect business. For example, if a government imposes more taxes and duties on
a particular sector than is justified by its profit margin, it would go down or the businessmen
in it can lose their interest in the sector and can give up their business. Similarly, tax and duty
exemption for a particular sector would encourage businessmen to invest in it. As a result the
sector will grow. If a country's monetary policy ensures availability of loans at reasonable
rates, investment will go up.
The prevailing global order has a tremendous impact on a country's business. It may be legal
or illegal. For example, the USA manipulate the UN to impose sanctions on Iraq in the 1990s.
The sanctions destroyed Iraqi business for which it lost business worth billions of dollars as
well as its money in the banks of the USA and its allies. Iran is another example. The impact of
government policy on business can be explained from the political and technical perspective.

From the political pint of view, political parties, their ideologies as well as world politics are
relevant.

From the technical perspective, the following policies of a government can impact business
directly or indirectly:
(a) Taxation
(b) Subsidies
(c) Interest Rates
(d) Exchange Rates
(e) Public-Private Partnerships.
The government policy of a country depends upon its political culture. It can also vary
depending on the form of government. Policy in a communist country will be different from
that in a democracy or monarchy. The government policy in a politically stable country will
also be different from an unstable country. In a stable political system, a government can take
sustained business-friendly decisions to strengthen local business. The government, in this
situation, gets the help of the opposition. But in an unstable political system in which the
opposition boycotts parliament and takes to street agitations businesses and investment
would suffer.
In such a negative political culture, a country cannot have a sustained business-friendly
environment or policy. In an unstable system, a government finds it difficult to maintain law
and order which affects the business environment. It hampers business. Foreign investors do
not invest in such an environment.
Taxation policy can affect businesses. High tax rate on imported products would
encourage local entrepreneurs to produce goods at home. But high tax rate on raw materials
will discourage domestic production and encourage imports.
Lending rates of the banks and the financial policy of a government can affect the
economy. If interest rate rises, investment falls because businessmen would not borrow at
unviable rates.

Question-30 What do you mean by Stock Exchange? Explain briefly about

the Stock Exchange in India.
Ans : Stock Exchange - A stock exchange is an entity that provides services for stock
brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide
facilities for issue and redemption of securities and other financial instruments, and capital
events including the payment of income and dividends. Securities traded on a stock exchange
include shares issued by companies, unit trusts, derivatives, pooled investment products
and bonds.

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there
is a central location at least for record keeping, but trade is increasingly less linked to such a
physical place, as modern markets are electronic networks, which gives them advantages of
increased speed and reduced cost of transactions. Trade on an exchange is by members only.

The initial offering of stocks and bonds to investors is by definition done in the primary
market and subsequent trading is done in the secondary market. A stock exchange is often the
most important component of a stock market. Supply and demand in stock markets is driven
by various factors that, as in all free markets, affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be
subsequently traded on the exchange. Such trading is said to be off exchange or over-the-
counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock
exchanges are part of a global market for securities.
The Role of Stock exchange
Stock exchanges have multiple roles in the economy. This may include the following

Raising capital for businesses

The Stock Exchange provide companies with the facility to raise capital for expansion through
selling shares to the investing public.
Mobilizing savings for investment
When people draw their savings and invest in shares (through a IPO or the issuance of new
company shares of an already listed company), it usually leads to rational allocation of
resources because funds, which could have been consumed, or kept in
idle deposits with banks, are mobilized and redirected to help companies' management boards
finance their organizations. This may promote business activity with benefits for several
economic sectors such as agriculture, commerce and industry, resulting in stronger economic
growth and higher productivity levels of firms. Sometimes it is very difficult for the stock
investor to determine whether or not the allocation of those funds is in good faith and will be
able to generate long-term company growth, without examination of a company's internal
auditing.
Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution
channels, hedge against volatility, increase its market share, or acquire other necessary
business assets. A takeover bid or a merger agreement through the stock market is one of the
simplest and most common ways for a company to grow by acquisition or fusion.
Profit sharing
Both casual and professional stock investors, as large as institutional investors or as small as
an ordinary middle class family, through dividends and stock price increases that may result
in capital gains, share in the wealth of profitable businesses. Unprofitable and troubled
businesses may result in capital losses for shareholders.
Corporate governance
By having a wide and varied scope of owners, companies generally tend to
improve management standards and efficiency to satisfy the demands of these shareholders,
and the more stringent rules for public corporations imposed by public stock exchanges and
the government. Consequently, it is alleged that public companies (companies that are owned
by shareholders who are members of the general public and trade shares on public exchanges)
tend to have better management records than privately held companies (those companies
where shares are not publicly traded, often owned by the company founders and/or their
families and heirs, or otherwise by a small group of investors).
Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to
both the large and small stock investors because a person buys the number of shares they can
afford. Therefore the Stock Exchange provides the opportunity for small investors to own
shares of the same companies as large investors.
Government capital-raising for development projects
Governments at various levels may decide to borrow money to finance infrastructure projects
such as sewage and water treatment works or housing estates by selling another category
of securities known as bonds. These bonds can be raised through the Stock Exchange whereby
members of the public buy them, thus loaning money to the government. The issuance of such
bonds can obviate the need, in the short term, to directly tax citizens to finance development—
though by securing such bonds with the full faith and credit of the government instead of with
collateral, the government must eventually tax citizens or otherwise raise additional funds to
make any regular coupon payments and refund the principal when the bonds mature.
Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share
prices tend to rise or remain stable when companies and the economy in general show signs of
stability and growth. An economic recession, depression, or financial crisis could eventually
lead to a stock market crash. Therefore the movement of share prices and in general of
the stock indexes can be an indicator of the general trend in the economy.
Stock Exchanges of India
There are three major stock exchanges in India as mentioned below

