Cbse 1ST Yr B. Study

1ST CHAPTER
Q-1) What are the objectives of a business?

The objectives of a business may be discussed under the following heads
(A) Economic objectives

(B) Human objectives
(C) Social objectives
(A)Economics Objectives
Following are the economic objectives of a business.
(i)Profit earning:-
The first and the foremost object of a business is to earn profit .without profit no
business organization can survive .A business needs profit not only for its existence but also
for expansion and diversification .
(ii)Production of goods:-
The profit can be earned only when some exchange of goods and services take
place. So the next objective of a business is to produce goods and sell them to the consumers. For
this purpose the producer should consider the following things
(a)Demand of consumers
(b)Tastes and fashion of consumers
(c)Paying capacity of consumers
(iii) Creating markets:-
Market refers to a place where there are many buyers and sellers are gathered
to purchase and sell the goods and services .Marketing covers all those activities which relate to
the creation of time utility, place utility and possession utility .So it is the object of a business to
create market to sell its products in order to earn profit.
(iv)Technological movements:-
A business should always strive to use latest methods of production. In the

present world of cut –throat competitions, everybody tries to sell his product by offering good
quality products at cheaper rate .So; in order to earn better profit business has to follow latest
methods and technology of production.
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O’BRAIN …born to educate RASULGARH, BBSR
(B)Human objectives
Following are the human objectives of a business
(i)Welfare of employees:-
The employees of a business organization help in increasing the profit ability.

So, they should be motivated and rewarded. The businessman should look after the welfare of his
workers .They should be provided both monetary and non-monetary benefits.
(ii)Satisfaction of consumers:-
It is the object of a business to provide quality goods at cheaper rate to

its consumers .It should consider the tastes, fashion and paying capacity of the customers. In no
way the business should try to cheat its customers.
(iii)Satisfaction of shareholder:-
In the present business world , ownership and management are in

separate from each other .Shareholders are spread all over the country and do not participate in
the management of the business .Shareholders are the real owners of a company ,who invests
money in the business .so, it is the object of a business to provide return on their investment .
(iv)Helpful to government:-
A business owes responsibility towards Govt. .It is the government who solves
all the industrial problems .Again it provides both monetary and non-monetary help to a business
.So, it is the duty of the business to pay various taxes to the government honestly and promptly.
(C) Social Objectives
Following are the social objectives of a business.
(i)Availability of goods:-
The business should supply quality goods at accordingly to the demand of the
society. The business should estimate the total demand for various commodities and adjust the
production accordingly .It is because if the supply of goods increase , the goods demanded , then
the price of the product will be low and vice –versa .
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(ii)Supply of quality goods:-
It is the responsibility of the business to supply quality goods and services to the consumers at a
reasonable price. The supply of adulterated goods, poor in quality, harmful to health will be
against business ethics and principles .A business cannot run for a long period if it ignores
consumers.
(iii) Co-operation with the Govt.:-
A business should cooperate with the Govt. in order to achieve the object of
socialistic pattern of society .From time to time Govt. formulate various rules and regulations
to which a business has to obey .With the joining hands of both government and business , our
society can be developed .It is the Govt. which is not responsible but also a business for a
developed society .So, the business has to cooperate with the government .
(iv)Creation of more employment:-
A business can help the society by creating more and more job opportunities.
Many persons are required at various labels in the channels of distribution from producers to the
consumers. As per survey more than 50% of total employment is in the area of business .
(v)Proper utilization of natural resources:-
A business utilizes natural resources properly .Wastages of anything will not

only be a loss of the enterprise but it will be a natural loss. By utilizing the methods of improved
technology a business extracts natural resources and converts them into finished goods.
Q-2 What are the requisites of a successful business ?

Following are the various requisites of a successful business
(i) Settings Objectives:-

Before starting the business it is the function of the management to define the
objectives of the business .It means what is to be done? How it is to be done? When it is to be
done? etc. are to be decided .If it is a manufacturing concern ,the nature of the product to be
produced , whether to produce the whole of the product or part of it ,it should be decided .
Similarly if it is a trading business, the nature and type of services to be decided .Without
defining the objects it is not possible achieve the common goal.
(ii) Proper Planning:-
After the determination of the objectives, the management should make a plan.
Planning means thinking before doing. It involves forecasting the future course of
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action .Planning is made after taking into consideration the present and future situation. In the
procedure of planning the future estimation regarding the expenses, losses, gains, income,
production and sells etc. are decided
(iii) Sound Organization:-
Organization refers to the determination process of total activities ,division of the total activities
into small parts ,their distribution among the employees by delegation of authority and
responsibility, investigating that all the activities are performed or not to achieve the common
goal .In a sound organization first of all the total activities of the business are determined and
then they are divided into small parts and these parts are allocated among the employees
according to their skill and knowledge .The employees are delegated authority to perform their
functions effectively and efficiently .Thus ,without a sound organization no business can
achieve its common objectives.
(iv)Proper Financial Planning:-
The requirements of finance and its possible sources should be decided at the
time of starting the enterprise. For this purpose a sound financial plan should be decided. A
financial plan determine the followings
i) The needs of the capital
ii) Sources of collecting the funds
iii) Proper utilization of capital / Administration of capital structure
A proper financial plan is necessary for providing funds for the present needs and future
development plans. Usually a business collects its funds from issue of equity shares, preference
shares, debentures, bank loan, friends and relatives.
(v) Location and layout of plant:-
It is one of the important decisions to be made by the management is regarding

the location of the plant .The plant should be located at a place where all factors of production
( land , labour ,capital ,organization) are available at lowest cost .After deciding about the
location ,a decision is made about the layout of the plant .Layout refers to the process of
arrangement of machinery , furniture and equipments in such a manner that proper utilization of
the available space can be obtained .Proper location and layout of the business are necessary for
its success.
(vi) Marketing System:-
The marketing aspect of a business is more important than even

production .Without marketing no business can sell its product and its production will be useless.
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So, the management should decide the system of marketing. In the present world there are
various methods of marketing like sells through wholesaler, net marketing, mobile marketing,
online marketing, door to door marketing.
(vii) Research:-
Change is the essence of human being .In the changing technological world, it is
essential to use the latest devices for production and marketing of goods .Again the business has
to produce the goods as per the tastes and fashions of consumers. So, research and development
should be given due place in the business .One can compete with the changing business world
only through research programmes. Thus, research activities are necessary for the success of an
enterprise.
(v) Dynamic Leadership:-
The success of any business organization depends upon the efficiency of its
management. There are various functions to be performed like planning, organizing, directing,
controlling, staffing and co-ordinating .These functions can only be performed if there is a
dynamic leadership. Again the leader should possess the required qualities of a successful leader.
Q-3) What are the qualities of a successful businessman?

A successful businessman should have the following qualities
(i) Knowledge of business:-
A good businessman should have a thorough knowledge about his business

which includes the following
(a) Objects of the business
(b) Availability of factors of production
(c) Capacity utilization
(d) Market demand of his product
(e) Process of production
(f) System of marketing
(g) Capital structure etc.
Along with the above he must have knowledge of trade, finance, laws , Govt. policy
etc.
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(ii) Impressive Personality:-
Personality refers to various qualities and talents which are necessary for making
a businessman successful. He should be able to impress people, motivate and guide them to
ensure a proper co-ordination. He should avoid bad manners and short temper, which have an
adverse impact on the whole organization. After all he should be a man of perfect equanimity
mind.
(iii) Hard Work:-
There is no substitute for hard work. Success and hard work are go together .Every hard work
has a reward itself, it never goes useless. So, a business man should be hard working so that he
can motivate others to work hard with the same zeal.
(iv) Co-operative:-
A businessman requires co-operation from other employees to solve various

complex business problems .So, he should co-operate with others. Proper direction, guide,
control, motivation with pleasing personality can ensure various co-operation from various
persons and departments.
(v) Courageous:-
A business man has to satisfy consumers, employees and Govt. by considering

their demands .He has to reconcile various interest .For this purpose a business man should be a
courageous .One with better foresightness. Only that person will be successful who will have the
capacity to face difficulties with a smiling face.
(vi) Decision making:-
Everyday a business has to tackle many problems and to take difficult decision
too. Therefore, he should have the ability to decide things properly and in time. He should take
initiative in tackling various problems as a challenge.
(vii) Cordial relations with employees and customers:-
Customers and employees are an integral part of the business .So a

businessman should try to understand their likings and disliking. He should also try to
understand the difficulties of his employees. Cordial relation with employees and customers help
in building up goodwill for the business.
(viii) Honesty:-
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Honesty is one of the most essential qualities of a businessman. He should be honest with his
dealings with others, rather than a cheater .If a businessman makes any fraud and falsification, he
will not able to retain the customers for long.
In this context he should remember the following -
“You can make fool one person for all time
You can make fool some person for sometime
But you cannot make fool all the people for all the time’’
(ix) Assumption of responsibility:-
A businessman should assume responsibilities of various activities of his sub

ordinates. As a leader he exercises all authority and responsibility on others .This quality will
give confidence to the employees to work hard.
(x) Disciplinarian:-
Discipline is an essential trait in the personality of successful businessman. No

organization work without discipline .A businessman should be disciplined at first and then he
can expect the others to be disciplined .For this purpose he should follow various rules and
regulations strictly.
(xi) Adaptability:-
A businessman should be able to adjust according to the situations. He should

face new challenges with courage without losing heart. He must have the quality to adjust any
changes that may be made in the future .The changing business world demands dynamism in the
business man.
Q-4) What is commerce? Discuss its various branches.

