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Class-XI
Business Studies
Design of the Question Paper
Maximum Marks : 100
(90 for theory paper + 10 for project)
PART-A : Foundations of Business
1. Nature and Purpose of Business 20 08

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2. Forms of Business Organisations 24 12

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3. Public, Private and Global Enterprises 20 08
4. Business Services 18 10

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5. Emerging Modes of Business 10 06
6. Social Responsibility of Business 12 06
and Business Ethics
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104 50
Part B: Finance and Trade
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7. Sources of business finance 28 14

8. Small Business 14 06
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9. Internal Trade 28 12
10. International Business 12 08
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11. Project Work 22 10

104 50
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Part A: Foundations of Business (Periods 104)

Unit I: Nature and purpose of business : 20 Periods
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Concept and characteristics of business.

Business, profession and employment-distinctive features.
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Objectives of business-economic and social, role of profit in business

Classification of business activities : Industry and Commerce.
Industry-types : primary, secondary, tertiary.
Commerce-trade : types (internal, external, wholesale and retail; and
auxiliaries to trade : banking, insurance, transportation, warehousing,
communication, and advertising.
Business risks - nature and causes.

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Unit 2: Forms of Business Organisations (Periods 24)

Sole Proprietorship- meaning, features, merits and limitations.
Partnership- Features, types, merits and limitations of partnership and
partners, registration of a partnership firm, partnership deed. Type of
partners.
Hindu Undivided Family Business: features.
Cooperative Societies- features, types, merits and limitations.
Company: private and public company -features, merits and limitations.
Formation of a company-stages.

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Starting a business-basic factors.

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Unit 3: Public, Private & Global Enterprises (Periods 20)
Private sector and public sector enterprises.

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Forms of public sector enterprises: features, merits and limitations of
departmental undertakings, statutory corporation and Government
Company.
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Changing role of public sector enterprises.
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Global enterprises, Joint ventures, Public Private Partnership - features

Unit 4: Business Services (Periods 18)
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Banking: types of bank accounts- savings, current, recurring, fixed

deposit and multiple option deposit account,
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Banking services with particular reference to issue of bank draft,

banker's cheque (Pay order), RTGS (Real Time Gross Settlement) NEFT
(National Electronic Funds Transfer), bank overdraft, cash credits and
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e- banking.
Insurance: principles, concept of life, health, fire and marine insurance.
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Postal and telecom services: mail (UPC, registered post, parcel, speed
post and courier) and other services.
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Unit 5: Emerging Modes of Business (Periods 10)

E-Business - scope and benefits, resources required for successful
e-business implementation, online transactions, payment mechanism,
security and safety of business transactions.
Outsourcing-concept, need and scope of BPO (business process
outsourcing) and KPO (knowledge process outsourcing).

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Unit 6: Social Responsibility of Business and Business Ethics (Periods 12)

Concept of social responsibility.
Case for social responsibility,
Responsibility towards owners, investors, consumers, employees,
government and community.
Environment protection and business.
Business ethics and elements.
Part B: Finance and Trade (Periods 104)
Unit 7: Sources of business finance (Periods 28)

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Concept of business finance.
Owner's funds - equity shares, preference shares, GDR, ADR & IDR

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and retained earnings.
Borrowed funds- debentures and bonds, loan from financial institutions,
loans from commercial banks, public deposits, trade credit, ICD (inter
corporate deposits).
Unit 8: Small Business
ing (Periods 14)
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Small scale enterprise as defined by MSMED Act 2006 (Micro ,Small and
Medium Enterprise Development Act)
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Role of small business in India with special reference to Rural Areas

Government schemes and agencies for small scale industries: NSIC
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(National Small industries Corporation) and DIC (District Industrial

Center) with special reference to rural, backward & hilly areas.
Unit 9: Internal Trade (Periods 28)
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Services rendered by a wholesaler and a retailer

Types of retail trade-itinerant and small scale fixed shops
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Large scale retailers-departmental stores, chain stores, mail order

business.
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Concept of automatic vending machine.

Chambers of Commerce and Industry: basic functions
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Main documents used in internal trade: Performa invoice, invoice, debit

note, credit note, LR(Lorry Receipt) and RR(Railway Receipt)
Terms of Trade: COD (Cash on Delivery), FOB(Free on Board ) ,CIF
(Cost, Insurance and Freight), E&OE (Errors and Omissions Excepted)
Unit 10 : International Trade (Periods 12)
Concept and problems of international trade.
Export import procedure and documents.
Role of WTO
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CHAPTER - 1

Nature And Purpose of Business

Economic and Non Economic Activities
All Human beings have different types of needs. So, in order to fulfill those

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needs they have to perform some or the other activity. Human activities are

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classified into Economic & non economic activities.

Basic Economic Non-Economic

Purpose/Notice Those activities whose

Objective is to earn money
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aim is not to earn money,
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and to create wealth. but to satisfy social,
psychological and
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emotional needs.
Examples - People working in factories - A house wife cooking
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food for her family

- A teacher teaching in a school - A teacher training his/
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Daughter at home.

Concept of Business : - Business refers to those economic activities involving the

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purchase production and / or sale of goods and services with a motive of earning
profit by satisfying human needs in society.
Characteristics of Business :-
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1. An economic activity : Business in considered as an economic activity as it is

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undertaken with the objective of earning money.

2. Production or procurement of goods and services :- Business includes all the
activities concerned with the production or procurement of goods &
services for sales. Services include transportation, banking, Insurance etc.
3. Sale or exchange of goods & services :- There should be sale or exchange of
goods & service between the seller & the buyer.
4. Dealing in goods & services an a regular basis :- There should be regularity
of dealings or exchange of goods & services. One single transaction of sale

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or purchase does not constitute business.

5. Profit Earning :- The main purpose of business is to earn profit. A business
cannot survive without making profits.
6. Uncertainty of return :- Every business invests money with the objective of
earning profit. However there is always a possibility of losses.
7. Element of risk :- All business activities carry some elements of risk because
future is uncertain and business has no control over several factors like,
strikes, fire, theft, change in consumer taste etc.
Comparison of Business Profession and Employment

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Economic Activities

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Business Profession Employment
- Fishing
- Manufacturing goods - Legal (Lawyer)
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- Medical (Doctor) - Worker
- Employee
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- Mining - Accountancy (C.A)
Business :- Refers to Purchase, production and/or sale of goods & services with
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the objective of earning profit.

Profession :- Includes those activities which require special knowledge & skills in
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the occupation.
Employment :- Refers to the occupation in which people work for others and get
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remuneration in return.
Basis of Distruction Business Profession Employment
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1. Mode of Establishment Starts after Membership of a Start after getting

completing professional appointment letter.
some legal body and
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formalities if certificate of
needed practice required
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2. Nature of work Provision of Personalised Work alloted by the

goods and services of employer according
services to expert nature. to the contract.
the public.
3. Qualification No minimum Professional Qualification and
Qualification Qualification and training as
is necessary traning required prescribed by the
employer.

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4. Capital Investment Capital needed Limited capital No capital required

according to its for establishment
nature & size
5. Reward /Return Profits Professional Fee Salary or wage
6. Risk It Involves high The degree of No risk in it.
risk risk is low
7. Code of conduct No code of Professional The terms and
conduct code of conduct conditions of service
is to be followed contract are to be
followed.

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Objectives of Business :- The objectives of business means the purpose for which

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a business is established and carried on. Proper selection of objectives is essential
for the success of a business.

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The businessman always have multiple objectives. All objective may be classified
into two broad categories. These are (1) Economic objectives and (2) Social
objectives.
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1. Economic Objectives
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Business is an conomic activity and therefore, its purpose is to show economic

results. The economic objectives of business are follows:
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(i) Earning Profit Profit means excess of income over the expenditure. The
foremost and prime objective of every businessman is to earn profit. A
business cannot survice without earning profit. Not only for survival but it
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is also required for growth and expansion of business.

(ii) Market standing/creation of customer Business can survive for a longer
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period only if it is able to capture a big share in the market and has market
standing. It is possible only when business provides goods and services to
satisfy the needs and wants of customers. Therefore, creation and
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satisfaction of customers (market) is an important objective of business.

(iii) Innovations Innovation means making new products or adding new
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features to old products for making it more useful, improving methods of

production and distribution, exploring new markets, etc. In these days of
competition, a business can be successful only when it creates new designs,
better machines, improved techniques, new varieties, etc.
(iv) optimum utilisation of resources It refers to the best use of men, material,
money and machinery employed in business. The resources of business are
scare so these must be utilised in the best possible manner so that the
business can get maximum benefit from there resources.

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2. Social Objectives
Business is an integral part of society. It makes use of resources of society. It earns
profit by selling its products or services to members of society. So it becomes
obligatory on the part of the businessman to do something for the society. The
important social objective of business are as follows :
(i) Quality goods and services at Fair Price : The first social objective of
business is to provide better quality product at resonable price and in
proper quantity on continuous basis to consumers.
(ii) Avoidence of Anti-Social and Unfair trade practices : Anti-Social practices

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include hoarding, black marketing and adulteration. Making false claims in
advertisements to mislead and exploit people is an example of unfair trade

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practice. Business should not indulge in such practices.
(iii) Generation of Employment : Now a days, employment is the biggest

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problem of society. Business should provide employment to more and more
people living in the country. Handicapped and disabled people should be
given extra care.
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(iv) Employee Welfare : Employees are a valuable asset and they make
significant contributions towards the success of business. Another social
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objective of business, therefore, is to ensure welfare of employees by

providing good working conditions, fair wages and facilities such as
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housing, medical and entertainment etc. such welfare facilities help to

improve physical and mental health of employees.
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(v) Community service : Business should contribute something to the society

where it is established and operated library, dispensary, educational
institutions etc. are certain contributions which a business can make and
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help in the development of community.

Role of Profit in Business

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Business is established for the purpose of earning profit. Profit plays a very
important role in business. The Role of profit in business can be brought out by
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the following facts :

(1) For Long Survival Profits alone help a business to continue to exist for a
long period. In the absence of profit the establishment of a particular
business loses its justification.
(2) For Growth & Expansion All businessmen want their business to expand
and to grow. For development of business additional capital is needed.
Retained earnings is a very good source of capital. The more the profit is in

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a business, the more reinvestment becomes possible.

(3) For Increasing Efficency : Profit is that power which motivates both the
parties - owner and workers to do their best. As they know that in case of
good profits they will get good compensation for their efforts so it finally
helps in increasing the efficency of business.
(4) For Building Prestige and Recognition : For gaining prestige in the society,
business has to satisfy all the parties concerned. It has to supply good
quality product/service at reasonable price to customers, adequate
remuneration to employees, to pay sufficient dividend to the shareholders
etc. and all these are possible only if the business is earning good profit.

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Classification of Business Activities

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1. Primary Industry : The primary industry includes those activities through

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which the natural resources are used to provide raw material for other
industries. Primary industries are of two types.
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(i) Extractive Industry refers to those industries under which something is

extracted out of the earth, water or air e.g., coal, iron, gas etc.
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(ii) Genetic Industry refers to those industries under which the breed of
animals and vegetables are improved and made more useful e.g., poultry
farms, agriculture, dairy farming, tree planting etc.
2. Secondary Industry :- Under this industry new products are manufactured by
using the previously produced things e.g., producing cotton is a primary
industry and manufacturng cloth out of cotton is a secondary industry. It is of
two types.

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1. Manufacturing :- These industries convert raw materials or semi finished

products into finished products e.g., paper from bamboo, sugar from sugar
cane. It is futher be divided into four parts.
(i) Analytic :- Different things are manufactured out of one material e.g.,
petrol, diesel, gasoline out of crude oil.
(ii) Processing : Those industries wherein useful things are manufactured by
making the raw material to pass through different production process e.g.,
steel from iron ore.
(iii) Synthetic :- Many raw materials are mixed to produce more useful product

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e.g., paints, cosmetics.
iv) Assembling :- Where in the parts manufactured by different industries are

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assembled to produce new and useful product e.g., computers, watches etc.
3. Tertiary or Service Industry :- Includes those services which help business to

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move smoothly e.g. transport, bank, Insurance, storage and Advertising.

COMMERCE :-
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Meaning : Commerce refers to all those activities which are concerned with the
transfer of goods and services from the producers to the consumers. It embraces
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all those activities which are necessary for maintaining a free flow of goods and
services. The functions of commerce are as follows.
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1. Removing the hindrance of person.

2. Transportation removes hindrance of place.
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3. Storage and warehousing activities remove the hindrance of time.

4. Insurance removes hindrance of risk.
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5. Banking removes hindrance of finance.

6. Advertising removes hindrance of information.
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Commerce includes two types of activities.

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Trade : Refers to buying and selling of goods and services with the objecive of
earning profit. It is classified into two categories.
1. Internal Trade :- Takes place withn a country. Internal trade is classified into
two categories wholesale trade and retail trade.
i) Wholesale Trade : Refers to buying and selling of goods in large quantities.
A wholesaler buys goods in large quantities from the producers and sells
them to other dealers. He serves as a connecting link between the producer

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and retailer.
ii) Retail Trade : Refers to buying of goods and services in relatively small
Quantities and selling them to the ultimate consumers.
2. External Trade :- Trade between two or more countries. External trade can
be classified into three categories.
i) Import Trade :- If goods are purchased from another country, it is called
import trade.
ii) Export Trade :- If goods are sold to other countries it is called export trade.

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iii) Entrepot Trade :- Where goods are imported for export to other countries
e.g. Indian firm may import some goods from America and export the same

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to Nepal.
2. Auxiliaries to Trade :- All those activies which help in removing various
hindrances which arise in connection with the production and distribution

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of goods are called auxiliaries to trade. An overview of these activties is
given below.
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i) Transportation and Communication :- The production of goods takes place
at one place where as these are demanded in different parts of the country.
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The obstacle of place is removed by the transport. Along with transport

communication is also an important service. It helps in exchange of
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information between producers, consumers and traders. The common

communication services are postal service, telephone, fax, internet etc.
ii) Banking and Finance :- Business needs funds for acquiring assets,
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purchasing raw materials and meeting other expenses. Necessary funds can
be obtained from a bank.
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iii) Insurance :- It provides a cover against the loss of goods, in the process of
transit, storage, theft, fire and other natural calamities.
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iv) Warehousing :- There is generally a time lag between the production and
consumption of goods. This problem can be solved by storing the goods in
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warehouses from the time of production till the time they are demanded by
customers.
5. Advertising :- Advertising brings goods and services to the knowledge of
prospective buyers. It is through advertising that the customers come to
know about the new products and their utility.

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Basis Industry Commerce Trade

1. Meaning Production of Distribution of Buying and selling.
good & services goods & services of goods and services.
2. Capital Large amount Comparatively Less capital
requirement of capital invested lesser capital depending on the
Invested nature of business
3. Scope It includes prim- It includes trade & It includes home
ary, secondary auxiliaries to trade and foreign trade
and services
industries

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4. Risk Involve less risk as Least risk involved
maximum risk Compared to

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industry
5. Utility Created form Creates place Creates possesion

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Utility and time utility utility.
Business Risk :- The term business risk refers to possibility of inadequate profits
or even losses due to uncertainties e.g., changes in tastes and preferences of
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consumers, strike, increased competition, change in Government policy etc.
These are of two types speculative & pure.
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Nature of Business Risks :-

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1. Business risks arise due to uncertainties :- Natural calamities, change in

demand and prices, change in technology etc. are some of the examples of
uncertainty which create risks.
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2. Risk is an essential part of every business :- No business can avoid risk. Risk
can be minimised but can not be eliminated.
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3. Degree of risk depends mainly upon the nature and size of business :- For
small scale business it is less and for large scale business it is more.
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4. Profit is the reward for risk taking :- An entrepreneur assumes risks and in
consideration he gets reward which is called profit. Greater the risk higher
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is the chance of profit.

Causes of Business Risk :-

1. Natural causes : They are beyond human control e.g., flood, earthquake,
heavy rains, famine etc.
2. Human causes : It include carelessness or negligence of employees e.g.,
theft, strikes, riots, misappropriation of cash and goods etc.

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3. Economic causes : They are related to a chance of loss due to change in

market condition e.g., fluctuations in demand and prices, competition,
change in technology etc.
4. Physical causes : Mechanical defects or failures may also lead to losses e.g.,
bursting of boiler or machine may cause death or destruction.
5. Other causes : These include unforeseen events like political disturbances,
fluctuation in exchange rates etc.

Starting a Business :- Basic Factors

1. Selecting the line of business : - The first thing to be decided by the

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entrepreneur is the line and type of business to be undertaken.

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2. Scale or size of business :- After deciding the line of business the
businessman must decide whether he wants to set up large scale or small
scale business.
3.
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Choice of form of Business organisation :- The next decision must be taken is
to finalise the form of business i.e., to set up sole proprietorship.,
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partnership or joint stock company.
4. Location of Business Enterprise :- The entrepreneur has to decide the place
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where the enterprise will be located. Before taking this decision he must
find out availability of raw materials, power, labour, banking,
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transportation etc.
5. Financial Requirement : The businessman must analyse the amount of capital
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he might require to buy fixed assets and for working capital (Day to day
expenses) Proper financial planning must be done to determine the amount
of funds needed.
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6. Physical facilities : include machinery, equipment building etc. This decision

depends upon the size, scale and type of business activities he wants to
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carry on.
7. Plant layout :- Showing the physical arrangement of machines and
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equipment needed to manufacture a product.

