RBSE Class 11 Business Studies Notes Chapter 2 Concept of Business

Rajasthan Board RBSE Class 11 Business Studies Notes Chapter 2 Concept of Business

Business

Meaning – It means to earn money.
Business includes all those economic and human activities which are used in production and distribution of goods and services.
Business’s main motive is to earn money.
All activities of business are done through public and private sector.

Importance of Business

Business is an Economic process.
Business is a human activity.
Business contains both risk and courage.
Business includes distribution of goods and services.
Business is the incorporation of both trade and commercial activities.
Every business needs capital.
A business should have both regulation and statuation.
It fulfills the social needs.
Business gets influenced by the environment.

Features of Modern Business

Today, business is done through new, modern and advanced technologies. The production is done with the help of new innovative activities.
Insurance and Banking services are inevitable for modern business.
To withstand in the highly competitive markets, the businessmen are using advertising and sales promotion techniques increasingly.
Modern techniques are used for transportation and communication.
Special attention is given to their competent managers.
In all the areas of business, research has been emphasised.
Ideology of social responsibility has become the main part of modern business.
In modern business, as market is expanding, so are large-scale industries and corporations.

Importance of Business

Optimum utilization of human resources and physical resources.
Increase in the means of employment.
Helps in enhancing the standard of living.
Helps in cultural expansion.
Helps in specialization of production.

Concept of Business

Specialization in the area of land, labour and production.
Barometer of economic development.
Helps in development of education and knowledge.

Objectives of Business

(i) Economic objectives :

Helps in fulfilling the physical needs of a person.
Protects against future risks and uncertainties.
Proper and best use of resources.
Helps in Innovation.
Helps in increasing the number of customers.

(ii) Social objectives

Best possible use of scarce resources.
A part of the profit earned in business should be spent on general welfare and social community development programmes.
Best utilization of resources.
Production and supply of novel and innovative goods.
Increasing the number of customers.

(iii) Human objectives

Humane behaviour with workers.
Taking care of employees’ remuneration, health and improving their working condition.
Fair and equitable remuneration to employees.
Fair return to the investors.
To provide best quality of goods at a reasonable price to their customers.

Types of Business Organizations

Sole trading
Joint Hindu family business
Partnership
Joint stock company
Co-operative societies
Public Enterprises Undertakings (PSUs).

Sole trading

The ownership of sole trade is in the hands of a single individual. He/she is solely responsible for the business affairs.
In sole trading, owner is the person who takes all the risks and profits.
Tn sole trading, the trader is popularly called as businessman, administrator, solo owner, etc.
Owner is the only responsible person in the business.

Advantages of Sole Trade

Rare information and closure of Business.
Unlimited responsibility of sole owner.
Free from statutory dependence.
Limited area of business.
Monopoly on the capital/finance.
Freedom of business.
Absence in continuation of business.
Sole ownership.

Limitation of Sole trading

Limited life of Business.
Limited source of capital.
Harm due to absence of the owner.
Irrational decisions.
Limited managerial ability.
Unsuitable for large-scale businesses.

Partnership

Definition : When two or more persons mutually argee to work upon a common goal, it is called partnership.
In partnership, partners agree to invest their capital, skill and labour in same lawful business.
The partnership is governed under Indian Partnership Act., 1932.
At least 2 members should be there to start a business with no manimum limit, but according to Indian partnership Act, provision 4, a maximum of 50 members should be the limit for partnership.

Features of Partnership

The relation of partners arises through contract.
It is an association of at least 2 persons.
Partnership has unlimited liability.
The partnership business can be carried on by all the partners jointly or by any one of the partner on behalf of other partners.
The main objective is to earn profit and distribute them among all the partners.
Their is a contractual relation between all the partners.

Advantages of Partnership

Easy formation
Easy in operating
There is more dedication and motivation to work in partners.
Protection of minority interests.
Suitable for risky projects.
Less possibility of speculation.
Registration is not compulsory according to Indian Partnership Act.
Protection to minor partners.

Limitations of Partnership

Lack of harmonious and efficient management.
Lack of prompt decisions.
Unlimited Lability in partnership.
More chances of mutual conflict.
Lack of public faith.
Restriction of transfer of shares.
Unsuitable for large- sized businesses.
Partnership can be dissolved if one partner becomes lunatic, bankrupt or dies.

