IV. Answer any four of the following questions in 20-25 sentences each. Each question carries 8 marks: ( 4 \u00d7 8 = 32 )<\/span><\/p>\nQuestion 35.
\nExplain any four merits and four demerits of the Partnership form of business.
\nAnswer:
\nMerits of partnership are:
\n(a) Easy to. form: Like sole proprietorship, the partnership business can be formed easily without any legal formalities.
\n(b) More funds: In a partnership, the capital is contributed by a number of partners. This makes it possible to raise a larger amount of funds as compared to a sole proprietor and undertake ad4itional operations when needed.
\n(c) Sharing risks: The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden, and stress on individual partners.
\n(d) Secrecy: A partnership firm is not legally required to publish its accounts and submit its reports. Hence it is able to maintain the confidentiality of information relating to its operations.<\/p>\n
Demerits of partnership are:
\n(a) Limited capital: Since the total number of partners cannot exceed 20, the capital to be raised is always limited. It may not be possible to start a very large business in partnership form.
\n(b) Lack of continuity of business: A partnership firm comes to an end in the event of death, lunacy, or retirement of any partner. Even otherwise, it can discontinue its business at the will of the partners. At any time, they may take a decision to end their relationship.
\n(c) Lack of public confidence: There is no governmental supervision over the affairs of the business of a partnership and publishing accounts is also not necessary. Hence, the public may not have full confidence in them.
\n(d) Unlimited liability: The liability of each partner is not limited to the amount invested but his private property is also liable to pay the business obligations.<\/p>\n
Question 36.
\nExplain briefly the features of Joint Stock Company.
\nAnswer:
\n(a) Artificial person: Just like an individual, who takes birth, grows, enters into relationships, and dies, a joint-stock company takes birth, grows, enters into relationships, and dies. However, it is called an artificial person as to its birth, existence, and death are regulated by law arid it does not possess ph\u00fdsical attributes like that of a normal person.<\/p>\n
(b) Legal formation: No single ind\u00ecvidtial or a group of individuals can start a business and call it a joint-stock company. A joint-stock company comes into existence only when it has been registered after completio\u00f1 of all formalities required by the Indian Companies Act., 2013.<\/p>\n
(c) Separate legal entity: Being an artificial person a company has its own legal entity separate from its members. It can own assets or property, enters into contracts, sue, or can be sued by anyone in the court of law. Its shareholders cannot be held liable for any conduct of the company.<\/p>\n
(d) Perpetual existence: A joint-stock company continues to exist as long as it fulfills the requirements of law. It is not affected by the death, lunacy, insolvency, or retirement of any of its members.<\/p>\n
(e) Common seal: A joint-stock company has a seal, which is used while dealing with others or entering into contracts with outsiders. It is called a common seal as it can be used by any officer at any level of the organization working on behalf of the company. Any document, on which the company\u2019s seal \u2018is put and is duly signed b\u00fd any official of the company, becomes binding on the company.<\/p>\n
(f) Association of persons: A company is a voluntary association of persons established for-profit motive. A private company must have at least 2 persons and the public limited company must have at least 7 persons to get it registered. The maximum number of persons required for the registration in the case of a private company is 50 and in the case of a public company, there is no maximum limit.<\/p>\n
(g) Limited liability: The liability of the shareholders is limited to the extent of the face value of the shares held by them. The shareholders are not liable personally for the pa\u00fdment of the debt of the company.<\/p>\n
(h) Transferability of shares: The shares of a public limited company are freely transferable and can be purchased and sold through the stock exchanges. A shareholder of a public limited company can transfer his shares without the consent of others except in the case of private companies.<\/p>\n
(i) Large capital: A joint-stock company can raise a large amount of capital because the number of persons contributing towards capital is more in number when compared to sole proprietorship or partnership.<\/p>\n
(j) Democratic management: Joint stock companies have democratic management and control. That is, even though the shareholders are owners of the company, all of them cannot participate in \u2018the management of the company. Normally, the shareholders elect representatives from among themselves known as \u2018Directors\u2019 to manage the affairs of the company.<\/p>\n
<\/p>\n
Question 37.
\nExplain the principles of insurance.