8. Competent and committed workforce :- The entrepreneur must find out the
requirement of skilled and unskilled workers and managerial staff to
perform various activities.
9. Tax planning :- The entrepreneur must try to analyse the types of taxes
because there are a number of tax laws in the country which affect the
functioning of business.

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10. Setting up of the Enterprise :- After analysing the above mentioned points
carefully the entrepreneur can start the business which would mean
mobilising various resources and completing legal formalities.

EXPECTED QUESTIONS :- (ONE MARK QUESTION)

Q.1. Give an example of activity which is economic in one side and
noneconomic on other side.
Q.2. Why is business considered an economic activity?
Q.3. If is a person sells his domestic computer at a profit, will it be considered
a business? Also explain the characteristic of business which is being

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stressed upon in the above said example.

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Q.4. Name the economic activity in which specialised knowledge is required.
Q.5. Why is the insurance known as a teritary industry?
3/4 marks
Q.6. ing
Write four differences among business, profession and employment.
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Q.7. No business is risk free in the light of this statement, explain the
concept of business risk and its any three causes.
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Q.8. Explain any four objectives of business

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Q.9. Define commerce, why is it of great importance in modern life?

Q.10 Distinguish between primary & secondary industry. Give examples.
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5/6 marks
Q.11 Define business. Explain the characteristics of business (any four)
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Q.12 Commerce is the sum total of activities that remove hindrances in the
free flow of goods from producers to consumers. Explain.
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Q.13 Explain any six factors that are important to be considered while starting
a business.
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Q.14 Write difference among industry, commerce and trade on any five basis.
Q.15 Profit maxmisation can t be the sole objective of a business . Explain.

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CHAPTER 2

Forms of Business Organisation

Meaning

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A business enterprise is an institutional arrangement to form any business
activity.

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Classification
On the basis of ownership business enterprises can broadly be classified into the
following categories :
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Forms of Business Enterprise
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pic
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In case of CORPORATE FORM of private enterprises the identity of the

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enterprise is separate from that of the owner and in case of NON CORPORATE
FORM, the identity of the enterprise is not different from that of its owners.

SOLE PROPRIETORSHIP
Sole proprietorship means a business owned, financed and controlled by a single
person who is recipient of all profits and bearer of all risks.
It is suitable in areas of personalised services like beauty parlour, hair cutting
saloons and small scale activities like retail shops.

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FEATURES
1. Single ownership :- It is wholly owned by one individual.
2. Control :- Sole proprietor has full power of decision making.
3. No Separate Legal Entity :- Legally there is no difference between business
and businessman.
4. Unlimited Liability :- The liability of owner is unlimited. In case the assets of
business are not sufficient to meet its debts, the personal property of owner
can be used for paying debts.
5. No legal formalities :- are required to start, manage and dissolve such

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business organisation.

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6. Sole risk bearer and profit recipient :- He bears the complete risk and there
is nobody to share profit / loss with him.

MERITS
1. ing
Easy to start and close :- It can be easily started and closed without any legal
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formalities.
2. Quick decision making :- as sole trader is not required to consult or inform
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anybody about his decisions.

3. Secrecy :- He is not expected to share his business decisions and secrets with
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anybody.
4. Direct incentive :- Direct relationship between efforts & reward provide
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incentive to the sole trader to work hard.

5. Personal touch :- The sole trader can maintain personal contacts with his
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customers and employees.

6. Social Utility :- It provides employment to persons with limited money who
are not interested to work under others. It prevents concentration of wealth
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in few hands.
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LIMITATIONS
1. Limited financial resources :- funds are limited to the owner s personal
savings and his borrowning capacity.
2. Limited Managerial ability :- Sole trader cann t be good in all aspects of
business and he cann t afford to employ experts also.
3. Unlimited liability :- of sole trader compels him to avoid risky and bold
business decisions.

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4. Uncertain life :- Death, insolvency, lunacy or illness of a proprietor affects

the business and can lead to its closure.
5. Limited scope for expansion :- Due to limited capital and managerial skills,
it cannot expand to a large scale.

SUITABILITY :
Sole tradership is suitable.
* Where the personal attention to customer is required as in tailoring, beauty
parlour.

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* Where goods are unstandardised like artistic jewellery.

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* Where modest capital & limited managerial skills are required as in case of
retail store.

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JOINT HINDU FAMILY BUSINESS
It is owned by the members of undivided joint Hindu family and managed by
the eldest member of the family known as KARTA. It is governed by the
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provisions of Hindu law. The basis of membership is birth in a particular family.
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FEATURES
1. Formation - for a joint hindu family business there should be atleast two
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members in the family and some ancestral property to be inherited by them.

2. Membership - is by virtue of birth in the family.
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3. Control - In it, control lies with eldest member of family known as Karta .
All other members can give only advice.
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3. Liability - of Karta is unlimited but of all other members is limited to the

extent of their share in property.
w.

4. Continuity - The business is not affected by death or incapacity of Karta as

in such cases the next senior male member becomes the Karta.
ww

6. Minor members - A minor can also become full fledged member of Family
business.

MERITS
1. Effective control - The Karta can promptly take decisions as he has the
absolute decision making power.
2. Continued business existence - The death, Lunacy of Karta will not affect
the business as next eldest member will then take up the position.

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3. Limited liability - The liability of all members except Karta is limited. It

gives them a relief.
4. Secrecy - Complete secrecy regarding business decisions can be maintained
by Karta.
5. Loyality and co-operation - It helps in securing better co-operation and
greater loyality from all the members who run the business.

LIMITATIONS
1. Limited capital - There is shortage of capital as it is limited to the ancestral
property.

m
2. Unlimited liability of Karta - It make him less enterprising.

.co
3. Dominance of Karta - Karta manages the business and sometimes he ignores
the valueable advice of other members. This may cause conflict among

ing
members and may even lead to break down of the family unit.
4. Hasty decisions - As Karta is overburdened with work. So sometimes he
takes hasty and unbalanced decisions.
ch
5. Limited managerial skills of Karta also poses a serious problem. The joint
oa

Hindu family business is on decline because of the diminishing no. of Joint

Hindu families in the country.
yC

PARTNERSHIP
Meaning : Partnership is a voluntary associations of two or more persons who
kM

agree to carry on some business jointly and share its profits and losses.
The partnership was evolved to overcome the shortcomings of sole
pic

proprietorship and Joint Hindu Family business.

FEATURES
w.

1. Two or more persons - There must be atleast two persons to form a

partnership. The maximum no. of persons is 10 in banking business and 20 in
ww

non banking business.

2. Agreement - It is an outcome of an agreement among partners which may be
oral or in writing.
3. Lawful business - It can be formed only for the purpose of carrying on some
lawful business.
4. Decision making & control - Every partner has a right to participate in
management & decision making of the organisation.

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5. Unlimited liability - Partners have unlimited liability.

6. Mutual Agency - Every partner is an implied agent of the other partners and
of the firm. Every partner is liable for acts performed by other partners on
behalf of the firm.
7. Lack of continuity - firms existence is affected by the death, Lunacy and
insolvency of any of its partner. It suffers from lack of continuity.

MERITS
1. Ease of formation & closure - It can be easily formed. Only an agreement
among the partners is required.

m
2. Larger financial resources - There are more funds as capital is contributed

.co
by no. of partners.
3. Balanced Decisions - as decisions are taken jointly by partners after

ing
consulting each other.
4. Sharing of Risks - In it, risk get distributed among partners which reduces
anxiety, burden and stress on individual partner.
ch
5. Secrecy - Secrecy can be easily maintained about business affairs as they are
oa

not required to publish their accounts or to file any report to the govt.

LIMITATIONS
yC

1. Limited resources - There is a restriction on the number of partners and

hence capital contributed by them is also limited.
kM

2. Unlimited liability- The liability of partners is unlimited and they are liable
individually as well as jointly. It may prove to be a big drawback for those
pic

partners who have greater personal wealth. They will have to repay the
entire debt in case the other partners are unable to do so.
3. Lack of continuity - Partnership comes to an end with the death, retirement,
w.

insolvency or lunacy of any of its partner.

ww

4. Lack of public confidence - Partnership firms are not required to publish

their reports and accounts. Thus they lack public confidence.

TYPES OF PARTNERS
1. General / Active Parter - Such a partner takes active part in the management
of the firm.
2. Sleeping or Dormant Partner - He does not take active part in the
management of the firm. Though he invest money, shares profit & Loss, has

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unlimited liability.
3. Secret Partner - He participates in business secretly without disclosing his
association with the firm to general public. His liability is also unlimited.
4. Nominal Partner - Such a partner only gives his name and goodwill to the
firm. He neither invests money nor takes profit. But his liability is
unlimited.
5. Partner by Estoppel - He is the one who by his words or conduct gives
impression to the outside world that he is a partners of the firm whereas
actually he is not. His liability is unlimited towards the third party who has

m
entered into dealing with firm on the basis of his pretention.
6. Partner by holding out - He is the one who is falsely declared partner of the

.co
firm wheras actually he is not. And even after becoming aware of it, he does
not deny it. His liability is unlimited towards the party who has deal with

ing
firm on the basis of this declaration.

PARTNERSHIP DEED
ch
The written agreement on a stamped paper which specifies the terms and
conditions of partnership is called the partnership deed.
oa

It generally includes the following aspects -

- Name of the firm
yC

- Location / Address of the firm

kM

- Duration of business.
- Investment made by each partner.
pic

- Profit sharing ratio of the partners.

- Terms relating to Salaries, Drawing, Interest on capital and Interest on
Drawing of partners.
w.

- Duties and obligations of partners.

ww

- Terms governing admission, retirement and expulsion of a partner.

- Preparation of accounts and their auditing.
- Method of solving disputes.

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REGISTRATION OF PARTNERSHIP
Registration is not compulsory, it is optional. But it is always beneficial to get the
firm registered.
The consequences of non-registration of a firm are as follows -
1. A partnet of an unregistered firm cannot file suit against the firm or other
partner.
2. The firm cannot file a suit against third party.
3. The firm cannot file a case against its partner.

m
CO-OPERATIVE SOCIETY
A cooperative society is a voluntary association of persons of moderate means,

.co
who unite together to protect and promote their common economic interests.

FEATURES
1.
ing
Voluntary association - Everyone having a common interest is free to join a
cooperate society and can also leave the society after giving proper notice.
ch
2. Legal status - Its registration is compulsary and it gives it a separate legal
identity.
oa

3. Limited liability - The liabity of the member is limited to the extend of their
capital contribution in the society.
yC

4. Democratic control - Management and control lies with the managing

committee elected by the members by giving vote. Every member has one
kM

vote irrespective of the number of shares held by him.

5. Service motive - The main aim is to serve its members and not to maximise
the profit.
pic

6. State control - They have to abide by the rules and regulation framed by
govt. for them.
w.

7. Distribution of surplus - The profit is distributed on the basis of volume of

business transacted by a member and not on the basis of capital contribution
ww

of member.

MERITS
1. Ease of formation - It can be started with minimum of 10 members.
Registration is also easy as it requires very few legal formalities.
2. Limited liability :- The liability of members is limited to the extend of their
capital contribution.

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3. Stable Existence - Due to registration it is a separete legal entity and is not

affected by the death, Lunacy or insolvency of any of its member.
4. Economy in operations - Due to elimination of middleman and voluntary
services provided by its members.
5. Government Support - Govt. provides support by giving loans at lower
interest rates, subsidies & by charging less taxes.
6. Social utility :- It promotes personal liberty, social justice and mutual
cooperation. They help to prevent concentration of economic power in few
hands.

m
LIMITATIONS

.co
1. Shortage of capital - It suffers from shortage of capital as it is usually formed
by people with limited means.

ing
2. Inefficient management - Co-operative society is managed by elected
members who may not be competent and experienced. Moreover it cann t
afford to employ expert and experienced people at high salaries.
ch
3. Lack of motivation - Members are not inclined to put their best efforts as
there is no direct link between efforts and reward.
oa

4. Lack of Secrecy - Its affairs are openly discussed in its meeting which makes
it difficult to maintain secrecy.
yC

5. Excesive govt. control - it suffers from excessive rules and regulations of the
govt. It has to get its accounts audited by the auditor and has to submit a
kM

copy of its accounts to registrar.

6. Conflict among members - The members are from different sections of
pic

society with different view points. Sometimes when some members become
rigid, the result is conflict.
w.

TYPES OF CO-OPERATIVE SOCIETIES

1. Consumers co-operative Society - It seeks to eliminate middleman by
ww

establishing a direct link with the producers. It purchases goods of daily

consumption directly from manufacturer or wholesalers and sells them to
the members at reasonable prices.
2. Producer s Co-operative Society - The main aim is to help small producers
who cannot easily collect various items of production and face some
problem in marketing. These societies purchase raw materials, tools,
equipments and other items in large quantity and provide these things to
their members at reasonable price.
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3. Marketing Co-operative Society - It performs various marketing function

such as transportation, warehousing, packing, grading, marketing research
etc. for the benefit of its members. The production of different members is
pooled together and sold by society at good price.
4. Farmer s Co-operative Society - In such societies, small farmers join
together and pool their resources for cultivating their land collectively. Such
societies provide better quality seeds, fertilisers, machinery and other
modern techniques for use in the cultivation of crops. It provides them
opportunity of cultivation on large scale.
5. Credit co-opearative Society - Such societies protect the members from

m
exploitation by money lenders. They provide loans to their members at easy

.co
terms and reasonably low rate of interest.
6. Co-operative Housing Society - The main aim is to provide houses to people
with limited means / income at reasonable price.

JOINT STOCK COMPANY ing

ch
Meaning - Joint stock company is a voluntary association of persons having a
separate legal existence, perpetual succession and common seal. Its capital is
divided into transferable shares.
oa

FEATURES
yC

1. Seperate Legal Existence - It is created by law and it is a distinct legal entity

independent of its members. It can own property, enter into contracts, can
kM

file suits in its own name.

2. Perpetual Existence - Death, insolvency and insanity or change of members
has no effect on the life of a company It can come to an end only through the
pic

prescribed legal procedure.

3. Limited Liability - The liability of every member is limited to the nominal
w.

value of the shares bought by him or to the amt. guaranted by him.

ww

4. Transferability of shares - Shares of public Co. are easily transferable. But

there are certain restrictions on transfer of share of private Co.
5. Common Seal - It is the official signature of the company and it is affixed on
all important documents of company.
6. Seperation of ownership and conrol - Management of company is in the
hands of elected representatives of shareholders known individually as
director and collectively as board of directors.

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MERITS
1. Limited Liability - Limited liability of shareholder reduces the degree of
risk borne by him.
2. Transfer of Interest - Easy transferability of shares increases the
attractiveness of shares for investment.
3. Perpetual Existence - Existence of a company is not affected by the death,
insanity, Insolvency of member or change of membership. Company can be
liquidated only as per the provisions of companies Act.
4. Scope for expansion - A company can collect huge amount of capital from

m
unlimited no. of members who are ready to invest because of limited
liability, easy transferability and chances of high return.

.co
5. Professional management - A company can afford to employ highly
qualified experts in different areas of business management.

LIMITATIONS
1.
ing
Legal formalities - The procedure of formation of Co. is very long, time
ch
consuming, expensive and requires lot of legal formalities to be fulfilled.
oa

2. Lack of secrecy - It is very difficult to maintain secrecy in case of public

company, as company is required to publish and file its annual accounts and
reports.
yC

3. Lack of Motivation - Divorce between ownership and control and absence

of a direct link between efforts and reward lead to lack of personal interest
kM

and incentive.
4. Delay in decision making - Red tapism and bureaucracy do not permit quick
pic

decisions and prompt actions. There is little scope for personal initiative.
5. Oligarchic management - Co. is said to be democratically managed but
w.

actually managed by few people i.e. board of directors. Sometimes they

take decisions keeping in mind their personal interests and benefit, ignoring
ww

the interests of shareholders and Co.

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TYPES OF COMPANIES
On the basis of ownership, companies can be divided into two categories
- Private & Public. Difference between Private Company & Public Co.
Private Co. Public Co.
i) It has minimum 2 & i) It has minimum 7 & maximum
maximum 50 member unlimited members.
ii) It cannot invite general ii) It invites general public to buy its
public to buy its shares & shares & debentures
debentures

m
iii) There are certain restrictions iii) Its share are freely transferable

.co
on tranfer of its shares.
iv) It can commence bussiness iv) It can commence business after

ing
after incorporation obtaining certificate of
commencement of business
v) It has to write Private Ltd v) It has to write only Limited after
ch
after its name its name
oa

Example : Tata Sons, Citi Bank, Example : Reliance Industries Ltd.,

Hyundai Motor India Wipro Ltd., Raymonds Ltd.
yC

vi) In it Minimum capital required vi) In it minimum capital required is

is one Lakh five lakhs.
kM

CHOICE OF FORM OF BUSINESS ORGANISATION

The following factors are Important for taking decision about form of
pic

organisation.
1. Cost and Ease in Setting up the organisation - Sole properietorship is least
expensive and can be formed without any legal formalities to be fulfilled.
w.

Company is most expensive with lot of legal formalities,

ww

2. Capital Consideration - Business requiring less amount of finance prefer

sole proprietorship and partnership form, where as business activites
requiring huge financial resources prefer company form.
3. Nature of Business - If the work requires personal attention such as tailoring
unit, hair cutting saloon, it is generally set up as a sole proprietorship. Units
engaged in large scale manufacturing are more likely to be organised in
company form.

