UNIT-I: INTRODUCTION AND FORMS OF BUSINESS ORGANISATIONS: Concepts of Business, Trade,
Industry and Commerce - Objectives and Functions of Business Social Responsibility of a Business - Forms of Business
Organization - Meaning, Characteristics, Advantages and Disadvantages of Sole Proprietorship –Meaning,
Characteristics, Advantages and Disadvantages of Partnership -Kinds of Partners - Partnership Deed -Concept of
Limited Liability Partnership – Meaning, Characteristics, Advantages and Disadvantages of Hindu Undivided Family –
Meaning, Advantages and Disadvantages of Co-Operative Organization.
SHORT QUESTIONS:
1. What is economic activity?
Ans: The main motive of every business is to earn profits those activities which deals with earning or
spending of income are known as economic activities. Creation of wealth or assets is the main purpose of
undertaking economic activity these activities are performed in consideration for money only and it can be
measured in terms of money.
2. What do you mean by profession?
Ans: A profession is an occupation founded upon specialized educational training, the purpose of which is
to supply disinterested objective counsel and service to others, for a direct and definite compensation,
wholly apart from expectation of other business gain.
3. What is aids to trade?
Ans: Aids to trade are the activities which are necessary for smooth flow of goods from producers to
consumers. These activities facilitate trade by removing various barriers in the buying and selling of goods.
a. Transport
b. Warehousing
c. Insurance
d. Banking and finance
e. Advertising
f. Communication
4. What do you mean by unlimited liability?
Ans: Unlimited liability means that the business owners are personally liable for any loss
the business makes. Sole traders and partnerships often have unlimited liability.
5. What is implied authority?
Ans: Implied authority refers to an agent with the jurisdiction to perform acts that are reasonably necessary
to accomplish the purpose of an organization. Under contract law, implied authority figures have the ability
to make a legally binding contract on behalf of another person or company.
6. What do you mean by minor as a partner?
Ans: A minor is a person who has not yet attained the age of majority, which is 18 years. A ‘minor’ does
not enjoy the capacity to enter into contracts in his own. Since partnership is a contractual relationship, a
minor cannot become a partner.
According to Indian partnership act, a minor cannot enter into a contract and if any such contracts have
been made, then such contracts are void. However, minor can admit into the benefits of partnership, with
the consent of all partners of the firm.
, 7. What is partnership at will?
Ans: Partnership at will can be defined as when there is no clause mentioned about the expiration of a
partnership firm. Under section 7 of the Indian partnership act 1932, the two conditions that have to be
fulfilled by a firm to become a partnership at will are:
• The partnership agreement should have not any fixed expiration date.
• No particular determination of the partnership should be mentioned.
Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership
at will. Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond
the mentioned date that it will be considered as a partnership at will.
8. What is particular partnership?
Ans: A partnership can be formed for carrying on continuous business, or it can be formed for one particular
venture or undertaking. If the partnership is formed only to carry out one business venture or to complete one
undertaking such a partnership is known as a particular partnership.
After the completion of the said venture or activity, the partnership will be dissolved. However, the partners
can come to an agreement to continue the said partnership. But in the absence of this, the partnership ends when
the task is complete.
9. What is limited liability partnership?
Ans: Partners of typical partnership firms have unlimited liability towards their collective debts and legal
consequences. This means that their own assets are liable for attachment for meeting the firm’s debts and
liabilities. And limited liability partnerships act 2008 (LLP) solves this problem.
An LLP has all basic features of a regular partnership firm, except that of same legal entity status and
unlimited liability of partners. Consequently, limited liability partnerships have legal existence and identity
separate from that of its partners. Furthermore, its partners have limited liabilities.
LONG QUESTIONS
1. What is business? Explain the characteristic features of business?
Ans:
Business:
Business refers to activities involving production or purchase and the sale of goods desired by the
people, with the intention of earning profit, even if the businessman is providing services such as internet
connectivity or transfer of money from one place to another, such activities are termed business and not
profession.
Definition:
Business may be defined as the regular production or purchase and sale of goods or services undertaken
with the objective of earning profits ang acquiring wealth through satisfaction of human wants.
Many prominent personalities have defined business in different ways.
Prof. L.r. dicksee defines business as “a form of activity pursued primarily with the object of earning
profits for the benefit of those on whose behalf the activity is conducted. It covers the whole complex field
of commerce and industry, the basic industries and the network of ancillary services. Distribution, banking,
insurance, transport and so on, which serve and interpenetrate the world of business as a whole”.
, Nature of business:
Features of business: based on the above definitions and discussion. We can list out the features of
business as under:
1. Economic activity: business is an economic activity. It involves money and is undertaken to fulfill
an economic activity. They serve a useful purpose and involve optimal utilization of resources.
2. Exchange: business involves exchange of goods and services for money or money's worth. One-
way transactions such as gift given by one person to another do not constitute business.
3. Continuity of operations: business pre supposes continuity of operations. These should be a regular
sequence of dealings. Isolated transactions such as sale of house do not constitute business.
4. Profit motive: business activity is motivated by desire to earn profit. Business has other objectives
apart from profit, but profit is desired as a fair compensation for the efforts of the businessman.
5. Risk: every business involves some element of uncertainty in the operating environment. For
example, one may not be able to sell all the goods produced or purchased, amount due from credit
sales may not be collected, etc. Risk is an inherent part of business.
6. Entrepreneur: a business is started to fulfill a particular need felt by the society. The person who
identifies the need and undertakes to carry on the various activities to earn desired rewards and is
willing to bear the risk of any adverse developments is an entrepreneur. A business cannot exist
without an entrepreneur and hence is called an “enterprise”.
7. Dynamic nature: business is dynamic in nature. The environment in which it operates is constantly
changing. Changes in societal norms, political ideology, fashion trends, economic condition and
regulation impact businesses in many ways. Business has to be dynamic in order to respond to such
a changing environment.
8. Organized activity: business needs to be properly organized to be successful. There is a need for
clear definition of roles and responsibilities of various people. Systems are designed and
implemented so that there is co-ordination between the various activities.
9. Value to customers: business arises out of an opportunity to cater to an unmet demand of section of
society. This section of society is willing to pay more for a product that maximizes their satisfaction.
Thus, value is created by the business.
10. Wide scope: a wide variety of activities come within the scope of business. Business includes trade,
industry and commerce. It includes transactions in goods as well as services. Business could be
local or it could be global.
11. An art and a science: business needs to be conducted in a specific manner. To that extent, there are
certain principles that need to be followed. At the same time, the ability of a person to understand
a business situation and respond to it on the basis of one's intelligence and experience differs from
person to person. Thus, business is both a science and an art.
12. Social objectives: business cannot exist solely to earn profits. It is part of society and must not
ignore social good. There is greater recognition of social responsibility of business. Corporate social
responsibility is now a regulatory requirement.
Industry and Commerce - Objectives and Functions of Business Social Responsibility of a Business - Forms of Business
Organization - Meaning, Characteristics, Advantages and Disadvantages of Sole Proprietorship –Meaning,
Characteristics, Advantages and Disadvantages of Partnership -Kinds of Partners - Partnership Deed -Concept of
Limited Liability Partnership – Meaning, Characteristics, Advantages and Disadvantages of Hindu Undivided Family –
Meaning, Advantages and Disadvantages of Co-Operative Organization.
SHORT QUESTIONS:
1. What is economic activity?
Ans: The main motive of every business is to earn profits those activities which deals with earning or
spending of income are known as economic activities. Creation of wealth or assets is the main purpose of
undertaking economic activity these activities are performed in consideration for money only and it can be
measured in terms of money.
2. What do you mean by profession?
Ans: A profession is an occupation founded upon specialized educational training, the purpose of which is
to supply disinterested objective counsel and service to others, for a direct and definite compensation,
wholly apart from expectation of other business gain.
3. What is aids to trade?
Ans: Aids to trade are the activities which are necessary for smooth flow of goods from producers to
consumers. These activities facilitate trade by removing various barriers in the buying and selling of goods.
a. Transport
b. Warehousing
c. Insurance
d. Banking and finance
e. Advertising
f. Communication
4. What do you mean by unlimited liability?
Ans: Unlimited liability means that the business owners are personally liable for any loss
the business makes. Sole traders and partnerships often have unlimited liability.
5. What is implied authority?
Ans: Implied authority refers to an agent with the jurisdiction to perform acts that are reasonably necessary
to accomplish the purpose of an organization. Under contract law, implied authority figures have the ability
to make a legally binding contract on behalf of another person or company.
6. What do you mean by minor as a partner?
Ans: A minor is a person who has not yet attained the age of majority, which is 18 years. A ‘minor’ does
not enjoy the capacity to enter into contracts in his own. Since partnership is a contractual relationship, a
minor cannot become a partner.
According to Indian partnership act, a minor cannot enter into a contract and if any such contracts have
been made, then such contracts are void. However, minor can admit into the benefits of partnership, with
the consent of all partners of the firm.
, 7. What is partnership at will?
