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.
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
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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
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Limited finance
Unlimited liability
Limited managerial skills
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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
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Ease of formation
Larger resources
Unlimited liability
Flexibility of organization
Promptness in taking decisions
Balance Judgment
Reduced risk
Demerits
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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
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Separate legal existence
Limited liability
Perpetual succession and common seal
Transferability of shares
Separation of ownership and management
Number of members is seven
Merits
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Large financial resources
Limited liability
Transferability of shares
Benefit of large-scale operations
Perpetual succession
Public confidence
Tax benefit
Separation of ownership ami management
Demerits
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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
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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
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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
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Social service
Demerits
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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
Problems faced by Public Enterprises
Q7 Explain Changing Business Environment in Post-Liberalization Scenario
Ans: