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com Page 1 of 29
 Short Notes

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 DIRECTOR’S NOTE

Hello COMMERCEians,

Congratulations on choosing the most comprehensive and the most interactive programs on Commerce studies. The

study material that you hold in your hand is among the most researched and deliberated content that you will find.

But do not make the mistake of thinking that it is just another book on Commerce, because it is not. The uniqueness

lies in the fact that not only it is the most relevant collection of all important topics and concepts, it is followed just as

precisely by summary notes, elaborate chapter plans that tie the best of both world's - It is amply detailed while also

being to-the-point, so that you learn everything that you need, without wasting any time and energy on the

unnecessary.

The discipline of Commerce is at times excruciatingly expansive and often students are made to go through gruelling

and never ending concept cramming that might not even be on the test and more importantly doesn't spell "use" in

real world situations. This book and the arsenal of more learning tools that it is a part of, are but so intelligently put

together that a student's mind is enriched not only with the standalone concept but also help him/her empower

him/herself with a wiser sense of what importance every concept or skill has in the real world. This is achieved by

means of synergistically complementing and strategically controlled practice collections with elaborate solutions and

ideal solution techniques, brought in by our expert instructors. The true worth of the material however can be

realised only by immersing oneself fully in the various aspects of this study program, as all this shop-talk doesn't

take away any fun and excitement from the learning experience.

Happy Learning!

Team CommercEdge

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 Chapter – 1
Evolution and Fundamentals of Business

Economic and Non-economic Activities

Economic activities are those activities which are undertaken to earn money and to create wealth, e.g. a teacher teaching in
a school, etc. Business, profession and employment are economic activities.
Non-economic activities are those activities which are undertaken to satisfy social, psychological and emotional needs, e.g.,
a housewife cooking food for her family, a boy helping an old man cross the road, etc.

Concept and Characteristics of Business

Business may be defined as an economic activity involving the production and sale of goods and services undertaken with
a motive of earning profit by satisfying human needs in society.

Characteristics of Business
DPS PURE
1. Economic activity
2. Profit earning
3. Uncertainty of return
4. Element of risk
5. Production or procurement of goods and services
6. Sale/exchange of goods and services for satisfaction of human needs
7. Dealings in goods and services on a regular basis

Objectives of Business
Economic objectives
1. Earning profits
2. Market standing
3. Innovation
4. Optimum utilization of physical and financial resources
5. Increasing productivity

Social objectives
1. Supply of desired quality of products
2. Avoidance of anti-social and unfair trade practices
3. Generation of employment
4. Welfare of employees
5. Community service

Role of Profit in Business

PRES - G
1. For long-term Survival of business
2. For Growth and expansion of business
3. For increasing Efficiency
4. For building Prestige and recognition
5. For covering costs and Risks of the business

Business Risks
Business risks refer to the possibility of inadequate profits or even losses due to uncertainties or unexpected events, e.g.,
decline in demand for a firm's product due to change in taste and fashion of customers.

Nature of Business Risks

1. Business risks arise due to uncertainties.
2. Risk is an essential part of every business.
3. Degree of risk depends mainly upon the nature and size of business.
4. Profit is the reward for risk taking.

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Causes of Business Risks
1. Natural causes e.g., flood, earthquake.
2. Human causes e.g., theft, strikes.
3. Economic causes e.g., fluctuations in demand and prices, competition.
4. Other causes e.g., political disturbances.

Classification of Business Activities

Various business activities may be classified into two broad categories— Industry and Commerce.

Industry refers to economic activities which are connected with conversion of resources into useful goods.

Commerce includes trade and auxiliaries to trade. Buying and selling of goods is termed as trade. Activities which are
meant for assisting trade are known as auxiliaries to trade or services, e.g., transportation, communication, banking,
insurance, etc

Types of Industries
1. Primary industries
(i) Extractive industries e.g., farming, mining, fishing, oil extraction.
(ii) Genetic industries e.g., poultry farms, pisciculture.

2. Secondary industries
(i) Manufacturing industries
• Analytical industry e.g., an oil refinery separates crude oil into kerosene, diesel, lubricating oil, gasoline and petrol.
• Synthetical industry e.g., cement, soaps, paints.
• Processing industry e.g., sugar and paper.
• Assembling industry e.g., car, computer.
(ii) Construction industries e.g., construction of buildings, bridges, roads.

3. Tertiary industries: These industries provide services facilities, e.g., transport, communication, banking, insurance,
etc.

Types of Trade
1. Internal Trade: Trade which takes place within a country. (i) Wholesale trade (ii) Retail trade
2. External Trade: Trade between two or more countries. (i) Import Trade (ii) Export Trade (iii) Entrepot Trade

Auxiliaries to Trade CWA - BIT

1. Banking
2. Insurance
3. Transportation
4. Warehousing
5. Communication
6. Advertising

History of Trade and Commerce in India

Hundi: It was an instrument of exchange which was used in Indian subcontinent. It involved a contract which warrants the
payment of money, the promise or order which is unconditional; and capable of change through transfer by valid
negotiation. Indigenous banking system

— Helped in lending money and financing domestic and foreign trade with currency and letter of credit.
— People began to deposit precious metals with bankers called seths.
— Money become an instrument for supplying the manufacturers with a means of producing more goods.

Rise of Intermediaries (Brokers, commission agents, distributions) for wholesale and retail trade
(i) Intermediaries provided security to the manufactures by taking responsibility for risk involved.
(ii) Emergence of credit transactions and availability of loans and advances enhanced commercial operations.

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Transport: Transport by land and water was popular in ancient times
Trading communities
Different parts of the country had different communities dominated trade e.g. Punjabi and Multani merchants in Northern
India, Bhats in Gujarat and Rajasthan, Mahajans from western India etc.

Merchant corporations were formed. Merchant communites derived power and prestige from guilds which were
autonomous corporations formed to protect interest of traders. These corporations framed their own rules of membership
and professional code of conduct which even kings were supposed to accept and respect.