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4. Degree of Control Desired - A person who desires full and exclusive control
over business prefers proprietorship rather than partnership or Co. because
control has to be shared in these cases.
5. Liability or Degree of Risk - Projects which are not very risky can be
organised in the form of sole proprietorship & partnership. Where as the
risky ventures should be done in company form of organisation because the
liability of shareholders is limited.

FORMATION OF A COMPANY
Formation of a company means bringing a company into existence and starting

m
its business. The steps involved in the formation of a company are :-

.co
i) Promotion
ii) Incorporation

ing
iii) Capital subscription
iv) Commencement of business.
ch
A private company has to under go only first two steps but a publc company has
to undergo all the four stages.
oa

I. Promotion :-
Promotion means conceiving a business opportunity and taking an initiative
yC

to form a company.
Step in Promotion :-
kM

1. Identification of Business Opportunity : The first and foremost function of a

promoter is to identify a business idea e.g. production of a new product or
pic

service.
2. Feasibility Studies :- After identifying a business opportunity the promoters
undertake detailed studies of technical, Financial, Economic feasibility of a
w.

business.
ww

3. Name Approval : After selecting the name of company the promotors

submit an application to the Registrar of companies for its approval.
4. Fixing up signatories to the Memorandom of Association :- Promotors have
to decide about the director who will be signing the memorandum of
Association.
5. Appointment of professional : - Promoters appoint merchant bankers,
auditors etc.

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6. Preparation of necessary documents :- The promoters prepare certain legal

documents such as memorandum of Association, Articles of Association
which have to be submitted to the Registrar of the companies.
II. Incorporation :-
Incorporation means registration of the company as body corporate under
the companies Act 1956 and receiving certificate of Incorporation.
Steps for Incorporation
1. Application for incorporation :- Promotors make an application for the
incorporation of the company to the Registrar of companies.

m
2. Filing of necessary documents :- Promotors files the following documents:-

.co
i) Memorandum of Assoication.
ii) Articles of Association.
iii) Statement of Authorised Capital
iv) Consent of proposed director.
ing
ch
v) Agreement with proposed managing director.
oa

vi) Statutory declaration.

3. Payment of fees :- Along with filing of above documents, registration fees
yC

has to be deposited which depends on amount of the authorised capital.

4. Registration :- The Registrar verifies all the document submitted. If he is
kM

satisfied then he enters the name of the company in his Register.

5. Certificate of Incorporation :- After entering the name of the company in the
register. The Registrar issues a Certificate of Incorporation . This is called
pic

the birth certificate of the company.

III. Capital Subscription :-

w.

A public company can raise funds from the public by issuing shares and
ww

Debentures. For this it has to issue prospectus and undergo various other
formalities:-
Step required for raising funds from public :
1. SEBI Approval : SEBI regulates the capital market of India. A public
company is required to take approval from SEBI.
2. Filing of Prospectus :- Prospectus means any documents which invites offers
from the public to purchase share and Debenture of the company.

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3. Appointment of bankers, brokers, underwriters :- Banker of the company

receive the application money. Brokers encourage the public to apply for the
shares. underwriters are the person who undertake to buy the shares if
these are not subscribed by the public. They receive a commission for
underwriting.
4. Minimum subscription : According to the SEBI guide lines minimum
subscription is 90% of the issue amount. If minimum subscription is not
received then the allotment cannot be made and the application money must
be returned to the applicants within 30 days.
5. Application to Stock Exchange :- It is necessary for a public company to list

m
their shares in the stock exchange therefore the promoters apply in a stock

.co
exchange to list company shares.
6. Allotment of Shares : Allotment of shares means acceptance of share
applied. Allotment letters are issued to the shareholders. The name and

ing
address of the shareholders submitted to the Registrar.

IV. COMMENCEMENT OF BUSINESS :-

ch
To commence business a public company has to obtain a certificate of
commencement of Business. For this the following documents have to be filled
oa

with the registrar of companies.

yC

1. A declaration that 90% of the issued amount has been subscribed.

2. A declaration that all directors have paid in cash in respect of allotment of
shares made to them.
kM

3. A statutory declaration that the above requirements have been completed

and must be signed by the director of company.
pic

1 MARK QUESTIONS :-
w.

1. Write the name of form of business organisation found only in India.

2. Name two types of business in which sole propritorship is very suitable.
ww

3. Name the person who manages a Joint Hindu Family business.

4. Write the names of systems which govern membership in Joint Hindu
Family Business.
5. Enumerate the two conditions necessary for formation of Joint Hindu
Family business.
6. What is the minimum no. of persons required to form a co operative society?

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7. Explain the meaning of unlimited liability.

8. Name the type of Co. which must have a minimum paid up capital of 5 lacs
9. What is meant by minimum subscription?

3 MARKS QUESTIONS
9. Explain the concept of mutual agency in partnership with suitable example.
10. What is the role of Karta n Joint Hindu Family business?
11. Name the types of compnay which two person can start.

m
12. What is meant by Partner by estoppel ?
13. What is Secret Partner ?

.co
14. Write a short note on producers co-operative society.
15. Explain a co operative organisation in a domocratic setup.

4/5 MARKS QUESTIONS : ing

ch
16. Is registration of partnership compulsory? What are the consequences of
non-registration?
oa

17. Explain any four limitations of Joint Stock Company.

18. Differentiate between Private Co. & Public Co.
yC

6 MARKS QUESTIONS :
kM

19. Mr. Amit Kumar is interested in the floatation of a company. Breifly discuss
the steps he should take.
20. Discuss the reasons for the superiority of Joint Stock co. over sole
pic

proprietorship and partnership.

21. Explain the factors which affect the choice of form of business organisation.
w.

22. Which form of business is suitable for following types of business and why?
ww

a) Beauty Parlour
b) Coaching centre for Science Students

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CHAPTER 3

Public And Global Enterprises

PUBLIC SECTOR ENTERPRISES

m
Meaning : - The public sector consists of various organisations owned and
managed by central or state or by both governments. The govt. participates in

.co
economics activity of the country through these enterprises.
FEATURES :
1.
2. ing
Capital is contributed by central or state or both govts.
Public welfare or service is the main objective.
ch
3. Management & control are in the hands of govt.
4. It is accountable to the public
oa

FORM OF PUBLIC ENTERPRISES

yC
kM
pic

I. DEPARTMENT UNDERTAKING
These are established as departments of the ministry and are financed, managed
w.

and controlled by either central govt. or state govt.

Examples :- Indian Railways, Post & Telegraph
ww

FEATURES
1. No Separate Entity :- It has no separate legal entity.
2. Finance :- It is financed by annual budget allocation of the govt. and all its
earnings go to govt. treasury.
3. Accounting & Audit :- The govt. rules relating to audit & accounting are
applicable to it.

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4. Staffing :- Its employees are govt. employees & are recruited & appointed as
per govt. rules.
5. Accountability :- These are accountable to the concerned ministry.

MERITS
1. It is more effective in achieving the objective laid down by govt. as it is
under the direct control of govt.
2. It is a source of govt. income as its revenue goes to govt. treasury.
3. It is accountable to parliament for all its actions which ensures proper

m
utilisation of funds.

.co
4. It is suitable for activities where secrecy and strict control is required like
defence production.

ing
DEMERITS
1. It suffers from interference from minister and top officials in their working.
ch
2. It lacks flexibility which is essential for smooth operation of business.
3. It suffers from red tapism in day to day work.
oa

4. These organisations are usually insensitive to consumer needs and do not

provide goods and adequate service to them.
yC

5. Such organisations are managed by civil servants and govt. officials who
may not have the necessary expertise and experience in management.
kM

STATUTORY CORPORATIONS
It is established under a special Act passed in parliament or state legislative
pic

assembly. Its objectives, powers and functions are clearly defined in the statute /
Act.
w.

Examples :- Unit Trust of India, Life Insurance Corporation.

ww

FEATURES
1. It is established under a special act which defines its objects, powers and
functions.
2. It has a separate legal entity.
3. Its management is vested in a Board of directors appointed or nominated by
government.

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4. It has its own staff, recruited and appointed as per the provisions of act.
5. This type of enterprise is usually independently financed. It obtains funds
by borrowing from govt. or from public or through earnings.
6. It is not subject to same accounting & audit rules which are applicable to
govt. department.

MERITS
1. Internal Autonomy :- It enjoys a good deal of autonomy in its day to day
operations and is free from political interferance.

m
2. Quick decisions :- It can take prompt decisions and quick actions as it is free
from the prohibitory rules of govt.

.co
3. Parliamentary control :- Their performance is subject to discussion in
parliament which ensures proper use of public money.
4.
ing
Efficent Management :- Their directors and top executives are professionals
and experts of different fields.
ch
DEMERIT
1. In reality, there is not much operational flexibility. It suffers from lot of
oa

political interferance.
yC

2. Usually they enjoy monopoly in their field and do not have profit motive
due to which their working turns out to be inefficient.
3. Where there is dealing with public, rampant corruption exists.
kM

Thus public corp. is suitable for undertaking requiring monopoly powers

e.g. public utilities.
pic

GOVERNMENT COMPANY
w.

A government company is a company in which not less than 51% of the paid up
share capital is held by the central govt; or state govt. or jointly by both
ww

Examples :- Hindustan Insecticides Ltd., State Trading Corp. of India,

Hindustan Cables Ltd.

FEARURE
1. It is registered or Incorporated under companies Act.
2. It has a separate legal entity
3. Management is regulated by the provision of companies Act.

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4. Employees are recruited and appointed as per the rules and regulations
contained in Memorandum and Articles of association.
5. The govt. Co. obtains it funds from govt. shareholdings and other privatte
sharehoildings. It can also raise funds from capital market.

MERITS
1. It can be easily formed as per the provision of companies Act. Only an
executive decision of govt. is required.
2. It enjoys autonomy in management decisions and flexibility in day to day
working.

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3. It can appoint professional managers on high salaries.

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LIMITATIONS

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1. It suffers from interferance from govt. officials, ministers and politicians.
2. It evades constitutional responsibility, which a company financed by the
govt. should have, as it is not directly answerable to parliament.
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3. The board usually consists of the politicians and civil servants who are
interested more in pleasing their political bosses than in efficent operation
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of the company.
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CHANGING ROLE OF PUBLIC SECTOR

Public sector in India was created to achieve two types of objective - (1) to speed
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up the economic growth of the country and (2) to achieve a more equitable
distribution of income and wealth among people.
The role and importance of public sector changed with time. Its role over a
pic

period of time can be summarised as following :-

1. Development of Infrastructure :- At the time of independence, India
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suffered from acute shortage of heavy industries such as engineering, iron

and steel, oil refineries, heavy machinery etc. Because of huge investment
ww

requirement and long gestation period, private sector was not willing to
enter these areas. The duty of development of basic infrastructure was
assigned to public sector which it discharged quite efficently.
2. Regional balance :- Earlier, most of the development was limited to few
areas like port towns. For providing employment to the people and for
acclerating the economic development of backward areas many industries
were set up by public sector in those areas.

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3. Economies of scale - In certain industries (like Electric power plants, natural

gas, petroleum etc) huge capital and large base are required to function
economically. Such areas were taken up by public sector.
4. Control of Monopoly and Restrictive trade Practices - These enterprises
were also established to provide competition to pvt. sector and to check
their monopolies and restrictive trade practices.
5. Import Substitution - Public enterprises were also engaged in production
of capital equipments which were earlier imported from other countries. At
the same time public sector Companies like STC and MMTC have played an
important role in expandng exports of the country.

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Very important role was assigned to public sector but its performance was

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far from satisfactory which forced govt. to do rethinking on public
enterprises.

PUBLIC SECTOR REFORMS :-

ing
In the industrial policy 1991, the govt. of India introduced four major reforms in
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public sector.
a) Reduction in no. of industries reserved for public sector - This no. is
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reduced from 17 to 8 and to 3 industries only in 2001. These three industries

are atomic energy, arms and rail transport.
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b) Memorandum of Understanding (MOU) - Under this govt. lays down

performance targets for the management and gives greater autonomy to
hold the management accountable for the results.
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c) Disinvestment - Equity shares of public sector enterprises were sold to

private sector and the public. It was expected that this would lead to
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improved managerial performance and better financial discipline.

d) Restructure and Revival :- All public sector sick units were referred to
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Board of Industrial and financial Reconstruction (BIFR). Units which were

potentially viable were restructured and which could not be revived were
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closed down by the board.

MULTI NATIONAL COMPANIES/GLOBAL ENTERPRISES

Multinational Company may be defined as a company that has business
operations in several countries by having its factories, branches or offices in
those Countries. But it has its headquarter in one country in which it is
incorporated.
Example :- GEC, IBM, PHILIPS, COCA-COLA etc.

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FEATURES
1. Huge Capital Resources :- MNCs possess huge capital resources and they
are able to raise lot of funds from various sources.
2. International Operations :- A MNC has production, marketing and other
facilities in several countries.
3. Centralised control : MNCs have headquarters in their home countries from
where they exercise control over all branches and subsidaries. It provides
only broad policy framework to them and there is no interferance in their
day to day operations.

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4. Foreign Collaboration :- Usually they enter into agreements relating to sale
of technology, production of goods, use of brand name etc. with local firms

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in the host country.
5. Advanced technology - These orgs possess advanced and superior

6. ing
technology which enable them to provide world class products & services.
Product Innovations :- MNCs have highly sophisticated research and
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developent departments. These are engaged in developing new products
and superior design of existing products.
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7. Marketing Strategies - MNCs use aggresive marketing strategies. Their

brands are well known and spend huge amounts on advertising and sale
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promotion.

JOINT VENTURES
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Meaning :- When two or more independent firms together establish a new

enterprise by pooling their capital, technology and expertise, it is known as a
joint venture.
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Example : Hero Cycle of India and Honda Motors Co. of Japan jointly
established Hero Honda. Similarly Suzuki Motors of Japan and Govt. of India
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come together to form Maruti Udyog.

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FEATURES
1. Capital is provided jointly by the Government and Private Sector
Entrepreneurs.
2. Management may be entrusted to the private entrepreneurs.
3. It combines both social and profit objectives.
4. It is responsible to the Government and the private investors.

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BENEFITS
1. Greater resources and Capacity - In a joint venture the resources and
capacity of two or more firms are combined which enables it to grow
quickly and efficiently.
2. Access to advanced technology - It provides access to advanced techniques
of production which increases efficiency and then helps in reduction in cost
and improvement in quality of product.
3. Access to New Markets and distribution network - A foreign co. gain access
to the vast Indian market by entering into a joint venture with Indian Co. It
can also take advantage of the well established distribution system of local

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firms.

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4. Innovation - Foreign partners in joint ventures have the ideas and
teachnology to develop innovative products and services. They have an
advantage in highly competitive and demanding markets.
5.
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Low Cost of production - Raw material and labour are comparatively cheap
in developing countries so if one partner is from developing country they
can be benefitted by the low cost of production.
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6. Well known Brand Names :- When one party has well established brands &
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goodwill, the other party gets its benefits. Products of such brand names
can be easily launched in the market.
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VERY SHORT ANSWER QUESTIONS (1 MARK)

1. Name the sector which consists of business organisations owned &
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managed by government.
2. Give two examples of Multinational Companies.
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3. Write the name of system by which mangement of a public enterprise is

granted more autonomy but held accountable for specific results.
4. Write the name of enterprise that operate in several countries.
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5. What is departmental undertaking?

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6. Name the type of public enterprise which requires a special Act of

parliament.

SHORT ANSWER QUESTIONS (3 MARKS)

7. What is memorandum of understanding?
8. How does the govt. maintain a regional balance in the country?
9. Write three difference between Departmental undertaking and
Government Co.
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LONG ANSWER QUESTIONS (5/6 MARKS)

10. Define joint venture and explain its major benefits.
11. Write main features of multi national company.
12. Why is the government company form of organisation preferred to other
types in the public sector?
13. Explain the changing role of public sector in India.
14. What is statatory corporation? Explain its features.
15. Explain three merits and three limitations of Departmental undertaking.

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ing
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CHAPTER 4

Business Services
It has already been stated that commerce consists of trade and auxiliaries to
trade. Auxiliaries or aids to trade refer to the activities incidental to the buying

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and selling of goods and services. These auxiliaries to trade are also known as
business services or facilities. These services are essential and indispensable to

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the smooth flow of trade and industry. The examples of business services are
Banking, insurance, transport, warehousing and communication.

NATURE OF BUSINESS SERVICES :

1. ing
Intangibility : Cannot be seen, touched or smelled. Just can only be felt, yet
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their benifits can be availed of e.g. Treatment by doctor.
2. Inconsistency : Different customers have different demands & expectation.
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e.g. Mobile services/Beauty parlour.

3. In Separability : Production and consumption are performed simultaneously
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e.g. ATM may replace clerk but presence of customer is a must.

4. Inventory Loss : Services cannot be stored for future use or performed
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earlier to be consumed at a later date. e.g. underutilised capacity of hotels

and airlines during slack demand cannot be stored for future when there
will be a peak demand.
pic

5. Involvement : Participation of the customer in the service delivery is a must

e.g. A cutomer can get the service modified according to specific
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requirement.
Type of Services :-
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1. Social Services :- Provided voluntarily to achieve certain goals e.g. health

care and education services provided by NGOs.
2. Personal Services :- Services which are experienced differently by different
customers.
e.g. tourism, restaurants etc.

