Mefa - Mech Iii - Civil - Ii - Unit-5
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MEFA Unit V Q1 Explain different business environments? Ans: Business & New Economic Environment The following are the different types of formation of business organizations 1. Sole Proprietorship 2. Partnership firm 3. Joint Stock Company 4. Co-operative society Factors affecting the choice of the new economic environment of business organization: The following are the factors affecting the choice of business organization. 1. Easy to start and easy to close: The form of business organization should be such that it should be easy to start and easy to close. There should not be hassles or long procedures in the process of setting up business or closing the same. 2. Division of labor: There should be possibility to divide the work among the available owners. The idea is to pool the expertise of all the people in business and run the business most efficiently. 3. Large amount of resources: Large volume of business requires large volume of resources. Some forms of business organizations do not permit to raise larger resources. Select the one which permits to mobilize the large resources. 4. Liability: The liability of the owners should be limited to the extent of money invested in business. It is better if their personal properties are not brought into business to make up the losses of the business. 5. Secrecy: The form of business organization you select should be such that it should permit to take care of the business secrets. We know that century old business units are still surviving only because they could successfully guard their business secrets. 6. Transfer of ownership: There should be simple procedures to transfer the ownership to the next legal heir. 7. Ownership, management & control: If ownership, management and control are in the hands of one or a small group of persons, communication will be effective and coordination will be easier. Where ownership, management and control are widely distributed, it calls for a high degree of professional skills to monitor the performance of the business. 8. Continuity: The business should continue forever and ever irrespective of the uncertainties in future. www.jntumaterials.in
1
www.jntumaterials.in
9. Quick decision-making: Select such a form of business organization which permits you to take decisions quickly and promptly. Delay in decisions may invalidate the relevance of the decisions. 10. Personal contact with customers: Most of the till1es, customers give us clues to improve business. So choose such a form which keeps you close to the customers. 11. Flexibility: In times of rough weather, there should be enough flexibility to shift from one business to the other. The lesser the funds committed in a particular business, the better it is. 12. Taxation: More profit means more tax. Choose which a form which permits to pay low tax.
Q2 Explain the features of Sole Proprietorship with merits and demerits Ans: A single individual takes the initiative to start a business all by himself by supplying the entire capital, uses his own skill and intelligence in the management of its affairs and is solely responsible for the results of its operations Features: 1. In this form of sole proprietorship organization, a single individual takes the initiative of starting a business, supplies the entire capital and manages the business all by himself. 2. He shoulders the entire responsibility of the business activities 3. He performs all the duties in connection with the business activities 4. The sole proprietorship carries on the business for his exclusive gain and bears all the risks incidental to the conduct of his business 5. The liability of the sole proprietorship is unlimited. 6. The sole proprietorship concern does not have a separate legal existence separate from that of the proprietor Merits of sole proprietorship • • • • • •
Ease of formation Ease of dissolution Direct relationship between effort and reward Promptness in decision making Secrecy of the production processes Social utility of sole trading concerns
Demerits • • •
Limited finance Unlimited liability Limited managerial skills
www.jntumaterials.in
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www.jntumaterials.in
• • •
Limited growth Uncertainty of duration Secrecy of a sole proprietorship concern is a social disadvantage
Examples of sole trader businesses include small retailers, plumbers, builders, internet entrepreneurs, beauticians, market traders, grocers and butchers Q3 Explain Partnership firm features with demerits and merits? Ans: Partnership Firm The relation between two or more persons who have agreed to share profits of a business carried on by all or any of them acting for all Persons who have entered into partnership with one another are individually called "partners" and collectively as a "firm". 1. Agreement: A partnership is the result of an agreement and not of status. It is created by mutual consent between the partners. There must be an oral or a written agreement to form a partnership. 2. Presence of business: A partnership is a form of Business organization. The association of a few individuals is for conducting a certain business. 3. Sharing of profits: The object of starting a partnership should be the sharing of profits. 4. Unlimited liability: Each partner has an unlimited liability in respect of the debts of the firm. The creditors can recover their dues from the property of any or all the partners of the firm. 5. Dual role of principal anti agent: Every partner can act simultaneously as a principal and agent of the firm. As an agent, he can bind the other partners by his acts. As a principal he is bound by the acts of the others. 6. Number of members: A partnership firm can be formed with a minimum of two members. The maximum number of members to conduct a general business is twenty and in case of banking business, the maximum is ten. Merits of Partnership Firm • • • • • • •