Bombay Stock Exchange (BSE)

The Bombay Stock Exchange (BSE) ( Bombay Śhare Bāzaār) (formerly, The Stock Exchange,
Bombay) is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange
in Asia. The equity market capitalization of the companies listed on the BSE
wasUS$1.63 trillion as of December 2010, making it the 4th largest stock exchange in Asia and
the 8th largest in the world. The BSE has the largest number of listed companies in the world.

As of June 2011, there are over 5,085 listed Indian companies and over 8,196 scrips on the
stock exchange,[3] the Bombay Stock Exchange has a significant trading volume. The BSE
SENSEX, also called "BSE 30", is a widely used market index in India and Asia. Though many
other exchanges exist, BSE and the National Stock Exchange of India account for the majority of
the equity trading in India. While both have similar total market capitalization (about USD 1.6
trillion), share volume in NSE is typically two times that of BSE.

The Bombay Stock Exchange is the oldest exchange in Asia. It traces its history to the 1850s,
when four Gujarati and one Parsi stockbroker would gather under banyan trees in front of
Mumbai's Town Hall. The location of these meetings changed many times, as the number of
brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875
became an official organization known as 'The Native Share & Stock Brokers Association'. In
1956, the BSE became the first stock exchange to be recognized by the Indian
Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange
developed the BSE SENSEX in 1986, giving the BSE a means to measure overall performance of
the exchange. In 2000 the BSE used this index to open its derivatives market, trading SENSEX
futures contracts. The development of SENSEX options along with equity derivatives followed
in 2001 and 2002, expanding the BSE's trading platform. Historically an open outcry floor
trading exchange, the Bombay Stock Exchange switched to an electronic trading system in
1995. It took the exchange only fifty days to make this transition. This automated, screen-
based trading platform called BSE On-line trading (BOLT) currently has a capacity of 8 million
orders per day. The BSE has also introduced the world's first centralized exchange-based
internet trading system, BSEWEBx.co.in to enable investors anywhere in the world to trade on
the BSE platform.[5] The BSE is currently housed in Phiroze Jeejeebhoy Towers at Dalal
Street, Fort area.
National Stock Exchange (NSE)
The National Stock Exchange (NSE) ( Rashtriya Śhare Bāzaār) is a stock exchange located
at Mumbai, Maharashtra, India. It is the 9th largest stock exchange in the world by market
capitalization and largest in India by daily turnover and number of trades, for both equities
and derivative trading. NSE has a market capitalization of around US$1.59 trillion and over
1,552 listings as of December 2010. Though a number of other exchanges exist, NSE and
the Bombay Stock Exchange are the two most significant stock exchanges in India, and
between them are responsible for the vast majority of share transactions. The NSE's key index
is the S&P CNX Nifty, known as the NSE NIFTY (National Stock Exchange Fifty), an index of fifty
major stocks weighted by market capitalisation.

NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies

and other financial intermediaries in India but its ownership and management operate as
separate entities. There are at least 2 foreign investors NYSE Euronext and Goldman Sachs who
have taken a stake in the NSE. As of 2006, the NSE VSAT terminals, 2799 in total, cover more
than 1500 cities across India. NSE is the third largest Stock Exchange in the world in terms of
the number of trades in equities. It is the second fastest growing stock exchange in the world
with a recorded growth of 16.6%.

The National Stock Exchange of India was promoted by leading Financial institutions at
the behest of the Government of India, and was incorporated in November 1992 as a tax-
paying company. In April 1993, it was recognized as a stock exchange under the Securities
Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt
Market (WDM) segment in June 1994. The Capital market (Equities) segment of the NSE
commenced operations in November 1994, while operations in the Derivatives segment
commenced in June 2000.
Over The Counter Exchange of India (OTCEI)
OTC Exchange Of India (OTCEI) also known as Over-the-Counter Exchange of India based
in Mumbai, Maharashtra.It is the first exchange for small companies. It is the first screen based nationwide
stock exchange in India. It was set up to access high-technology enterprising promoters in raising finance for
new product development in a cost effective manner and to provide transparent and efficient trading system
to the investors.