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3. Business Services :- Services used by business enterprises for the conduct of

their activities.
e.g. Banking, Insurance, communication, warehousing and transportation.

Banks
Banks occupy an important position in the modern business world. No country
can make commercial and industrial progress without a well organised banking
system. Banks encourage the habit of saving among the public. They mobilise
small savings and chennelise them into productive uses.
Meaning of Bank A bank is an institution which deals in money and credit. It

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collects deposits from the public and supplies credit, thereby facilitating

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exchange. It also performs many other function like credit creation, agency
functions, general services etc Hence a Bank is an organisation which accepts
deposits, lends money and perform other agency functions.

ing
FUNCTIONS OF COMMERCIAL BANK
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pic

Primary Functions :
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1. Accepting Deposits Accepting deposits is the main function of commercial

banks. Banks offer diffrent types of Bank accounts to suit the requirements
ww

and needs of different customers. Different types of Bank accounts are as

follows :
A. Fixed Deposit Account Money is deposited in the account for a fixed
period. After expiry of specified period person can claim his money from the
bank. Usually the rate of interest is maximum in this account. The longer the
period of deposit, the higher will be the rate of interest on deposit.
B. Current Deposit Account Current deposit Accounts are opened by
businessman. The account holder can deposit and withdraw money

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whenever desired. As the deposit is repayable on demand, it is also known

as demand deposit Withdrawals are always made by cheque. No interest is
paid on current accounts. Rather charges are taken by bank for services
rendered by it.
C. Saving Deposit Account The aim of a saving account is to mobilise savings
of the public. A person can open this a/c by depositing a small sum of money.
He can withdraw money from his account and make additional deposits at
will. Account holder also gets interest on his deposit in this account though
the rate of interest is lower than the rate of interest on fixed deposit
account.

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D. Recurring Deposit Account The aim of recurring deposit is to encourage

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regular savings by the people. A depositer can deposit a fixed amount, say
Rs. 100 every month for a fixed period. The amount together with interest is
repaid on maturity. The interest rate on this account is higher than that on

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saving deposits.
E. Multiple Option Deposit Account It is a type of saving Bank A/c in which
deposit in excess of a particular limit gets automatically transferred into
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Fixed Deposit. On the other hand, in case adequate fund is not available in
our saving Bank Account so as to honour a cheque that we have issued the
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required amount gets automatically transferred from fixed deposit to the

saving bank account. Therefore, the account holder has twin benefits from
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this amount (i) he can earn more interest and (ii) It lowers the risk of
dishonouring a cheque.
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2. Lending Money With the help of money collected through various types of
deposits, commercial banks lend finance to businessman, farmers, and
others. The main ways of lending money are as follows :
pic

A. Term Loans These loans are provided by the banks to their customers for
a fixed period to purchases Machinery, Truck, Scooter, House etc. The
w.

borrowers repay there loans in Monthly/Quarterly/Half Yearly/ Annual

instalments.
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B. Bank Overdraft The customer who maintains a current account with the
bank, takes permission from the bank to withdraw more money than
deposited in his account. The extra amount withdrawn is called overdraft.
This facility is available to trustworthy customers for a small period. This
facility is usually given against the security of some assets or on the personal
security of the customer. Interest is charged on the actual amount
overdrawn by the customer.

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C. Cash Credit Under this arrangement, the bank advances cash loan up to a
specified limit against current assets and other securities. The bank opens an
account in the name of the borrower and allows him to withdraw the
borrowed money from time to time subject to the sanctioned limit. Interest
is charged on the amount actually withdraw.
D. Discounting of Bill of Exchange Under this, a bank gives money to its
customers on the security of a bill of exchange before the expiry of the bill in
case a customers needs it. For this service bank charges discount for the
remaining period of the bill.

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Secondary Functions
The secondary functions of commercial banks are as under :

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1. Ageny Functions
As an agent of its customers, a commercial bank provides the following
services :
ing
(a) Collecting bills of exchanges, promissory notes and cheques
ch
(b) Collecting dividends, interest, rent etc.
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(c) Buying and selling shares, debentures and other securities

(d) Payment of interest, insurance premium, etc
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(e) Transferring funds from one branch to another and from one place to
another
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(f) Acting as an agent or representative while dealing with other banks

and financial institutions.
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A commercial bank performs the above functions on behalf of and as per the
instructions of its customers.
2. General Utility Functions
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Commercial banks also perform the following miscellaneous functions.

ww

(a) Providing lockers for safe custody of jewellery and others valuables of
customers.
(b) Giving references about the financial position of customers.
(c) Providing information to a customer about the credit worthiness of
other customers.
(d) Supplying various types of trade information useful to customers

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(e) Issuing letter of credit, pay orders, bank draft, credit cards, traveller s
cheques to customers.
(f) Underwriting issues of shares and debentures.
(g) Providing foreign exchange to importers and travellers going abroad.
Bank Draft It is a financial instrument with the help of which money can be
remitted from one place to another. Anyone can obtain a bank draft after
depositing the amount in the bank.
The bank issues a draft for the amount in its own branch at other places or
other banks (only in case of tie up with those banks) on those places. The payee

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can present the draft on the drawee bank at his place and collect the money. Bank
charges some commission for issuing a bank draft.

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**Banker s cheque or Pay Order It is almost like a bank draft. It refers to that
bank draft which is payable within the town. In other words banks issue pay

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order for local purpose and issue bank draft for outstations.

ELECTRONIC BANKING SERVICES/E-BANKING

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Using computers and internet in the functioning of the banks is called electronic
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banking. Because of these services the customers do not need to go to the bank
every time he has to transact with bank. He can make transactions with the bank
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at any time and from any place. The chief electronic services are the following.
1. Electronic Fund Transfer Under it, a bank transfers wages and salaries
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directly from the company s account to the accounts of employees of the

company. The other examples of EFTs are on line payment of electricity bill,
water bill, insurance premium, house tax etc.
pic

2. Automatic Teller Machines (ATMs) ATM is an automatic machine with the

help of which money can be withdrawn or deposited by inserting the card
w.

and typing your personal Identity Number (PIN). This machine operates for
all the 24 hours.
ww

3. Debit Card A Debit Card is issued to a customers in lieu of his money

deposited in the bank. The customers can make immediate payment of
goods purchased or services obtained on the basis of his debit card
provided the terminal facility is available with the seller.
4. Credit Card A bank issues a credit card to those of its customers who enjoy
good reputation. This is a sort of overdraft facility. With the help of this card
the holder can buy goods or obtain services upto a certain amount even
without having sufficent deposit in their bank accounts.
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5. Tele Banking Under this facilty, a customer can get information about the
balance in his account or information about the latest transactions on the
telephone.
6. Core Banking Solution/Centralised Banking Solution In this system a
customer by opening a bank account in one branch (which has CBS facility)
can operate the same account in all CBS branches of the same bank
anywhere across the country. It is immaterial with which branch of the bank
the customer deals with when he/she is a CBS branch customer.
7. National Electronic Fund Transfer : NEFT refers to a nation wide system
that facilitate individuals, firms and companies to electronically transfer
funds from any branch to any individual, firm or company having an

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account with any other bank branch in the country. NEFT settles

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transactions in batches. The settlement takes place at a particular point of
time for example, NEFT settlement takes place 6 times a day during the
week days (9.30am, 10.30 am, 12.00 noon, 1.00 pm, 3.00 pm & 4.00 pm) and 3

ing
times during Saturday 9.30 am, 10.30 am and 12.00 noon) Any transaction
initiated after a designated settlement time is settled on the next fixed
settlement time.
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8. Real Time Gross Settlement RTGS refers to a funds transfer system where
transfer of funds takes place from one bank to another on a Real time and
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on Gross basis. Settlement in Real time means transactions are settled as

soon as they are processed and are not subject to any waiting period.
Gross settlement means the transaction is settled on one to one basis
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without bunching or netting with any other transaction. This is the fastest
possible money transfer system through the banking channel.
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The RTGS service for customers is available from 9.00 am to 3.00 pm on

week days and from 9.00 am to 12.00 noon on saturdays.
The basic difference between RTGS and NEFT is that while RTGS
pic

transactions are processed continuously, NEFT settles transactions in

batches.
w.

Meaning of insurance : Insurance is a form of contract under which one

party (Insurer or Insurance Compnay) agrees in return of a consideration
(Insurance premium) to pay an agreed sum of money to another party
ww

(Insured) to make good for a loss, damage or injury to something of value in

which the insured has financial interest as a result of some uncertain event.
Principles of Insurance : These principles are :
1. Utmost Good Faith : Insurance contracts are based upon mutual trust and
confidence between the insurer and the insured. It is a condition of every
insurance contract that both the parties insurer and the insured must
disclose each fact and information related to insurance contract to each
other.

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2. Insurable Interest : It means some pecuniary interest in the subject matter of

insurance contract. The insured must have insurable interest in the subject
matter of insurance i.e., life or property insured, the insured will have to
incur loss due to this damage and insured will be benefitted if full security is
being provided. A businessman has insurable interest in his house, stock, his
own life and that of his wife, children etc.
3. Indemnity Principle of indemnity applies to all contracts except the
contract of life insurance because estimation regarding loss of life cannot be
made. The objective of contract of insurance is to compensate to the insured
for the actual loss he has incurred. These contracts provide security from
loss and no profit can be made out of these contracts.

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4. Proximate Cause : The insurance company will compensate for the loss

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incurred by the insured due to reasons mentioned in insurance policy. But if
losses are incurred due to reasons not mentioned in insurance policy than
principle of proximate cause or the nearest cause is followed.
5.
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Subrogation This principle applies to all insurance contracts which are
contracts of indemnity. As per this principle, when any insurance company
compensates the insured for loss of any of his property, then all rights
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related to that property automatically get transferred to insurance company.
6. Contribution According to this principle if a person has taken more than
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one insurance policy for the same risk then all the insurers will contribute
the amount of loss in proportion to the amount assured by each of them and
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compensate him for the actual amount of loss because he has no right to
recover more than the full amount of his actual loss.
7. Mitigation According to this principle the insured must take reasonable
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steps to minimise the loss or damage to the insured property otherwise the
claim from the insurance company may be lost.
pic

Types of Insurance
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Concept of Life Insurance : Under life insurance the amount of Insurance is paid
on the maturity of policy or the death of policy holder whichever is earlier. If the
policy holder survives till maturity he enjoys the amount of insurance. If he dies
before maturity then the insurance claim helps in maintenance of his family. The
insurance company insures the life of a person in exchange for a premium which
may be paid in one lump sum or periodically say yearly, half yearly, quarterly or
monthy.

Types of Life Insurance Policies.

1. Whole Life Police Under this policy the sum insured is not payable earlier

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than death of the insured. The sum then becomes payable to the heir of the
deceased.

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2. Endowment Life Assurance Policy Under this policy the insurer
undertakes to pay the assured or his heirs or nominees a specified sum on

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the attainment of a particular age or on his death which every is earlier.
3. Joint Life Policy It involves the insurance of two or more lives
simultaneously. The policy money is payable upon the death of any one of
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lives assured and the assured sum will be payable to the survivor or
survivors.
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4. Annuity Policy This policy is one under which amount is payable in

monthly, quarterly, half yearly or annual instalments after the assured
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attains a certain age. This is useful to those who prefer a regular income
after a certain age.
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5. Children s Endowment Policy This policy is taken for the purpose of

education of children or to meet marriage expenses. The insurer agrees to
pay a certain sum when the children attain a certain age.
pic

Fire Insurance : It provides safety against loss from fire. If property of insured
gets damaged due to fire the insured will receive the value of damaged property
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as compensation from insurance company. It no such event happens, insured will

not receive anything. For such service insurance company charges premium
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depending upon the amount of loss insured.

Features
1. Utmost Good Faith
2. Contract of Indemnity
3. Insurable interest in the subject matter
4. Subject to the doctrine of causa premima - nearest cause.

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5. It is a contract from year to year. It generally comes to an end at the expiry

of the year and may be renewed.
Marine Insurance : Marine insurance provides protection against loss during sea
voyage. The businessmen can get their goods insured whereas the ship owner
can get his ship insured by paying the premia fixed by the insurance company.
The fundamental principles of marine insurance are the same as the general
principles of insurance.

Other Insurance
Health Insurance : Health insurance has gained popularity these days. General

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Insurance companies provide special health insurance policies such as mediclaim
for the general public. The insurance company charges a nominal premium every

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year and in return undertakes to provide up to stipulated amounts for the
treatment of certain diseases such as heart problem, cancer, etc.

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Communication is an important service that helps in establishing links
between businessmen, Organisation, suppliers, customers etc. It educates
people, widen their knowledge and broden their outlook. It overcomes the
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problem of distance between people, businessmen and institutions and thus
helps in smooth running of trade, industrial and commercial activities. In this fast
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moving and competitive world it is essential to have advanced technology for

quick exchange of information with the help of electronic media. The main
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services can be classifed into postal and telecom.

Postal Services Every business sends to outsiders and receives from outsiders
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several letters, market reports, parcell, money order etc. every day. All these
services are provided by the post and telegraph offices scattered throughout the
country. The postal department performs the following services.
pic

1. Financial Services They provide postal banking facilities to the general

public and mobilise their savings through the following saving schemes like
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public provident fund (PPF), Kisan Vikas Patra, National Saving Certificate,
Recurring Deposit Scheme and Money Order facility.
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2. M ail Services The mail services offered by post offices include

transmission of messages through post cards, Inland letters, envelops etc.
transmission of articles through parcel facility, registration facility and
speed post to provide security of transmitted letters and articles and
insurance facility to provide insurance cover for various risks in the course
of transmission by post.

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The various mail services all :

1. UPC (under postal certificate) When ordinary letters all posted the past
office does not issue any receipt. However, if sender wants to have proof
then a certificate can be obtained from the post office on payment of
prescribed fee. This paper now serves as a evidence of posting the letters.
2. Registered Post Sometimes we want to ensure that our mail is difinitely
delivered to the addressee otherwise it should come back to us. In such
situations the post office offers registered post facility which serves as a
proof that mail has been posted.

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3. Parcel Transmission of articles from one place to another in the form of
parcels is known as parcel post. Postal charges vary according to the weight

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of the parcels.
Allied Postal Services
1.
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Greetings Post Greetings can be sent through post offices to people at
different places.
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2. Media Post Corporates can advertise their brands through post cards,
envelops etc.
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3. Speed Post It allows speedy transmission of articles (within 24 hours) to

people in specified cities.
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4. e-bill post The post offices collect payment of bills on behalf of BSNL and
other organisations.
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5. Courier Services Letters, documents, parcels etc. can be sent through the
courier service. It being a private service the employees work with more
responsibility.
pic

Telecom Services Today s global business world, the dream of doing business
across the world, will remain a dream only in the absence of telecom services.
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The various types of telecom services are

1. Cellular mobile services cordless mobile communication device including
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voice and non-voice messages, data services and PCO services.

2. Radio Paging Services means of transmitting information to persons even
when they are mobile.
3. Fixed Line Services including voice and non-voice messages and data
services to establish linkage for long distance traffic.

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4. Cable services Linkages and switched services within a licensed area of

operation to operate media services which are essentially one way
entertainment related services.
5. VSAT Service (Very small Aperture Terminal) is a Satellite based
communication service. It offers government and business agencies a highly
flexible and reliable communication solution in both urban and rural areas.
6. DTH Services (Direct to Home) a Satellite based media services provided
by cellular companies with the help of small dish antena and a set up box.

1 Marks Questions

m
Q.1 What do you mean by Debit Card?

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Q.2 What is Crdit Card?
Q.3 Write the meaning of Tele Banking.
Q.4
Q.5
Define Insurance.
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Principle of Indemnity is not applicable to which insurance.
ch
Q.6 Name the type of insurance where in insurable interest need not exist
when the policy in taken.
oa

Q. 7 What are the two categories of communication services?

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Q.8 Name two companies that offer DTH service in our country.

3-4 Marks Questions

kM

Q.9 Write three advantages of insurance.

Q.10 Explain the scope of Health Insurance.
pic

Q.11 A contract of insurance is an uberrimae fidei-utmost good faith

contract . Comment.
w.

Q.12 What insurable interest be present in the following case (1) Life Insurance
(2) Fire Insurance (3) Marine Insurance.
ww

Q.13 Explain the meaning of Bank Overdraft.

Q.14 Name the accounts generally opened in the Bank.
Q.15. Write about Multiple option Deposit Account is 40 words.
Q. 16 Write note on core Banking.
Q. 17 Name any four services offered by electronic banking.

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Long Answer Question (5-6 Marks)

Q.18 Describe briefly the various policies issued by life insurance corporation.
Q.19 A factory owner gets his stock of goods insured but he hide the fact that
the electricity board has issued him statutory warning letter to get his
factory s wiring changed later on, the factory catches fire due to short
circuit which principle is violated in this case. Explain.
Q.20 Why is insurance said to be mechanism of risk coverage and investment.
Q.21 Write a detailed note on various facilities offered by Indian Postal
Department.

m
Q.22 Briefly discuss the various type of accounts by which banks attract

.co
deposit from the public.
Q.23 Write notes on RTGS system and NEFT.

ing
ch
oa
yC
kM
pic
w.
ww

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CHAPTER 5

Emerging Modes of Business

Meaning

m
In this age of internet, the world commerce has gradually started linking with it,
this has brought a new concept of commerce called e-commerce/e-business.