Commerce refers all those activities which are necessary to bring
goods and services from the original place to the place of their consumption .Generally trade and
commerce are taken as synonymous words .While trade Involves buying and selling of
goods ,commerce has a wider meaning .Commerce includes trade and aids to trade .The aids to
trade includes banking ,insurance ,ware housing ,advertising and salesmanship . These factors
makes possible in taking goods from one place to another .Thus,
Commerce=Trade + Aids to trade
Following are the characteristics of commerce
(i) It deals with economic activities:-
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The activities which are related with the production and distribution of goods
and services are called economic activities .Such economic activities are taken off with a motive
to earn profit .Commerce deals with those activities which are undertaken for profit .Hence,
commerce deals with economic activities.
(ii)Exchange of goods and services:-
Commerce involves an exchange of goods and services for profit .Here the
term refers to purchase and sell of goods. Thus, commerce does not involve exchange of goods
and services without profit. Example, if anybody else distribute some goods to poor people it
cannot be treated as commerce.
(iii) Earning Motive:-
The main motive of commercial activities to earn profit So, earning motive
must be present in an activity to be termed as commerce .Thus, if a trader gives some goods as
charity it will not be a part of commerce.
(iv) Creation of utility:-
Commerce creates place and time utility in goods. The goods which are produced may be needed
at different places .Transportation facilities helps in creating place utility in goods. Similarly it is
not possible to a producer to produce products whenever they are demanded. Thus, the goods are
to be stored up to the time of their demand .Thus, warehousing provides time utility by keeping
the stores.
(v) Regulating of transaction:-
The transactions must be continuous in nature. So, an isolated transaction cannot be a

part of commerce. Example: a man must sold his old motor bike for the exchange of a new one,
cannot be treated as commerce. But if the same motor bike is sold by a motor bike company it
will be treated as commerce.
Branches of commerce
Following are the various branches of commerce:
(i) Trade:-
Trade refers to all those activities which are concerned with the production and
distribution of goods and services. Thus, trade is a process of purchasing goods and services and
selling them to those who need them .So, trade is a branch of commerce.
(iii) Transportation:-
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Usually in a business the goods are taken from a place where there is less demand to the places
where there is more demand. Transportation creates place utility and increase the profitability of
a business .Thus, transportation is a branch of commerce.
(iii) Distribution:-
In the present world, the consumers are in millions and it is a difficult matter for the
producer to keep a direct contact with the customers .As a results a chain of middle men acts
between the producers and consumers .The middlemen purchase the goods from the producer
and take them to the consumers .Such middlemen are wholesalers, retailers, agents etc.
(iv) Banking:
There is always a time gap between production and sell of goods .Again it takes time to
collects money after sell .So, there is a need of finance trade activities which can be solved with
the help of banks. Thus, banking is an essential part of commerce.
(V) Warehousing:-
Usually in a business goods are produced in anticipation of demand .They may also be
produced at a time when they are not needed .So , there is a need to store the goods up to the
time of consumption . This type of problem can be solve with the help of warehousing .In a
warehouse the goods are stored during the slack season and goods are supplied at the time of
heavy demand .So ,warehouse is a branch of commerce.
(vi) Advertisement and salesmanship:-
The consumers may not be aware of the availability of various goods of the
market .The absence of information regarding the goods is a big problem, which can be solved
through advertisement and salesmanship. It is the advertisement and sales man who can give
relevant information regarding the various products to the consumers.
(vii) Insurance:-
There may be a risk in transporting goods from one place to another .Again there can
be a risk due to such uncertainties can be overcame by insurance .It is because the insurance
companies provide a coverage for all type of losses .
(viii) Communication:-
There should be a perfect communicative system between the buyers and sellers. It is
because , the producers have to intimate to their customers about the production of goods and the
customers have to send orders to the sellers .This communication can be made with the help of
post office , telephones ,telegraph office etc.
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Q-5) What is business ? Discuss the various characteristics of
business.
Highlighting various aspects the term ‘Business, has been define by different author in
different ways.
According to wheeler ‘’ Business is an institution organized and operated to provide

goods and services to the society under the incentive of private gain ‘’.
According to M.C. Naughton the term business means goods and service s or money for
mutual benefit.
According to L.H Haney Business may be defined as human activities directed

towards providing or acquiring wealth through buying and selling of goods.
From the above definitions a business is an economic institution which is organized and
operated to earn money through the production and distribution of goods and services.
CHARACTERISTICS
Following are the various characteristics of a business.
(i) Creation of utilities:-
A business creates utilities in goods and services and delivers them to the buyer’s .At first the
business buys raw materials and then converts them into finished goods. In this way a business
creates utilities in different goods.
(ii) Goods or services:-
A business deals with goods or services. The goods may be consumers goods or
producers goods .Consumers goods refers to those goods which are consumed by the consumers
at a regular interval .On the otherhand the goods having reproductive capacity are known as
producers goods .Again the business also deals with various types of services like
banking ,insurance , transport, warehousing. Etc.
(iv) Continuity in dealings:-

To be treated as a business, an organization has to continue for a long period.
Thus, an isolated transaction does not become a business.
(v) Sale, Transfer or Exchange:-
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The sale ,transfer or exchange of goods and services is the basic characteristics of a
business .Purchase of goods and services for personal consumption is not a business activity .The
purchase of goods by a retailer is business because he is purchasing goods to sale them to the
consumers .
(vi) Profit Motive:-

The main object of a business organization is to earn profit . A business can not
survive for a long if it does not earn profits. Profits are not only required for survival but also for
expansion and diversification.
(vii) Element of Risk:-

Risk implies the chance of loss. Risks and uncertainty are prevalent in every business.
Now a days the various uncertainty are change in demand, strike by employees, floods, war.
However risk and uncertainty keeps a businessman vigilant.
(viii) Economic Activities:-
The activities which are related to the production and distribution of goods and
services are called economic activities. A business deals with economic activities. Any activity
undertaken without a profit motive is not an economic activity and it is not a part of business.
Q-6) What is industry? Discuss its various types.

Industry is consult with the making and manufacturing of goods .It creates form utility
to goods by converting raw material into finished products.
Types of industry:-
Following are various types of industry
(i) Genetic Industry:-
Genetic industry is consult with the reproduction and multiplication of certain species
of animals and plants with a view to earn profit .Example, nurseries, cattle breeding, fish
hatcheries poultry farms etc.
(ii) Extractive Industry:-
The extractive industry is one which extracts wealth from the soil, climate, air, water etc
Example mining, agriculture.
(iii) Construction industry:-
The construction industry is one which is engaged is engaged in construction and

erection of products. Ex. Industry is engaged with construction of buildings, roads, dams,
bridges, canals.
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(iv) Manufacturing Industry:-
An industry which is engaged in converting the raw material into finished products is
known as manufacturing industry. Ex. TATA company, M.R.F. Tyres
etc.
(v) Analytical Industry:-
An analytical industry is one where products is analysed and many products are
received as final products .Ex. by processing of crude oil kerosene, petrol, diesel and gas.
(VI) Processing Industry:-
Processing industry is one where a product passes through various processes to become
a final product .Ex. Cotton Textiles where cotton passes through ginning, weaving and dying
process to become cloth.
(vi) Synthetic Industry:-
Synthetic industry is one where many raw materials are brought together in
manufacturing process to make a final product .Ex. Ultra-tech cement company where rocks,
gypsums, coal etc. are required for manufacturing cement.
(vii)Large Scale Industry:-
An industry which invests more than one crore is treated as a large scale industry.
Ex. Reliance, Britannia, Pepsi etc.
(viii) Small Scale Industry:-
An industry which invests less than 1 crore on its fixed assets is treated as small
scale industry.
(ix) Heavy Industry:-
This type of industries is engaged in the production of machinery, steel, power

generation, etc. Ex. TATA steel, TATA Company etc.
(x) Light Industry:-
Industries which produce consumer goods are called light industry. There
production technology is simple.
Ex. Tajmahal Tea, Britannia Biscuits, Haldiram mixtures etc.
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Q-7) ‘Business organization is a study of business activities’. Justify.
The business is an activity which is primarily pursued with the

object of earning profits. A business activity involves production, exchange of goods and
services to earn profits or earn a living. All human activities are directed towards satisfying
human wants. Depending upon the nature of wants, human activities may be categorized as
economic and non-economic. Economic activities are undertaken to create utilities. Non-
economic activities do not have motive to earn profit and these primarily tend to satisfy social,
religious or cultural and sentimental requirements of human beings. The term ‘business’ includes
all those activities, which indirectly help in the production and exchange of goods such as
transport, insurance, banking, and warehousing, etc.
The various forms of business organization may be written as: sole trading concern, partnership
firm, joint Hindu family, Joint Stock Company, cooperative society, departmental organization,
public corporation, government company type of organization and broad organization. Business
activity may be called an organization and systematized activity for profit. It is a single isolated
transaction of sale and purchase, which will not constitute business.
Business activities may be classified under two categories, such as, industry and commerce
including trade. Industry is concerned with the production of goods and commerce is mainly
concerned with the distribution of goods. The further subdivision of industry is trade. The
Broadway features of industry are extractive, genetic industry, construction industry,
manufacturing industry, analytical industry, synthetic industry, processing industry, assembly
industry business. So far commerce is concerned it is broadly divided into two, such as, trade and
auxiliaries to trade and internal trade and international trade. International trade is divided into
imports trade, exports trade, and enterpot trade where as internal trade is divided into wholesale
trading system and retail trading system. So far as auxiliaries to trade is concerned, it is divided
into transportation, warehousing, banking, insurance, advertising, packaging and marketing.
Industry refers to that part of the business activity, which concerns itself with the raising,
production or processing of products. The products of an industry may be classified into
consumer goods and producer goods. Cloths, pens manufactured by an enterprise are consumer
goods. Producer goods are the products of an industry which are used for further fabrication into
variety of articles, such as, machines, tools and machinery. The producer goods are known as
capital goods.
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TYPES OF INDUSTRY:
Industries are classified into four distinct types such as, extractive industries, genetic industries,
construction industries, and manufacturing industries.
EXTRACTIVE INDUSTRY: -
These industries are engaged in the supply of commodities which are extracted and raised from
the water or soil. They include mining, fishing, and hunting which involve no application of
skills.
GENETIC INDUSTRIES: -
These industries are engaged in the reproducing and multiplying certain species of plants and
animals with the object of earning profits from their sales. Examples of this type of industries are
nurseries, multiplying and selling plants, cattle breeding farms, poultry breeding farms and
forestry.
CONSTRUCTIVE INDUSTRIES:-
These industries are concerned with making or constructing of building, roads, dams, etc. The
process of laying out fittings and connecting materials which have been already prepared is
involved in this type of industry.
MANUFACTURING INDUSTRY:-
These industries are engaged in the conversion of raw materials or semi finished products into
finished products and are called manufacturing industries. Textile mill industry is an example of
this type which converts raw cotton into yarn and yarns into fine clothing.
Manufacturing industries may be classified into continuous and assembly industries. A

continuous industry may be either analytical or synthetical. Similarly an assembly industry may
either be classified with similar components or with dissimilar components.
TRADE
The term ‘trade’ is the final state of business activity and involves the sale and
purchase of products. It is to facilitate the transport of goods from the seller to the buyer that all
the other activities are undertaken.
TYPES OF TRADE
Trade may be classified as internal trade, import trade, and export trade.
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 Internal trade –
Home trade or internal trace refers to the trade carried on within the boundaries of one country
with the object of ensuring equitable distribution of goods within the same country.
 Wholesale trade –
Wholesale trade refers to the sale of particular type of goods on a large scale by the dealer who
are called wholesalers.
 Retail trade –
Retail trade refers to the sale of variety of goods in small quantities to the ultimate consumers by
the dealers who are called retailers. The retailers establish contacts with the consumers and
render an efficient service to satisfy them.
 External trade –
Foreign or external trade refers to the trade between countries of the world. In the modern days
countries are no more dependent. External trade paved the way for the establishment of better
and closer understanding and relationship between the different foreign countries.
 Import trade -
It refers to the obtaining of goods from other countries of the world, either because such goods
are not available at home or because there are available at high prices.
 Export trade –
It refers to the forwarding of goods to other countries of the world either because they are scarce
in those countries there are available at high prices.
COMMERCE
The process of buying and selling all the activities which facilitate
trade, such as, grading, packing, transporting, financing, etc. is called commerce. The main
function of commerce is to remove the hindrance of persons, place, time, exchange and
information in connection with the distribution of product until they reach the consumers. By
removing this hindrance, commerce ensures a free and smooth flow of goods from producers to
consumers.
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CHAPTER-II
Q-8) Who is a sole trader? Discuss its various characteristics .