The guild chief dealt directly with long or tax collections and settled the market toll on behalf of its fellow merchants at a
fixed sum of money.

Major Trade Centres: Patliputra, Peshwar, Taxila, Indraprastha, Mathura, Varanasi, Mithila, Ujjain, Surat, Kanchi, Madura,
Broach, Kaveri patta, Tamralipti.

Major Exports and Imports

Exports: Spices, wheat, sugar, indigo, opium, sebame oil, cotton, live animals & animal products like hides, furs, pearls etc.
Imports: Horses, animal products, chinese silk flax and liner, gold, silver, tin etc.

Position of Indian sub-continents in the world economy

After independence five year plans were initiated. Despite these efforts Indian economy could not develop at a rapid pace.
Lack of capital formation, rise in population, huge expenditure on defence and inadequate infrastructure were major
reasons. Finally in 1991 India agreed to economic liberalisation. Because of this, now India is one of the fastest growing
economies of the world. Initiatives like Digital India, Make in India, etc. are expected to help the economy in terms of
exports and imports.

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 Chapter – 2
Forms of business organization

Sole Proprietorship
Sole proprietorship refers to a form of business organisation which is owned, managed and controlled by an individual,
who is the recipient of all profits and bearer of all risks.

Features
1. Ease of formation and closure
2. Unlimited liability
3. No separate entity
4. Sole risk bearer and profit recipient
5. Full control
6. Lack of business continuity

Merits
1. Quick decision making
2. Confidentiality of information
3. Ease of formation and closure
4. Direct incentive
5. Sense of accomplishment

Limitations
1. Limited resources
2. Limited life of a business concern
3. Unlimited liability
4. Limited managerial ability

Hindu Undivided Family Business

It is one of the oldest forms of business organisation found only in India. Business is owned and carried on by the members
of the Hindu Undivided Family (HUF). The business is controlled by the head of the family, who is the eldest member and
is called 'Karta'. He takes all the decisions to manage the business. All members have equal ownership right over the
ancestral property and they are known as 'Co-parceners'.

Features
1. Ease of formation
2. Liability (Karta—unlimited, Co parceners—limited)
3. Control of Karta
4. Continuity 5. Minor Members

Cooperative Society
A 'cooperative society' is a voluntary association of persons for mutual benefit. Its primary motive is welfare of the
members. Features

1. Voluntary membership
2. Legal status
3. Limited liability
4. Democratic control
5. Service motive

Merits
1. Ease of formation
2. Equality in voting status
3. Limited liability
4. Stable existence
5. Economy in operations 6. Support from government
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Limitations
1. Limited resources
2. Inefficiency in management
3. Lack of secrecy
4. Differences of opinion
5. Government control

Types of Cooperative Societies

1. Consumers' cooperative societies
2. Producers' cooperative societies
3. Marketing cooperative societies
4. Farmers' cooperative societies
5. Credit cooperative societies 6. Cooperative housing societies

Partnership
Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one
of them acting for all.

Features
1. Formation: It comes into existence with an agreement (written or oral) among the partners.
2. Membership: Minimum—2
3. Unlimited liability
4. Risk bearing Maximum—50
5. Joint decision making and control
6. Mutual agency
7. Continuity

Merits
1. Ease of formation and closure
2. Balanced decision making
3. More funds
4. Sharing of risks
5. Secrecy

Limitations
1. Unlimited liability
2. Limited resources
3. Possibility of conflicts
4. Lack of continuity
5. Lack of public confidence

Types of Partners
1. Active Partner
2. Sleeping or Dormant Partner
3. Secret Partner
4. Nominal Partner
5. Partner by Estoppel

Types of Partnership
1. Partnership at will
2. Particular partnership
3. General Partnership
4. Limited Partnership

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Registration of Partnership Firm
Registration of a partnership firm is not compulsory. It is optional. However, a partner of an unregistered firm cannot file a
suit against the firm or any third party. Firm cannot file a suit against any partner or a third party.

Company
A company is an association of many persons who contribute money and employ it in some trade or business, and who
share the profit and loss arising thereof. The persons who contribute money are its members.

Features
1. Formation-complex
2. Separate legal entity
3. Artificial person
4. Limited Liability
5. Perpetual succession
6. Control of the Board of Directors
7. Common seal
8. Risk bearing

Merits
1. Limited liability
2. Transfer of interest
3. Perpetual existence
4. Scope for expansion
5. Professional management

Limitations
1. Complexity in formation
2. Lack of secrecy
3. Impersonal work environment
4. Numerous regulations
5. Delay in decision making
6. Oligarchic management
7. Conflict in interest

Types of Companies
A private company is one which restricts transfer of shares and does not invite the public to subscribe to its securities.

A public company, on the other hand, is allowed to raise its funds by inviting the public to subscribe to its securities.
Furthermore, there is a free transferability of securities in the case of a public company.

One Person Company (OPC) Is a company with only one person as a member. That one person will be the shareholder of
the company. It avails all the benefits of a private limited company such as separate legal entity, protecting personal assets
from business liability and perpetual succession.

Choice of form of organisation

Selection of an appropriate form of organisation can be made after taking various factors into consideration. Following are
the key factors that need to taken into account while deciding about the suitable form of organisation for one's business:
1. Initial costs
2. Liability
3. Continuity
4. Capital considerations
5. Managerial ability
6. Degree of control
7. Nature of business

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Formation of a company
There are two stages in the formation of a private company, promotion and incorporation. A public company has to
undergo capital subscription stage to begin operations.

1. Promotion: It begins with a potential business idea. Certain feasibility studies e.g., technical, financial and economic,
are conducted to determine whether the idea can be profitably exploited. In case, the investigations yield favourable
results, promoters may decide to form the company. Persons who conceive the business idea, decide to form a
company, take necessary steps for the same, and assume associated risks, are called promoters.