.co
Now we are capable of reaching the users of Internet all over the world simply
by opening a shop on the Internet. The Internet users can order for the goods,
receive their delivery and make their payment while sitting at their home on the
Internet.

Scope of e-Business
ing
ch
It can be understood by the view point of the parties involved and making
transactions :
oa

1. B2B Commerce : It is that business activity in which two firms or two

yC

business units make electronic transaction. For example- one can be a

producer firm and other a supplier firm.
2. B2C Commerce - Business to customer In this one party is a firm and other
kM

party is a customer. On one hard a customer can seek information through

Internet about products, place orders, get some items and make payments
pic

and on the other hand the firm can make a survey any time to know who is
buying, and can also know the satisfaction level of customers. In modern
times, call centres can provide these informations.
w.

3. Intra-B Commerce Within business Commerce - Under it, the parties

involved in the electronic transaction are the two departments of same
ww

business. For Example through internet it is possible for the marketing

department to interact constantly with the production department and get
the customised goods made as per the requirement of customers.
4. C2C Commerce - Customer to Customer Commerce - Under it, both the
parties involved in electronic transaction are customers. It is required for
the buying and selling of those goods for which there are no established
markets. For example-selling old car through internet.

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Benefits of e-Business
The major benefits of e-Business are as follows:
1. World wide reach- Internet gives businessmen an extended market. New
customers come in contact with them. This results in increase in sales.
2. Elimination of Middlement - Ever since the e-Business came into existence,
the wholesalers and retailers have started disappearing. Now, most of the
producers have started having direct contact with customers. As a result the
consumer get goods on less price.
3. Easy Distribution Process - Many types of information and servicer can be

m
received on computer through e-business. This has simplified the system of
distribution and has also made it less costly.

.co
4. Lower Investment required - In this, you don t require any big showroom
or huge investment. All you need is computer and Internet.
5.
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Easy to launch new products - Any company can launch its new product in
the market through the medium of E-Business. A complete information
ch
about the product is made available on Internet. In this way, the consumer
and other businessmen get information about the new product while sitting
at home.
oa

Resources Required for Successful e-Business Implementation

yC

The resources required for the e-Business are :

1. Computer system - The presence of computer system is the first
kM

requirement of e-Business. The computer can be linked with Internet by just

pressing its keys.
pic

2. Internet connection - Internet connection is very essential and now a days

we can get this facility by sitting at home.
w.

3. Preparing the web-Page- web page has the greatest importance in the use
of e-Business. It is also known as Home Page. Any product that is to be
ww

shown on Internet is displayed on web page.

4. Effective telecommunication system- e-business requires on effective
telecommunication system in the form of telephone lines etc.

On Line Transactions
On line transaction means receiving information about goods, placing an order,
receiving delivery and making payment through medium of internet. Under this
system, the sale purchase of every type of thing, information and service is

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possible.
Payment Mechanism
Payment for the purchases through online shopping may be done in following
ways :
1. Cash on delivery (CoD) - Cash payment can be made at the time of physical
delivery of goods.
2. Net-banking transfer - The customer can make electronic transfer of funds
(EFT) to account of online vendor over the internet.

m
3. Credit or Debit cards - The customer can make payment for online
transaction through debit or credit card by giving the number and name of

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bank of card.

Security and Safety of e-Transactions

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The following methods can be used to ensure security and safety of online
transactions.
ch
1. Confirming the details before the delivery of goods - The customer is
required to furnish the details such as credit card no., card issuer and card
oa

validity online.
2. Anti Virus Programmes - Installing and timely updating anti virus
yC

programmes provides protection to data files, folders and system from

virus attacks.
kM

3. Cyber crime cells - Govt. may set up special crime cells to look into the cases
of hacking and take necessary action against the hackers.
pic

Outsourcing or Business Process Outsourcing (BPO)

Many activities have to be performed for the sucessful conduct of business like
productions, buying, selling, advertising etc. When the scale of business is small,
w.

the businessman used to perform these activities easily. However, with the
enlargement of scale of business, this job has become tedious. Therefore, in order
ww

to overcome the difficulties connected with the performance of many activities

and to get the benefit of specialisation, these services are now obtained from
outside the organisation. This is called outsourcing of services or BPO

Need for BPO

BPO is essential for following reasons :
1. Obtaining Good Quality services - If a compnay attempts to perform all the

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activities itself, there is every possibility of quality of services being affected

adversely. In order to avoid this difficulty, the need for obtaining services
from outside is felt.
2. Avoiding Fixed Investment in Services - If a company attempts to get these
services from within the organisation itself, it has to establish different
departments for this purpose which involves huge investment. Therefore it
appears justified to get these services from outside the organisation at a
little cost.
3. Smooth running of business - outsourcing of services is needed in order to
run the business smoothly. The attention of businessman gets distracted

m
from various small things and will be focused on the main activity.

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Scope of BPO
In modern business many outside services are used. Out of these services, the
following are the important ones :
1. ing
Financial Services - These services means those outside services which help
ch
the company in some way or other in the management of finance.
2. Advertising services - Advertisement is very necessary for increasing sales.
oa

If this service is obtained from outside agency, it will cost less and the
quality of advertisement will also be good.
yC

3. Courier services - These services means delivering goods, documents,

parcels from company to customers and vice-versa.
kM

4. Customer support service - These services means delivering goods to

customers and to give after sale services also. Generally, the manufacturers
of TV, Fridge, AC etc. use these services.
pic

KPO (Knowledge Process Outsourcing)

w.

KPO refers to obtaining high end knowledge from outside the organisation in
order to run the business sucessfully and in cost effective manner. Unlike
ww

conventional BPO where the focus is on process expertise, in KPO the focus is on
knowledge expertise.

Need of KPO
In today s competitive environment focus is to concentrate on core specialisation
areas and outsources the rest of activities. Many companies have come to realise
that by outsourcing the non-core activities, not only costs are minimised and
efficiency improved but the total business improves because the focus shifts to
key growth areas of business.
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Scope of KPO
1. It is the upward shift of BPO
2. It focuses on knowledge expertise instead of process expertise
3. It provides all non-core activities.
4. It has no pre-determined process to reach a conclusion.
5. It offers an alternative career path for the educated.

Questions

m
1. What is electronic business?
2. What is KPO?

.co
3. What is EFT?
4. Explain briefly the need of outsourcing services.
5.
6.
ing
Write about advertising services and courier services.
Name the essential resources required for e-business.
ch
7. Define online transaction .
oa
yC
kM
pic
w.
ww

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CHAPTER 6

Social Responsibilities of Business and

Business Ethics

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CONCEPT OF SOCIAL RESPONSIBILITY

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A business is a part of society. So, a business enterprise should do business and
earn money in ways that fulfil the aspirations of the society. Thus social
responsibility relates to the voluntary efforts on the part of the businessmen to

ing
contribute to the social well being. The businessmen make use of resources of
society and earn money from the members of society so they must do something
for the society.
ch
Arguments in favour of Social Responsibility :
oa

There is a need for Social Responsibility of busines for Existence and Growth :-
1. Justification for Existence and Growth :- Business is the creation of society
yC

therefore it should respond according to the demands of the society. To

survive and grow in society for long run the business must provide
continuous services to the society.
kM

2. Long term Interest of the firm : A firm can improve its image and builds
goodwill in the long run when its highest goal is to serve the society . If it
pic

indulges in unfair Trade Practices e.g., adulteration, hoarding,

blackmarketing it may not be able to exist for long.
w.

3. Avoidance of government regulations : Business can avoid the problem of

government regulations by voluntarily assuming social responsibilities.
ww

4. Availability of resources with business :- Business has valuable financial

and human resources which can be effectively used for solving problems of
the society.
5. Better environment for doing business : Social responsibility creates better
environment for business operations as it improves Quality of life and
standard of living of people. So, business will get better community to
conduct business.

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6. Contribution to social problems : Some of the social problems have been

created by business firms themselves such as pollution, creation of unsafe
work places, discrimination etc, Therefore, it is the moral obligation of
business to solve such social problems.
Arguments Against Social Responsibility : major arguments against social
responsibility are :
1. Profit Motive - A business is an economic entity that is guided by profit
motive. It should not waste its energies and resources in fulfilling social
responsibility.

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2. Burden on consumers - Involvement of business in social responsibilities
involve a lot of expenditure which will ultimately be borne by the

.co
customers.
3. Lack of Social Skills - The business firms and managers have the skills to

ing
handle business operation. They are not expert to tackle the social problems
like poverty, over population etc. Therefore, social problems must be
tackled by social experts.
ch
4. Lack of public support - Generally public does not like business
involvement in social problems. Therefore, business cannot fulfil social
oa

responsibility because of lack of public confidence & cooperation.

yC

SOCIAL RESPONSIBILITY TOWARDS DIFFERENT INTEREST

GROUPS
kM

Business has Interaction with serveral interest groups such a shareholders,

workers, consumers, government and community Business is responsible to all
these groups.
pic

1. Responsibility towards share holders :-

i) To ensure a fair and regular return on the investment of shareholders.
w.

ii) To ensure the safety of their investment

ww

iii) To strengthen financial position of the company.

iv) To safeguard the assets of the business.
v) To protect the interest of all types of investors in the business.
2. Responsibility Towards workers :-
i) Providing fair compensation and benefits.
ii) Providing good and safe working conditions.

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iii) To develop a sense of belongingness.

3. Responsibility toward consumers :-
i) To supply right quality of goods & services at reasonable prices.
ii) To ensure regular and adequate supply of products.
iii) To inform them about new products and new uses of existing products.
iv) To handle the customers grievance promptly.
4. Responsibility Towards Government -
i) To pay taxes honestly

m
ii) To observe rules laid down by the government.

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iii) to avoid corrupting government employees.
5. Responsibility towards community -
i)
ii)
ing
To make available opportunities for employment.
To avoid polluting the environment.
ch
iii) To uplift the weaker sections of society.
oa

BUSINESS AND ENVIRONMENTAL PROTECTION :-

Meaning of Envronment : - The environment is defined as the totality of man s
yC

surroundings - both natural and man made. Natural Resources all land, water,
air and man made - cultural heritage, socio economic institutions and the people.
kM

Meaning of Environmental pollution - It means injection of harmful substances

into the environment. The greatest problem that industries and businessmen are
creating is that of pollution - which is the result of industrial production. So,
pic

protection of environment is must.

Causes of Pollution :- Many industrial organisations have been responsible for
w.

causing air, water, land and noise pollution.

1. Air Pollution - Due to smoke, chemical emitted by factories, vehicle. It has
ww

created a hole in the ozone layer leading to global warming.

2. Water pollution - Due to chemicals and waste dumped into the rivers,
streams & lakes. It has led to the death of several animals and posed a
serious problem to human life.
3. Land Pollution - Due to dumping of garbage and toxic wastes which affect
the fertility of land and makes it unfit for agriculture.

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4. Noise Pollution : Caused by the running factories and vehicles. Noise

pollution can be responsible for many diseases like loss of hearing, violent
behaviour and mental disoder.

NEED FOR POLLUTION CONTROL :-

1. To ensure healthy life - Many diseases like cancer, heart attack and lung
complications all caused by pollutants in the environment. Pollution control
is must to keep a check on these diseases.
2. To ensure safety - Due to environmental pollution and smoke the visibility is
reducing due to which chances of accidents have been increasing. To reduce

m
the number of accidents there must be a check on pollution.

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3. Economic Losses : Pollutants in the environment bringing heavy economic
losses for the country, for example Taj Mahal is losing its beauty due to
pollution.
4.
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Improved Public Image : A firm that adopts pollution control measures
enjoys a good reputation as a socially responsible enterprise.
ch
ROLE OF BUSINESS ENVIRONMENTAL PROTECTION :
oa

1. Eco-friendly and clean or low waste technology should be used by

industrial organisation.
yC

2. Industrial wastes should be recycled as far as possible.

3. Plant and machinery should be modernised to minimise pollution.
kM

4. The business houses should comply with the laws and regulations enacted
for prevention of pollution.
pic

5. Positive steps should be taken to save environment. These include

plantation of trees, cleaning of rivers, ponds etc.
w.

BUSINESS ETHICS :
Refers to the moral values or standards or norms which govern the activities of a
ww

businessman. Ethics define what is right and what is wrong By ethic we mean the
business practices which are desirable from the point of view of Society. The
purpose of business ethics is to guide the managers and employees in performing
their jobs. Examples of business ethics are charging fair prices from customers,
giving fair treatment to workers, earning reasonable profits and paying taxes to
the government honestly.

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ELEMENTS OF BUSINESS ETHICS

1. Top management commitment - The CEO and higher level mangers must be
committed to ethical norms of behaviour. This would set an example for all
employers and encourage them to follow ethical practice.
2. Publication of Code - Code of ethics is a formal written document of the
principles, values and standards that guide a firm s actions. It may cover
areas like honesty, Quality, safety, health care etc.
3. Establishment of Compliance Mechanism - A suitable mechanism should
be developed to comply with the ethical standards of the enterprise, This

m
mechanism should be properly communicated to all in the organisation.
4. Employees Involvement - It is the employees at the lower levels who

.co
implement ethical principles, so they must be involved in the process of
developing ethical code
5.
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Measuring Results - Although it is difficult to measure the ethical results
but it must be verified and audited that how far work is being carried
according to ethical standards.
ch
QUESTIONS (ONE MARK)
oa

1. Define social responsibility of business.

2. Write two examples of business ethics.
yC

3. State two effects of noise pollution.

kM

4. What is environmental pollution?

3/4 MARKS QUESTIONS

pic

5. Why business is responsible for Environment Protection.

6. Enumerate any three responsibilities of business towards employees.
w.

7. Why should a business assume social responsiblity?

ww

8. Explain the major causes of environmental pollution.

9. Define business ethics and explain its significance.

5/6 MARKS QUESTIONS

10. Explain the forces which are responsible for increasing concern of business
enterprises towards social responsibility.
11. It is in the interest of business to fulfill its social responsibilities towards
different interest groups . Explain.

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CHAPTER 7

Sources of Business Finance

The term finance means money or fund. The requirements of funds by
business to carry out its various activities is called business finance.

m
NATURE OF BUSINESS FINANCE :-

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1. Fixed Capital Requirement :- In order to start a business funds are needed
to purchase fixed assets like land and building, plant and machinery. This is

ing
called fixed capital requirement.
2. Working Capital Requirement :- A business needs funds for its day to day
operation. This is known as working Capital requiements. Working capital
ch
is required for purchase of raw materials, to pay salaries, wages, rent and
taxes.
oa

3. Diversification :- A company needs more funds to diversify its operation to

become a multi-product company e.g. ITC.
yC

4. Technology upgradation : Finance is needed to adopt modern technology

for example uses of computers in business.
kM

5. Growth and expansion : Higher growth of a business enterprise requires

higher investment in fixed assets. So finance is needed for growth and
pic

expansion.
w.
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CLASSIFICATION OF SOURCE OF FUNDS :

m
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ing
ch
oa
yC
kM

METHODS OF RAISING FINANCE :-

pic

Issue of Share : The capital obtained by issue of shares is known as share capital.
The capital of a company is divide into small units called share. If a company
issue 10,000 shares of Rs. 10/- each then the share capital of company is 1,00,000.
w.

The person holding the share is known as shareholder. There are two types of
share (I) Equity share (II) preference share.
ww

a) Equity Share : Equity shares represent the ownership of a company. They

have right to vote and right to participate in the management because they
are the owner of the company.

ADVANTAGES / MERITS :-
1. Permanent Capital : Equity share capital is important source of finance for a
long term.

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2. No charge on assets : For raising funds by issue of equity shares a company

does not need to mortgage its assets.
3. Higher returns : Equity share holder get higher returns in the years of high
profits.
4. Control : They have right to vote and right to participate in the
management.
5. No burden on company : Payment of equity dividend is not compulsory

LIMITATIONS / DEMERITS :-

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1. Risk : Equity shareholder bear higher risk because payment of equity
dividend is not compulsory.

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2. Higer Cost : Cost of equity shares is greater than the cost of preference
share.
3.
4. ing
Delays : Issue of Equity shares is time consuming.
Issue depends on Share Market Conditions : Equity Shareholders are the
ch
primary risk bearer therefore the demand of equity shares are in the boom
time.
oa

B. Preference Share : - Preference shares are safe in investment. They receive

dividend at a fixed rate. Preference shareholder are like creditors. They
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have no voting right.

Types of preference shares :-
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1. Cumulative preference shares.

2. Non cumulative preference shares.
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3. Participating preference shares.

4. Non participating preference shares.
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5. Convertible preference shares.

ww

6. Non Convertible preference shares.

MERITS OF PREFERENCE SHARES :-

1. Investment is safe : Preference shareholders investment is safe. They have
preferential right to claim dividend and capital.
2. No Charge on assets : The company does not need to mortgage its assets for
issue of preference shares.

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3. Control : It does not affect the control of equity share holders because they
have no voting right.
4. Fixed dividend : They get fixed dividend so they are useful for those
investor who want fixed rate of return.

LIMITATIONS / DEMERITS :
1. Costly sources of funds : Rate of preference dividend is greater than rate of
interest on debenture, for a company it is costly source of funds than
Debentures.
2. No tax saving : Preference dividend is not deductible from profit for income

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tax. Therefore there is no tax saving.