A sole trader is a person who starts a business with his own resources , manages the business
himself by employing persons for his help and alone bears all the gains and risks of the
business.
Definition:-
According to L.H. Haney The individual entrepreneurship is the form of business

organization on the head of which stands an individual as the one is responsible, who directs its
operations who alone runs the risk of failure.
Here Haney states that the sole trade business is in the hands of one persons who is not
responsible for its management but also for its risk.
According to James Stephenson- A sole trader is a person who carries on business exclusively
by and for himself .He is not only the owner of the capital of the undertaking, but is usually to
organize and manage and takes all the profits or responsibility for losses.
Here James Stephenson emphasized that sole trade business is carried on by one person with
his own capital and managerial talent. He is also responsible for the success or failure of the
business.
From the above definition we can draw the following facts regarding a sole trade business.
1) A sole trader business is owned by one person
2) It is set up at the initiative of one person
3) Only the owner invests capital
4) All the decisions are taken by the owner only
5) All profits or losses from the business only belong to the owner .
6) All risks and responsibilities are undertaken by one person
7) All activities of the sole trader business is guided and controlled by him
8) The liabilities of the sole trader is unlimited
9) He cannot add any person as his partner in his business
10) He can only use the services of the salaried persons.
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CHARACTERISTICS OF SOLE TRADE BUSINESS:-
Following are the various characteristics of a sole trade business
(i) Individual initiative:-
A sole trade business is started by the initiative of a single person .He makes all the plans and
arranges all factors of production .He may employ other person for assistance but the
authorities and responsibilities are lies with him .All the profits and losses are taken by that
person.
(ii) Unlimited Liability:-
The liability of a sole trader is unlimited .Unlimited liability refers to that liability which is not
limited only to the business funds but also spread over his private property.
(iii) Management and control:-
In a sole trade business all the activities are managed and controlled by the sole trader. He
prepares various plans and execute them under his own supervision . He may employ some
persons to help him but the ultimate control is vested in his own hand.
(iv) Motivation:-
In a sole trade concern all the profits are taken by the owner only .Thus, there is a
direct nexus between efforts and reward .It means if he works more ,he will earn more .This type
of thinking motives himself to expand his business.
(v) Secrecy:-
In case of sole trading business secrecy can be maintained in a better way .In comparison to
other form of business organization business secret are very important for small business .A
sole trader takes all the decisions and keeps all the business secrets with him .
(vi) Proprietor and proprietorship is one:-
A sole trader and his business are not different from each other .The law does not separate the
owner and his business . Both are the same in the eyes of the law .Loss in his business is his loss
and liabilities of the business are his liability. Thus a sole trading business has no separate
entity.
(vii) Owners and business together:-
In sole trade business there is no existence of the business with owner ,both exist together .If
the owner dies or become insolvent ,the business dissolved upon the life of the business depend
upon the life of the owner.
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(viii) Limited area of operation:-
Generally a sole trade business has limited area of operations due to the following reasons
a) Limited resources
b) Lack of managerial talent
c) All the decisions are taken by him
d) All the activities are controlled by him.
(ix) Free from legal formalities:-
A sole trade business faces no legal formalities .Anybody can start such type of business at any
time and at any place without any legal formalities .This type of business can be started even if
without any registration.
(x) Discretionary start and end:
A sole trade business is started and ended with the discretion of the owner .It means a sole
trader can start the business as per his will and similarly can dissolved it as per his discretion .
(xi) Free in selection of trade:
A sole trader is free to decide the business activity, he want to start .For this purpose he is not
required to consult anybody for taking such decisions.
(xii) Distribution of profit:-
A sole trader is the single owner of the business .He puts all his efforts into the business and
takes all the fruits of his labour .So, the total profit of the business are taken by that owner only.
(xiii) Own capital:
The capital of the sole trade business is supplied by the owner only .He may arrange money
from others but it will not be apart of capital .Rather it will be treated as a loan .So , the entire
capital of the sole trade business belongs to the owner.
Q-9) What do you mean by sole trading business? Discuss its

merits.
A sole trader is a person who starts business with his own resources, manages the business
himself by employing persons for his help and alone bears all the gains and risks .of the
business.
MERITS:-
Following are the various advantages of sole trading business
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(i) Easy in formation:-
To start a sole trading business, there are no legal formalities to be complied
with .Anybody can start such type of business at any time without any legal formalities like
registration, license etc. On the other hand, partnership business and Joint Stock Company
involve so many legal formalities.
(ii) Better control:-
In case of sole trading business all the activities are controlled by only one person .The authority
and responsibility lies with one man. It has been rightly said that Everybody’s responsibility
becomes nobody’s responsibility’. In sole trade business, there is no such difficulty.
(iii) Flexibility in operations:-
Flexibility refers to change according to the situation. A sole trading business has more
flexibility in operations in comparison with partnership and Joint Stock Company. It is because
a sole trading business runs on a small case basis .It can adjust its production, marketing style,
expenditures etc. as per the situation.
(iv) Retention of business secrets:-
Secrecy is very important for small scale business .Being the owner; a sole trader maintains
business secrets properly. He does not share his business secrets with anybody else. Again, he is
not expected to publish his accounts. Retention of business secrets is not possible in case of
partnership and joint stock company business
(v) Easy to raise finance :-
It is easy for a sole trade business to raise its funds in comparison with a partnership and joint
stock company. It is because of the following reasons-
a) It requires less amount of capital
b) It creates goodwill in the market with in short period
c) The liability of the owner is unlimited
(vi) Direct motivation:-
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A sole trader puts his heart and soul in the business in order to earn more and more profits .If he
works hard he will earn more profits and vice-versa. Thus, there is a direct nexus between efforts
and rewards. Nobody is there to share his profits. In this way he motivates himself.
(vii) Promptness in decision making:-
If more than one person is involve in decision taking, then delay is bound to occur .In case of
sole trading business only one man is there to take all decision of the business. So, he can take
prompt decisions .In case of a company form of organization, it is not possible to take a decision
promptly which includes agenda, proxy, quorum, meeting, resolution etc.
(viii) Direct contact with consumer:-
Generally a sole trading business runs on a small scale basis .Its operation is limited to the
locality. So, he can make direct contact with customers .As a result he can know the tastes,
fashion, habits, preferences etc. of the customers. All these are not possible in case of
partnership and company form of organization.
(ix) Inexpensive management:-
In case of large scale business organization management is done specialized and experts
persons, who get high salary. But in case sole trading business, sole trader is the owner, manager
and controller of the business. He does not appoint specialized and expert professionals for the
purpose of the management expenses in case of sole trade business are very low.
(x) No legal restrictions:-
There are no legal requirements for starting a sole trading business, which are as follows.
a) There is no special act to govern the works of the sole trader
b) The sole trader does not submit the results of his business to any authority
c) There are no restrictions in changing the nature of business
d) A sole trade business can easily be dissolved
(xi) Socially desirable:-
Now a days sole trade business is socially desirable due to its following merits
a) Employment to large number of person
b) Need of less capital
c) Less risks
d) Providing goods at low prices
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e) Equal distribution of income
f) Helpful to consumers and small producers
g) It acts as a trading
(xii) Self employment:-
The sole proprietorship form of organization offers the means of self employment. Now days it is
not an easy matter to get a highly populated developing country like India. So, unemployment
problems become more acute day by day .I n this context, sole trading business provides
employment opportunities and hence reduces the unemployment problem to some extent.
(xiv) Healthy relations with the employees:-
A sole trader is in a position to maintain direct relations with his employees .He understands the
problems and grievances of his employees and solve them immediately .This results into healthy
relation between employer and employees which is very important for the success of a business.
(xv) Benefit of inherited goodwill:-
A sole trader passes on the business goodwill to his business successor .A sole trader business is
dissolved on the death of the owner but the same business can continue by a heir. Thus, the
goodwill earned by one person is also passes to the other.
Q-10) What are the disadvantages of a sole trading concern?