Illegal Partnership

The following reasons could make a partnership illegal

If in a partnership, the number of Partners remains less than 2 or more than 50.
If it is founded with some illegal objective.
Business is done with person of enemy country.
Chances of having more conflict between the partners.
If it is against public interest and international policies.
If it is against social welfare and the society.
If it is against government policies.

Partnership deed

A partnership deed is a written document based on agreement describing the mutual rights, duties and liabilities including terms and conditions.
It includes name of the partners, nature of the business, location of business, duration, investment made by the partners, distribution of profit and loss, division of work, etc.
It should be signed by every partner.

Hindu Undivided family/Joint Hindu family Business

It is one of the oldest forms of business organization and is found only in India.
It is run by members of a joint Hindu family.
It is governed by Hindu Law.
All members are related to each other, and all members have equal ownership right over the ancestral property. They are also known as COPARCENERS.
Two systems govern it : Dayabhaga system and Mitakshara system.
In Mitakshara system, only male members can be the coparceners. This system is prevalent in entire India except West Bengal.

Characterstics of HUF

According to Hindu Succession Act 1956, to form such organization, at least two members in a family and ancestral property inherited by them is required.
There is no maximum limit of members in Joint Hindu family business.
The control of the family business lies with the head of the family or ‘Karta’.
A child becomes the member of JHF automatically by his birth.
The business continues even after the death of Karta or any other member of the family.

Advantages of HUF

The karta has absolute decision-making power, which leads to prompt decision making, resulting in effective control.
The business continues to run and death, lunacy, illness of karta do not affect the continuity of the business.
Increases the reputation of all the family members apart from the Karta.
All members work with complete devotion and are loyal to each others.

Limitations of HUF

Unlimited liability of Karta.
Sometimes, the dominance of Karta may result in breakdown of family unity.
It has limited managerial skills.
It has limited profits.

Limited Liability Partnership (LLP)

To maintain pace with the fast growing modern business and industrial world, the need for a new form of organization was felt, which could offer the benefits of limited company along with main features of partnership. This need gave birth to a new organization in present business world, which is called LLP.
LLP is introduced as an annexure of partnership.
It is incorporated under LLP Act 2008.
It became effective from 1st April 2009.
The registraion of Association of LLP was done on 2nd April 2009.
LLP is suitable for small and medium-sized businesses as well as for venture capital enterprises.

Main features of LLP Act, 2008

It is a corporate body.
The mutual rights and duties of partners and their rights and obligations towards the firm are determined by the provision of this act.
Under LLP, minimum 2 members are required and out of two partner^one should
essentially be an Indian citizen. W
The provisions of Company Act can be applied in LLP.

Salient features of LLP

Here, partners have limited liability only.
It overcomes the disadvantages of unlimited liability and rigidity of Company Act.
The liability of the owners is limited to the extent of their capital contribution in the firm.
These firms can buy and hold the property in their own name.
The organization enjoys the benefit of perpetual existence of the business,

Advantages of LLP

The most important advantage of LLP is that the personal property of partners will not be at risk for discharging the firm’s obligations.
The partners under LLP have seperate legal existence.
The existence of LLP is independent of its members. It is formed by law and can be dissolved by law only.
Death, lunacy, insolvency, withdrawal of a partner does not affect its existence.
Substantial freedom is given to the members for managing their mutudl affairs with the firm.

Disadvantages of LLP
→ According to section 34 of LLP Act 2008, it is compulsory for a LLP firm to disclose its financial information.

→ In the modern business, it is a new concept, hence it will take time to become popular.
301 Concept of Business Co-operative Institutions

→ It is made up of 2 words- co + operation, which means to work together.

→ It is certainly the group instinct in man which enables him to live together, work together and help one another in times of distress.

→ This act came in 1912 under Co-operation Institution Act.

→ Before 3000 BC, artisans in Egypt had their co-operative Association.

→ In 1769 AD, land mortgage banks were established in Germany.

→ In 1844, a group of 28 artisans working in cotton mills in Rochelle of England, established the first modern co-operative society.

→ Sir Fredrick Nicholson, in 1895 and 1897, submitted his reports to Madras government mentioning the recommendation to set up rural credit societies.

→Mr. Duparnex also recommended to set up rural bank, in his books.

→These two reports made the government appoint a committee under Sir Edward Law in 1901.