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3. Burden on the company : In the year of losses dividend has to be paid.
DIFFERENCE BETWEEN EQUITY SHARES AND PREFERENCE SHARES

1.
Base
Dividend
Equity Shares
After preference
ing Preference Shares
Priority over Equity share
ch
dividend is paid
2. Voting Right Full voting right No Voting right.
oa

3. Risk Risk bearing securities Less risk

4. Rate of Return Fluctuates with profit Fixed
yC

5. Control Control the management No control

Debentures : Debentures are the important debt sources of finance for raising
kM

long term finance. They found fixed rate of interest on Debentures. Interest is
paid after every six months or one year. They are like creditors of a company.
pic

Type of Debentures :-
1. Secured Debentures
w.

2. Unsecured Debentures
3. Convertible Debentures.
ww

4. Non Convertible Debentures.

5. Redeemable Debentures.
6. Registered Debentures.

MERITS OF DEBENTURES :
1. Investment is Safe : Debentures are prefered by those investor who do not
want to take risk and are interested in fixed income.

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2. Control : Debenture holder do not have voting right.

3. Less Costly : Debentures are less costly as compared to cost of preference
shares.
4. Tax Saving : Interest on Debentures is a tax deductable expense. Therefore,
there is a tax saving.

LIMITATION OF DEBENTURES :-
1. Fixed Obligation : There is a greater risk when there is no earning because
interest on debentures has to be paid if the company suffers losses.
2. Charge on assets : Th company has to mortgage its assets to issue

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Debentures.
3. Reduction in Credibility : With the new issue of debentures the company s

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capability to further borrow funds reduces.

DIFFERENCE BETWEEN SHARES AND DEBENTURES

1.
Base
Nature
Shares
Shares are the capital
ing Debentures
Debentures are a loan.
ch
2. Return Dividend Interest.
3. Voting Right Full voting right No voting right.
oa

4. Holder Owner is called share Creditors called

holder Debenture holder
yC

5. Types There are two types More than two types.

of shares
kM

6. Security Not secured by Secured and carry a

any charge charge on the assets of the
Company.
pic

Retained Earning :- A portion of company s net profit after tax and dividend.
Which is not distributed but are retained for reinvestment purpose is called
retained earning. This is also called sources of self-financing.
w.

MERITS
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1. No costs : No costs in the form of interest, dividend, advertisement and

prospects.
2. No charges on assets : The company does not have to mortgage its assets.
3. Growth and expansion : Growth and expansion of business is possible by
reinvesting the retained profits.
4. Goodwill : The market price of the company share will increase.

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DEMERITS
1. Uncertain Source : It is uncertain source of fund because it is available only
when profits are high.
2. Dissatisfaction among shareholder : Retained profits cause dissatisfaction
among the shareholder because they get low dividend.

PUBLIC DEPOSITS :
The deposits that are raised by company direct from the public are known as
public deposits. The rate of interest offered on public deposits are higher than
the rate of interest on bank deposits. This is regulated by the R.B.I. and can not

m
exceed 25% of share capital and reserves.

.co
MERITS :-
1. No charge on assets : The company doesnot have to mortgage its assets.
2. Tax Saving : Interest paid on public deposits is tax deductable, hence there is

3.
tax saving.
ing
Simple procedure : The procedure for obtaining public deposits is simpler
ch
than share and Debenture.
4. Control : They do not have voting right therefore the control of the
oa

company is not diluted.

LIMITATIONS :-
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1. For Short Term Finance : The maturity period is short. The company can not
depend on them for long term.
kM

2. Limited fund : The quantum of public deposit is limited because of legal

restrictions 25% of share capital and free reserves.
pic

3. Not Suitable for New Company : New company generally find difficulty to
raise funds through public deposits.
w.

COMMERCIAL BANKS :
Commercial Banks give loan and advances to business in the form of cash credit,
ww

overdraft loans and discounting of Bill. Rate of interest on loan is fixed.

MERITS
1. Timely financial assistance : Commercial Bank provide timely financial
assistance to business.
2. Secrecy : Secrecy is maintained about loan taken from a Commercial Banks.
3. Easier source of funds : This is the easier source of funds as there in no need
to issue prospectus for raising funds.

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LIMITATIONS / DEMERITS
1. Short or Medium term finance : Funds are not available for a long time.
2. Charge on assets : Required source security of assets before a loan is
sanctioned.

FINANCIAL INSTITUTION :
The state and central government have eastablised many financial institutions to
provide finance to companies. They are called development Bank. These are
IFCI, ICICI, IDBI and LIC, UTI.

m
MERITS :
1. Longterm Finance : Financial Institution provide long term finance which is

.co
not provided by Commercial Bank.
2. Managerial Advice : They provide financial, managerial and technical advice

ing
to business firm.
3. Easy installments : Loan can be made in easy installments. It does not prove
to be much of a burden on business.
ch
LIMITATIONS / DEMERITS :-
oa

1. More time Consuming : The procedure for granting loan is time consuming
due to rigid criteria and many formalities.
yC

2. Restrictions : Financial Institution place restrictions on the company s

autonomy of management.
kM

INTERNATIONAL SOURCE OF BUSINESS FINANCE :

1. Commercial Bank : Commercial Bank all over the world provide foreign
pic

currency loan for business. Standard chartered is a major source of foreign

currency loan to the Indian industry.
2. International Agencies and development Bank : M any number of
w.

international agencies and development Bank e.g. IFC, ADB provide long
term loan.
ww

3. INTERNATIONAL CAPITAL MERKET :

GDR : When the local currency shares of a company are delivered to the
depository bank, which issues depository receipt against shares, these
receipt denominated in US doller are caller GDR s.
I. Feature of GDR :-
1. GDR can be listed and traded on a stock exchange of any foreign country
other than America.

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2. It is negotiable instrument.
3. A holder of GDR can convert it into the shares.
4. Holder get dividends.
5. Holder does not have voting rights.
6. Many Indian companies such as Reliance, Wipro and ICICI have issue GDR.
II. ADR : The depository receipt issued by a company in USA are known as
ADR s

Feature of ADR :-

m
1. It can be issued only to American Citizens.

.co
2. It can be listed and traded is American stock exchange.
3. Indian companies such as Infosys, Reliance issued ADR

DIFFERENCE BETWEEN ADR & GDR ing

ch
Basis ADR GDR
1. Listing Only in American Anywhere in the world
oa

Stock Exchange
2. Liquidity More liquid Less liquid.
yC

3. Share Holder Only American Citizens All over the World

Citizens.
kM

III. FCCB s : - The FCCB s are issued in a foreign currency and carry a fixed
interest rate. These are listed and traded in foreign stock exchange and
similar to the debenture.
pic

Indian Depository Receipts (IDRs)

w.

IDRs are like GDR or ADR except that the issuer is a foreign company raising
funds from Indian Market. IDRs are rupee dominated. They can be listed on any
ww

Indian stock Exchange.

Issue Procedure of IDRs

1. Firstly, a Foreign Co. hands over the shares to OCB (it requires approval
from Finance Ministry to act as a custodian)

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2. The OCB request ID to issue shares in the form of IDR.

3. The ID converts the issue which are in foreign currency into IDR and into
indian rupee.
4. Lastly, the ID issues them to intending investors.

Features of IDRs
1. IDRs are issued by any foreign company
2. The IDRs can be listed on any Indian stock exchange.
3. A single IDR can represent more than one share, such as one IDR = 10 shares.

m
4. The holders of IDR have no right to vote in the company.

.co
5. The IDRs are in rupee denomination.

Advantages of IDR
1.
ing
It provides an additional investment opportunity to Indian Investors for
overseas investment.
ch
2. It satisfies the capital need of foreign companies.
oa

3. It provides listing facility to foreign companies to list on Indian Equity

Market.
yC

4. It reduces the risk of Indian Investors who want to take their money
abroad.
kM

Inter-Corporate Deposits (ICD)

Inter-Corporate Deposits are unsecured short term deposits made by one
pic

company with another company. These deposits are essentially brokered

deposited, which led the involvement of brokers. The rate of interest on their
deposits is higher than that of banks and other markets. The biggest advantage
w.

of ICDs is that the transaction is free from legal hassles.

ww

Type of ICDs
1. Three Months Deposits - These deposits are most populer type of ICDs.
These deposits are generally considered by borrowers to solve problems of
short term capital adequacy. The annual rate of interest for these deposits is
around 12%.
2. Six months Deposits - It is usually made first class borrowers. The annual
rate of interest for these deposits is around 15%

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3. Call deposits - This deposit can be withdrawn by the lender on a day s

notice. The annual rate of interest on call deposits is around 10%

Features of ICDs
1. These transactions takes place between two companies.
2. There are short term deposits.
3. These are unsecured deposits.
4. These transactions are generally completed through brokers.
5. These deposits have no organised market.

m
6. These deposits have no legal formalities.

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7. These are risky deposits from the point of view of lenders.

QUESTIONS :
1.
2.
What is meant by business finance.
Define a share.
ing
ch
3. Why is equity share capital called risk capital?
oa

4. Preference share are not suitable to which kind of Investor.

5. Write the name of two Indian Company which issue GDR.
yC

6. Why are retained profit called self financing.

7. What is the full form of ADR.
kM

8. What is the difference between share and debenture.

9. What do you understand by GDR.
pic

10. Explain the right of equity share holder.

11. Explain the main merits and demerits of debenture.
w.

12. What is the difference between ADR and GDR s.

ww

13. Public Deposits as a source of finance is better than raising funds

Comments.
14. What are the feature of equity share. What are the advantage of issuing
equity share to raise term finance debenture.
15. Write Short Notes on :
(a) IDR
(b) ICD

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CHAPTER 8

Small Business
A business which operates on a small scale and required less capital, less labour
and less machines is called small business. The goods are produces on a small

m
scale. This business is operated and managed by the owner of the business. In
India the village and small Industries sector consists of both traditional,

.co
Handlooms Handicrafts, coir, khadi and Village Industries. Modern small
Industries - Small scale industries and Powerlooms.

ing
A small scale enterprise according to MSMED Act, 2006 is defined as one where
the investment in Plant and Machinery is more than 25 lacs but does not exceed
Rs. 5 crore.
ch
Several parameters can be used to measure the size of business. These include the
number of persons employed in business, Capital invested in business, Volume of
oa

output of business and power consumed for business activities. The definition
used by the Government of India to describe small Industries is based on the
yC

investment in plant and machinery. It can be divided as follows :-

Type of Industries Investment Features

kM

Limit Rs.
1. Small scale Industries One Crore For specific production it is
pic

5 Crore (71 product)

2. Ancillary small One crore 50% of output supplied to the
Industrial Unit parent unit
w.

3. Export Oriented One crore It export more than 50% of its

Units (EOU s) production. It can sell 25% in
ww

domestic market.
4. Tiny Industrial 25 Lakhs Investment Limit in plant and
Unit Machinary is not more than 25 lakh.
5. Women Enterprises Any of the Owned and managed by woman
above and have capital not less thay 51%
6. Mirco Business One lakh Those whose Investement in plant
Enterprises and Machinery does not exceed.
Rs. 1 lakh
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7. Village Industries Investment Location in Rural Areas Produces

Worker per any goods without the use of
head power.
Rs. 50,000/-
8. Cottage Industries Not defined Normally use family labour. Use
by Capital Simple machine, use small capital.
Investment

ROLE OF SMALL SCALE INDUSTRIES IN SOCIO ECONOMIC

DEVELOPMENT OF INDIA :-

m
1. Employment : Small scale Industries are second largest employers of human

.co
resources after Agriculture. It has 95% of the industrial unit in the country.
2. Variety of product : Small scale Industries produce an enormous variety of
goods e.g. readymade garments, stationery, soaps, Leather s goods, Plastic

3.
and rubber goods.
ing
Export : The share of product from SSI is 45% of total export from India. So
ch
it earn valuable foreign exchange and solve the problem of balance of
payment.
oa

4. Balance regional development : S.S.I can be set any where in the country.
They use local resources. Less capital and simple technology.
yC

5. Complementary to large scale Industries : S.S.I. supply various types of

components, spare parts, tools. Which are required by large scale
kM

enterprises.
6. Low cost of production : S.S.I. also enjoy the advantage of low cost of
pic

production because they used local resources in their product.

7. Quick and timely decisions : Due to the small size of the organisation, quick
and timely decisions can be taken without consulting many people.
w.

8. Development of entrepreneurship : S.S.I. provide opportunity of young men

ww

and women to start their own business.

ROLE OF SMALL BUSINESS IN RURAL INDIA

1. Provides Employment in Rural Areas : - Cottage and rural industries
provide employment opportunities in the rural areas as these are labour
oriented enterprises. In Indian rural areas ample labour is available
2. Improve Economic Condition : Small business provide multiple source of
income to the rural households. S.S.I improve economic conditions and

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standard of living of people living in those Areas.

3. Prevent migration : Development of rural and village industries can also
prevent migration of the rural population to urban areas in search of
employment.
4. Utilisation of Local Resources : S.S.I. use local resources e.g. coir, wood and
other products.
5. Equitable distribution of national Income : Small Scale Industries and
cottage Industries ensure equitable distribution of national income. This
helps to reduce the gap between rich and the poor in the country.

m
6. Balanced Regional development - These enterprises are often dependent on
local source of production. This way, industries do not just limit themselves

.co
to a particular place but diversify. This helps in balanced regional
development.

GOVERNMENT ASSISTANCE TO SMALL INDUSTRIES AND

SMALL BUSINESS UNITS ing
ch
(A). INSTITUTIONAL SUPPORT :
I. National small Industries Corporation (NSIC)
oa

This was set up in 1955 to promote, aid and foster the growth of small scale units
yC

in India. Main constraint faced by enterpreneurs is shortage of funds to purchase

machinery and equipment. Non availability of finance, deprives many new
enterpreneurs from availing apportunities. NSIC was established to cater to this
kM

need of enterpreneur.

Main functions of NSIC :

pic

1. It supplies imported machines and raw materials to small scale industries on

easy hire-purchase schemes.
w.

2. It export the products of small units.

3. It provides technology to small scale Industries.
ww

4. Helps in upgradation of technology

5. Provides advisory service
6. Provides various equipment on lease basis.
7. Undertakes construction of Industrial estates.

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II. District Industries Centre (DIC)

The concept of DIC came during 1977, when govt. of India announced the new
Industrial policy on 23rd Dec., 1977. The main objective of DICs is to make
available all necessary services at one place. The finance for setting up DICs in a
state are contributed equally by particular state Govt. and Central Govt.

Functions of District Industries Centre

1. Act as the focal point of industrialisation of the district
2. Identifies projects for setting up of SSI units.

m
3. Issues permanent registration certificate to SSI units.
4. Provides marketing support to SSI units

.co
5. Act as a link between the entrepreneurs and the lead bank of district.

ing
6. Helps businessman in obtaining licence from Electricity board, water supply
board etc.
ch
Govt. Incentives to hilly backward and Rural Areas
1. Power : Some states supply power at a concessional rate of 50%.
oa

2. Tax holidays : Exemption from payment of tax for 5 years.

3. Land and Water : Availability of land at concessional rate. Water is supplied
yC

on no profit no loss basis.

4. Octroi : Most of the states have abolished octroi.
kM

5. Protective Measures :- The government reserved 800 items for exclusive

production by the small scale Industries and give priority in allocation of
pic

raw materials and machines.

6. Marketing Assistance : - Government tries to solve their marketing
w.

problem by improving information and in order to provide guarantee for

sale of goods.
ww

7. Finance Subsidy of 10-15% for building capital asset. Loans are offered at
concessional rates.
8. Sales Tax In all Union Territories, small industries are exempted from sales
tax while some states give exemption of 5 years.

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QUESTIONS :-
1. What do you mean by Small Business?
2. Give full form of NSIC
3. What is a Women Enterprise.?
4. How much Small Industries contribute to total export from India?
5. Explain any three types of Small Scale Industries in India.
6. Explain four important problems of Small Business in India.
7. What are the incentives given by Govt. to Industries set up in hilly,

m
backward & rural areas.

.co
8. Explain the role of small scale Industries in the development of Rural Area.
9. What measures has the government taken to solve the problem of finance

ing
and marketing in the small scale sector.
10. Write short note on :-
ch
I. NSIC
II. DIC
oa
yC
kM
pic
w.
ww

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CHAPTER 9

Internal Trade
Trade refers to the process of buying and selling of goods and services with the
objective of earning profit. When trade takes place between the people of the

m
same country then it is termed as internal trade. Infact, buying and selling of
goods and services within the geographical boundaries of a nation or country is

.co
called internal trade. Internal trade can be classifed into two broad categories.
i) Wholesale trade
ii) Retail trade
ing
Wholesale trade : Buying and selling of goods and services in large quantities for
ch
the purpose of resale or intermediate use is referred to as wholesale trade.
Wholesalers acts as an important link between manufacturers and retailers. They
oa

purchase in bulk and sell in small lots to retailers.

SERVICES OF WHOLESALER TO MANUFACTURERS.

yC

1. Wholesalers enable manufacturers to undertake large scale production as

they purchase goods in large quantities from them.
kM

2. Wholesaler deals in goods in their own name and bear variety of risks such
as the risk of fall in prices, theft, pilferage spoilage, fire etc.
pic

3. Wholesalers provide financial assistance to the manufacturers by making

cash payment for the purchased goods.
w.