Instead of merits a sole trading concern has some demerits. It suffers from the
following limitations -
(i) Limited resources:-

The resources of the sole trader are limited .He makes investments from his family
sources only. He is unable to raise more finances from financial institution due to lack of
security. As a result there is less chance for growth and expansion of this kind of business .On
the other hand a partnership farm and Joint Stock Company have more funds.
(ii) Limited managerial ability:-

In a sole trading business, there is a single man to manage and control
everything .Again he may not be an educated and expert one in management line. A sole trading
business has no sufficient funds to attract management experts to manage the business .So; a
sole trade business has limited managerial talent.
(iii) Unlimited liability:-

The liability of a sole proprietor is unlimited. It means his private property can also be
liable to meet the business obligations .A loss in business may deprive him of his private assets
also. Thus, unlimited liability acts as a drawback in the growth of the business.
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(iv) Uncertain continuity:-
A sole trading business has no perpetual continuity like a joint stock company. In
case of the mobility or death of the sole trader, the business is discontinued. Again the
successors of the sole proprietor may not have an aptitude or ability to continue the same
business .Thus, a sole trade business has an uncertain continuity which results in social loss.
(v) Limited scope for employees:-

A sole trader can not attract trained qualified persons for reasons of limited carrier
opportunities .Due to uncertain continuity the employees also remain under psychological
pressure .A sole trader can not offer financial incentives to employees because his activities are
of a small scale .
(vi) No large scale economies:-

A large enterprise can avail large scale economies by making centralize purchase and
in bulk quantity. However sole trade business runs on small scale basis, can not enjoy the
benefit of the large scale economies. So, it can not avail the economies purchase, production,
marketing etc.
(vii) More risk:-

In case of sole trading business only sole trader takes all the decision relating to the
business. So there is possibility of taking wrong decision. In case of partnership and joint stock
company business there are so many persons to take decisions. As a result there is less
possibility of wrong decisions. Again there is nobody to share the risks and uncertainties .The
sole trader has to bear all this.
(viii) Unsuitable for large scale business:-

A sole trade business is suitable for large scale business. It is because; the managerial
needs of the big business can not be met by one individual .A large scale business does not
depend upon the talent, skill and competence of one person only.
(ix) Difficulty in maintaining personal contact :-

Though a sole trader is suppose to maintain personal contact with the customers but in
fact this is not possible. The proprietor can not personally look after every activity and cannot be
present at all the times and at all places where his business activities are carried on.
Q-11) Define partnership? Discuss the characteristics of

partnership.
A partnership is an association of two or more persons who carry on a business and
to share its profits and losses.
Definition:-
John A , Shubin ,
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“Two or more individuals may form a partnership by making a written or oral agreement that
they will jointly assume responsibility for the conduct of business.”
According to Shubin two or more persons join together to share business responsibility .The
liability part is mainly given as a base of partnership.
L.H .Haney
“The relationship between persons who agree to carry on a business in common with a view to
private gain”
Haney has given more emphasis on sharing of gains .The coming together of persons to
share the gains of a business is called partnership.
Characteristics:-
(i)Association of two or more persons:-
In a partnership firm there are at least two persons .According to Sec-11 of Indian
contract act 1872 , there is no maximum limit on partners in partnership act , but according to
companies act 1956 , the maximum number of partners engaged in banking business can not
exceed 10 and 20 in other business .
(ii)Contractual relation:-
According to the partnership act, the relation of partners arises from a contract and
not from status .Such contract may be oral or written .However written agreement (partnership
deed) is good. Because it is helpful in settlement of future disputes.
(iii)Earning of profits:-
The main object of a partnership business is to earn profit and distribute them
among the partners. Generally a partnership business runs on commercial basis .Thus, a
partnership firm is made with service motive then it can not be called as a partnership
business .Again it does not mean that there will not be losses but the motive should be earning
of profits.
(iv) Existence of business:-
The term business includes any trade or professions .Generally by business we mean all
activities concerned with production , distribution of goods or services to earn profit .It means if
the is related to social service , we can not call it as a business and hence no partnership .
(v)Implied authority:-
In case of partnership business every partner can bind the total firm with his acts. It means
any activity undertaken by a partner seems the partnership firm does it. Such authority is called
implied authority.
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(vi)Unlimited authority:-
In case of partnership firm the liability of partners is limited. Unlimited liability refers to
that liability which is not limited only to the business property but also spread over the private
property of partners. Thus, the creditors can be compensated for their outstanding dues from
the private properties of partners.
(vii)Principal and agent relationship:-
In a partnership business the relationship of principal and agent exists. It is not

necessary that all partners should work in the business. Any partners can act on behave of
others partners .Thus, every partners acts both an agent and principal.
(viii)Utmost good faith:-
The very basis of the partnership business is good faith and mutual trust. So, every
partner should act honestly and truly. Distrust and suspicion among partners may run the whole
firm. So every partner should act as trustee and for the common good of all.
(ix)Restriction of transfer of share:-
In a partnership business no partner can transfer his share to anybody else without
taking the consent of other partners .But in case of a joint stock company any shareholder can
transfer his share to other without any restriction .
(x)Common management:-
In a partnership business every partner has a right to participate in the management

of the business . In practice all partners do not manage the firm. Only selected partners (active
partners) manage the business. However other partners are to be consulted before taking any
decision made by the active partners.
(xi)Partners and partnership are one:-
A partnership firm has separate entity from the partners. A partnership firm is only a
name to the collective name of the partners. No firm can exists without partners. The rights and
liabilities of partners are treated as the rights and liabilities of a partnership firm.
(xii)Capital contribution :-
In case of a partnership business all partners contribute towards the capital .Such
capital contribution may not equal .The firm can also collects the funds from other sources in
the form of loan and mortgage.
(xiii)Protection of minority interest:-
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All important decisions of a partnership firm are taken after consulting all partners.
If a partner has small proportion of share, he can not be ignored .Thus; a partnership firm
protects minority interest
(xiv)Continuity:-
There is no certainty in continuity of a partnership business .Any misunderstanding

among partners death or insolvency of a partner may dissolve the partnership. However
dissolution of partnership does not mean dissolution of the firm.
Q-12) What is partnership deed? Discuss its contents.

Partnership is based on mutual understanding among the partners. It arises out of a
contract among partner. Such contract or agreement may be oral or in writing .Such written
agreement among partners is called, partnership deed. The partnership deed is very much useful
in settling future disputes, as it serves as evidence in the court of law.
CONTENTS:-
A partnership deed contains the following matter
1) Name of the firm:-
The name of the firm must be mentioned in the partnership deed.
2) Name and addresses of partners:-
It is necessary to have the identity of partners and their addresses for correspondence
purpose the names and addresses of the partners should be written in partnership deed.
3) Nature of business:-
A partnership firm may run on trading or manufacturing .So it is necessary to mention

the nature of the business to be carried on.
4) Capital contribution:-
The partnership deed should contain the amount of capital contributed by each
partner.
5) Profit sharing ratio:-
The ratio in which the future profits or losses should be distributed among the partner
should be mentioned. If nothing has been mentioned relating to the profit sharing ratio, then it
will be assumed that profit sharing ratio is equal.
6) Management of the business:-
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All partners have right to participate in the management of the business .So a clear
distribution of work should be mentioned in the partnership deed.
7) Withdrawal by partners:-
To the extent of which each partner can withdraw from the firm should be clearly
mentioned in the partnership deed.
8) Interest on capitals and withdrawals:-
In a course of business interest is charged at a certain rate on both capital and

drawings .So such rate of interest should be written in the partnership deed.
9) Salary or commission to the partners :-
In a partnership business some partners take active part in the management of the
business and for which they are given commissions or salary .So the amount of commission or
salary fixed, should be recorded in the partnership deed.
10) Maintenance of accounts :-
A partnership deed must contain the procedure of maintaining books of accounts and
their audit.
11) Maintaining bank accounts :-
As far as the bank transactions are concerned, a partnership deed should contain the following.
a) Name of the bank with which the business will deal.
b)The name of the partners who have authorized to deal with the bank.
12) Provision for admission and retirement:-
During the course of business some new partners may get retirement or admission
into the partnership firm .So, during the admission and retirement which provision should be
followed, must be written in the partnership deed.
13) Valuation of goodwill:-
Goodwill of a business is generally valued either by number of years, purchase

method or super profit method or capitalization method .In partnership goodwill is valued at the
time of admission or retirement of partners. So, provision relating to valuation of goodwill
should be clearly mentioned in the partnership deed.
14) Provision for attribution:-
A partnership deed should contain a procedure of any arbitration for easy

settlement of disputes in future.
15) Settlement of payment on retirement or death:-
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The procedure to be followed for making payments on retirement or death of a
partner should be mentioned in the deed.
16) Duration of partnership:-
The partnership may be at will or for fixed period of time .So, a clause relating to
the duration of partnership should be should be mentioned in the partnership deed.
17) Dissolution of partnership:-
A partnership may be dissolved either by agreement or notice or through

court .The circumstances under which a partnership may be dissolved should be mentioned in
the deed.
18) Settlement in case of dissolution:-
The procedure to be followed for settlement on the dissolution of the partnership

firm should be mentioned in the deed.
Q-13) What are the advantages of partnership form of

organization?
A partnership is an association of two or more persons who carry on the business
and share its profits and losses.
Definition:-
According to John A, shubin “Two or more individuals may form a partnership by

making a written or oral agreement that they will jointly assume full responsibility for the
conduct of business.”
So, as per his view two or more persons join together to share business
responsibility .The liability part is mainly given as a base of partnership.
According to L.H. Haney “The relationship between persons who agree to carry on a
business in common with a view to private gain.”
So, as per his view the coming together of persons to share the gains of a business is
called partnership.
Advantages:-
Following are the various advantages of partnership form of organization
(i)Easy to form:-
It is very easy to form a partnership business because:
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a) No legal formalities are to complied with
b) No formal documents are required as in case of Joint Stock Company
c) A simple agreement is sufficient to start it.
d) Registration is not compulsory.
(ii) Large resources:-
A partnership business is a moderately large scale concern .I t has large resources because
there are so many persons to contribute towards capital. Again such firm can arrange funds
from outside sources.
(iii)Greater managerial talent:-
In a partnership firm, different functional departments may be managed and controlled

by different partners .So, a partnership firm has greater managerial talent which can be used for
the welfare of the business.
(iv)More credit-standing:-
As compared to a sole trade business, partnership firm has more credit standing
because of the following
a) The partners have sufficient contacts in the market
b) It can offer more securities to the financial institutions
c) The liability of partners being unlimited.
(v)Promptness in decision making:-
In case of partnership business all decisions are taken by all partners. So, the decision
making process is prompt and strong .The firm will not lose any business opportunities because
of delay in decision making .
(vi)Sharing of risk:-
The risk of a partnership firm is sharing by all partners. So, the burden of every partner is
less as compared to the burden of the sole trader. Thus, diffused risk is a merit of partnership.
(vii)Relationship between reward and work:-
If the partners work hard, they will be more benefited. There is a direct relations between
reward and work .So, usually the partners do hard work to earn more and more profits.
(viii)More possibility of growth and expansion:-
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A partnership firm has more possibility of growth and expansion due to its following
merits -
a)large investments b)efficient management c)more creditworthiness d)prompt decisions

e)diffused risk f)hard labour
(ix)Close supervision:-
In a partnership firm every partner has a right to participate in the management of the
business .They all looks after all the business activities. Again they have direct access to the
employees. All these leads close supervision which saves time labour and money.
(x)Flexibility of operation:-
Any change in the activities of partnership firm does not require any statutory
obligation .There can be any change in managerial set –up, capital and scale of operation. In this
way, a partnership firm has the character of flexibility in its operations.
(xi)Secrecy:-
The partners can keep the business secrets through themselves .They do not leak out
their secrets matters to the competitors .The secrets of the business is very important for any
organization .Again a partnership firm is not expected to publish its financial statements like
trading a/c, p/l a/c , B/S etc.
(xii)Protection of minority interests:-
A partnership firm provides protection to the minorities who has low interests in the
business .In such type of business all partners irrespective of their share holdings are consulted
for the decision making and participate in the management.
(xiii)Easy dissolution:-
A partnership firm can easily be dissolved without any legal formalities .If the
partnership is at will then any partner can dissolve entire firm by giving a notice to other
partners. Usually a partnership firm is dissolved on insolvency, lunacy or death of a partner.
(xiv)Democratic administration:-
A partnership firm is managed and controlled by democratic principles .All the

partners are consulted in every decisions .All partners have right to take participate in the
management of the business. No partner can dominate to other in any way.
(xv)Saving in managerial expenses:-
In a partnership business everything is managed and controlled by its members.