Ease of formation Larger resources Unlimited liability Flexibility of organization Promptness in taking decisions Balance Judgment Reduced risk
Demerits www.jntumaterials.in
3
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• • • • •
Lack of harmony Instability Limited risk-taking Risk of implied authority Lack of public confidence • Joint and several liabilities
Examples Mahindra-Logan, Maruti-Suzuki, etc Q4 Explain Joint Stock Company features with merits and demerits Ans: Joint Stock Company A company is a voluntary association of persons for the attainment of a common purpose with a capital divisible into units known as shares and with a limited liability. It is the creation of law and is known as an aI1ificial person with a perpetual success in and a common seal. An association of many persons who contribute money or money's worth to a common stock, and employ it in some common trade or business and who share the profit or loss arising therefrom. Features • • • • • •
Separate legal existence Limited liability Perpetual succession and common seal Transferability of shares Separation of ownership and management Number of members is seven
Merits • • • • • • • •
Large financial resources Limited liability Transferability of shares Benefit of large-scale operations Perpetual succession Public confidence Tax benefit Separation of ownership ami management
www.jntumaterials.in
4
www.jntumaterials.in
Demerits • • • • • •
Difficult and costly formation Oligarchic management Delay in administration Fraudulent management Concentration of economic power Delay in taking decisions
Examples are Apple, Google etc
Q5 Explain Co-operative form of organization? Ans: Co-operative Form of Organization A co-operative organization is defined as "an association of persons, usually to achieve a common economic end, through the formation of a democratically controlled business organization, making equitable contributions to the capital required and accepting a fair share or risk and benefits of the undertaking". Features • • • • • • •
Voluntary association The capital of a co-operative society is procured by way of share capital from its members. Democratic setup Ideal of service Member's liability The co-operatives received special incentives from the government such as the exemption from income tax Separate legal existence
Merits • • • • • •
Ease of formation Democratic on management liability of the members is limited the balance of the sUl'plus earned in any year, the funds can well be utlised for its growth Tax incentives Perpetual existence
www.jntumaterials.in
5
www.jntumaterials.in
•
Social service
Demerits • • • •
Limited capital Excessive state regulation Inefficiency management Lack of motivation
Examples are Amul, Handlooms, FCI etc
Q6 Explain public enterprises and their types Public Enterprises and Their Types
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Problems faced by Public Enterprises
www.jntumaterials.in
9
www.jntumaterials.in
Q7 Explain Changing Business Environment in Post-Liberalization Scenario Ans:
www.jntumaterials.in
10
MEFA Unit V Q1 Explain different business environments? Ans: Business & New Economic Environment The following are the different types of formation of business organizations 1. Sole Proprietorship 2. Partnership firm 3. Joint Stock Company 4. Co-operative society Factors affecting the choice of the new economic environment of business organization: The following are the factors affecting the choice of business organization. 1. Easy to start and easy to close: The form of business organization should be such that it should be easy to start and easy to close. There should not be hassles or long procedures in the process of setting up business or closing the same. 2. Division of labor: There should be possibility to divide the work among the available owners. The idea is to pool the expertise of all the people in business and run the business most efficiently. 3. Large amount of resources: Large volume of business requires large volume of resources. Some forms of business organizations do not permit to raise larger resources. Select the one which permits to mobilize the large resources. 4. Liability: The liability of the owners should be limited to the extent of money invested in business. It is better if their personal properties are not brought into business to make up the losses of the business. 5. Secrecy: The form of business organization you select should be such that it should permit to take care of the business secrets. We know that century old business units are still surviving only because they could successfully guard their business secrets. 6. Transfer of ownership: There should be simple procedures to transfer the ownership to the next legal heir. 7. Ownership, management & control: If ownership, management and control are in the hands of one or a small group of persons, communication will be effective and coordination will be easier. Where ownership, management and control are widely distributed, it calls for a high degree of professional skills to monitor the performance of the business. 8. Continuity: The business should continue forever and ever irrespective of the uncertainties in future. www.jntumaterials.in
1
www.jntumaterials.in
9. Quick decision-making: Select such a form of business organization which permits you to take decisions quickly and promptly. Delay in decisions may invalidate the relevance of the decisions. 10. Personal contact with customers: Most of the till1es, customers give us clues to improve business. So choose such a form which keeps you close to the customers. 11. Flexibility: In times of rough weather, there should be enough flexibility to shift from one business to the other. The lesser the funds committed in a particular business, the better it is. 12. Taxation: More profit means more tax. Choose which a form which permits to pay low tax.