4. Wholesaler provide various useful information regarding the customer

preference, market conditions etc to the manufacturer.
ww

5. Wholesalers help manufacturer in marketing function by purchasing goods

from them and selling them to the retailers.
6. Wholesalers provide the storage facilities also as they hold the goods in
their warehouses/Godowns.

SERVICES OF WHOLESALERS TO RETAILERS

1. Wholesalers make goods available to the retailers, who make them available
to the ultimate customers.
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2. Wholesalers help retailers in the marketing of the goods by undertaking

advertising and other sales promotional activities.
3. Wholesalers help retailers by providing credit facility to them.
4. Wholesalers sell goods to retailers in small quantities and thus retailers do
not face the risk of storage, pilferage, reduction in prices etc.
5. Wholesalers do have specialised knowledge and they can help retailers by
providing the same to them. They inform the retailers about new products,
their uses and quality etc.

RETAIL TRADE :

m
Buying of goods in large quantities from the wholesalers and selling them in

.co
small quantities to the ultimate consumers is known as retail trade. Retailers
serve as an important link between the producers and final consumers in the
distribution of products and services.

SERVICES OF RETAILERS TO MANUFACTURERS AND ing

ch
WHOLESALER :-
1. Retailers help manufacturers & wholesalers in the distribution of their
oa

goods & services to the ultimate consumers.

2. Retailers help manufacturers & wholesalers in promoting their goods &
yC

services.
3. Retailers undertake personal selling efforts and thus, help manufacturers
kM

and wholesalers in the process of actualising the sale of the products.

4. Retailers collect and provide market information about the tastes,
preferences and attitudes of consumers to the producers.
pic

5. Retailers make manufacturer and wholesaler free from the burden of

making individual sales and thus help them to operate on large scale
w.

production.
ww

SERVICES OF RETAILERS TO CONSUMERS :-

1. Retailers provide goods to consumers according to their requirements.
2. Retailers deals in large varieties of products of different manufacturers and
thus they offer wide selection to the consumers.
3. Retailers provide important information about the new products to the
consumers.

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4. Retailers also provide after sales services in the form of home delivery,
supply of spare parts and attending to the customers.
5. Retailers sometimes provide goods to customers on credit basis also, which
increase their level of consumption and standard of living.
6. Retailers ensure regular availability of different goods to customers.

TYPES OF RETAILING TRADE

Retail trade can be classified into following two categories on the basis whether
or not they have a fixed place of business.

m
i) Itinerant Retailers

.co
ii) Fixed shop Retailers.
I. Itinerant Retailers : - The retailers who do not have a fixed place of business
to operate from are called itinerant retailers. They have to move from one

ing
place to another alongwith their goods in search of consumers.
Following are the characteristics of itinerant retailers.
ch
1. They are small traders having limited resources.
2. they generally deals in consumer products of daily use.
oa

3. They emphasize on providing greater customer services.

yC

4. They do not have any fixed place to operate from.

TYPES OF ITINERANT RETAILERS

kM

1. Peddler and hawkers : They are small producers who generally deals in
non-standardised and low-value product such as fruits, vegetables, toys etc.
pic

They carry the products on a bicycle, a hand cart, Cycle rickshaw or on their
heads and move from place to place to sell their products at the doorstep of
the customers
w.

2. Market traders : They are the small retailer who open their shops at
ww

different places and sell the goods on fixed days such as every saturday or
tuesday. These trader deals in single line of goods such as toys, readymade
garnment crockery etc.
3. Street traders (Pavement Vendors) : These types of retailers are found at
places where huge floating population gather such as railway station, bus
stand etc and sell consumer items of common use, such as stationery,
newspapers, toys etc. They do not change their place of business frequently.

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4. Cheap Jacks : They are small retailers who have independent shops of a
temporary nature in a business locality. They keep on changing their
bussiness from one locality to another but not very frequently. They deal in
consumer items such as repair of watches, shoes, buckets etc.

II. FIXED SHOP RETAILERS

Retailers who maintain permanent establishment to sell their goods are called
fixed shop retailers. Following are the main characterstics of fixed shop retailers:
1. As compare to itinerant traders, fixed shop retailers have greater resources.
2. They deals in durable as well as non-durable goods.

m
3. There are different size groups of fixed shop retailers varying from very

.co
small to very large.
4. They provide greater services to the customers such as home delivery,

ing
repairs, credit facilities etc.

TYPES OF FIXED SHOP RETAILERS :

ch
Fixed shop retailers can be classified into two types
(a) Small shop keepers (b) Large retailers.
oa

FIXED SHOP SMALL RETAILERS :

yC

It include following
1. General Stores : These shops provide different product required to satisfy
kM

the day-to-day needs of the consumers such as stationery items, grocery

items etc.
pic

2. Speciality Shops : These shops deal in specific line of products like only in
ladies shoes, children garments, men s wear, toys etc. These shops are
generally located in a central place where a large number of customers can
w.

be attracted.
ww

3. Street Stall Holders : They are small retailer who are generally found at
place having floating populations such as street crossing, main road etc.
They deal in cheap variety of goods such as soft drinks cigarettes, toys etc.
4. Second hand goods shop : These shops deal in secondhand or used goods
such as books, clothes, furniture, automobile etc. They are generally located
at street crossings or in busy streets in the form of a stall or a temporary
structure.

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FIXED SHOP LARGE STORE OR LARGE RETAILERS

Fixed shop large stores include following retailers
1. Departmental Stores :- A Departmental store is a large retail outlet offering
a wide variety of products, classified into well defined departments under
one roof. It has a number of departments, each specialises in single line of
product such as toiletries, medicines, furnitures, groceries etc within a sotre.
Following are the features of a departmental store :-
i) They are located at a central place so that maximum customers could reach
there.

m
ii) They provide all facilities such as restaurant, travel and information bureau,

.co
telephone booth, restrooms etc.
iii) These stores are very large in size and so they are generally formed as a
joint stock company managed by a board of directors.

ing
iv) All the purchases in a departmental store are made by the purchase
department of the store centrally.
ch
v) A departmental store combines both the functions of retailing as well as
warehousing.
oa

Advantages of Departmental Stores.

yC

1. They attract large number of customers as they are located at central places.
2. They provide great convenience to customers as they can purchase number
kM

of goods at one place.

3. They provide attractive services to customers like home delivery of goods,
pic

credit facilities, restrooms etc.

4. They are able to undertake various promotional activities which help people
to know about the products.
w.

5. They are organised at a very large scale and thus, benefits of large-scale
ww

operations are available to them.

Limitations of Departmental Store.

1. They operate on large scale which lead to lack of personal attention to the
customers.
2. They provide various services to the customers like restrooms, home
delivery of goods etc which increases their operating cost and thus the
overall price of the goods increases.

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3. They are situated at a central place and thus they are not convenient for
sudden required goods.
4. They operates on large scale and so the possibility of loss is also large /
high.

Chain Stores or Multiple Shops.

Chain store or multiple shop refer to network of retail shops that are owned and
operated by same organisation, established in localities spread in different parts
of the country e.g. Bata Shoe Co., Mc Donalds etc. Some of the important
features of such shops are as follows.

m
1. They are located in popular localities where maximum customers can

.co
approach.
2. The manufacturing or procurement of goods is centralised at the head office
from where the goods are despatched to each store or shop.
3.
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Each chain store is supervised by the Branch manager, who is responsible
for its day to day working. He send all the information like sales, cash
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deposits, requirement of the stock daily to head office.
4. All the branches are controlled by the head office.
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5. The prices of goods are fixed and all sales are made on cash basis.
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Advantages of Chain Stores.

1. They sell goods on cash basis and thus there are no losses on account of bad
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debts.
2. They eliminate middlemen in the sale of goods & services as they directly
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sell the goods & services to the customers.

3. Central procurement or manufacturing enables the organisation to enjoy the
economies of scale.
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4. The total risk of an organisation is reduced as the losses incurred by one

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shop may be covered by profits in other shop.

5. The goods not in demand in one locality may be transferred to another
locality where they are in demand, which reduces the chances of dead stock.
6. In case a shop is not operating at a profit, then it may be closed or shifted to
other locality without affecting the profitability of the organisation as a
whole.

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Limitations of Chain Stores.

1. Chain stores sell goods produced in their organisation only and so they
offer limited choice of goods.
2. Personel managing the chain store have to obey the instructions of the head
office. Thus, they do not take their own initiatives to satisfy the customers.
3. If the demand for the goods handled by multiple shop changes, it may leads
to heavy losses as large amount of stock remains unsold at the central office.

Mail Order Houses

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The retail outlets that sell their goods through mail are referred to as mail order
houses. There is no personal contact between the buyers and the sellers in this

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type of trading. The trader contacts the customer through advertisement in
newspaper or magazines, circulars, catalogues and price List is sent to them by
post. All the information about product such as price, features, delivery terms,

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terms of payment etc are described in the advertisement. The customers may be
asked to make full payment in advance or goods may be sent by VPP (Value
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Payable Post), under which goods are delivered to the customer only when he
makes full payment for the same. The goods may be sent through a bank which
deliver them to the customer only when he makes full payment.
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Advantages of Mail Order Houses :

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1. They can be started with low amount of capital as no expenditure on

building or other infrastructural facilities are required.
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2. They doesn t require the services of middlemen so they are eliminated.

3. They do not extend credit facilities to the customers and thus there are no
pic

chances of bad debts.

4. They can serve people wherever postal services are available.
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5. They deliver goods at the doorstep of the customer which result in great
convenience to the customers in buying the goods.
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Limitation of Mail Order houses

1. There is no personal contact between the buyers and the sellers. The buyers
are not in a position to examine the products before buying.
2. They rely heavily on advertisement and other promotional activities which
increases their cost of product.
3. In mail order selling after sales services are absent.

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4. They do not provide credit facilities to the buyers.

5. Their success depends heavily on the efficiency of postal services.
6. Receipt and execution of order through mail may take too much time which
delay delivery.

Vending Machines.
They are coin operated macnines which are used in selling several products such
as milk, soft drinks, chocolates, platform tickets etc in many countries. The latest
area in which this concept is getting popular is the case of Automated Teller
Machines (ATM) in the banking service. They made it possible to withdraw

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money at any time without visiting any branch of a bank. They can be useful for

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selling prepacked brands of low priced product which have high turnover and
which are uniform in size and weight. However, the installation cost and
expenditure on regular maintenance and repair of these machines are quite high.

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Moreover, the consumers can neither see the product before buying nor can
return the unwanted goods.
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Main Documents Used In Internal Trade
The following are the main documents used in the Internal trade.
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1. Invoice - In case of credit purchases, a statement is supplied by the seller of

goods in which he gives particulars of goods purchased by buyer such as
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quantity, quality, rate, total value, sales tax, trade discount, etc. It is also
called a Bill or Memo. Buyer gets information about the amount he has to
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pay to the seller from Invoice only.

2. Pro-Forma Invoice - The statement (or forwarding letter) containing the
details of goods consigned from consigner to consignee is known as a Pro-
pic

forma Invoice. It gives the particulars as regards quantity, quality, price and
expenses incurred on the goods consigned. In case of consignment,
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consignee is an agent of consigner who is supposed to sell goods on behalf

of consigner and this statement/proforma invoice is only for his
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information. It is also known as interim invoice.

3. Debit Note It refers to a letter or note which is sent by the buyer to the
seller stating that his (seller s) amount has been debited by the amount
mentioned in note on account of goods returned herewith. It states the
quantity, rate, value and the reasons for the return of goods.
4. Credit Note It refers to a letter or note which is sent by the seller to the
buyer stating that his account has been credited by the mentioned amount
on account of acceptance of his claim about the goods returned by him.

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5. Lorry Receipt It refers to a receipt issued by the Transport Company for

goods accepted by it for sending from one place to another. It is also known
as Transport Receipt (TR) and Bilty.
6. Railway Receipt It refers to a receipt issued by the Railways for goods
accepted for sending from one station to another.

Terms of Trade
The following are the main terms used in the trade.
1. Cash on delivery (COD) : It refers to a type of transaction in which
payment for goods or services is made at the time of delivery. If the buyer is

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unable to make payment when the goods or services are delivered, then it

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will be returned to the seller.
2. Free on Board or Free on Rail (FoB or FOR) : It refers to a contract between
the seller and the buyer in which all the expenses up to the point of delivery

3.
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to a carrier (it may be a ship, rail, lorry, etc.) are to be borne by seller.
Cost, Insurance and Freight (CIF) It is the price of goods which includes
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not only the cost of goods but also the insurance and freight charges payable
on goods.
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4. E&OE (Errors and Omissions Excepted) It refers to that term which is

used in trade documents to say that mistakes and things that have been
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forgotten should be taken into account. This term is used in an attempt to

reduce legal liability for incorrect or incomplete information supplied in a
document such as price list, invoice, cash memo, quotaion etc.
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Role of Chambers of Commerce and Industry in Promotion of

pic

Internal Trade
A chamber of Commerce is a voluntary association of businessmen belonging to
different trades and industries. Even professional experts like chartered
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accountants, financiers and other engaged in business in a particular locality,

region or country can also became the members of chamber of commerce. Its
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main objective is to promote the general business interests of all the members
and to foster the growth of commerce and industry in a particular locality, region
or country.
Following are the important functions of chamber of Commerce and Industry
1. Conducting research and collecting statistics and other information about
business and economy.

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2. Providing technical, legal and other useful information and advice to the
members.
3. Publishing books, managines and journals of business interest.
4. Making arrangement for education and training of members. Some
chambers even conduct commercial examinations and award diplomas.
5. Arranging industrial exhibitions, trade fairs, etc. in order to promote trade.
6. Advising the govt. in matters concering industrial and economic
development of the region.

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7. Issuing certificate of origin to exporters.
8. Representation of business interest and grievances before the govt.

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9. Providing a forum for discussing the common problems of business
community.

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10. Acting as arbitrators for solving problems and disputes among the
members.
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Very Short Answer Type Questions (carrying 1 mark each)
1. Define Trade.
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2. List the two broad categories of trade.

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3. Which shops deal n specific live in products?

4. Give an example of chain store.
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5. How does mail order house provide convenience to customer?

6. What are Vanding Machines?
pic

7. Write the full form of ATM.

8. Give the full form of CII.
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9. Write the meaning of Debit Note.

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10. What is Proforma Invoice?

11. What do you understand by E.&O.E.?

Short Answer Type Questions (carrying 3/4 marks each)

1. Enumerate the main features of wholsale trade.
2. What are the services offered by retailer to the consumers?
3. Mention differences between departmental and multiple shops.

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4. Give advantages and limitations of mail order business.

5. Explain the concept of vending machines.

Long Answer Type Questions ( Carrying 5/6 marks each)

1. Differentiate between wholesale trade and retail trade.
2. What are Super Bazar? Explain their advantages and limitations.
3. Describe the role and functions of chambers of Commerce.
4. Explain the main types of Itinerant Retailers.

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5. Explain the advantages of consumer cooperative store.

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ing
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oa
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pic
w.
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CHAPTER 10

International Business
Manufacturing and trading beyond the geographical boundaries of a country is
known as international business. The development of communication,

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technology and infrastructure etc make it possible. New modes of
communication and development of faster and more efficient means of

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transportation have brought nations closer to one another as a result of which
trade between them can take place. Following are the main reasons behind
international business.
1.
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Unequal disribution of natural resources and differences in the productivity
levels of the countries make them incapable of producing every good of
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their requirement.
2. Labour productivity and production costs differ among nations due to
oa

socioeconomic, geographical and political reasons.

3. The availability of different factors of production such as labour, capital and
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raw materials differ among nations.

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Concept of International Business

Major forms of business operations that constitute international business are as
follows
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1. Merchandise exports and imports. Merchandies exports means sending

tangible goods abroad and merchandise imports means bringing tangible
w.

goods from abroad.

2. Exports and imports which involve trade in intagible items that can not be
ww

seen or touched. It is also called invisible trade.

3. Another way of entering into international business is licensing and
franchising country to produce and sell goods under their trademarks
patents or copy right in lieu of some fee is called licensing Pepsi and Coca-
Cola are producted & sold all over the world by local companies in foreign
countries under licensing system. Franchising is similar to licensing, but it is
used in connection with the provision of services. MCDonald s operates fast
food restaurants all over the world through the system of franchising.
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4. Foreign investment is another important form of international business. It

can be of two types : direct and portfolio investments. Direct investment
takes place when a company directly invests in properties such as plant &
machinery in foreign countries with a view to undertake production and
marketing of goods and services in those countries. It provides the investor
a controlling interest in a foreign country. Under portfolio investment, a
company makes investment by acquiring shares or providing loans to a
foriegn company & earns income by way of dividends or interest on load. In
this investor does not get directly involved in producion or marketing of
goods.

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Benefits of International Business

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International Business is important to both nations and business firms. It offers
them various benefits.

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Benefits to Nations :
1. It helps a country to earn foreign exchange which can be used for importing
various goods from abroad.
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2. It leads to specialisation of a nation in the prodcution of those goods which
can be produced by it in the most effective and economical manner.
oa

3. It helps a nation in improving its growth prospects and also create

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opportunities for employment.

4. It make it possible for people to consume goods and services produced in
other countries which help in increasing their standard of living.
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Benefits to Firms :-
1. It helps in increasing profits of the firms by selling goods in the countries
pic

where prices are high.

2. It help firms in using their surplus production copacities and improving the
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profitability of their operations.

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3. It help firms in improving their growth prospects.

4. It acts as one of the ways of achieving growth for firms facing tough market
conditions in the domestic market.
5. It improves business vision as it make firms more competitive, and
diversified.