OTCEI is promoted by the Unit Trust of India, the Industrial Credit and Investment Corporation of India,
the Industrial Development Bank of India, theIndustrial Finance Corporation of India and others and is a
recognised stock exchange under the SCR Act. OTC Exchange Of India was founded in 1990 under
the Companies Act 1956 and got recognized by the Securities Contracts Regulation Act, 1956 as a stock
exchange.
An electronic stock exchange based in India that is comprised of small- and medium-sized
firms looking to gain access to the capital markets. Like electronic exchanges in the U.S. such as
the Nasdaq, there is no central place of exchange and all trading is done through electronic
networks. The first electronic OTC stock exchange in India was established in 1990 to provide
investors and companies with an additional way to trade and issue securities. This was the
first exchange in India to introduce market makers, which are firms that hold shares in
companies and facilitate the trading of securities by buying and selling from other participants.

Question-31 Which are various Stock Exchanges in India? Explain.

Ans : The three major stock Exchanges in India are
1. Bombay Stock Exchange BSE
2. National Stock Exchange NSE
3. Over The Counter Exchange of India OTCEI
1. Bombay Stock Exchange BSE

BSE is the leading and the oldest stock exchange in India as well as in Asia. It was established
in 1887 with the formation of "The Native Share and Stock Brokers' Association". BSE is a very
active stock exchange with highest number of listed securities in India. Nearly 70% to 80% of
all transactions in the India are done alone in BSE. Companies traded on BSE were 3,049 by
March, 2006. BSE is now a national stock exchange as the BSE has started allowing its
members to set-up computer terminals outside the city of Mumbai (former Bombay). It is the
only stock exchange in India which is given permanent recognition by the government. At
present, (Since 1980) BSE is located in the "Phiroze Jeejeebhoy Towers" (28 storey building)
located at Dalal Street, Fort, Mumbai. Pin code - 400021.
 In 2005, BSE was given the status of a full fledged public limited company along with a new
name as "Bombay Stock Exchange Limited". The BSE has computerized its trading system by
introducing BOLT (Bombay On Line Trading) since March 1995. BSE is operating BOLT at 275
cities with 5 lakh (0.5 million) traders a day. Average daily turnover of BSE is near Rs. 200
crores.

2. National Stock Exchange NSE

Formation of National Stock Exchange of India Limited (NSE) in 1992 is one important
development in the Indian capital market. The need was felt by the industry and investing
community since 1991. The NSE is slowly becoming the leading stock exchange in terms of
technology, systems and practices in due course of time. NSE is the largest and most modern
stock exchange in India. In addition, it is the third largest exchange in the world next to two
exchanges operating in the USA.
The NSE boasts of screen based trading system. In the NSE, the available system provides
complete market transparency of trading operations to both trading members and the
participates and finds a suitable match. The NSE does not have trading floors as in
conventional stock exchanges. The trading is entirely screen based with automated order
machine. The screen provides entire market information at the press of a button. At the same
time, the system provides for concealment of the identify of market operations. The screen
gives all information which is dynamically updated. As the market participants sit in their own
offices, they have all the advantages of back office support, and facility to get in touch with
their constituents.
1. Wholesale debt market segment,
2. Capital market segment, and
3. Futures & options trading.

3. Over The Counter Exchange of India OTCEI

The OTCEI was incorporated in October, 1990 as a Company under the Companies Act 1956. It
became fully operational in 1992 with opening of a counter at Mumbai. It is recognised by the
Government of India as a recognised stock exchange under the Securities Control and
Regulation Act 1956. It was promoted jointly by the financial institutions like UTI, ICICI, IDBI,
LIC, GIC, SBI, IFCI, etc.
 Features of OTCEI are :-
1. OTCEI is a floorless exchange where all the activities are fully computerised.
2. Its promoters have been designated as sponsor members and they alone are entitled to
sponsor a company for listing there.
3. Trading on the OTCEI takes place through a network of computers or OTC dealers located at
different places within the same city and even across the cities. These computers allow
dealers to quote, query & transact through a central OTC computer using the
telecommunication links.
4. A Company which is listed on any other recognised stock exchange in India is not permitted
simultaneously for listing on OTCEI.
5. OTCEI deals in equity shares, preference shares, bonds, debentures and warrants.
6. The Participants of OTCEI are :-
i. Members and dealers appointed by OTCEI,
ii. Companies whose securities are listed,
iii. Investors who trade in the OTCEI,
iv. Registrar who keeps custody of scrip certificates,
v. Settlement Bank which clears the payment between counters, and
vi. SEBI and Government who supervise and regulate the working.

This was the brief outline of various stock exchanges in India .

Question-32 Define and explain the concept of a Business Combination.