Q2 Explain the features of Sole Proprietorship with merits and demerits Ans: A single individual takes the initiative to start a business all by himself by supplying the entire capital, uses his own skill and intelligence in the management of its affairs and is solely responsible for the results of its operations Features: 1. In this form of sole proprietorship organization, a single individual takes the initiative of starting a business, supplies the entire capital and manages the business all by himself. 2. He shoulders the entire responsibility of the business activities 3. He performs all the duties in connection with the business activities 4. The sole proprietorship carries on the business for his exclusive gain and bears all the risks incidental to the conduct of his business 5. The liability of the sole proprietorship is unlimited. 6. The sole proprietorship concern does not have a separate legal existence separate from that of the proprietor Merits of sole proprietorship • • • • • •
Ease of formation Ease of dissolution Direct relationship between effort and reward Promptness in decision making Secrecy of the production processes Social utility of sole trading concerns
Demerits • • •
Limited finance Unlimited liability Limited managerial skills
www.jntumaterials.in
2
www.jntumaterials.in
• • •
Limited growth Uncertainty of duration Secrecy of a sole proprietorship concern is a social disadvantage
Examples of sole trader businesses include small retailers, plumbers, builders, internet entrepreneurs, beauticians, market traders, grocers and butchers Q3 Explain Partnership firm features with demerits and merits? Ans: Partnership Firm The relation between two or more persons who have agreed to share profits of a business carried on by all or any of them acting for all Persons who have entered into partnership with one another are individually called "partners" and collectively as a "firm". 1. Agreement: A partnership is the result of an agreement and not of status. It is created by mutual consent between the partners. There must be an oral or a written agreement to form a partnership. 2. Presence of business: A partnership is a form of Business organization. The association of a few individuals is for conducting a certain business. 3. Sharing of profits: The object of starting a partnership should be the sharing of profits. 4. Unlimited liability: Each partner has an unlimited liability in respect of the debts of the firm. The creditors can recover their dues from the property of any or all the partners of the firm. 5. Dual role of principal anti agent: Every partner can act simultaneously as a principal and agent of the firm. As an agent, he can bind the other partners by his acts. As a principal he is bound by the acts of the others. 6. Number of members: A partnership firm can be formed with a minimum of two members. The maximum number of members to conduct a general business is twenty and in case of banking business, the maximum is ten. Merits of Partnership Firm • • • • • • •
Ease of formation Larger resources Unlimited liability Flexibility of organization Promptness in taking decisions Balance Judgment Reduced risk
Demerits www.jntumaterials.in
3
www.jntumaterials.in
• • • • •
Lack of harmony Instability Limited risk-taking Risk of implied authority Lack of public confidence • Joint and several liabilities
Examples Mahindra-Logan, Maruti-Suzuki, etc Q4 Explain Joint Stock Company features with merits and demerits Ans: Joint Stock Company A company is a voluntary association of persons for the attainment of a common purpose with a capital divisible into units known as shares and with a limited liability. It is the creation of law and is known as an aI1ificial person with a perpetual success in and a common seal. An association of many persons who contribute money or money's worth to a common stock, and employ it in some common trade or business and who share the profit or loss arising therefrom. Features • • • • • •
Separate legal existence Limited liability Perpetual succession and common seal Transferability of shares Separation of ownership and management Number of members is seven
Merits • • • • • • • •
Large financial resources Limited liability Transferability of shares Benefit of large-scale operations Perpetual succession Public confidence Tax benefit Separation of ownership ami management
www.jntumaterials.in
4
www.jntumaterials.in
Demerits • • • • • •
Difficult and costly formation Oligarchic management Delay in administration Fraudulent management Concentration of economic power Delay in taking decisions
Examples are Apple, Google etc
Q5 Explain Co-operative form of organization? Ans: Co-operative Form of Organization A co-operative organization is defined as "an association of persons, usually to achieve a common economic end, through the formation of a democratically controlled business organization, making equitable contributions to the capital required and accepting a fair share or risk and benefits of the undertaking". Features • • • • • • •
Voluntary association The capital of a co-operative society is procured by way of share capital from its members. Democratic setup Ideal of service Member's liability The co-operatives received special incentives from the government such as the exemption from income tax Separate legal existence
Merits • • • • • •
Ease of formation Democratic on management liability of the members is limited the balance of the sUl'plus earned in any year, the funds can well be utlised for its growth Tax incentives Perpetual existence
www.jntumaterials.in
5
www.jntumaterials.in
•
Social service
Demerits • • • •
Limited capital Excessive state regulation Inefficiency management Lack of motivation
Examples are Amul, Handlooms, FCI etc
Q6 Explain public enterprises and their types Public Enterprises and Their Types
www.jntumaterials.in
6
www.jntumaterials.in
www.jntumaterials.in
7
www.jntumaterials.in
www.jntumaterials.in
8
www.jntumaterials.in
Problems faced by Public Enterprises
www.jntumaterials.in
9
www.jntumaterials.in
Q7 Explain Changing Business Environment in Post-Liberalization Scenario Ans:
www.jntumaterials.in
10
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