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Difference between Domestic & International Business.

Basis Domestic Business International Business.

1. Nationality of Both Buyers & Sellers Buyers & Sellors belong
buyers & Sellers belong to same country to different countries.
2. Mobility of sectors The factors of production There are restrictions on
of production Like capital, labour and free mobility of factors of
raw material can move prodcution across
freely within the country countries
3. Customer Domestic markets are International markets

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heterogencity relative more homo- lack homogeneity due to

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across market geneous in nature differences, in languages,
preferences customs etc
across markets.
4. Currency used Currency of home
country is used ing currency used in business
in transactions is that of
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business more than one country.
5. Political System It has to face the It is subjected to political
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political system and system & risk of different

risk of only one country countries.
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Mode of Entry into International Business

I. Exporting and Importing
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Exporting refers to selling of goods and services from the home country to
a foreign country while importing refers to purchase of foreign products
pic

and bringing them into one s home country.

II. Contract Manufacturing
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When a firm enters into a contract with one or a few local manufacturers in
foreign countries to get certain goods produced as per its specifications it is
ww

called contract manufacturing. It is also know as outsourcing and it can take

place in following forms.
a) Production of components like automobile components to be used later for
making final product like car.
b) Assembling of components into final products such as assembling of tyres,
seat etc in a scooter.
c) Complete manufacture of products such as garments.

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III. Licensing and Franchising :-

Permitting another party in foreign country to produce and sell goods
under their trademarks, patents or copy right in lieu of a fee called royalty is
termed as licensing. When there is mutual exchange of knowledge,
technology and patents between the firms it is called cross-licensing.
Franchising is similar to licensing, but it is used in connection with the
provision of services. Pizza Hut and Wal-Mart are examples of some of the
leading franchisers operating worldwide.
IV. JOINT VENTURE

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Joint venture means establishing a firm that is jointly owned by two or more
independent firms. It can be brought into existence in three major ways.

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i) Foreign investor buying an interest in a local company.
ii) Local firm acquiring an interest in an existing foreign firm.

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iii) Both the foreign and local entrepreneurs jointly forming a new enterprise.

WHOLLY OWNED SUBSIDIARIES

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When a foreign company is acquired by a parent company by making 100%
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investment in its equity capital then it is called wholly owned subsidiaries. A

wholly owned subsidiary in a foreign market can be established either by setting
up a new firm altogether to start operations in a foreign country or by acquiring
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an established firm in the foreign country.

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EXPORT PROCEDURE
1. An exporter receives an enquiry from the prospective buyers seeking
information regarding price, quality & other terms conditions for export of
pic

goods. The exporter sends a quotation known as proforma invoice as reply.

2. If the buyer is satisfied with the export price & other terms & conditions, he
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places the order or indent for the goods.

3. After receiving the order or indent, the exporter undertakes an enquiry
ww

regarding the credit worthiness of importer to assess the risk of non-

payment by the importer.
4. According to custom laws the exporter or the export firm must have export
license before proceeding with exports. The following procedure is
followed for obtaining the export license.
- To open account in any authorised bank

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- To obtain import export code (IEC) number from Directorate General

foreign Trade (DGFT) or Regional Import Export Licensing Authority
(RIELA).
- Register with appropriate export promotion council.
- To get registered with Export Credit and Guarantee corporation (ECGC) in
order to safeguard against risk of non-payments.
5. After obtaining the export license the exporter approaches his banker in
order to obtain preshipment finance for carrying out production.
6. Exporter, after obtaining the preshipment finance from the bank, proceeds

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to get the goods ready as per the orders of the importer.
7. Government of India ensures that only good quality products are exported

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from India. The exporter has to submit the preshipment inspection report
along with other documents at the time of export.
8.
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According to Central Excise Tariff Act, excise duty on the material used in
manufacturing goods is to be paid. For this purpose exporter apply to the
concerned Excise Commissioner in the region with an invoice.
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9. In order to obtain Tariff concessions or other exemptions the importer may
ask the exporter to send certificate of origin.
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10. The exporter applies to the shipping company for provision of shipping
space. He has to provide complete information regarding the goods to be
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exported, probable date of shipment & port of destination. The shipping

company issues a shipping order. Which is an instruction to the captain of
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the ship, after accepting application for shipping.

11. The goods are packed & marked with necessary details like name & address
of the importer, growss & net weight, port of shipment & destination etc.
pic

After this the exporter makes arrangement for the transportation of goods
to the port.
w.

12. In order to protect the goods against the risk of loss or damage due to the
perils of the sea transit the exporter gets the goods insured with an
ww

insurance company.
13. Before loading the goods on the ship they have to be cleared by the
customer. For this purpose the exporter prepares the shipping bill & submits
five copies of the shipping bill along with following documents to the
Customs Appraiser at the customs house.!
(i) Certificate of origin
(ii) Commercial Invoice

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(iii) Export Order

(iv) Letter of credit
(v) Certificate of Inspection, where necessary.
(vi) Marine Insurance Policy.
On submitting the above documents, the superintendent of the concerned
port trust is approached for obtaining the carting order which is the
instruction to the staff at the gate of the port to permit the entry of cargo
inside the dock.

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14. After the goods have been loaded on board of the ship the captain or the
mate of the ship issues mate s receipt to the port superintendent which

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contains information regarding vessel, berth, description of packages, date
of shipments marks, condition of the cargo at the time of receipt on board
the ship etc.

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15. The clearing & forwarding agent (C&F agent) hands over the mate s receipt
to the shipping company for calculating freight. On receiving the freight the
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shipping company issues a bill of lading.
16. The exporter prepares an invoice for the dispatched goods. Invoice contains
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information regarding the quantity of goods sent & the amount to be paid
by the importer. It is duly attested by the customs.
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17. After shipment of goods the importer is informed about it by the exporter.
Various documents like certified copy of invoice, bill of lading packing list,
Insurance policy, certificate of origin & letter of credit are sent by the
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exporter through his bank. These documents are required by the importer
for getting the goods cleared from customs.
pic

DOCOMENTS USED IN EXPORT TRANSACTIONS

A. Documents related to goods :-
w.

1. Export Invoice :- It is a seller s bill information about goods like quantity,

ww

number of packages, marks on packing, name of ship, port of destination,

terms of delivery & payments etc.
2. Certificate of Inspection :- For ensuring quality, the government has made
inspection of certain goods compulsory by some authorised agency like
export Inspection council of India (EICI) etc. After inspecting the goods, the
agency issues a certificate of inspection that the consignment has been
inspected as required under the export (Quality Control & Inspection) Act,
1963.

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3. Packing List :- This document is in the form of a statement regarding the

number of cases or packs & the details of the goods contained in these
packs. It provides complete details regarding the goods exported & the
form in which they are being sent.
4. Certificate of Origin :- This certificate specifies the country in which the
goods are being manufactured. This certificate enables the importer to claim
tariff concessions or other exemptions. This certificate is also required in
case when there is a ban on imports of some goods from certain countries.
B. Documents Related to Shipment :-

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1. Shipping Bill : It is th main document on the basis of which permission is
granted for the export of goods by the custom office. It contains full details

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regarding the goods being exported name of the vessel, exporter s name &
address, country of final destination etc.

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2. Mate s Receipt :- This receipt is issued by the captain or mate of the ship to
the exporter after the goods are loaded on board of the ship. It contains
name of the vessel, description of packages, marks, conditions of the cargo
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at the time of receipt on board the ship etc.
3. Bill of lading - It is a document issued by the shipping company. It acts as an
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evidence regarding the acceptance of shipping company to carry the goods

to the port of destination. It is also referred to as document of title to the
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goods & is freely transferable by endorsement & delivery.

4. Airway Bill : Similar to a shipping bill, an airway bill is a document issued
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by the airline company on receiving the goods on board, its aircraft and at
the same time giving its acceptance to carry them to the port of destination.
5. Cart Ticket :- Also known as cart chit or gate pass, it is prepared by the
pic

exporter. It contains details regarding export cargo like number of

packages, shipping bill number, port of destination etc.
w.

6. Marine Insurance Policy : It is a document containing contract between the

exporter & the Insurance Company to indemnity the insured against the loss
ww

incurred by the insured in respect of goods exposed to the perils of the sea
transit in consideration of a payment called premium.
C. Document related to payment :-
1. Letter to credit :- It is a guarantee letter issued by the importer bank stating
that it will honour the export bills to the bank of the exporter up to a certain
amount.

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2. Bill of Exchange : In export & import transaction, exporter draws the bill on
the importer asking him to pay a specified amount to a certain person or the
bearer of the instrument. The documents required by the importer for
claiming title of exported goods are passed on to him only when the
importer accepts this bill.
3. Bank Certificate of Payment :- It is a certificate that the necessary
documents relating to the particular export consignment have been
negotiated & payment has been received in accordance with the exchange
control regulations.

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IMPORT PROCEDURE
1. The first step involved in importing goods is to gather information about

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the countries & firms which export the product required by the exporter. It
can be gathered from trade directories, trade associations & organisations.

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The exporter prepares a quotation also known as Performa Invoice & sends
it to the importer.
2. The Importer Consults the export import (EXIM) Policy in force, in order to
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know whether the goods that he/she wants to import are subjected to
import licensing or not. If License is required then it is to be obtained.
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3. In case of an import transaction the supplier resides in a foreign country

hence he demands payment in foreign currency. This involves exchange of
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Indian Currency into foreign currency. The Exchange Control Department

of the Reserve Bank of India (RBI) regulates foreign exchange transactions
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in India. As per rules, every importer has to secure the sanction of foreign
exchange.
4. The importer places an import order or indent with the exporter for the
pic

supply of specified goods. The order contains information regarding price,

quality, quantity, size & grade of goods instruction regarding packing,
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delivery shipping, mode of payment etc.

5. When the payment terms are agreed between the importer & the overseas
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supplier, the importer obtains the letter of credit from its banker &
forwards it to the overseas supplier.
6. The importer arranges for the funds in advance to pay the exporter on
arrival of goods at the port this enables the importer to avoid huge penalties
on the imported goods lying uncleared at the port for want of payments.
7. The overseas supplier after loading the goods on the ship dispatches the
Shipment Advice to the importer. It provides information regarding

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shipment of goods like invoice number, bill of lading / airway bill, name of
ship with date description of goods & quantity etc.
8. After shipping the goods, the overseas supplier hands over the various
documents like commercial invoice, bill of lading, insurance policy
certificate of origin to his banker for their onward transmission to the
importer when he accepts the bill of exchange drawn by the supplier. The
acceptance of bill of exchange by the importer for the purpose of getting
delivery of the document is known as retirement of import documents.
9. When the goods arrive in the importer s country, the person incharge of the
carries informs the officer incharge at the dock or the airport about it. The

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person incharge of the ship or airway provides the docuement called import

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general manifest for unloading of cargo.
10. Imported goods are subjected to customs clearance which is a very lengthy
process & involves a lot of formalities. The importer usually appoints a c & F
agent for fulfilling these formalities.
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First of all the importer obtains a delivery order which is also known as
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endorsement for delivery. This order enables the importer to take the
delivery of goods after paying the freight charges.
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Besides freight charges, importer also has to pay dock dues for obtaining
port trust dues receipts for which he submits two copies of a duly filled in
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form know as application to import to the Landing & Shipping Dues

Office . After paying dock dues the importer get back one copy of
application as a receipt which is referred as port trust dues receipts .
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Finally the importer fills in a form known as bill of entry for assessment of
customs import duty. An examiner examines the imported goods & gives his
pic

report on the bill of entry. This bill is then presented to the port authority
which on receiving necessary charges, issues the release order.
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Documents used in an Import Transaction

1. Proforma Invoice : - A proforma invoice is a document that contains details
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as to the quality, grade, design, size, weight & price of the export product &
the terms & conditions on which their export will take place.
2. Import order or Indent : It is a document in which the importer orders for
supply of requisite goods to the supplier. The order containg the
information such as quantity & quality of goods such as quantity & quality
of goods price, method of forwarding the goods, nature of packing, mode
of payment etc.

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3. Shipment advice :- The exporter sends shipment advice to the importer for
informaing him that the shipment of goods has been made. It contains
invoice number bill of lading / airways bill number & date, name of the
vessel with date, the port of export, description of goods & quantity & the
date of sailing of the vessel.
4. Bill of lading :- It is prepared & signed by the master of the ship
acknowledging the receipt of goods on board. it contains terms &
conditions on which the goods are to be taken to the port of destination.
5. Bill of entry :- It is a form supplied by the customs office to the importer
who filled it at the time of receiving the goods. It has to be in triplicate & is

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to be sumitted to the customs office. It contains information such as name &

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address of the importer, name of the ship, number of packages, marks on
the packages, description of goods, quantity & value of goods, name &
address of the exporter, port of destinations & customs duty payable.
6.
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Letter of credit :- It is document that contains a guarantee from the importer
bank to the exporter s bank that it is undertaking to honour the payment up
to a certain amount of the bills issued by the exporter for exports of the
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goods to the importer.
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7. Bill of exchange : Explained ealier.

8. Trade Enquiry : It is a written request made by an importing firm to the
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overseas supplier for providing information regarding the price and various
terms and conditions for exporting goods.
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Foreign Trade Promotion Measures & Schemes.

1. Duty drawback scheme : Goods meant for export are not subjected to
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payment of various excise and custom duties. Any such duties paid are
refunded to exporters on production of proof of exports of these goods to
the concerned authorities. Such refunds are called duty draw backs.
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2. Export Manufacturing under bond scheme : Under this facility firms can
produce goods without payment of excise and other duties. The firms can
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avail this facility after giving an undertaking (i.e. bond) that they are
manufacturing goods for export purposes.
3. Exemption from payment of sales taxes :- Goods meant for export purpose
are not subject to sales tax. Income derived from export operations had
beeen exempt from payment of Income tax for a long period but now this
exemption is only available to 100% Export oriented units and units set up in
Export Processing Zones / special economic zones for selected years.

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4. Advance Licence Scheme : - It is a scheme under which an exporter is

allowed duty free supply of domestic as well as imported inputs required
for the manufacture of export goods. The firms exporting intermittently can
also obtain these licences against specific export orders.
5. Export Processing Zones :- They are industrial estates, which form enclaves
from the Domestic Tariff Areas. These are usually situated near seaports or
airports. They are intended to provide an internationally competitive duty
free environment for export production at low cost.
In addition to above there are other measures such as availability of export
finance, export promotion, capital goods sheme etc are used for foreign

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trade promotion.

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ORGANISATIONAL SUPPORT
World Trade Organisation :

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It came into existence on Ist January 1995. The headquarters of WTO are situated
at Geneva, Switzerland. It is a permanent organisation created by an
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international treaty ratified by the Governments and legislatures of member
states. It is concerned with solving trade problems between countries &
providing a forum for multilateral trade negotiations.
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Role/Functions of WTO
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1. To remove barriers of International trade.

2. To Act as a dispute settlement body by settling trade related disputes
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among member nations

3. To ensure that all the rules regulations prescribed in the Act are duly
followed by the member countries for the settlement of their disputes.
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4. Laying down a commonly accepted code of conduct for international trade

aiming at reducing tariff and non-tariff barriers in international trade.
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5. To consult other agencies to bring better understanding/cooperation in

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global economic policy making.

6. Providing technical assistance and guidance related to management of
foreign trade and fiscal policy to its member nations.
7. Taking special steps for the development of poorest nations.
8. Reviewing trade related economic policies of member countries with the
help of its Trade Policy Review Body.

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9. Co-operating with IMF and World Bank and its associates for establishing
co-ordination in global trade policy making.
10. Acting as forum for trade liberalisation.

PROBLEMS OF INTERNATIONAL TRADE

The main problems in International Trade are :
1. Language difference When a trader of one country deals with the trader
of another country, it becomes difficult for both of them to understand each
others because of their different languages.

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2. More Risk The quantum of risk is higher in foreign trade as compared to
that in the internal trade.

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3. Government Control For import and export procedure various licences
are taken and various piece of information are to be submitted. Moreover

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the whole procedure of import export is quite complex.
4. Difference in Laws The rules related to export-import are different in each
country. So, there is always some doubt in the mind of a trader regarding
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payment and other terms of business.
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5. Difficulty in payment - Each country has a different currency. Due to this,

businessman face a lot of problems while paying and receiving money.
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6. Lack of Information about Foreign Trader It is difficult to find out details

about financial position and business dealings of any businessman sitting at
some far off place.
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Very Short Answer Type Questions (carrying 1 mark each)

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1. What is International Business?

2. State the two types of foreign Investment.
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3. List two modes of entry into Internatinal Business.

4. What is contract manufacturing.
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5. Who is a franchiser?
6. What is an indent.
7. Name any two export documents related to payment.
8. What is proforma Invoice.
9. Write the full form of SEZ.
10. Name two International Trade Institution.
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Short Answer Type Questions (carrying 3/4 marks each)

1. Give difference between Internal and International trade.
2. What is joint Venture?
3. Briefly explain the scope of International trade.
4. What are main functions of WTO.
5. What is Bill of Lading? How is it different from Bill of Entry.

Long Answer Questions

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1. Explain the benefits of International Trade to Nation and to firms.
2. Explain documents used in Export Procedure.

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3. Explain Import Procedure.
4. Explain the following
(a) Trade Enquiry
(b) Letter of Credit
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(c) WTO
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(d) Export Licence.

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