They do not appoint any managerial expert for the purpose of managerial expert for the purpose
of management .As a result, there is a less management expenses.
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Q- 14) What are the disadvantages of partnership business?
A partnership is an association of two or more persons who carry on a business
and to share its profits and losses.
Definition:-
John A, Shubin “Two or more individuals may form a partnership by making a written or
oral agreement that they will jointly assume full responsibility for the conduct of business “
According to Shubin two or more persons join together to share business

responsibility .The liability part is mainly given as a base of partnership.
L.H. Haney “The relationship between persons who agree to carry on a business with a
view to private gain.”
Haney has given more emphasis on sharing of gains .The coming together of persons to
share the gains of a business is called partnership.
Disadvantages:-
Following are the various disadvantages of partnership business
(i)Unlimited resources:-
In case of a partnership business is not limited. It means, not only their business
funds but also their private property are liable to meet the business obligation
(ii)Limited resources:-
In case of a partnership business, the resources are limited to the personal funds of the
partner’s .Again borrowings capacity of the partners is also limited. Thus, a partnership business
suffers from lack of funds.
(iii)Instability:-
The continuity o partnership business is uncertain. It may be dissolved at the time of death
,lunacy or insolvency of a partner .The lack of trust among partners can also lead to
dissolution .In this sense a partnership firm has no stability in continuity
(iv)Mutual distrust:-
The mutual distrust among partners is the main cause of dissolution .It is difficult to
maintain harmony among partners .They may different in opinions regarding to a particular
matter. Lack of confidence in each other leads the dissolution of partnership firm.
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(v)Restriction on transfer of share:-
No partner can transfer his share to a third party without the consent of the other
partners .However; in a company it is easy to transfer the shares.
(vi)Burden of implied authority:-
Implied authority means a partner can bind the business by his acts. He is an agent of
the business .A dishonest partner may put the entire business in trouble and other partners will
have to meet the obligations incurred by the partners.
(vii)Lack of public faith:-
The accounts of partnership firm are not published .As a result public is not in a
chance to know the exact position of the business. There is a suspicion in public mind relating to
such business lack public confidence.
(viii) Lack of prompt decisions:-
In a partnership business, all important decisions are taken by the consent of

partners .So decision making process becomes delay .Due to delay in taking decisions; the
business may lose some opportunities.
(ix)Cautious approach:-
Unlimited liability of partners leads to cautious approach. They try to avoid decisions
where some sort of risk is involved .Due to such cautious approach the business may lose
various opportunities
Q-15) Discuss various circumstances under which a partnership

firm may dissolve?
The dissolution of a firm does not amount to dissolution of partnership .When the
working of a firm is stopped and the assets are released to meet various liabilities, it is called
dissolution of the firm .But when the agreement among the partners is terminated, it is called
dissolution of partnership .It happens in case of admission, retirement or death of a partner .The
dissolution of partnership does not amount to the dissolution of partnership firm. But
dissolution of firm amounts to dissolution of partnership.
Circumstances of dissolution:-
A partnership firm may be dissolved under the following circumstances
(i) Dissolution by agreement:-
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According to Sec -40 of Indian partnership act, 1932 .A partnership firm can be
dissolved according to the agreement of partners .It means when the partners agree to dissolve
the firm, they can do so. This is called voluntarily dissolution
(ii) Dissolution by notice:-
According to Sec -43, If a partnership is at will , it can be dissolved by any

partners giving a notice to other partners .However such notice must be in writing . The
dissolution will be effective from the date, mentioned in the notice .In case no date is
mentioned, and then it will be dissolved from the date of receipt of notice
(iii) Compulsory dissolution:-
According to Sec – 41 A partnership firm may compulsory be dissolved under

some situation, which are as follows
a) Insolvency of partners:-When all partners are declared as insolvent, the firm is

compulsorily dissolved.
b) Illegal business:- If a firm runs with a business , which is declared as illegal unlawful by
the Govt. the firm will be compulsorily dissolved
(iv) Contingent dissolution:-
According to Sec-42, if there is no agreement among partners regarding certain

contingencies, the partnership firm will be dissolved on the happening of any of the
situations .Following are some contingencies
a) Death of a partner: - A partnership firm may be dissolved on the death of any of the
partner
b) Expiry of the term: - Where a partnership is made for a fixed period, after the expiry of
that fixed period, the partnership firm will be dissolved.
c) Completion of work:-Where a partnership firm is formed the carry out a specific work,
after the completion of that specific work, a partnership firm may be dissolved .Ex: partnership
for the construction of a road or bridge.
d)Registration by a partner :- If a partner does not want to continue the partnership firm
, his resignation may dissolved the firm .
(v)Dissolution through court:-
According to Sec – 44 .A partners can apply to the court for the dissolution of the firm
in the following cases
a) Insanity of a partner:-If a partner goes insane, the partnership firm can be dissolved in
the petition of other partners to the court.
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b) Misconduct of a partner:-When a partner is guilty of misconduct, the other partners can
move the court for dissolution of the firm.
c) Incapacity of a partner:- When a partner becomes incapable of performing his duties ,

then other partners may move to the court for dissolution of partnership firm.
d) Breach of agreement: - When a partner will fully breaches the agreement, the other
partners can dissolve the firm through the court.
e) Transfer of share: - When a partner transfers his shares to the other without taking the
consent of the partner, the firm can be dissolved through court.
f) Regular losses: - When a firm incurres losses regularly the court may order to dissolve the
partnership firm.
g) Disputes among partners: - A partnership is based on mutual faith. If there is a

continuous dispute among the partners the court may order for dissolution.
Q-16) What are the rights and duties of partners?

The duties and rights of partners are covered on the section 9 to 17 of Indian partnership
act, 1932
Rights of a partner:-
1) Every partner has a right to take part in the business .sec-12(A)
2) Every partner has a right to be consulted in all affairs of the business .sec-12(C)
3) A partner has right to inspect the books of accounts of the firm .sec-12(D)
4) He has right to share in profits of the business .sec-13(B)
5) A partner has right to get interest on capital from the business.Sec -13(C)
6)A partner has right to get interest on loan and advances made by him to the business , either
out of profit or assets of the firm .sec-13(D)
7) He has the right to be indemnified in case of loss while performing his duties for the business
sec-13(E)
8) Every partner has a right to use partnership property for the purpose of the business but not
for his private use .sec-15
9) He has the right to act as the agent of the firm. Sec-18
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10) Every partner has the right to prevent the introduction of new partner without his
consent .Sec-31(1)
11) A partner has a right to retire with the consent of other partner or according to the
agreement. Sec- 32(1)
12) A person who is introduced as a partner is not liable for any act of the firm done before he
become a partner.sec-31(2)
13) A partner has a right not to be expelled from the firm by any majority of the partners .sec-
33(1)
14) A deceased partner has a right to share in the subsequent profits with interest from the
firm .sec-37
Duties of a partner:-
According to sec -9 following are the general duties of a partner
a)To carry on the business on a firm to the greatest common advantages
b) To be just and faithful to each other
c) To render true accounts and full information of all things affecting the firm to any partner or
his legal representatives.
Apart from the above duties following are the other duties of a partner
1) To carry on business to the greatest common advantages.
2) Every partner must be just and faithful.
3) Every partner is bound to indemnify the firm for any loss caused by his fraudulent
activities .sec-10
4) It is the duty of every partner to perform his duties diligently with his own skill and
knowledge .sec-12(B)
5) No partner can claim remuneration except working partners .sec-13(A)
6) It is the duty of the partner to contribute to the losses of the firm .sec-13(A)
7) Every partner is bound to indemnify the firm for loss caused by his willful neglect in the
conduct of the business. Sec -13(F)
8) It is a duty of a partner to hold and use property of the firm exclusively for the firm .sec-15
34
9) If a partner derives any benefit without the consent of other partners from the business, he
must account for it .sec-16(A)
10) A partner must not carry on any business of the same nature as competing with that of the
firm. sec- 16(B)
11) Every partner is bound to act within the scope of his authority .sec-19(1)
12) Every partner is jointly liable for all the acts of the firm done while he is a partner.sec-25
13) A partner can not assign his rights and interest in the firm to an outsider .sec-29
Q-17) Discuss the principles of a cooperative society