Steps in Promotion
(i) Approval of company's name is taken from the Registrar of Companies
(i) Signatories to the Memorandum of Association are fixed
(iii) Certain professionals are appropriated to assist the promoters
(iv) Documents necessary for registration are prepared Necessary Documents

• Memorandum of Association
• Articles of Association
• Consent of proposed directors
• Agreement, if any, with proposed managing or whole time director
• Statutory declaration

2. Incorporation: An application is made by promoters to the Registrar of Companies along with necessary documents
and registration fee. The Registrar, after due scrutiny, issues certificate of incorporation. The certificate of
incorporation is a conclusive evidence of the legal existence of the company.

3. Capital Subscription: A public company raising funds from the public needs to take following steps for fund raising:
(i) SEBI approval;
(ii) File a copy of prospectus with the Registrar of Companies;
(iii) Appointment of brokers, bankers and underwriters etc.;
(iv) Ensure that minimum subscription is received;
(v) Application for listing of company's securities;
(vi) Refund/adjust excess application money received;
(vii) Issue allotment letters to successful applicants; and
(viii) File return of allotment with the Registrar of Companies (ROC).

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 Chapter – 3
Public, Private and Multinational Company

Private Sector vs Public Sector Enterprises

Private sector enterprises are owned, managed and controlled by individuals or a group of individuals. Their main
objective is to earn profit.

Public sector enterprises are owned, managed and controlled by the government. The forms of organisation which a public
enterprise may take are departmental undertakings, statutory corporations and government companies.

Departmental Undertakings
This is the oldest and most traditional form of organising public enterprises. The Government functions through these
departments. Examples: Posts and Telegraphs, Indian Railways, etc.

Merits
1. Effective control
2. High degree of public accountability
3. Source of income for the Government
4. National security

Limitations
1. Fail to provide flexibility
2. Delay in decision-making
3. Unable to take advantage of business opportunities
4. Redtapism
5. Political interference

Statutory Corporation
Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament. Examples: Indian
Airlines, LIC, RBI, etc.

Merits
1. Free from undesirable government regulations
2. Government does not interfere in their financial matters
3. Free from red tapism and bureaucracy
4. Protection of public interest.

Limitations
1. Rules and regulations
2. Corruption
3. Government and political interference
4. Curbs the freedom of the corporation

Government Company
A government company means any company in which not less than 51 per cent of the paid-up capital is held by the Central
government or state government or both. Examples: HMT, BHEL, etc.

Merits
1. Easily established
2. Separate legal entity
3. Enjoys autonomy
4. Curbs unhealthy business practices

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Limitations
1. Government is the only major shareholder
2. Not directly accountable to the Parliament

Global Enterprises (Multi-National Corporations)

A multi-national company (MNC) may be defined as a company that operates in several countries. Examples: Walmart,
Toyota Motor, Volkswagen, Apple Inc., etc.

Features/Benefits
1. Huge capital resources
2. Centralised control
3. Expansion of market territory
4. Advanced technology
5. Product innovation
6. Marketing strategies
7. Foreign collaboration

Joint Ventures
When two businesses agree to join together for a common purpose and mutual benefit, it give s rise to a joint venture.
These two organisations may be private, government-owned or a foreign company.

A joint venture is the pooling of resources and expertise by two or more businesses, to achieve a particular goal.
Joint Ventures are of two types: Contractual joint venture and Equity-based joint venture.

1. Contractual Joint Venture (CJV): In a contractual joint venture, a new jointly-owned entity is not created. There is
only an agreement to work together.
The parties do not share ownership of the business but exercise some elements of control in the joint venture.
2. Eauitv-based Joint Venture (EJVl: An equity joint venture agreement is one in which a separate business entity,
jointly owned by two or more parties, is formed in accordance with the agreement of the parties.

The key operative factor in such case is joint ownership by two or more parties.
The form of business entity may vary — company, partnership firm, trusts, limited liability partnership firms, venture
capital funds, etc.

Examples of Joint Ventures:

1. AVI Oil India Pvt. Ltd.
Joint Venture Holders: Balmer Lawrie & Co. Ltd., NYCO SA, France.
2. Delhi Aviation Fuel Facility Pvt. Ltd.
Joint Venture Holders: BPCL and DIAL

Features/Benefits
1. Increased resources and capacity
2. Access to new markets and distribution networks
3. Access to technology
4. Innovation
5. Low cost of production
6. Established brand name

Public Private Partnership (PPP)

PPP is defined as a relationship between public and private entities in the context of infrastructure and other services.
Linder the PPP model, public sector plays an important role and ensures that the social obligations are fulfilled and sector
reforms and public investment are successfully met.

Sectors in which PPPs have been completed worldwide include: Power generation and distribution, water and sanitation,
hospitals, school buildings and teaching facilities, railways, roads, etc.

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Features
• Contract with the private party to design and build public facility.
• Facility is financed and owned by the public sector.
• Key driver is the transfer of design and construction risk.

Application
• Suited to capital projects with small operating requirement.
• Suited to capital projects where the public sector wishes to retain the operating responsibility.

Example: Kundli Manesar Expressway Ltd — In this 135 km expressway, land has been provided by the government and
surface has been laid out by the company.

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 Chapter – 4
Business services
Types of Bank Accounts
1. Savings Deposit Account: This type of bank account encourages the small savings of households.
2. Current Deposit Account: In this type of accounts, funds are deposited by business organisations, withdrawable
through cheque.
3. Recurring Deposit Account: In this type of account, a depositor deposits a fixed amount of money on an annuity
basis (say on monthly basis) for a fixed period. This money cannot be withdrawn before maturity.
4. Fixed Deposit Account: Money deposited in fixed deposit account carry higher rate of interest than saving deposits
account. The amount of deposits is repayable by the bank after the expiry of the fixed term.
5. Multiple Option Deposit Account: Multiple Option Deposit account Is a combination of saving account and fixed
deposit account in which amount of deposit in excess of a particular limit gets automatically transferred into fixed
Deposit.