→The introduction of Co-operative Credit Society Act was done in 1904. To rectify the defects of the Act of 1904, another act came in 1912.

→ In co-operative section, NSDC, NABARD, IFFCO, NCHF and other similar major co-operative banks were established by the government.

Characteristics of Co-operativeness

It is a voluntary association.
It is open to all, irrespective of caste, religion, gender, status, etc.
The philosophy behind establishment of co-operative institutes is ‘all for each and each for all’.
It works under federal system.

Advantages of Co-operativeness

All the members are given equal voting rights.
The surplus earned by co-operative societies is distributed among its members.
Co-operatives aim at abolishing the role of middlemen.
Co-operatives increase employment.
Co-operatives encourage small-scale and cottage Industries.
Co-operatives help in capital formation of the country.

Disadvantages of Co-operatives

There is no benefit to the neglected section in co-operatives.
There is a lack of confidentiality in such institutes.
Honesty is gradually becoming extinct from the society.
Difference in opinion of people creates problem in decision making.
There is weak management system in these societies.

Co-operative Institutions in Rajasthan

Rajasthan State Co-operative Bank (Apex Bank).
On 14th October 1953, a committee was set up by Reserve Bank under the
chairmanship of ‘Shri Kothari’ who recommended to establish an apex bank for co¬operative development. ,
Its headquarters is in Jaipur.
The banks hold the responsibility of development of co-operatives in Rajasthan.
These banks provide short-term and mid-term loans to central co-operative banks.
It maintains and accepts deposits from various accounts.

Central Co-operative Bank

Central Co-operative Banks are set up at district level.
The first Central Co-operative Bank came into existence in the year 1910 in Ajmer.
Presently, there are 29 central co-operative banks with 429 branches and 6231 village service co-operative societies.

Primary Agricultural Credit Societies

These societies interface with rural public and encourage them to save and mobilize savings in rural areas.
These societies offer short-term and mid-term loans to its members.
As on 31.3.2015, Rajasthan had 6231 Agricultural Co-operative Credit Societies.
It contributes in the development of advanced agriculture.

Land Development Banks

These were established to provide long-term loans to the farmers.
Rajasthan State Co-operative Land Development Bank which was established on 28th March 1957 is presently working with 36 Primary Land Development Banks in 33 districts.
The rate of interest charged by these banks is very low.
These banks provide long-term loans to its members for purposes like increasing productive capacity of land, irrigation, construction of wells or ponds, repairing wells, cultivation, etc.

RAJFED (Rajasthan Co-operative Marketing Federation)

RAJFED helps the farmers in getting reasonable and remunerative prices for their produce and agricultural production.
RAJFED helps the farmers by granting them loans to increase agricultural production.
They provide agricultural inputs like high yielding variety of seeds, chemical fertilizers, pesticides, insecticides and agricultural equipment to their members.

CANFED (Consumer Co-operative Stores)

To make available essential consumer goods at fair price, co-operative consumer stores were set up in 1967.
Till June 2000, 613 cooperative consumer stores are working in Rajasthan.
They are situated at every district level.
CANFED plans to start mini-super markets at village level and also to open consumer stores for organic products and women consumer stores.

Corporate Housing Societies

These societies help to provide housing to the weaker sections of the society.
Presently, 1202 such societies are working.
1224 housing co-operative societies have made available 2.25 lakh plots/houses in developing residential colonies in the state.

Industries and Public Sector Units

PSU enterprises are owned, controlled, operated and managed by the government.
In public sector enterprise, the central or state government owns at least 59% or more shares.
In 1951, the number of PSUs in the country was only 5. Today, their number has increased to 250.
Industrial resolution of 1956 classifies industries into 3 categories on the basis of role played by state.
In 1989, the government nationalised 14 major banks.
Industrial licencing policy of 1970 imposed some restrictions on enterprises of large industries by redefining them on the basis of their assets of more than 350 crores.
In 1973, large industrial houses were considered according to the definition given in MRTP Act 1969.
Status of PSUs are categorized as Maharatnas, Navratnas and Miniratnas.

Advantages of Public Enterprises

The basic structure of India has developed because of public enterprises.
It contributes in the development of various spheres.
Around 13.9 lakh people get employment due to public enterprises.
Their total business is 25% of GDP and their share in export income is 8%.
PSUs share in total market capitalisation is 21% which has reached 337.6 million in June 2014.