The cooperative form of organization is a democratic set –up run by its members for
serving the interest of them .It is a voluntary association started with the aim of service to
members. The philosophy behind cooperative movement is “All for each and each for all “.
In India, cooperatives are started by the weaker sections of society for protecting its
members from the clutches of profit hunger business man.
Definition:-
The Indian cooperative societies Act, 1912 defines Cooperative in section 4 as “Society
which has its objective the promotion of economic interests of its members in accordance with
cooperative principles.”
Hubert Calvert says “Cooperative is a form of organization where in persons voluntarily

associated together as human beings on the basis of equality for the promotion of the economic
interests of themselves”
Principles:-
(i)Voluntary membership:-
In case of cooperative society any one can become a member without any one can
become a member without any compulsion .The members are also free to use or not to use the
services of the society.
(ii)Political and religious neutrality:-
Cooperative societies are neutral from political and religious affairs. The
membership is opened to all irrespective of religion, caste, creed and colour.
(iii)Democratic management :-
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The management of a cooperative society is always on democratic line .A body of
persons is elected by all the members to conduct and control the day to day working of the
society .
(iv)One man, one vote:-
Co-operative societies are managed by a managing committee elected by the

members on the basis of the principles are man, one vote. In co-operatives, every member in
given one vote irrespective of his contribution toward his shares
(v)Service motive:-
The main motto of a cooperative society is to render services to its members. The societies
earn a small amount of surplus to cover up the administration expenses.
(vi)Distribution of surpluses:-
The societies earn surplus from their services .A certain percentage is paid in the form of
dividend on capital contribution. At present this rate should not exceed 9%..One –fourth of the
surplus should be kept as reserve in the society and up to 10%of surplus should be spent for the
welfare of the members.
(vii)Cash Trading:-
Usually a cooperative society runs on cash basis .However it allows credit to its
members rarely.
(viii)Limited interest on investment:-
In a cooperative movement there is given a certain percentage on capital contribution

in the form of dividend .In India a maximum of 9%p.a. can be paid as interest on contribution to
the society .
(ix)State control:-
The cooperative societies have to follow certain rules and regulation framed by the
Govt. The government also provides various incentives for the promotion of cooperative society.
(x)Cooperation education and training:-
The members of a cooperative society should be properly educated about the aim and
objectives of the society .Again they should be trained to perform the various activities of the
society.
36
Q-18) What are the advantages and disadvantages of a
cooperative society?
The cooperative form of organization is a democratic set-up run by its members for
serving the interest of them .It is a voluntary association started with the aim of service to
members .The philosophy behind the cooperative society is “All for each, each for all”.
In India, cooperatives are started by the weaker sections of the society for
protecting its members from the clutches of profit hungry business men.
Definition:-
The Indian cooperative societies Act, 1912 defines Cooperative in section -4 as “Society
which has its object the promotion of economic interests of its members in accordance with
cooperative principle”.
Hubert Calvert says, “Cooperative is a form of organization where in persons voluntarily

associated together as human beings on the basis of equality for the promotion of the economic
interests of themselves.”
Advantages:-
(i)Open membership:-
Anybody wishing to enjoy the fruits of cooperative society can join it. It is because;
membership of a cooperative society is open to each and every member irrespective of his caste,
creed and religion.
(ii)Service motive:-
The cooperative societies are started not for profits but for services .The main motto
of a cooperative society is to render the services to its members in the form of supplying goods at
cheaper rates.
(iii)Supplying goods at cheaper rate:-
The cooperative societies eliminate the middlemen’s profit. A cooperative society

purchases goods directly from producers and sale them to the consumers at cheap rates.
(iv) Democratic management:-
The management of a cooperative society is done on the basis of democratic

principles .It is managed by some members who are elected by all the members of the society.
All the members are given equal voting rights irrespective of the number of shares held by them.
37
(v)Low management cost:-
The management of a cooperative society is in the hands of persons elected by the

members .It does not employ expert management professional who may claim higher
managerial remuneration .So ,management of a cooperative society is less expensive .
(vi) Distribution of surplus:-
The surplus earned by the cooperative society is distributed among members on

the basis of their purchases .Some part of the surplus is also sent for general welfare of the
society.
(vii)Check on other business:-
When the business men try to exploit consumers by raising the prices of their
commodities .Cooperative supply goods at reasonable prices .Thus cooperative societies bring
check on other forms of business organization.
Disadvantages:-
(i)Lack of capital:-
Usually a cooperative society is started by economically weaker sections of society .As a

result, they subscribe lower amount towards capital .So, and cooperative societies suffer from
lack of capital.
(ii)Lack of unity among members:-
The members of a cooperative society are generally from different sections of the
society .So, there is a lack of harmony among them .The members do not understand the
working of the society as a result they start suspecting each other .Again they also leave
everything to the paid officials.
(iii)Cash trading:-
The members of a cooperative society are generally from poor sections of the society,
who need credit facilities .But a cooperative society runs on cash trading.
(vi)Political interference:-
The cooperative societies are generally under the regulations of Govt. sometimes Govt.
nominates managerial members who may be from its own party .Thus political interference
adversely affecting the cooperative societies.
Q-19) What is a company? Discuss its characteristics.

A joint stock company is an incorporated association of persons having a separate
legal existence ,with a perpetual succession and common seal .Its capital is divided into shares
38
which are freely transferable and the owners of these shares have limited liability .It is an
artificial person created by law.
Definition:-
According to Prof. Haney
“Joint Stock Company is voluntary association of individuals for profits, having a capital divided
into transferable shares, the ownership of which is the condition of membership.”
According to Justice Lindley
“By a company is meant an association of persons who contribute money or money’s worth to a
common stock and employ it for a common purpose .The common stock so contributed is
denoted in money and is the capital of the company .The persons who contribute to it or to
whom it belongs to are members .The proportion of capital to which each member is entitled is
his share. Shares are always transferable, although the right to transfer them is often more or
less restricted.”
Characteristics:-
(i)Separate legal entity:-
A joint stock company has a separate legal entity .It is independent from its members .It
can own property, make contracts and file suit in his own name .Members of the company are
not the agents .A shareholder can not be held for the acts of the company .The separate legal
entity of a company was recognized in the famous case of Solomon vs. Salomon and co. Ltd...
(ii)Perpetual succession:-
Perpetual succession means continued existence. A company has a perpetual

succession .Its does not depend upon the life of its members .The death, insolvency or lunacy of
member does not affect the life of a company .Members may come and go but the company goes
on until it is wound up.
(iii)Limited liability:-
As a company has a separate legal entity, its members can not be held liable for the
debts of the company. The liability of the members is limited to the extent of his share holding
and guarantee is given by him. Even if the assets of the company are insufficient to satisfy fully
the claims of the creditors .no member shall be called to pay anything more than what is due
from him.
(iv)Transfer of share:-
When the total capital is divided into smaller parts, each part is called its share .These
shares are easily transferable .It means a shareholder can transfer his shares to other person
easily by giving a notice to the company.
39
(v)Common seal:-
A joint stock company is an artificial person, hence it can not act and sign itself .So, it
uses a common seal on which the name of the company is engraved .All the acts of the company
are authorized by its common seal. The common seal is affixed on all important documents as a
token of the company’s approval.
(vi)Separation of ownership and control:-
In a joint stock company the ownership and control are separated .The members do
not participate directly into day to day management of a company .The company is managed
and controlled by Board of Directors elected by the members .Thus, the ownership of the
company is distributed among the shareholders while management is vested in the Board of
Directors .
(vii)Voluntary association:-
A joint stock company is voluntary association of certain persons carry out the business
for a common purpose. Any person can join and leaves a company as and when he wishes .No
person can become a member of a company compulsorily.
(viii)Artificial legal person:-
A company does not take birth like a natural person and it has no physical body like a
natural human being .So, it is an artificial person created by law and only the law can bring an
end to its existence.
(ix)Corporate finance:-
The share capital of a company is generally divided into large number of shares of small
value .The company issues these shares to the public .A company can obtain finance:
a) By issuing equity shares

b) By issuing preferences shares
c) By issuing debentures
d) By obtaining loans from bank and other financial institution.
(x)Statutory regulation and control:-
A joint stock company has to follow rules and regulations as framed by Govt. from
time to time .A Company is regulated to comply with several legal formalities and to file several
documents with the registrar of companies like memorandum of associations, articles of
association, prospectus .etc.
Q-20) Cooperative Society vs. Joint stock company
40
POINTS OF
DIFFERENC
E CO-OPERATIVE SOCIETY JOINT STOCK COMPANY
1)Formation A cooperative society is formed A joint stock company is formed under

under Cooperative Societies joint companies Act ,1956
Act ,1912
2)Membersh Cooperative society can be formed In case of a private a private company

ip with minimum 10 members and the minimum number of member is two
there is no maximum or maximum is 50 and incase of public
company the minimum number is 7 and
maximum is unlimited.
3)basic The basic object of a cooperative The basic object of a joint stock
object society is to serve its members company is to earn more and more
4)Transfer of In a cooperative society a member A share holder can transfer his shares
shares can not transfer his share to freely to anybody else by giving a notice
anybody else without taking the to the company
consent of other members
5)Voting In a cooperative society the voting In a company the voting systems is

rights system is “One man ,one vote ”One share ,one vote “
“irrespective of number of shares
held
6)Distributio As per Indian Societies Act 25%of The profits of a company are distributed
n of surplus the surplus is transferred to among shareholder as dividend.
general reserve, up to 10%of it is
spent on the general welfare of the
surplus, rest is distributed among
the member as dividend.
7)Ownership All the members are the owners of All the shareholders are the owner of
41
the cooperative society the company.
8)Mgt.and A cooperative society is managed A company is managed and controlled

control and controlled by elected by Board of Directors.
members
Q-21 Sole proprietorship vs. Partnership

1)Number of It is owned and controlled by one At least, two persons are required to form
member person. a partnership.
2)Limits of It is limited to one person. The maximum member of partners is 10

member in banking business and 20 in other cases.
3)Agreement There must be an agreement among the

No agreement is required in sole partners.
proprietorship.
A partnership should be registered
4)Registrati A sole proprietorship need not to though registration is voluntary.
on be registered except under the
shops and establishment.
It has less capital as there is only It has more capital, because all partners
5)Capital one person to contribute. contribute towards business funds.
6)Secrecy Secrecy can be maintained Secrecy can not be maintained properly.

properly as there is only person
to contribute.
7)Manageme The partnership business managed by
It is managed by the sole trader
nt active partners
alone.
8)Quick Prompt decision is not possible.