Banking Services
1. Bank Draft: A bank draft (also known as Demand Draft) is an instrument which is used for the transfer of funds.
Anybody can obtain a bank draft after depositing the amount in the bank.
2. Cash Credits: A cash credit is a short-term cash loan to a company against security.
3. Bank Overdraft: The bank allows a customer to overdraw his current account balance up to a limit.

e-Banking
It means banking using the electronic media.
The range of services offered by e-banking are:
• Automated Teller Machines (ATM)
• Point of Sales (PoS)
• Electronic Data Interchange (EDI)
• Credit Cards
• Electronic or Digital cash
• Electronic funds transfer (EFT)

Types of Digital Payments

1. Electronic funds transfer (EFT): EFT are electronic transfer of money from one bank account to another via computer-
based systems. The two ways in which EFT can be done are: NEFT (National Electronic Fund Transfer) and RTGS
(Real Time Gross Settlement). The minimum transaction value for RTGS is Rs. 2 lakh.
2. Credit or Debit Cards, i.e. 'plastic money': The customer can make digital payments for online transaction through
credit or debit cards.
3. Digital Cash: Digital cash (also known as electronic cash) refers to a system in which a person can securely pay for
goods or services electronically.
4. Aadhaar Enabled Payment System (AEPS): It can be used for payment transactions.
5. Mobile Wallets: A mobile wallet is a type of virtual wallet service that can be used by downloading an app (e.g.
Paytm, Mobikwik etc.).
6. Point of Sales (PoS) Terminals: It is usually a hand held device that reads banking cards.
Postal and Telecom Services

Postal Services
1. Mail: The mail (or post) is a system of for physically transporting documents and other small packages, as well as a
term for the postcards, letters, etc. themselves.
2. Registered Post: It refers to the postal facility where it is ensured that the mail is delivered to the addressee;
otherwise it should come back to the sender.
3. Parcel: Parcel is a service of a postal administration for sending (books, garments, cell phones etc.) through the post
across the country as well as outside the country.
4. Speed Post: It refers to the postal facility where the mail reaches the addressees as fast as possible.
5. Courier Services: Courier service is provided by private post offices for sending and receiving letters, documents
parcels, etc.

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Telecom Services
1. Cellular mobile services
2. Radio paging services
3. Fixed line services
4. Cable services
5. VSAT services
6. DTH services
Insurance
Insurance is a means of providing against loss caused by natural or man-made factors.

Principles of Insurance
1. Utmost good faith
2. Insurable interest
3. Indemnity
4. Proximate cause
5. Subrogation
6. Contribution

Types of Insurance
1. Life Insurance: A life insurance policy is basically a protection against the uncertainty of life, that is death.
2. Fire Insurance: It is a contract whereby the insurer, in consideration of the premium paid, undertakes to make good
any loss or damage caused by a fire during a specified period upto the amount specified in the policy.
3. Marine Insurance: It is a contract or an agreement wherein the insurer (called underwriter) undertakes to
compensate the insured (generally the owner of a ship or cargo) for complete or partial loss at sea.
4. Health Insurance: Health insurance is a safeguard against such medical costs. In India, presently the health insurance
exists primarily in the form of Mediclaim policy

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 Chapter – 5
Emerging modes of business

e-Business
Electronic business (e-business) means conducting industry, trade and business using computer networks.

The scope of e-business is wider than that of e-commerce.

e-Commerce means buying and selling products and services over the internet using e-mail, electronic funds transfer, etc.

1. B2B Commerce: Here, both the parties involved in e-commerce transactions are business firms and, hence, the name
B2B, i.e., business-to-business.
2. B2C Commerce: The transactions taking place between business and individual customers are known as 'business to
customers' or B2C transactions.
3. Intra-B Commerce: Here, parties involved in the electronic transactions are from within a given business firm; hence,
the name intra-B commerce.
4. C2C Commerce: Here, the business originates from the consumer and the ultimate destination is also consumer.

Benefits of e-Business
1. Ease of formation and lower investment requirements
2. Convenience of '24 hours a day x 7 days a week x 365 days a year
3. High speed
4. Global reach/access
5. Movement towards a paperless society

Outsourcing/Business Process Outsourcing (BPO)

It means contracting out non-core and routine activities to outside agencies with a view to benefitting from their
experience, expertise and efficiency.

Need for Outsourcing

1. Focusing on key functions
2. Quest for excellence/benefits of specialisation
3. Cost reduction
4. Convenience and less investment
5. Economic growth and development Scope of Outsourcing BPO comprises four key segments:

1. Contract manufacturing
2. Contract research
3. Contract sales
4. Informatics

The term outsourcing has more popularly come to be associated with IT-enabled services or Business Process Outsourcing
(BPO). In fact, even more popular term is 'call centres' providing customer-oriented voice based services. About 70 per cent
of the BPO industry's revenue comes from call-centers, 20 per cent from high-volume, low-value data work and the
remaining 10 per cent from highervalue information work.

Knowledge Process Outsourcing (KPO)

KPO involves outsourcing of knowledge-based operations to an independent service providing on a contract basis. Many
organisations have been set up for the creation, use, dissemination and management of knowledge.

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 Chapter – 6
Social responsibilities of business and business ethics

Social Responsibility
Social responsibility refers to the obligation of business firms to contribute resources for solving social problems and work
in a socially desirable manner.

Case for Social Responsibility

1. Justification for existence and growth
2. Long-term interest of the firm
3. Avoidance of government regulations
4. Availability of resources with business
5. Better environment for doing business
6. Holding business responsible for social problems.

Social Responsibility towards Different Interest Groups

1. Responsibility towards the shareholders/ investors/owners
• To pay a fair return on their investment
• To ensure the safety of their investment, etc.

2. Responsibility towards the workers/employees

• To pay fair wages and salaries to the workers and employees
• To provide good working conditions and service benefits such as medical facilities.

3. Responsibility towards the consumers

• To supply right quality and quantity of goods and services at reasonable prices
• To avoid unfair trade practices such as adulteration, hoarding, black marketing, under weighing, etc.

4. Responsibility towards the government

• To respect the laws of the country
• To pay taxes regularly and honestly.

5. Responsibility towards the community

• Not to create pollution
• To provide basic amenities like schools, dispensaries, etc.