Ans: Partnership at will can be defined as when there is no clause mentioned about the expiration of a
partnership firm. Under section 7 of the Indian partnership act 1932, the two conditions that have to be
fulfilled by a firm to become a partnership at will are:
• The partnership agreement should have not any fixed expiration date.
• No particular determination of the partnership should be mentioned.
Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership
at will. Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond
the mentioned date that it will be considered as a partnership at will.
8. What is particular partnership?
Ans: A partnership can be formed for carrying on continuous business, or it can be formed for one particular
venture or undertaking. If the partnership is formed only to carry out one business venture or to complete one
undertaking such a partnership is known as a particular partnership.
After the completion of the said venture or activity, the partnership will be dissolved. However, the partners
can come to an agreement to continue the said partnership. But in the absence of this, the partnership ends when
the task is complete.
9. What is limited liability partnership?
Ans: Partners of typical partnership firms have unlimited liability towards their collective debts and legal
consequences. This means that their own assets are liable for attachment for meeting the firm’s debts and
liabilities. And limited liability partnerships act 2008 (LLP) solves this problem.
An LLP has all basic features of a regular partnership firm, except that of same legal entity status and
unlimited liability of partners. Consequently, limited liability partnerships have legal existence and identity
separate from that of its partners. Furthermore, its partners have limited liabilities.
LONG QUESTIONS
1. What is business? Explain the characteristic features of business?
Ans:
Business:
Business refers to activities involving production or purchase and the sale of goods desired by the
people, with the intention of earning profit, even if the businessman is providing services such as internet
connectivity or transfer of money from one place to another, such activities are termed business and not
profession.
Definition:
Business may be defined as the regular production or purchase and sale of goods or services undertaken
with the objective of earning profits ang acquiring wealth through satisfaction of human wants.
Many prominent personalities have defined business in different ways.
Prof. L.r. dicksee defines business as “a form of activity pursued primarily with the object of earning
profits for the benefit of those on whose behalf the activity is conducted. It covers the whole complex field
of commerce and industry, the basic industries and the network of ancillary services. Distribution, banking,
insurance, transport and so on, which serve and interpenetrate the world of business as a whole”.
, Nature of business:
Features of business: based on the above definitions and discussion. We can list out the features of
business as under:
1. Economic activity: business is an economic activity. It involves money and is undertaken to fulfill
an economic activity. They serve a useful purpose and involve optimal utilization of resources.
2. Exchange: business involves exchange of goods and services for money or money's worth. One-
way transactions such as gift given by one person to another do not constitute business.
3. Continuity of operations: business pre supposes continuity of operations. These should be a regular
sequence of dealings. Isolated transactions such as sale of house do not constitute business.
4. Profit motive: business activity is motivated by desire to earn profit. Business has other objectives
apart from profit, but profit is desired as a fair compensation for the efforts of the businessman.
5. Risk: every business involves some element of uncertainty in the operating environment. For
example, one may not be able to sell all the goods produced or purchased, amount due from credit
sales may not be collected, etc. Risk is an inherent part of business.
6. Entrepreneur: a business is started to fulfill a particular need felt by the society. The person who
identifies the need and undertakes to carry on the various activities to earn desired rewards and is
willing to bear the risk of any adverse developments is an entrepreneur. A business cannot exist
without an entrepreneur and hence is called an “enterprise”.
7. Dynamic nature: business is dynamic in nature. The environment in which it operates is constantly
changing. Changes in societal norms, political ideology, fashion trends, economic condition and
regulation impact businesses in many ways. Business has to be dynamic in order to respond to such
a changing environment.
8. Organized activity: business needs to be properly organized to be successful. There is a need for
clear definition of roles and responsibilities of various people. Systems are designed and
implemented so that there is co-ordination between the various activities.
9. Value to customers: business arises out of an opportunity to cater to an unmet demand of section of
society. This section of society is willing to pay more for a product that maximizes their satisfaction.
Thus, value is created by the business.
10. Wide scope: a wide variety of activities come within the scope of business. Business includes trade,
industry and commerce. It includes transactions in goods as well as services. Business could be
local or it could be global.
11. An art and a science: business needs to be conducted in a specific manner. To that extent, there are
certain principles that need to be followed. At the same time, the ability of a person to understand
a business situation and respond to it on the basis of one's intelligence and experience differs from
person to person. Thus, business is both a science and an art.
12. Social objectives: business cannot exist solely to earn profits. It is part of society and must not
ignore social good. There is greater recognition of social responsibility of business. Corporate social
responsibility is now a regulatory requirement.