Here prompt decision is
decision
possible .As the decisions are
taken by one person.
Partnership is governed under the
9)Governing There is no specific law which
partnership act, 1932.
law governs sole proprietorship.
All profits are shared among partners

10) Sharing All profits are taken by the sole
of profit
42
11)flexibility trader
in operation
Flexibility of operation is possible Flexibility of operation is not possible as
12)Mutual as it runs on small scale basis. it runs on small scale basis.
agency
In partnership there is no mutual In partnership firm every partner is an
13)Scale of agency. agent of the firm and other partners.
operation
Sole proprietorship is suitable for Partnership is suitable for medium and
small scale business large scale business.
14)Risk
The owner alone bear all the risks In partnership all the risks are shared by
of the business all partners.
15)continuity
------------ The life of a partnership is more

uncertain than that of sole proprietorship
Q-22 Partnership Vs. Joint Stock Company
1) governing A partnership concern is governed Joint stock company is governed by

statue by Indian partnership Act,1932 Indian Companies Act,1956
2) The registration of a partnership The registration of a company is

Registration concern is not compulsory.
compulsory/voluntary
The minimum number of members in a

A partnership can be started by at private company 2and7 in case of public
3)minimum least 2 persons. company.
number of
member
The maximum number of member of

private company 50 and unlimited
4)Maximum The maximum number is 10 in case incase of public company.
number of of banking and insurance business
persons
43
and it is 20 for any other business.
5)Legal A company has a separate legal entity.

statue
A partnership has no separate legal
entity apart from its members.
The liability of the shareholders is

6)Liability The liability of partners is limited to the value of shares held by
unlimited. them.
7)Transfer of
share A member cannot transfer his share A shareholder can transfer his shares.
to anybody else.
8)Manageme
nt and A partnership concern is managed
control and controlled by active partners. It is managed and controlled by the
board of directors.
9)Statutory
obligation
There is statutory obligation to
maintain certain books get the A company is required to maintain
account is audited and publish prescribed books and have a periodical
them. audit .sec-209
10)Implied
agency
In a partnership business partners In a joint stock company members are
are agents of the firm. not the agent of the company. .
111)Continuity A partnership firm has less chance It has perpetual existence.

of continuity
In case of partnership the scale of

12)Scale of In a joint stock company the scale of
operation is medium size.
operation operation is large scale.
44
13)Dissoluti A partnership firm may be dissolved A company ay dissolved through
on by the agreement between the legal process of winding up.
partners
In a joint stock company scale of

In case of partnership audit of the operation is large scale.
accounts is not always compulsory. It
is voluntary
14)Audit
Q-23) PRIVATE COMPANY VS. PUBLIC COMPANY
POINTS PRIVATE COMPANY PUBLIC COMPANY
1)Minimum The number of member is 2. Minimum number of member is 7

number of
members
2)Maximum
number of person
The maximum number of There is no limit.
member is 50.
3)Minimum
number of
The minimum number of
director
directors for a private The public company is must have
company is 2. three directors.
4)Public Deposits
It can not invite the public to It is free to invite the public to buy its
buy its shares and debentures shares and debentures and to accept
or to accept deposits. deposits.
5)Commencement It can be started after getting It can not commence business after
of business the certificate of incorporation incorporation unless certificate of
commencement of business is
obtained.
45
6)Prospectus A private company can not A public company must issue a
issue a prospectus giving statement is lieu of prospectus for
public invitation subscription. inviting public subscription.
7)Allotment of It can allot shares without It can not allot shares without
shares raising the minimum receiving the minimum subscription.
subscription.
A private company is not

8)Statutory
required to hold statutory According to sec-165 a statutory
meetings (sec-165) meeting must be held within 6
meetings.
months.
9)Statutory report
A private company is not

required to submit statutory According to sec-165 a copy of
report to the registrar of statutory report must be filled within
10)Transfer of company. 6 months.
shares
The transfer of share is
generally restricted by the
The transfer of share is freely allowed.
articles.
11)Rules regarding
directors
Appointments, reappointment of
No govt. approval is required
directors are subject to govt. approval.
for appointment,
reappointment etc. of
12)Share warrants directors.
It can not issue share warrant
It can issue share warrants
13)Managerial
remuneration
No legal restriction s.
Legal restrictions.
14)Requirement of
index of members
Not required
Required if number of member
exceeds 50.
15)Minimum paid
up capital
46
16)Articles of Rupees 1 Lakh Rupees 5 Lakh
association
It must frame its own Articles It can frame its own articles of
17)Number of of association. association or can adopt Table –A
directors
At least two directors At least three directors.

18)Quorum for
meetings
A quorum for a private According to sec-174 a quorum for
company is two. meeting in case of a public company is
19)Use of the word five.
private
Not required to use the word private
Must use the word “private” after its name.
after its name.
20)Special
privileges
Not available.
Available
21)Business
secrecy
Difficult to maintain
Easy to maintain
22)Scope for
expansion
Considerable.
Limited
Q-24) What is Memorandum of Association? What are its

contents?
Definition:-
According to sec-28(2)”Memorandum means the memorandum of association of a

company as originally framed or as altered from time to time.”
Meaning:-
The memorandum association is a document of great important and in relation to a

purposed company .It contains the fundamental rules and regulations upon with a company is
47
allowed to be incorporated .It is the character of the company and defines its reason for
existence .Its purpose is to enable shareholder and those who deals with the company to know
what is the permitted range of the enterprise.
Printing and Signing of the memorandum of Association:-
The memorandum of association of company shall be –
a) Printed neatly and cleanly
b) Divided in to paragraphs, numbered consecutively
c) Sign by – (Two in case of private company and seven in case of public company)
Clauses of memorandum of association:-
Following are the various clauses of memorandum of association
1) The name clause:-
According to sec-20 a company may select any name which does not resembles the name
of any other company and it should not certain the words like king ,queen,
emperor ,Government bodies and names of world bodies like UNO, WHO, World Bank, etc .The
name should not be objectionable in the opinion of the government .The word “Limited “ must
be used at the end of the name of the public company .The word “private” limited is used only
by a private company .Omission of the word “Limited” makes the name incorrect which was
decided in the case of Law Democratic Co. Ltd Vs Ashworth.
2) Registered Office Clause:-
According to sec-146 every company should have a registered office , the addresses of
which should be communicate to the registrar of companies within 30 days of its incorporation
or commencement in business whichever earlier.
The company and every officer of company who is in default shall be punishable with fire
which may extent to rupees 50 per every continuing day .A company can be shifted from one
place to another within the same city with an intimation to the registrar, again shifting from one
town to another required a special resolution and if the office is to be shifted from one state to
another state, if involves alteration of the memorandum.
3) Object Clause:-
According to sec-13(1).It is the most important clause of the memorandum of association

because it sets out the object of company .Although the subscribers of to the MOA are free to
choose the object of the purposed company .The following points should be kept in mind which
the object clause of the company .
a) The object must not be illegal
48
b) They must not be against the provisions of the companies act
c) They must not be against public policy
d) They must be stated clearly and effectively
e) They must quiet elaborate also.
The companies act, 1956 requires that a company must state it’s main objects and other objects
in the memorandum of association separately.
4) Liability Clause:-
According to sec-13(2) the memorandum of association of a company shall also state that
the members is limited .It means that the members will be liable to pay only the unpaid balance
of their shares. The liability of the members may be limited by guarantee. It also states the
amount which every member will undertake to contribute in the events of its winding up.
5) Capital Clause:-
According to sec- 13(2) this clause states that the total capital of the purposed company
the division of capital in to equity share capital and preferences share capital should also be
mentioned .The number of share in each categories and their value should be given .A company
can not issue shares than are authorized further for the time being by the MOA.
6) Association Clause;-
This clause contains the members of signature of the MOA .The MOA must be signed by
at least 7 persons income of a public limited company .Each subscribers must take at least one
share in the company .The association clause states with the seven persons whose names and
addresses are mentioned in the memorandum of association and we respective agree to take the
number of shares in the capital of the company against our respective number.
Q-25) How Memorandum of Association can be altered?

According to sec-16 a company should not alter the conditions contained in its
memorandum .Excess in the case in the mode and to the extent for which expressed provisions
made in the companies act.
1) Alteration of name clause:-
According to sec -25, a company may change its name by passing a special resolution
and with the prior approval of the central government .The company is registered with an
undesirable name then it can be changed by passing an ordinary resolution and with the
approval of central government .The change in the name will be effective when it is registered
with the registrar.
49
2) Alteration of registered office:-
According to sec- 17, the change in registered office place from one state to another
state requires a change in memorandum of association .A Company can shift its registered office
from one place to another in the same, intimation to the registered office from one town to
another town in same states a special resolution is required to pass.
3) Alteration of object clause:-
A company is permitted to alter its objects on the same grounds on which registered
office of a company is permitted to be shifted from one state to another state of involves
alteration in memorandum of association .
a) A company must pass a special resolution to the registrar
b) The alteration must be by the company law board
c) A certified copy of the ordered of confirmation must be with the registrar within 30 days
from the date of order .
4) Alteration of Liability Clause
According to Sec-38, the liability of the shareholders of a limited by guarantee can not
be made unlimited unless the same is expressly agreed by each and every member concerned. If
articles so permit the liability of the directors, managing directors or manager can be made
unlimited by passing a special resolution which must filled with in 60 days of passing.
5) Alteration of capital clause:-
The capital clause of a company can be altered by passing an ordinary resolution in

general meetings. Notice must be given to the registrar within 30 days of alteration .In case of
default every officer will be punishable Rs. 50 everyday during which the default continues.
Q-26) What is Articles of Association? What are its contents? MA

VS. AA
DEFINITION:-
According to sec-2(2), the articles of association of a company as originally framed or as

altered from time to time in pursuance of any previous companies act.
MEANING:-
Articles of Association contains rules and regulations for internal management of a

company .The articles deals with day to day management of a company .It is a supplementary
document of a articles of association , memorandum of association frames objectives of a
company and articles devise way to achieve them .
50
Next Important To Memorandum of Association:-
The articles are next important to the memorandum of association which contains the
fundamental rules upon which a company is allowed to be incorporated.
Must not violate:-
The Memorandum of Association and the Companies Act should not be beyond the
powers of the company .They should not violate any of the provisions of the Companies act .If
they would be ultra vires the MOA and the companies act and it will be null and void.
CONTENTS:-
An articles of association contains the provisions relating to the following matters –
1) Issue of share capital
2) Issue of share certificate
3) Payment of underwriting commission
4) Lien of shares
5) Calls of shares
6) Transfer of shares
7) Transmission of shares
8) Forfeiture of shares
9) Conversion of shares into stock
10) Issue of share warrant
11) Alteration of capital
12) Procedures of various meetings
13) Voting rights of members
14) Appointment, remuneration, qualification, powers of board of directors
15) Appointment of manager
16) Appointment of securities
17) Dividend and reserves
18) Accounts, audit and borrowing powers
19) Capitalization of profit
51
20) Special resolution of winding up
Alteration of articles of association:-
A company may alter its articles of association .It is a statutory power conferred by sec-31 of the
Indian Companies Act and therefore the company can not deprive itself of this power either by a
provision in the articles or by a contract with third party .In case of Luerson Vs. National
insurance and guarantee co. the contract between the plain type and the company provided that
the articles could be changed, it was held that this provision of that contract was not
enforceable.
Alteration Procedure:-
Following are the procedures of articles of association
1) A special resolution subject to any condition to MOA must be passed by the shareholders in
a general meeting
2) A copy of the resolution duly certified by an officer of the company must be valid with the
register with in the statutory period of 30 days after passing of the resolution.
3) If the effect of the alteration is to convert a public company in to a private company an

approval of central govt. is necessary.
4) A copy of the altered articles of the company should be filled with the registrar within one
month from the date of the receipt of the consent of the central govt. to the alteration.
Special Consideration:-
Following are the special consideration which should be taken into mind.
a) The change should not violet the provisions of the companies act
b) It should not be contrary to the provisions of the MOA.
c) The alteration must not have anything illegal.
d) The alteration should not adversely affect the minority.
Memorandum of Association Vs. Articles of Association.
POINTS MA AA
1)Concepts It contains the fundamental rules of It contains rules and regulations

the company regarding internal management of
the company
52
It subordinates to both MOA and
Companies Act.
2)Scope It subordinates to the companies
act only.
It can not contain anything contrary

to both MOA and Companies Act .
The memorandum cannot contain
3)Provisions anything contrary to the companies
act.
Articles of association public