Role of Business on Environmental Protection

1. A definite commitment by top management of the enterprise to create, maintain and develop work culture for
environmental protection and pollution prevention.
2. Ensuring that commitment to environmental protection is shared throughout the enterprise by all divisions and
employees.
3. Developing clear-cut policies and programmes for purchasing good quality raw materials, employing superior
technology, using scientific techniques of disposal and treatment of wastes and developing employee skills for the
purpose of pollution control.
4. Complying with the laws and regulations enacted by the Government for prevention of pollution.
5. Participation in government programmes relating to management of hazardous substances, clearing up of polluted
rivers, plantation of trees, and checking deforestation.
6. Arranging educational workshops and training materials to share technical information and experience with
suppliers, dealers and customers to get them actively involved in pollution control programmes.

Business Ethics
Business ethics refers to the socially determined moral principles or standards which govern business activities, e.g.,
charging fair prices from customers, using fair weights for measurement of commodities, paying taxes to the government
honestly, etc.

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Elements of Business Ethics
1. Top management commitment
2. Publication of a'Code'
3. Involving employees at all levels
4. Measuring results
5. Establishment of compliance mechanisms

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 Chapter – 7
Sources of business finance
Concept, Nature and Importance of Business Finance
Money required for carrying out business activities is called business finance.

Finance is needed for the following reasons:

1. Fixed capital requirement: In order to start business, funds are needed to purchase fixed assets like land and building,
plant and machinery, furniture, etc. This is called fixed capital requirements.
2. Working Capital requirements: A business needs funds for its day-to-day operations. This is known as working
capital requirements. Working capital is required to purchase raw materials, to meet current expenses like salaries,
wages, rent and taxes, etc.

Classification of Sources of Funds on the basis of Ownership

1. Owner's funds- funds that are provided by the owners of an enterprise, e.g. Equity shares, Preference shares,
Retained earnings, etc.
2. Borrowed funds- funds raised through loans or borrowing , e.g. Debentures and Bonds, Loan from Financial
Institutions and Banks, etc.

Sources of Owners' Funds

1. Equity shares: The money raised by issue of equity shares is known as 'equity share capital'. It represents
owner's funds.
2. Preference shares: The money raised by issue of preference shares is called 'preference share capital'.
3. Retained Earnings: The portion of company's net profits after tax and preference dividend which is not distributed as
equity dividend, but are retained for reinvestment purposes is called 'retained earnings'.
4. Global Depository Receipts (GDRs): GDR is an instrument issued abroad by an Indian company to raise funds in
some foreign currency.
5. American Depository Receipts (ADRs): The depository receipts issued by a company in the USA are known as
ADRs.
6. Indian Depository Receipts (IDRs): An IDR is an instrument denominated in Indian Rupees in the form of a
depository receipt created by an Indian Depository against the underlying equity of issuing company to enable
foreign company to raise funds from the Indian securities market.

Sources of Borrowed Funds

1. Debentures and Bonds: Debentures are an important debt instrument for raising long-term finance. They carry a
fixed rate of interest. Bonds are also debt instrument that does not carry a specific rate of interest, but issued at a
discount.
2. Loan from Financial Institutions: Examples: Industrial Finance Corporation of India (IFCI), Industrial Credit and
Investment Corporation of India (ICICI), etc.
3. Trade Credit: Trade credit is the credit extended by one trade to another for the purchase of goods and services. Trade
credit is commonly used by business organisations as a source of short-term financing. Trade credit appears in the
records of the buyer of goods as 'sundry creditors' or 'accounts payable'.
4. Inter Corporate Deposits (ICDs): Inter corporate deposits are unsecured short-term deposits made by a company
with another company. The rate of interest on these deposits is higher than that of banks.
There are three types of Inter Corporate Deposits: (i) Three month deposits (ii) Six month deposits (iii) Call deposits
5. Loan from Commercial Banks: Commercial banks extend loans to firms of all sizes and in many ways: Cash credits,
Bank overdrafts, Term loans, Purchase/discounting of bills and Issue of letter of credit.
6. Public Deposits: The deposits that are raised by organisations directly from the public are known as public deposits.
Companies generally invite public deposits for a period up to three years. Rates of interest offered on public deposits
are usually higher than that offered on bank deposits.

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 Chapter – 8
Small Business and Entrepreneurship

Small-scale Enterprises as Defined by MSMED Act, 2006 Manufacturing Enterprises

(i) Micro Enterprises— where the investment in plant and machinery does not exceed Rs.25 lakh.
(ii) Small Enterprises—where the Investment in plant and machinery is more than Rs.25 lakh but does not exceed Rs.5
crore.
(iii) Medium Enterprises— where the investment in plant and machinery is more than Rs.5 crore but does not exceed
Rs.10 crore.

Service Enterprises
(i) Micro Enterprises— where the investment in equipment does not exceed Rs.10 lakh.
(ii) Small Enterprises— where the investment in equipment is more than Rs.10 lakh but does not exceedRs.2 crore.
(iii) Medium Enterprises—where the investment in equipment is more than Rs.2 crore but does not exceed Rs.5 crore.

Role of Small Business in India

1. Output generation
2. Generation of employment
3. Supply an enormous variety of products
4. Balanced regional development
5. Provide ample opportunity entrepreneurship
6. Advantage of low cost of production
7. Quick and timely decision-making

Role of Small Business in Rural India

1. Multiple source of income
2. Mobilisation of local resources
3. Prevent migration
4. Reduction in poverty unemployment and income inequalities
5. Accelerated industrial growth and creating employment potential in rural and backward areas

Government Agencies for Small-Scale Industries (SSIs)

National Small Industries Corporation (NSIC): It supplies indigenous and imported machines and raw materials to SSIs
on easy hire-purchase schemes and exports the products of SSIs.

District Industrial Centres (DICs): They provide all the services and support facilities to the entrepreneurs for setting up
small and village industries.