\nAnswer:
\n(a) Principle of Utmost Good Faith: According to this principle, the insurance contract must be signed by both parties (i.e. insurer and insured) in absolute good faith or belief or trust. The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance.<\/p>\n
Example: If any person has taken a life insurance policy by hiding the fact that he is a cancer patient and later on if he dies because of cancer then the Insurance Company can refuse to pay the compensation as the fact was hidden by the insured.<\/p>\n
(b) Principle of Insurable Interest: As per this principle, the insured must have an insurable interest in the subject matter of insurance. It means the insured should gain by the existence or safety and lose by the destruction of the subject matter of insurance.<\/p>\n
Example: If a person has taken the loan against the security of factory premises then the lender can take the fire insurance policy of that factory without being the owner of the factory because he has a financial interest in the factory premises.<\/p>\n
(c) Principle of Indemnity: According to the principle of indemnity, an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. The insurance contract is not made for making a profit else its sole purpose is to give compensation in case of any damage or loss.<\/p>\n
Example: A person insured a car for 5 lakhs against damage or an accident case. Due to the accident, he suffered a loss of 3 lakhs, then the insurance company will compensate him 3 lakhs not only the policy amount i.e., 5 lakhs as the purpose behind it is to compensate not to make a profit.<\/p>\n
(d) Principle of Contribution: According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers in a proportion or from any one insurer.<\/p>\n
Example: A person gets his house insured against fire for 50,000 with insurer A and for 25,000 with insurer B. A loss of 37,500 occurred. Then A is liable to pay 25,000 and B is liable to pay 12,500.<\/p>\n
(e) Principle of Subrogation: According to the principle of subrogation, when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer.<\/p>\n
Example: If a person receives Rs. 1 lakh for his or her damaged stock, then the ownership of the stock will be transferred to the insurance company and the person will hold no control over the stock.<\/p>\n
(f) Principle of Mitigation of Loss: According to the Principle of mitigation of loss, the insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast, etc. The insured must not neglect and behave irresponsibly during such events just because the property is insured.<\/p>\n
Example: If a person has insured his house against ere, then, in case of fire, he or she should take all possible measures to minimize the damage to the property exactly in the manner he or she would have done in absence of the insurance:<\/p>\n
(g) Principle of Causa Proxima: Principle of Causa Proxima (a Latin phrase), or in simple English words, the Principle of Proximate (i.e. Nearest) Cause, means when a loss is caused by more than one causes, the proximate or the nearest cause should be taken into consideration to decide the liability of the insurer.<\/p>\n
Example: If an individual suffers a loss in a fire accident, then this should already be a part of the contract in order for this person to claim the insurance amount.<\/p>\n
Question 38.
\nExplain four merits and four limitations of equity shares as a source of finance.
\nAnswer:
\nMerits:
\nFrom Shareholders Point of View:
\n(a) The equity shareholders are the owners of the company.
\n(b) It is suitable for those who want to take risks for higher returns.
\n(c) The value of equity shares goes up in the stock market with the increase in profits of the concern.
\n(d) Equity shares can be easily sold in the stock market.
\n(e) The liability is limited to the nominal value of shares.
\n(f) Equity shareholders have a say in the management of a company as they are conferred voting rights.<\/p>\n
From Management Point of View:
\n(a) A company can raise capital by issuing equity shares without creating any charge on its fixed assets.
\n(b) The capital raised by issuing equity shares is not required to be paid back during the lifetime of the company. It will be paid back only when the company is winding up.
\n(e) There is not binding on the company to pay dividends on equity shares. The company may declare dividends only if there are enough profits.
\n(d) If a company raises more capital by issuing equity shares, it leads to greater confidence among the creditors.<\/p>\n
Demerits:
\n(a) As equity capital cannot be redeemed, there is a danger of overcapitalization.
\n(b) The dividend which a shareholder receives is neither fixed nor controllable by him. The management of the company decides how much dividend should be given.
\n(c) Equity share investment is a risky share compared to any other investment.
\n(d) Equity shareholders get dividends only if there remains any profit after paying debenture interest, tax, and preference dividends. Thus, getting dividends on equity shares is uncertain every year.
\n(e) Issue of fresh shares reduces the earnings of existing shareholders.
\n(f) Cost of equity is high when compared to other sources of finance.<\/p>\n
<\/p>\n
Question 39.
\nExplain the different types of fixed shop small retailers.
\nAnswer:
\n(a) Street stalls holders: These stalls are located in the main streets or street crossings. A stall is an improvised structure made of tin or wood. The street stall holder displays his goods on a temporary platform and sells toys, stationery, hosiery items. etc. at low prices.<\/p>\n
(b) Secondhand goods shops: These shops sell used or second-hand articles such as books, clothes, furniture, etc. They cater to the needs of poor people who cannot afford new articles.<\/p>\n
(c) General stores: These stores sell a wide variety of products under one roof. For example, a provision store deals in groceries, toothpaste, razor blades, bathing soap. washing powder, soft drinks, confectionery, cosmetics, etc. Consumers can buy most of their daily requirements in one place. Their time and effort are saved.<\/p>\n
(d) Single line stores: These stores deal in one line of goods. They keep stock of different sizes, designs, and quality of goods in the same line. Book stores, chemist shops. electrical stores, shoe stores, cloth stores, jewelry shops, etc., are examples of single-line stores.<\/p>\n
(e) Speciality shops: These shops generally specialize in one type of product rather than dealing in a line of products. Shops selling children\u2019s garments. educational books, etc. are examples of such shops.<\/p>\n
Question 40.