What are the significant causes of Business Combination?
Or
Question-33 What is the concept and causes of a Business Combination?
Ans : Business Combination
A Business combination is the merger of separate entities or operations of entities into
one reporting entity. A business combination is the acquisition of one business by another, and
is part of what is commonly referred to as M&A (mergers and acquisitions) activity. Business
combinations are an important feature of the capital markets.
A business combination involves the bringing together of two or more entities or
businesses into one reporting entity. A business combination cannot occur if no business is
acquired, or if control already exists. All business combinations must be accounted for using
the ‘purchase method’, which requires the identification of an ‘acquirer’ which may not be the
same as the acquirer from a legal perspective.
The total cost of the combination is allocated to the acquiree’s assets, liabilities and contingent
liabilities on the basis of their fair values. Prescriptive guidance is provided on the
determination of the fair values of various items. Identifiable intangible assets acquired in a
business combination must be recognised separately from goodwill when accounting for the
business combination unless strict criteria are met. Restructuring provisions cannot be
recognised unless they are a pre-existing liability of the acquiree. The excess of the cost of a
business combination over the aggregate of the fair values of the acquired assets, liabilities and
contingent liabilities of the acquiree must be recognised as goodwill. If the aggregate fair
values are higher than the cost of the combination, income is recognised for the excess, after
the reassessment of the fair values of the acquired assets, liabilities and contingent liabilities
Forms of Business Combinations

1. Simple Combinations: They arise out of association of natural persons such as partnership
firms and companies.

2. Compound Combinations: Compound combinations may take the following forms

(i) Association : Trade Associations, Chambers of Commerce and Industry and informal
agreements.

(ii) Federation : Pools and cartels.

(iii) Consolidation : Consolidation may take two forms:

(a) Partial consolidation : trust, holding company and community of interest.

(b) Complete Consolidation: Merger and amalgamation.

FORMS OF COMBINATIONS

Association Federation Consolidation

--Trade association --Pools Partial Complete

--Chambers of --Cartels Consolidation Consolidation

Commerce &
Industry --Trust Merger
I--nformal --Holding Amalgamation
agreement company
-- --Community
of Trust
Causes of Business Combinations
There are so many causes of Business combinations discussed as follows:
1. Destructive Competition: destructive competition may result into the stoppage of many
firms. In order to remove the fear created by strong competition, the competing firms arrive at
some sort of understanding to regulate prices and eliminate overproduction. In other words,
combination may be created as a means of furthering self interest by common action.

2. Economies of Large Scale: A large number of economies are achieved if a business is

carried on a large scale. These economies relate to production, management, financing and
marketing. Small business units may combine together to reap the benefits of large scale
operations and organisation. This will reduce the cost of production and increase the profits of
the business.

3. Joint Stock Enterprise: The evolution of company form of organisation has also facilitated
the combination of various units by acquiring shares of various companies to control their
affairs. The companies under the common control through the system of inter-locking
directorship can be easily combined to get many benefits of combination.

4. Control of Market: Combinations are created to secure steady market. Sometimes,

combinations are created to control the entire market and create a monopoly which is
detrimental to the interest of the consumers. By controlling the market, they can sell their
products at higher prices and earn huge profits.

5. Individual Ability: According to Shield, Great organising ability, strategic genius, or

personal ambition on the part of one or a number of men may account in part for the rise of
certain business combinations. The scarcity of business talent became one of the causes of
centralisation of power in a few hands, endowed with business insight, business talent and
business courage.' ' Many a time, business combination a are created due to the initiative and
organising ability of an individual or a number of individual

6. Lust for power: Some businessmen have a lust for economic power which can be satisfied
by creating industrial empires. Desires to bring up industrial regime lies at the back of many
combinations. Individual ambition of becoming the pioneer member or coordinator of a huge
combine is also on of the factors favoring combination
7. Business Cycles: In uncontrolled economies, there are trade cycles. During books, firms
expand to take advantage of rising demand, and during depressions, inefficient and weak firms
find it difficult to survive because of lower demand. Business ups and downs generally lead to
business combinations. Particularly in industries, where huge capital is employed and where
demand is subject to cyclical changes, combinations occur as a revulsion against risk of
burdensome overhead cost, glut, low turnover and lower process during depression.

8. Protective tariffs: Protective tariffs are used to encourage home industries. When the
Government imposes import duty on certain items, the home manufacturers of such items are
encouraged to form combination to develop their business and exploit the domestic market
fully. Sometimes, national level combinations are formed to provide a united front to
perpetuate protection.

9. Government Pressure: The Government policy may compel the weaker units to
amalgamate with the stronger units so as to improve the overall efficiency of the industry.
Even the Government may take over the sick units and combine them to form a viable unit and
introduce rationalization in it.
10.Miscellaneous Factors:
(a) Dearth of managerial talents may lead to managerial integration of business units. Many
companies have common directors which in fact means their common control.

(b) If an enterprise wants to be self sufficient, it may combine with other units. Vertical
integration is the result of desire for self-sufficiency. Under this, various units producing the
related raw materials and semi-finished products are combined together so that they produce
the finished products at economical prices.

(c) Growth of transport an communication has increased the intensity of completion not only
in the national market but also in the international market. This has resulted in the formation
of multinational enterprises having subsidiaries in different countries.
(d) Sometimes, firms in an industry join to avail of the benefits of patent rights of one firm.

Haney has divided the above factors or forces into three categories which are as follows:

(i) Driving or impelling forces consisting of cut-throat competition and decrease in the
opportunity for speculative gains
(ii) Beckoning forces which include opportunity for profits, protective tariffs and gains of over
capitalization

(iii) Facilitating forces comprising of joint stock enterprises and other forces.