Incentives offered to the small scale industries in rural, backward areas

(i) Land- Some states don't charge rent in the initial years, while some allow payment in instalments.
(ii) Power- Power is supplied at a concessional rate of 50 per cent
(iii) Water- Water is supplied on a no-profit, no-loss basis or with 50 per cent concession
(iv) Goods and Services Taxes (GST) - Small industries with less thanRs.20 lakh turnover are completely exempted.
(v) Finance- Subsidy of 10-15 per cent is given for building capital assets.

Concept of Entrepreneurship Development

Entrepreneurship is defined as a systematic, purposeful and creative activity of identifying a need, mobilising resources
anc organising production with a view to delivering value to the customers, returns for the investors and profits for the self
ir accordance with the risks and uncertainties associated with business.

Characteristics of Entrepreneurship
1. Systematic Activity
2. Lawful and Purposeful Activity
3. Innovation
4. Organisation of Production
5. Risk-taking
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Need for Entrepreneurship
The need for entrepreneurship arises from the functions the entrepreneurs perform in relation to the process of economic
development and in relation to the business enterprise.
1. Contribution to GDP
2. Capital Formation
3. Generation of Employment
4. Generation of Business Opportunities for Others
5. Improvement in Economic Efficiency
6. Increasing the Spectrum and Scope of Economic Activities

Process Of Entrepreneurship Development

Opportunity Scouting: Entrepreneurial opportunities have to be actively searched for. One may rely on personal
observation, discovery or invention.

Identification of Specific Product Offering: While the environment scan leads to the discovery of more generalised
business opportunities, there is a need to identify a specific product or service idea.

Feasibility Analysis: The product offering idea must be technically feasible, that is it should be possible with the available
technology to convert the idea into a reality. The idea must be financially viable as well.

Startup India Scheme

As per the notification dated February 17, 2017, issued by the Ministry of Commerce and Industry, a startup means:
(i) An entity incorporated or registered in India.
(ii) Not older than five years.
(iii) Annual turnover does not exceed Rs.25 crore in any preceding year.
(iv) Working towards innovation, development or commercialisation of products/service/processes driven by
technology or Intellectual Property Rights (IPRs) and patent.

Ways to fund startup

1. Boot Strapping
2. Crowd funding
3. Angel Investment
4. Venture capital
5. Business Incubators and Accelerators
6. Micro finance and NFBCs

Intellectual Property Rights (IPR)

Legal rights conferred on products (such as inventions, books, paintings, songs, symbols, names, images, or designs used in
business, etc)are called 'Intellectual Property Rights' (IPR).
Intellectual property is divided into two board categories:

(i) Industrial property, which includes inventions (patents), trademarks, industrial designs and geographical
indications.
(ii) Copyrights, which includes literary and artistic works, such as novels, poems, plays, films, musical works, artistic
works, such as drawings, paintings, photographs and sculptures and architectural designs.

Why is IPR Important?

1. It encourages creation of new, path breaking inventions, such as cancer cure medicines. It incentivises inventors,
authors, creators, etc., for their work.
2. It allows the work created by a person to be distributed and communicated to the public only with his/her
permission. Therefore, it helps in the prevention of loss of income.
3. It helps authors, creators, developers and owners to get recognition for their works.

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Types of Intellectual Property Rights (IPR)
1. Copyright: Copyright is the right to "not copy". It is offered when an original idea is expressed by the creator or
author. Copyright is a right conferred upon the creators of literary, artistic, musical, sound recording and
cinematographic film.
2. Trademark: A trademark is any word, name, or symbol (or their combination) that lets us identify the goods made
by an individual, company, organization, etc.
3. Geographical Indication (Gl): A Geographical Indication (Gl) is primarily an indication which identifies
agricultural, natural or manufactured products (handicrafts, industrial goods and food stuffs) originating from a
definite geographical territory, where a given quality, reputation or other characteristic are essentially attributable to
its geographical origin.
4. Patent: A patent is a type of IPR which protects the scientific inventions (products and or process) which shows
technical advancement over the already known products.
The purpose of patent is to encourage innovation in the scientific field. A patent grants exclusive rights to the
inventor for a period of 20 years, during which anybody else who wishes to use the patented subject-matter needs to
seek permission from the patentee, by paying certain costs for the commercial use of such an invention. This process
of seeking exclusive rights of the patentee for a fee is called Licensing.
5. Design: A 'design' includes shape, pattern, and arrangement of lines or colour combination that is applied to any
article.
6. Plant Variety: Plant Variety is essentially grouping plants into categories based on their botanical characteristics.

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 Chapter – 9
Internal trade
Internal trade
Buying and selling of goods and services within the boundaries of a nation are referred to as internal trade. No custom
duties or import duties are levied on such trade as goods are part of domestic production and are meant for domestic
consumption.

Types of Internal trade

Internal trade can be categorised into two broad categories (i) wholesale trade; and (ii) retailing trade.

Wholesale trade: Purchase and sale of goods and services in large quantities for the purposes of resale or intermediate use
is referred to as wholesale trade. Wholesalers perform a number of functions in the process of distribution of goods and
services and provide valuable services to manufacturers and retailers.

Retail trade: A retailer is a business enterprise that is engaged in the sale of goods and services directly to the ultimate
consumers.

Services of wholesalers
Wholesalers are an important link between manufacturers and retailers. They add value by creating time and place utility.

Services of manufacturers: The services provided by wholesalers to manufacturers include

(i) facilitating large scale production;
(ii) bearing risk;
(iii) providing financial assistance;
(iv) expert advice;
(v) help in marketing function;
(vi) facilitating continuity; and
(vii) storage.

Services to retailers: The services provided by wholesalers to retailers include

(i) availability of goods
(ii) marketing support
(iii) grant of credit
(iv) specialised knowledge
(v) risk sharing

Services of retailers
Retailers are an important link between the producers and final consumers. They provide useful service to consumers
wholesalers and manufacturers in the distribution of products and services.

Services to manufacturers/wholesalers: Different services provided by retailers to wholesalers and manufacturers include
(i) helping distribution of goods;
(ii) personal selling;
(iii) enabling large scale operations;
(iv) collecting market information; and
(v) help in promotion of goods and services.