\nExplain the benefits of International business both to nations and firms.
\nAnswer:
\nBenefits of international business to the nation:
\n(a) Earning of foreign exchange: International business helps a country to earn foreign exchange which it can later use for meeting its imports of capital goods, technology, petroleum products and fertilizers, pharmaceutical products, and a host of other consumer products which otherwise might not be available domestically.<\/p>\n
(b) More efficient use of resources: As stated earlier, international business operat\u00e7s on a simple principle produce what your country can produce more efficiently, and trade the surplus production so generated with other countries to procure what they can produce more efficiently. When countries trade on this p\u00f1nciplejhey end up producing much more than what they can when each of them attempts to produce all the goods and services on its own.<\/p>\n
(c) Improving growth prospects and employment potentials: Producing solely for the purposes of domestic consumption severely restricts a country\u2019s prospects for growth and employme\u00f9t. Many c\u00f6ufltries, especially the developing ones, could not execute their plans to produce on a larger scale, and thus create employment for people because their domestic market was not large enough to absorb all that extra production.<\/p>\n
(d) increased standard of living: In the absence of international trade of goods and services, it would not have been possible for the world community to consume goods and services produced in other countries that the people in these countries are able to consume and enjoy a higher standard of living.<\/p>\n
(e) Greater variety of goods available for consumption: International trade brings in different varietie\u0161 of a particular produ\u00e8t from different destinations. This gives consumers a wider array of choices which will not only improve their quality of life but as a whole, it will help the country to grow.<\/p>\n
(f) Consumption at a cheaper cost: International trade enables a country to consume things that either cannot be produced within its borders or production may cost very high. Therefore it becomes cost cheaper to import from other countries through foreign trade.<\/p>\n
(g) Reduces trade fluctuations: By making the size of the market large with large supplies an extensive demand, international trade reduces trade fluctuations. The prices of goods tend to remain more stable.<\/p>\n
Benefits of international business to firms
\n(a) Prospects for higher profits: 1nternati\u00f2na1 business can be more profitable than the domestic business. When the domestic prices are lower, business firms can earn more profits by selling their products in countries where prices are high.<\/p>\n
(b) Increased capacity utiI1ation: Many firms set up productio\u00f1 capacities for their products which are in ex\u00e7ess of demand in the domestic market. By planning overseas expansion and procuring &n fr foreign \u00e7ustoiers, they can think of making use of their surplus production capacities also improving the profitability of their operations.<\/p>\n
(c) Prospects for growth: Business firms find it quite frustrating when demand for their products starts getting saturated in .the domestic market Such Finns can con\u0161iderably improve prospects of their growth by plunging into overseas markets. This is precisely what has prompted many of the multinationals from the developed countries to enter into markets of developing countries.<\/p>\n
(d) Way out to intense competition in the domestic market: When competition in the domestic market is very intense, internationalization seems to be the only way to achieve significant growth. The highly competitive domestic market drives many companies to go international in search of markets for their products.<\/p>\n
(e) Improved business vision: The growth of the int\u00e7rnational business of many companies is essentially a part of their business policies or strategic management. The vision to become international comes from the urge to grow, the need to become more competitive, the need to diversify, and to gain strategic advantages of internationalization.<\/p>\n
Section – E (PRACTICAL ORIENTED QUESTIONS)<\/span><\/p>\nV. Answer any two of the following questions: ( 2 \u00d7 5 = 10 )<\/span><\/p>\nQuestion 41.
\nYou are planning to start a new business. Make a list of any five factors you consider while selecting a suitable form of business organization.
\nAnswer:
\nThe five-factor that should be considered while selecting a suitable form of business organization are:
\n(a) Cost
\n(b) Liability
\n(c) Continuity
\n(d) Management ability
\n(e) Degree of control
\n(f) Capital consideration
\n(g) Nature of business.<\/p>\n
<\/p>\n
Question 42.
\nSuggest any five important sources of finance available for a business organization.
\nAnswer:
\nFive important sources of finance are available for a business organization:
\n(a) Owner\u2019s fund:<\/p>\n