Question-34 What do you understand by Chambers of Commerce and

Industries in India?
Ans :
The Indian Chamber of Commerce and Industry is the premier body of business and industry
in Eastern and North-Eastern India. The membership of the Chamber comprises several of
the largest corporate groups in the country, with business operations all over the country and
abroad. Set up by a group of pioneering industrialists led by Mr G D Birla, the Indian Chamber
was closely associated with the Indian Freedom Movement, as the first organised voice of
indigenous Indian Industry. Several of the distinguished industry leaders in India, such as Mr B
M Birla, Sir Ardeshir Dalal, Sir Badridas Goenka, Mr S P Jain, Lala Karamchand Thapar,
Mr Russi Mody, Mr Ashok Jain, have led the ICC as its President.

One of the most pro-active Chambers in India, the ICC has been privileged to interact and host
several of the esteemed Indian Presidents and Prime Ministers in the past. With over eighty
years of service to the nation, the ICC retains the character of being the premier Chamber with
senior Indian industry leaders forming the core of its Executive Committee or the Governing
Board of the Chamber. Its enlightened leadership and membership has enabled the ICC to
move ahead and respond pro-actively to the dynamic changes that have taken place in the
world order and with a vision for the future.

The ICC constituents are mainly large manufacturing units with operations all over the country
and abroad. A large number of corporate bodies of India form the backbone of the
organization. Leading industrial promotion organizations, banks & financial institutions, as
well as governmental organizations, are members of the ICC and lend a diversified
membership base for the Chamber. This apart, the ICC Secretariat runs a number of important
national level industry associations, as members, around the country. Some of the important
Industry Associations are the Indian Foundry Association, the Foundry Cluster Development
Association, the Indian Sugar Mills Association, the West Bengal Cold Chain & Cold Storage
Owners Welfare Association, the Indian Chemical Merchants and Manufacturers Association,
and the Gunny Trades Association. The ICC also derives its strength and sustenance from the
representative national character of its constituents. Another distinguishing feature of the ICC
is that industrialists & owners of leading corporate entities in India are themselves members
and are responsible for charting out the policies of the organization. Indeed, the ICCs forte has
always been its ability to move with the times, anticipate the needs of the future and suggest
pro-active measures for furthering Indian business and industry. It has always been alive to
the pulse of the environment in which it operates. Through the Chambers enlightened
leadership, its powerful and progressive membership of important companies and its
professional secretariat, the ICC has adapted to the changes in the global order and is moving
ahead with confidence to meet the challenges of the 21st century.

Focus Areas of Operation

Policy Advocacy

Policy advocacy is the first and foremost function of the Indian Chamber of Commerce.
Recognized as a proactive body of business, the ICC has contributed to economic policy making
throughout the seven and a half decades of its existence. ICC anticipates future needs, responds
to these challenges and prepares the stakeholders of the economy to benefit from these
changes and opportunities. Through its linkages with partner chambers, it helps in making the
voice of the Indian business community heard across continents.

Services
 In order to strengthen the business community with the essential tools of doing business
better in a fast paced changing global business environment, the ICC offers a plethora of
services, replete with a state of the art infrastructure such as video-conferencing and
information networks that provide the cutting edge and managed by professional secretariat.

Business Information Services at ICC

Recognizing that information is the key to business success, the ICC Business Information
Services offer a wide array of information through an extensive computerized network. These
include:
Economic Policy Analysis Reports, Macro-Economic Review Reports, Government
Notifications, Guidelines, Data on tax rates, duties, Information on Indian states, Trade
Enquiries, Country Profiles & Business Directories, Facts and Figures on Industry Sectors,
Financial data of select companies and Online links to database worldwide.
ICC EXIM Initiative

In the backdrop of ever-increasing globalised business and cross-border trade, the ICC Foreign
Investment & Trade Promotion Cell assists business and industry in the following manner:

 Hosting foreign business delegation and individual representatives of foreign business circles,
business meetings and negotiations
 Sponsoring participation in international trade fairs and exhibitions
 Facilitating export process by issuing non-preferential Certificate of Origin
 Visa Recommendation
 Organising and conducting educative programmes relating to exim policy and procedures
 Maintaining a database providing useful information on exports and imports, identification of
new resources, products and services, feedbacks to trade enquiries
 Making business connections with counterpart chambers all over the world for furtherance of
investment and trade.
 Cooperation arrangements with leading chambers in the US, Europe, Japan, Singapore, Israel,
Australia, among others.