Services to consumers: The different services provided by retailers to consumers include

(i) regular availability of products
(ii) new product information
(iii) convenience of buying
(iv) trade selection
(v) after sales services and
(vi) providing credit facilities.

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Types of retail trade
Retail trade can be classified into different types according to their size, type of ownership, on the basis of merchandise
handled and whether they have fixed place of business or not.
Retailers can be categorised as (i) itinerant retailers; and (ii) fixed shop retailers.

Itinerant retailers: Itinerant retailers are traders who don't have a fixed place of business to operate from. They are small
traders operating with limited resources who keep on moving with their wares from street to street or place to place in
search of customers. The major types of such retailers are:

(i) Peddlers and hawkers: They are small producers or petty traders who carry the products on a bicycle or handcart or
on their heads and move from place to place, to sell their goods at the doorstep of the customers.
(ii) Market traders: Market traders are small retailers who open their shops at different places on fixed days/dates,
catering mainly to lower income group of customers and dealing in low priced consumer items of daily use.
(iii) Street traders: Street traders are the small retailers who are commonly found at places where huge floating
population gathers.
(iv) Cheap jacks: Cheap jacks are those petty retailers who have independent shops of a temporary nature in a business
location. They deal in consumer items and provide services to consumers in terms of making the products available
where needed.

Fixed shop retailers

On the basis of size of operations, (fixed shop retailers can be classified as a) small shopkeepers and (b) large retailers.

Fixed shop small retailers

(i) General stores: General stores carry stock of a variety of products such as grocery items, soft drinks, toiletry
products, confectionery, and stationery, needed to satisfy day-to-day needs of consumers, residing in nearby
localities.
(ii) Speciality shops: Speciality shops specialise in the sale of specific line of products such as children's garments, men's
wear, ladies shoes, school uniform, college books or consumer electronic goods, etc.,
(iii) Street stall holders: These small vendors are commonly found at street crossing or other places where flow of traffic
is heavy and deal mainly in goods of cheap variety like hosiery products, toys, cigarettes, soft drinks, etc.
(iv) Second hand goods shoo: These shops deals in second hand or used goods of different kinds like furniture, books,
clothes and other household articles which are sold at lower prices.

Fixed shop large stores: In fixed shop large stores, the volume and variety of goods stocked is large.

Examples:
(i) Departmental stores
(ii) Chain stores or multiple shops

Departmental stores
A departmental store is a large establishment offering a wide variety of products, classified into well-designed
departments, aimed
at satisfying practically every customer's need under one roof.

Advantages:
(a) attracts large number of customers
(b) convenience in buying
(c) attractive services
(d) economy of large scale operation
(e) promotion of sales

Chain stores or multiple shops

These shops are networks of retail shops that are owned and operated by manufacturers or intermediaries dealing in
standardised and branded consumer products having rapid sales turnover.

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Advantages:
(a) economies of scale
(b) elimination of middlemen
(c) no bad debts
(d) transfer of goods
(e) diffusion of risk
(e) low cost
(f) flexibility

Mail order houses

Mail order houses are retail outlets that sell their merchandise through mail, without any direct personal contact with the
buyers.

Advantages:
(a) limited capital requirements
(b) elimination of middlemen
(c) absence of bad debts
(d) wide reach
(e) convenience

GST (Goods and Services Tax): Concept and Key Features

GST is a destination-based single tax on the supply of goods and services from the manufacturer to the consumer, and has
replaced multiple indirect taxes levied by the Central and the State governments, thereby, converting the country into a
unified market.

Among other benefits, GST is expected to improve the ease of doing business in tax compliance, reduce the tax burden by
eliminating tax-on-tax, improve tax administration, mitigate tax evasion, broaden the organised segment of the economy
and boost tax revenues. The GST has replaced 17 indirect taxes (8 Central + 9 State levels) and 23 cesses of the Centre and
the States.

GST comprises Central GST (CGST) and the State GST (SGST), subsuming levies previously charged by the Central and the
State governments respectively.

Key Features of GST

1. The territorial spread of GST is the whole country, including Jammu and Kashmir.
2. GST is applicable on the 'supply' of goods or services.
3. It is based on the principle of destination-based consumption tax.
4. Import of goods and services is treated as inter-State supplies and would be subject to IGST in addition to the
applicable customs duties.
5. CGST, SGST and IGST are levied at rates mutually agreed upon by the Centre and the States.
6. There are five tax slabs namely 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent for all goods or services.
7. Exports and supplies to Special Economic Zones (SEZ )are zero-rated.
8. There are various modes of payment of tax available to the taxpayer, including Internet banking, debit/credit card
and National Electronic Funds Transfer (NEFT)/Real Time Gross Settlement (RTGS).

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 Chapter – 10
International business

International Trade: Concept and Benefits

International trade comprises exports and imports of merchandise (goods) only. It is also called 'visible trade' because
goods are tangible. Items of visible trade include machinery, electronic goods, gold and silver, chemicals, etc.

Benefits to Nations
1. Earning of foreign exchange
2. More efficient use of resources
3. Improving growth prospects and employment potentials
4. Increased standard of living Benefits to Business Firms

1. Prospects for higher profits

2. Increased capacity utilisation
3. Way out to intense competition in domestic market
4. Prospects for growth
5. Improved business vision International vs. Domestic Business

Conducting and managing international business operations is more complex than undertaking domestic business.
Differences in the nationality of parties involved, relatively less mobility of factors of production, customer heterogeneity
across markets, variations in business practices and political systems, varied business regulations and policies, and use of
different currencies are the key aspects that differentiate international businesses from domestic business. These, moreover,
are the factors that make international business much more complex and a difficult activity.