The memorandum of association is companies may not have their own
a must for getting a company articles but they may not adopt
4)Necessity registered. Table- A of schedule -1 as its articles
Anything done beyond the scope of

the articles will not be void and it
Any act of the company which ultra can be rectified by passing a special
varies the MOA is wholly void and resolution.
can not be rectified by the
shareholder.
5)Limitation
It defines relationship between
company and the members and
It regulates the relation between among member s themselves.
company and the public.
Alteration of articles is not difficult.
It can be altered by passing a
special resolution.
Memorandum can be altered only
6)Relationshi special circumstances and involves
p many formalities.
7)Alteration
Q-27) Discuss how a company is formed?
53
Steps of formation:-
The steps involved at the time of formation of a joint stock company are as follows –
a) Discovery of an idea
b) Detailed investigating
c) Assembling the requirement
d) Financing the proposition
e) Incorporation
f) Commencement of business
A) Discovery of an idea :-
The first stage in company promotion is the discovering of an idea .The person who takes
such idea is called promoter .He visualizes that there are opportunity for a particular type of
business and it can be profitably run .He develops this idea with the help of other technical
experts in that field.
B) Detailed investigation:-
At the second stage various factors relating to the business are studied and investigated
.The promoter estimates total demand for product and then estimates the required amount of
finance .In this context, the proprietor should consider the followings-
1) Land 2) labour 3) Required finance 4) Sources of finance 5) Raw materials 6) Machinery
7) Techniques of production etc.
The estimates should be based on proper analysis of different factors because guess work
may create problems later on.
C) Assembling the requirements:-
After detailed investigation, the promoter proceeds to assemble the requirements. He

encourages some more persons to join hands with him by becoming directors .The promoters
select the factors sight ,decided about plant and machinery and contracts are made with the
supplier of materials and machineries by giving them initial money and earnest money .
D) Financing the proposition:-
In this stage, the promoter has to think of the, capital structure of the company .After
estimating the extent of the required finance he determines the sources of it, quantum of share
54
capital, the types of shares to be decided .Generally working capital can be arranged from
commercial bank .The financial requirement for short period or long period are estimated
separately .So, the capital figures may be given on the memorandum of association .The sources
may be
1) Issue of equity shares
2) Issue of debentures
3) Issue of preference shares
4) Obtaining loan from bank and other financial institutions
E) Incorporation:-
A company is to be registered with the registrar for the purpose of registration. Following
documents are to be filled to the registrar.
a. Memorandum of Association—It is signed by at least 7 persons in case of public company and

2 persons in case of private company.
b. Articles of Association—It is signed by all the signatories of MOA
c. A least of directors there full address and occupation.
d. A written consent of directors of their willingness.
e. A statement of authorized capital.
f. A statutory declaration by the solicitor or chartered accountant or an advocate of High court

or Supreme Court regarding the complication of provision.
If the documents are found in order found in order then the registrar will issue the
certificate of incorporation. After getting this “certificate of incorporation”, only a Private
company can start its business.
F) Commencement of business: -
A public company can start its business only after getting the “certificate
of commencement”. After incorporation, public company issue prospectus for inviting public to
subscribe to its share capital. A minimum subscription is fixed. The company is required to sell a
minimum number of shares mentioned in prospectus. After reaching the minimum
subscription, a certificate along with letter from the bank is sent to the registrar. After that the
registrar issues a certificate which is known as “certificate of commencement”.
In this way company is formed.
55
FORM –IR
CERTIFICATE OF INCORPORATION
NO-15-02834 OF 2006-07
I hereby certify that the “O BRAIN EXPORT LIMITED” in this day incorporated under the
Companies Act, 1956(no.1 of 1956) and that the company is limited.
Given under my hand at Bhubaneswar, thirtieth day of may, two thousand six.
S/D
S.K.Sikariya
Registrar of Companies
Cuttack Orissa
CERTIFICATE OF COMMENCEMENT
[PERSUANT TO SEC-149(3)OF INDIAN COMPANIES ACT,1956]
I hereby certify that the “O BRAIN EXPORT LIMITED” which is incorporated under the
companies act, 1956 on the thirtieth day of may 2007 and which has this day filed a duly
verified declaration in this prescribed form that the conditions of sections 149(2)(a)to (c)of
the said act have been compiled with is entitled to commence business.
Given under my hand at Bhubaneswar this thirty first day of May two thousand seven.
S/D
S.K.Sikariya
Registrar of companies
Cuttack , Orissa
56
28) Why is the company form of organization become as
compared to other forms of organization?
A close study of the partnership reveals a number of demerits which have been greatly
removed by emergency of the company form of organization .The advantages that a limited
company enjoys over the partnership are striking for which it has acquired tremendous
popularity in the modern business world .These are discussed in detail below.
1) Legal status:-
A Company form of business organization enjoys separate legal status from its
members. For the act of its members the company is not held responsible .But in a partnership
the firm and its members are not separate .The acts of a partner for the business of the firm can
bind the partnership.
2) Strength and resources;-
A company raises a lot of funds by issue of shares and debentures to the public. The
members of the public are not hesitant to subscribe to the shares of a company because the
value of shares are very much affordable to them .The value of shares is normally In the range of
RS.10/- to RS.100/- Which a small investor can also buy.
So, large number of person can contribute on small measures to give rise to a huge funds of the
company .The strength of a company lies in its vast resources with which it can undertake big
undertake big business ventures having promises of high return.
A partnership can not match the resources of a company because it can pull its
resources only from its few partners .For this reason, it can not exploit big business
opportunities that may come on its way.
3) Member liability:-
The liability of the member is limited to the value of shares .He hold, or to the extent of
guarantee to gives .The member is not bothered about her held liable to the debts of the
company. The fear of his private asset being called upon to pay for the debts of the company is
not there.
But in case of partnership, the chances of the partners losing their properly to meet the
claims of their creditors are always remains in a stage of anxiety and tension .Most of the
investors therefore, sign away from investing in a partnership business.
4) Durability:-
The closure of partnership depends upon the death ,insanity ,permanent disability of any
member giving or it may also happen at the desire of a member giving notice to the others to
57
close it down .The court on certain instances may order to close it down the form .It is for these
reasons that the partnership is always sit lived .
As Stated earlier, the existence of the company is different from its members and
therefore the above contingencies like death, retirement, lunacy etc. it is said then that
members may come and go but company remains forever.
5) Transferability of shares:-
The shareholder of a company ,especially of a public company , is free to transfer his

shares without consulting anybody in that company .A partnership base on a contract and good
faith among the partners restricting the transfer of interest of a partner without prior consent .of
other partners.
6) Management:-
The management of a company is entrusted to the hired professionals who have the
requisite education, training and experience to conduct the complex affairs of the company.
Huge resources coupled with efficient professions management gives unique privilege to the
company to earn business opportunity and exploit the market to its maximum advantage.
This is not the case with the partnership as its management remains in the hands of
partner however inexperienced and untrained they may be. This is why many firms fail in the
business and invite their dissolutions
7) Audit of accounts:-
Audit of accounts by the qualified chartered accountant compulsorily for a company .So,
the wrong deeds, frauds and misappropriation committed by the hired functionaries of a
company are early discovered and remedial measures can be taken to prevent them .Audit
accounts is not compulsory for the partnership .
58

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1ST CHAPTER

Q-1) What are the objectives of a business?

(A) Economic objectives

Following are the economic objectives of a business.

(b)Tastes and fashion of consumers

(c)Paying capacity of consumers

(iii) Creating markets:-

A business should always strive to use latest methods of production. In the

Following are the human objectives of a business

The employees of a business organization help in increasing the profit ability.

It is the object of a business to provide quality goods at cheaper rate to

In the present business world , ownership and management are in

(C) Social Objectives

Following are the social objectives of a business.

(iii) Co-operation with the Govt.:-

(iv)Creation of more employment:-

(v)Proper utilization of natural resources:-

A business utilizes natural resources properly .Wastages of anything will not

Q-2 What are the requisites of a successful business ?

(i) Settings Objectives:-

(ii) Proper Planning:-

(iii) Sound Organization:-

(iv)Proper Financial Planning:-

i) The needs of the capital

ii) Sources of collecting the funds

iii) Proper utilization of capital / Administration of capital structure

(v) Location and layout of plant:-

It is one of the important decisions to be made by the management is regarding

(vi) Marketing System:-

The marketing aspect of a business is more important than even

(v) Dynamic Leadership:-

Q-3) What are the qualities of a successful businessman?

(i) Knowledge of business:-

A good businessman should have a thorough knowledge about his business

(a) Objects of the business

(b) Availability of factors of production

(c) Capacity utilization

(d) Market demand of his product

(e) Process of production

(f) System of marketing

(g) Capital structure etc.

(iii) Hard Work:-

A businessman requires co-operation from other employees to solve various

A business man has to satisfy consumers, employees and Govt. by considering

(vi) Decision making:-

(vii) Cordial relations with employees and customers:-

Customers and employees are an integral part of the business .So a

In this context he should remember the following -

“You can make fool one person for all time

You can make fool some person for sometime

(ix) Assumption of responsibility:-

A businessman should assume responsibilities of various activities of his sub

Discipline is an essential trait in the personality of successful businessman. No

A businessman should be able to adjust according to the situations. He should

Q-4) What is commerce? Discuss its various branches.

Commerce=Trade + Aids to trade

Following are the characteristics of commerce

(i) It deals with economic activities:-

(ii)Exchange of goods and services:-

(iii) Earning Motive:-

(iv) Creation of utility:-

(v) Regulating of transaction:-