ICC Agri Business Initiative

The Indian Chamber of Commerce and Industry the leading organization of business and
industry in Eastern and North-eastern India has been focusing on improving and increasing
business opportunities for food industries in West Bengal. Given the growing importance of
the Agro and Food Processing Sector in the Eastern region, ICC has formed the largest forum
involving all stakeholders in the agro sector for facilitating growth and development. ICC has
launched a unique Forum for Food Industry in West Bengal named ICC Agri Business Initiative
by opening its doors to all potential leaders from this sector. This Forum will be uniquely
positioned as an all-industry trade association, representing the interests of every segment of
the Foods industry from Eastern region, including, Growers, Cold storage / Cold Chain,
Processors, Equipment provider, Retailers, Foodservice Operators, logistics Providers,
Distributors and Suppliers. In view of the strategic and economic importance of food sector in
the Indian economy the forum will identify major bottlenecks that hinder the growth of food
sector, identify its competitiveness in the global market and suggest a policy framework that
would rejuvenate it, address the conflicting domestic policies relating to production,
procurement, pricing and distribution, ineffective subsidy system, regulated domestic markets,
lack of infrastructure facilities, low productivity, low value addition, ad hoc export policies and
sensitize all the stakeholders including the Central and the State Governments to catalyse the
necessary policy changes that are needed to make this sector more vibrant and competitive.

ICC Environment Management Centre

The ICC-EMC specializes in promoting environment management amongst business and

industry. Powered by a fully computerized network of information databases and a specialized
intranet, the EMC’s basic objective is to promote environment management as a tool for
enhancing competitiveness and efficiency. It provides ISO 14000 consultancy and facilitation,
has empanelled experts and interacts extensively with the Government and Pollution Control
Boards as well as experts in NGOs, academic institutions, industry and other institutions. It has
produced a unique CD based database on environment legislation’s in India, and brings out an
information-packed monthly newsletter Environment Watch. Under its aegis, the EMC also
conducts an Energy Efficiency Initiative which works for sensitization and awareness on
energy efficiency in industries.

ICC Council of Arbitration

This is a specialized body, providing institutional service for the settlement of Commercial
disputes. The ICCA also administers and conducts the proceedings of cases referred under the
rules of Arbitration of the International Chamber Of Commerce, Paris and the Indian Council of
Arbitration, New Delhi. It also provides advice on drafting of contracts and organizes
conferences, seminars, workshops etc. for training of arbitrators and awareness programmes
in association with the leading arbitral organizations like the Indian Council of Arbitration,
New Delhi, International Chamber of Commerce, Paris and CPR Institute of Dispute Resolution,
New York

ICC Young Leaders Forum

The ICC-YLF was set up to fulfill a long standing desire to involve the younger generation, the
dynamic force of the nation today more actively in mainstream activities, be it social, political
or economic spheres. The Young Leaders Forum hopes to channelize the strengths of the
younger generation, the future leaders of the nation in different spheres, to shape a new
framework for economic progress and development in the new millennium. The objective of
the YLF is also to build confidence and leadership through greater networking with policy
makers. It is the YLF’s mission to bring hope to the next generation and enable them to meet
the challenges of the New Age era.

The ICC North East Initiative

North- Eastern India, comprising 8 sister States, is today poised for a major economic leap
forward. A virtual tax-free package designed especially for the region, adequate availability of
critical natural and energy resources provide significant business opportunities that are
practically untapped at this juncture. In a serious effort to showcase the business strengths of
the north eastern states of India, the ICC has launched a new and major initiative of generating
business and entrepreneurial interest in the region, being the premier chamber of commerce
in the eastern and north-eastern region. As part of playing the catalyst in promoting business
and attracting investments into the region, the ICC in collaboration with the Department of
Development of North Eastern Region, Government of India, organizes an annual business
summit in important metros of India to promote and generate investor interest in this
resource-rich region.

ICC Convention Facilities

The ICC Convention Facilities include a well-equipped 500-seater auditorium and 3 conference
rooms; State-of-the-art facilities such as video conferencing and computer projection
equipment are available for business meetings. The ICC as the meeting place for business and
industry is the most appropriate address for holding high profile business conferences.

ICC Voice IT Initiative

The Indian Chamber of Commerce (ICC) has embarked on a major initiative to create a
platform for the IT and ITES industry in the Eastern segment of the country. The forum named
as “VOICE IT – Vitalizing IT & Communications in the East”, was formally launched on April 30,
2005 by the then Principal Secretary, Department of Information Technology, Government of
West Bengal. VOICE IT’s mission is to facilitate the creation of a performance-powered
environment for the players and propel the development of the region and the country. The
aims of VOICE IT are to create an interface between industry and government for better policy
advocacy; exchange and share best practices; propagate information and research; compile
a database of all the IT and ITES firms in the region and the country, and other related bodies;
create convergence - meetings, conferences, workshops; build brand for Kolkata and Eastern
region as a vibrant IT destination, in India and abroad.

ICC Calcutta Foundation

The ICC Calcutta Foundation is a charitable trust set up by the Indian Chamber of Commerce
and Industry, Calcutta with the objective of promoting the well-being of Calcutta. The
Foundation funds various projects to bring about a change in the quality of urban life and is
geared to reach out to almost every sphere of urban life where deprivation and denials
warrant redressal. Prevention of substance abuse, environment-friendly income generation
projects, awards for excellence, the Better Calcutta Contest are just some of the ICC Calcutta
Foundation’s long term projects.