Important Definitions

→ Definition of Business
According to L.H. Haney, “Business may be defined as human activites directed towards providing or acquiring wealth through buying and selling goods”. According to Wheeler- “Business is an institution organised and operated to provide goods and services to the society under the incentive of private gain”.
According to Urwik— “Business is an institution which produces, distributes, makes available goods and services which are needed by the society”.

→ Definitions of Sole Trade
According to Dr. John A Shubin – “Under sole properitorship form of organisation, a single individual owner has title to and operates the business in his own name.”
According to L.H. Honey – “The individual entrepreneurship is that form of business organization, the head of which stands an individual as the one who is responsible, who directs its operations and who alone runs the risk of future.” o According to Kumbal and Kumbal, “A sole trader is the one who is the supreme authority of the business under the general and specific laws which affect his business.”

→ Definitions of Partnership
Haney has given a suitable definition of Partnership in simple words. According to him, “Partnership is the relationship between persons who agree to carry on a business in common with a view to private gain.”
According to American Partnership Act — ” Partnership is the association of two or more persons who carry on a business for profits as co—owners.”
According to Indian Partnership Act 1933 Section 4 — “The relationship between persons who have agreed to share profits of a business carried on by all or any of them acting for all.”

→ Definitions of co-operation .
According to Sir Hence Planket — “Cooperation is self help made effective by organization.”
According to Prof. PH. Lastleman – “Cooperation is an economic system having social element.”
According to Indian Cooperative Societies Act 1912, Schedule 4(C) — “Society is one which has as its objective the promotion of economic interest of its members in accordance with co-operative principles”.

Concept of Business Class 11 RBSE Notes Important Terms

• Business : Business is a means to acquire wealth. In other words, all those activities performed to earn income are known as business.

• Sole Proprietorship : The form of business in which one person is the owner, manager and controller of the business and is solely responsible for all the business affairs including profit and risk.

• Partnership : When two or more than two persons mutually agree to invest their capital, skill and labour in the same lawful business with an objective to share all the profits, according to the business agreement.

• Hindu Undivided family or HUF and family Business : A specific kind of activity, where all the members of the family run a business together. The business is controlled by the head of the family. It is specifically found in India only.

• Co-operative Society : It is an action of persons voluntarily uniting for utilising their own abilities and resources. It is actually a social and economic movement.

• Company : It is an act under which several people of different personalities, statutory existence, eternal successor, having a common association come together.

• Public Enterprise : A business organisation wholly or partly owned by the state and controlled through a public authority is known as public enterprise.

• Partnership Deed : A document between partners which includes name of the firm, type of the firm and valuation of goodwill, division of work between the Partners, salary distribution, etc. and other rules.

• Unlimited Liability : Indefinite extent of liability to pay a firm’s debts or obligations, extending beyond the investments of the firm’s business.

• Holding out Partner or partner by Estoppel : If a person, who, by conduct or words, represents or allows himself to be represented as a partner in a firm, but is actually not a partner, such partner is called holding out Partner or partner by estoppel.

• Incoming Partner : A person who is admitted to partnership firm with the consent of all the partners or by the rules of partnership deed is called Incoming Partner.

• Mutual Agency : A legal relationship between partners in a partnership where each partner has authorization powers and the ability to enter the partnership into business contracts. Each partner is an agent in the business and all the partners have the authority to make business decisions.

• Dayabhaga System : This system prevails in West Bengal and allows both female and male members of the family to. be co – parceners.

• Mitakashara System : This system was generated by Vigyaaneshwar, whose rule was composed in the memory of Yagyavalkya. This system prevails in entire India, except West Bengal and allows only the male members to be a co-parceners in business.

• Co-parceness : All members have equal ownership right over the ancestral property and they are known as co-parceners.

• Subject : The business to controlled by the head of the family, who is the eldest member and called Karta (subject).

• Artificial Person : Entity such as firm other than a natural person (human being) created by law and recognized as a legal entity, having a distinct identity, legal personality and duties and rights.

• Perpetual Succession : Company is made through law. Its partners may change but company keeps running. It can only be dissolved through law, therefore a successor is appointed.

• Common Seal : Company works through its Board of Directors. Company has a common seal, which has to be mentioned in every document and without this any agreement made by the company would be regarded illegal and void.

• Innovation : The process of translating an idea or invention into goods or services that create value or for which customers will pay.