Export Trade: Meaning and Procedure

In international trade, 'export trade' refers to selling goods and services produced in the home country to other markets
abroad. Steps involved in export procedure
1. Receipt of enquiry and sending quotations
2. Receipt of order or indent
3. Assessing importer's credit-worthiness and securing a guarantee for payments
4. Obtaining export licence
5. Obtaining pre-shipment finance
6. Production or procurement of goods
7. Pre-shipment inspection
8. Excise clearance
9. Obtaining certificate of origin
10. Reservation of shipping space
11. Packing and forwarding
12. Insurance of goods
13. Customs clearance
14. Obtaining mate's receipt
15. Preparation of invoice
16. Payment of freight and issuance of bill of lading
17. Securing payment

The starting point in an export transaction is the receipt of an enquiry from the overseas buyer. In response, the exporter
prepares an export quotation — called proforma invoice, giving out details about the export goods and the terms and
conditions of export. In case, the importer finds the quotation acceptable, he/she places an order or indent and gets a letter
of credit issued from his/her bank to the exporter. The exporter then proceeds with the formalities related to obtaining an
export licence from the Director General of Foreign Trade and getting a registration-cum-membership certificate from the
export promotion council looking after the export of the concerned product. In case, the exporter requires funds, he/she
can avail of pre-shipment finance from a bank. The exporter then proceeds with the production or procurement of the
goods and gets them inspected from Export Inspection Council. If required by the importer, the exporter approaches the
foreign consulate for obtaining the certificate of origin to enable the importer to claim tariff of quota concessions at the time
of clearance of cargo at the import destination. The exporter, then, makes arrangement, for reserving space on the ship and
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insuring goods against transit perils. After obtaining the excise clearance, goods are sent to the concerned port for customs
clearance. Since customs clearance is a tedious process, exporters often employ C&F agents for availing their services in
preparation of various customs documents and getting the goods customs cleared.

After customs clearance and payment of dock charges to the port authorities and freight charges to the shipping company,
goods are loaded on the ship. The captain of the ship issues a mate's receipt. This mate's receipt is submitted to the
shipping company's office for the payment of freight. After receiving the freight charges, the shipping company issues a
bill of lading, which is a document of contract relating to shipment of the goods by the shipping company. Once the goods
are dispatched, the exporter prepares an invoice and sends the necessary documents, such as certified copy of invoice, bill
of lading, packing list, insurance policy, certificate of origin, letter of credit and bill of exchange to the importer through
his/her bank to release a certificate of payment. Certificate of payment document that certifies that the export transaction is
over and the payment has been received.

Import Trade: Meaning and Procedure

In international trade, 'import trade' refers to buying goods and services from another country.
Steps involved in import procedure

1. Trade enquiry
2. Procurement of import licenceand obtaining an IEC number
3. Obtaining foreign exchange
4. Placing order or indent
5. Obtaining letter of credit
6. Arranging for finance
7. Receipt of shipment advice
8. Retirement of import documents
9. Arrival of goods
10. Customs clearance and release of goods

The procedure to import is also beset with several formalities. The process starts with a search for export firms and making
a trade enquiry about the product, its price and terms and conditions of exports. Having selected an export firm, the
importer asks the exporter to send him/her a formal quotation called proforma invoice. The importer, then, proceeds to
obtain the import licence, if required, from the office of the Directorate General Foreign Trade (DGFT) or Regional Import
Export Licensing Authority. The importer also applies for the Import Export Code (IEC) number. This number is required
to be mentioned on most of the import documents. Since payment for imports requires foreign currency, the importer has
to send an application to a bank authorised for sanction of the necessary foreign exchange.

After obtaining an import licence, the importer places an import order or indent with the exporter for supply of the
specified products. If required as per the terms of contract, the importer arranges for the issuance of a letter of credit to the
exporter from the bank. Having shipped the goods under shipment advice to the importer, the exporter sends a set of
necessary documents containing bill of exchange, commercial invoice, bill of lading/airway bill, packing list, certificate of
origin, marine insurance policy, etc., to enable the importer claim title to the goods on their arrival at the port of
destination. The exporter sends these documents through his/her bank to the importer. The bank presents these
documents to the importer and after obtaining his/her acceptance of the bill of exchange, delivers the documents to the
importer. After the arrival of the goods in the importing country, the person in charge of the carrier (ship or airway)
prepares import general manifest to inform the officer in charge at the dock or the airport that the goods have reached the
ports of the importing country. The importer or his/her C&F agent pays the freight (if not already paid by exporter) to the
shipping company and obtains delivery order from it which entities the importer to take the delivery of the goods at the
port. At this time, port dock dues are also paid and a port trust dues receipt is obtained. The importer, then, fills in a form
'bill of entry' for assessment of customs import duty. After the payment of the import duty, the bill of entry has to be
presented to the dock superintendent for physical examination of the goods. The examiner gives his report on the bill of
entry. The importer or his agent presents the bill of entry to the port authority for issuance of the release order.

Documents Involved In International Trade

1. Indent: It is a document for placing an export or import order, which contains a description of the goods ordered,
prices to be paid, delivery terms, packing and marking details and delivery instructions.
2. Letter of Credit: A letter of credit is a guarantee issued by the importer's bank that it will honour payment up to a
certain amount of export bills to the bank of the exporter.
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3. Shipping Order: A shipping order is an instruction to the captain of the ship that the specified goods, after their
customs clearance at a designated port, be received on board.
4. Shipping Bills: Shipping bill is the main document on the basis of which the customs office gives the permission for
export.
5. Mate's Receipt: A mate's receipt is a receipt issued by the captain/ commanding officer of the ship (called 'mate')
when the cargo (i.e., the goods) is loaded on the ship.

WTO: Meaning and Objectives

WTO was set up on 1st January, 1995, replacing the General Agreement on Tariffs and Trade (GATT). It supervises and
liberalises international trade by reducing trade barriers including tariffs and eliminating discriminations in international
trade relations. It helps promote international peace by solving trade problems between countries.

Objectives
(a) To ensure reduction of tariffs and other trade barriers imposed by different countries.
(b) To engage in such activities which improve the standards of living, create employment, increase income and effective
demand and facilitate higher production and trade.
(c) To facilitate the optimal use of the world's resources for sustainable development.
(d) To promote an integrated, more viable and durable trading system.

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