ICC Informatics

ICC Informatics is a specialized division of the Indian Chamber of Commerce that looks into
design, development and implementation of software application projects. It implements the
latest software development tools and methodologies with special emphasis to services in the
field of:
· Geographical Information Systems (GIS);
· Digitization and Image Processing;
· Client/server applications;
· Specialized thin-client solutions (e-commerce and distributed applications);

Over the last few years the unit has acquired expertise in development of customized software
solutions related to Industrial Risk Management, Environmental Management Information
Systems etc. The ICC Informatics has been instrumental in development and implementation of
the major European Commission funded project named Environmental Risk Reporting and
Information System (ERRIS), which looks into the issue of industrial risk management for
chemical and petrochemical downstream industries. The project has been successfully
implemented in the industrial clusters of Haldia and Durgapur in West Bengal.

AS India continues to act more and more integrated with the world economy riding the waves
of globalisation, ICC’s strategies and programmes are focused towards enhancing India’s
competitiveness and through effectively utilizing opportunities that emerge from
internationalization and liberalisation. We lay special emphasis on growth with equity, to bring
about greater social development and employment as well as the faster growth of eastern and
north- eastern region.

In the recent years, the Chamber came up with major Economic Surveys & Reports like ‘West
Bengal Investment Climate Survey 2007’, and ‘Survey on IT & ITeS Sector in West Bengal’, both
of which were very well received by Govt., Industry, Media and other relevant stakeholders. In
the current year, the Chamber plans to release a number of Reports / Surveys of strategic
importance including a ‘Report on Special Economic Zones with special focus on Rehabilitation
& Resettlement (R & R)’; ‘Report on Status of State Finances, ‘Report on Regional Stock
Exchanges & their Turnaround Strategies’ among others.

Question-35 Write notes on

(i) FICCI
(ii) CII Association
Ans : FICCI
FICCI stands for Federation of Indian Chambers of Commerce and Industry, a powerful
association of all the moneybags in Indian Industry & Trade. The Federation of Indian
Chambers of Commerce and Industry (FICCI) is an association of business organizations
in India, headquartered in the national capital New Delhi. FICCI is one of the main
organizations to fund and support many governmental and non-governmental educational
institutes. It was founded by GD Birla and Purushottam Takkur in 1927, on the advice
of Mahatma Gandhi.
Established in 1927, FICCI is the largest and oldest apex business organisation in India. Its
history is closely interwoven with India's struggle for independence and its subsequent
emergence as one of the most rapidly growing economies globally. FICCI plays a leading role in
policy debates that are at the forefront of social, economic and political change.

A non-government, not-for-profit organisation, FICCI is the voice of India's business and

industry. FICCI has direct membership from the private as well as public sectors, including
SMEs and MNCs, and an indirect membership of over 83,000 companies from regional
chambers of commerce.

It works closely with the government on policy issues, enhancing efficiency, competitiveness
and expanding business opportunities for industry through a range of specialised services and
global linkages. It also provides a platform for sector specific consensus building and
networking.

FICCI Partnerships with 77 countries across the world carry forward our initiatives in
inclusive development, which encompass health, education, livelihood, governance, skill
development, etc. FICCI serves as the first port of call for Indian industry and the international
business community.

FICCI is also the permanent Indian host of the Global India Business Meeting, an annual
meeting organised by Horasis. Now it is headed by Rajan Bharti Mittal. It has a nationwide
membership of over 1500 corporate and over 500 chambers of commerce and business
associations.

Federation of Indian Chambers of Commerce & Industry FICCI is the rallying point for free
enterprises in India. It has empowered Indian businesses, in the changing times, to shore up
their competitiveness and enhance their global reach.

With a nationwide membership of over 1500 corporate and over 500 chambers of
commerce and business associations, FICCI espouses the shared vision of Indian businesses
and speaks directly and indirectly for over 2,50,000 business units. It has an expanding direct
membership of enterprises drawn from large, medium, small and tiny segments of
manufacturing, distributive trade and services. FICCI maintains the lead as the proactive
business solution provider through research, interactions at the highest political level and
global networking.

Set up in 1927, on the advice of Mahatma Gandhi, FICCI is the largest and oldest apex
business organization of Indian business. Its history is very closely interwoven with the
freedom movement. FICCI inspired economic nationalism as a political tool to fight against
discriminatory economic policies. That commitment, drive and mission continue in the ever-
changing economic landscape of India, chasing always newer agenda.

In the knowledge-driven globalized economy, FICCI stands for quality, competitiveness,

transparency, accountability and business-government-civil society partnership to spread
ethics-based business practices and to enhance the quality of life of the common people.

(ii) CII ASSOCIATION

The Confederation of Indian Industry (CII) works to create and sustain an environment
conducive to the growth of industry in India, partnering industry and government alike
through advisory and consultative processes.

CII is a non-government, not-for-profit, industry led and industry managed organisation,

playing a proactive role in India's development process. Founded over 116 years ago, it is
India's premier business association, with a direct membership of over 8100 organisations
from the private as well as public sectors, including SMEs and MNCs, and an indirect
membership of over 90,000 companies from around 400 national and regional sectoral
associations.

CII catalyses change by working closely with government on policy issues, enhancing
efficiency, competitiveness and expanding business opportunities for industry through a range
of specialised services and global linkages. It also provides a platform for sectoral consensus
building and networking. Major emphasis is laid on projecting a positive image of business,
assisting industry to identify and execute corporate citizenship programmes. Partnerships
with over 120 NGOs across the country carry forward our initiatives in integrated and
inclusive development, which include health, education, livelihood, diversity management, skill
development and water, to name a few.

CII has taken up the agenda of “Business for Livelihood” for the year 2011-12. This converges
the fundamental themes of spreading growth to disadvantaged sections of society, building
skills for meeting emerging economic compulsions, and fostering a climate of good governance.
In line with this, CII is placing increased focus on Affirmative Action, Skills Development and
Governance during the year.

With 63 offices including 10 Centres of Excellence in India, and 7 overseas offices in Australia,
China, France, Singapore, South Africa, UK, and USA, as well as institutional partnerships with
224 counterpart organisations in 90 countries, CII serves as a reference point for Indian
industry and the international business community.

Perspective of CII
CII strongly believes that partnership and cooperation between industry, government and civil
society is the key to economic and social development of India. Tenets of life, business
paradigms are changing at an astonishing pace. At CII, all our efforts are directed towards
harnessing and leveraging the power of technology to change communication, business and
business procedures, connect knowledge to procedures and hence, impact profits and the lives
of common citizens for the better. Essential prerequisites for this to happen are wider, more
holistic perspectives and greater participation in policy formulation by all concerned groups.
Our policy advisory and consultative services cover intra and inter-industry discussions,
industry-community parleys and industry-government meetings, all aimed at giving the whole
policy making process a better business focus and more representative hue. We have over the
years created several credible, generic and focused fora for meaningful dialogue covering
various aspects such as finance and taxation, foreign direct investment, banking, insurance,
WTO and international trade, disinvestment, small and medium enterprises, defence, elections
and industrial relations.

CII's Annual National Conference has established itself as the major interface between all
sections of government, academia, society and industry. It is here that policy and opinion
makers come together on a common platform to discuss and brainstorm on issues relevant to
sustained development and its equitable distribution. The event provides a unique opportunity
to take stock of initiatives taken over the past year, unveil new plans and set the charter for the
year ahead.

India Economic Summit organised annually since 1984, in partnership with World Economic
Forum is South Asia's most prominent annual gathering of decision makers, industry and
thought leaders, senior representatives of leading global corporations and international
investors. Deliberations at the Summit centre around India's ongoing reforms process, the
opportunities and concerns. Informal discussions and opinions shared here serve as a global
barometer for the same.

Infrastructure is the yarn that weaves the fabric of an economy. Investments in

telecommunications, surface transport, roads, highways, ports and airports have emerged as
key imperatives in India's efforts to derive maximum benefits from economic reforms. CII's
Infrastructure Council seeks to establish public-private partnerships for sound strategising
and faster operationalisation of plans, the idea being to dovetail corporate managerial skills
and expertise with government financial resources and reach. Investor friendly legal and
regulatory policy frameworks, risk mitigation, resource mobilisation and centre-state
harmonisation are critical issues that CII continuously addresses during its interactions with
governments and institutions.

CII Council for MNCs has been set up in recognition of the crucial role being played by
multinational corporations in global integration and overall development of the Indian
economy. The council looks after the interests of over 498 organisations and holds regular
discussions with key government officials. It has made a strong case for a single window
clearance system for all investment projects as a step towards making India a more attractive
destination for foreign direct investment.
Small and medium enterprises are key drivers of the Indian economy. They generate
substantial employment and have earned global recognition for cost effectiveness and
technology adaptation. CII works towards keeping small industry at the forefront of change
with updates on latest technologies, market opportunities and finance. Our MoU with the Small
Industries Development Bank of India (SIDBI) helps promote ancillary linkages. CII has also
evolved a unique, tailor-made cluster approach to help SMEs implement ISO 9000 quality
systems.

Roles of CII

The Primary goal of CII is to develop Indian industry and to ensure that government and
society as a whole, understand both the needs of industry and its contribution to the nation's
well being. For this, we work

 To identify and strengthen industry's role in the economic development of the country
 To act as a catalyst in bringing about the growth and development of Indian Industry
 To reinforce industry's commitment to society
 To provide up-to-date information and data to industry and government
 To create awareness and support industry's efforts on quality, environment, energy
management, and consumer protection
 To identify and address the special needs of the small sector to make it more
competitive
 To promote cooperation with counterpart organisations
 To work towards the globalisation of Indian industry and integration into the world
economy

This is done by adopting a proactive and partnership approach with the government on
various national and international issues concerning the Indian economy. It closely interacts
on policy issues at both the central and state levels. Extensive dialogue and interaction with
members and all sections of the community to build consensus are held.

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