BBA & B.

COM 1
Concept of Business
Unit I

Introduction to Business, Business Undertakings, Size of A

Business Unit and Scale of Operations, Promotion of Business, Business
Combinations, Scientific Management, Rationalization, Plant Location,
Structure and Forms of Business Organization.

Business
Business is any economic activity that includes the purchase or sale of goods or services with the basic
objective of earning profit and satisfying the individuals’ needs of the society. Business activities can be
classified into two categories: Industry and Commerce.

Concept of Business
All economic activities that involve the sale and/or purchase of goods and services with some element
of risk and motive of earning profits are known as business. All business activities also aim at
satisfying the needs of human beings in society. It is an activity that is performed on a regular basis and
hence also means ‘being busy.’

 Economic Activities: - Economic activities refer to those activities which are performed with
the objective of earning money and creating wealth. Economic activities are of three types,
namely, Business, Profession, and Employment. For example, an individual running an
organization is a business, a teacher teaching at a school is a profession, and an employee
working in an organization is employment.

 Non-Economic Activities:- Non-economic activities refer to those activities which are

performed with the objective of satisfying emotional, social, and psychological needs. Earning
money and livelihood is not the motive of human beings while performing non-economic
activities; instead, people perform them out of sympathy, love, affection, etc. For example, a
mother cooking food for her children, a sports teacher coaching his daughter, and friends
teaching each other before exams are considered non-economic activities.

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Characteristics of Business

 Economic activity: Business is an economic activity, as it involves performing activities with the
basic objective of earning money and profits.
 Sale or exchange of goods and services: A business should include the sale or exchange of
goods and services for some consideration or value in return between the buyer and seller directly
or through some third party. No internal consumption is involved in business activities.
 Procurement or production of goods and services: Procurement means trading goods and
services, and production means manufacturing the goods and services in an organization. In
procurement, businesses do not manufacture goods or services on their own; instead, they
purchase them from other companies and then sell them to different consumers and businesses.
Here goods include any consumable item, and services consisting of banking, insurance,
transportation, etc.
 Regular basis: An activity will be considered as a business if it takes place on a regular basis. It
means that selling or purchasing goods and services for one time only is not considered a
business. For example, manufacturing and selling chairs on regular basis is a business. However,
selling your school books for one time is not a business.
 Profit earning: The main objective of any business is to earn profits. No business can survive
only on the sale and purchase of goods and services without making profits. Therefore, the efforts
of a businessman are always directed towards earning more and more profits.
 Uncertainty of return: The environment in which a business operates is quite uncertain.
Therefore, no matter how much money is invested in a business, one cannot say for sure how
much profit the business will earn in a specific time period. Hence, the chances of losses are also
present in a business.
 Element of risk: Uncertain business environment and different natural, human, social,
economical, political, financial, or personal factors exist in every business that exposes them to
certain risks. Therefore, a business has to consider these elements of risks while performing
activities.

Objectives of Business

 Profit earning: Profit is the amount of a business’s revenue over expenditure. Profit earning is
the prime motive of every organization as it ensures the survival and growth of the business. Even
though profit is essential for a business, it can’t be the sole motive of a business.
 Innovation: To attain success and growth, it is essential for a business to innovate. Innovation
can be done by making new products or making better changes, or adding new features to the
existing products. It helps a business in improving its production and distribution methods and
explore new markets. In the present world, innovation is essential for every business to compete
with other businesses and remain in the market.
 Market standing: Another important objective of any business is market standing which can be
attained by providing goods and services to its customers to meet their needs and wants. By doing
so, a business can maintain a market standing, attain goodwill, and survive for a long time.
 Social responsibility: Besides economic objectives, there are some social obligations that a
business has to follow, also known as social responsibility. Simply put, social responsibility
means contributing business resources to solve social problems and work in a socially desired
manner.
 Productivity/optimum utilization of resources: The next objective of a business is optimum
utilization of resources and productivity. It means that a business has to use its inputs or resources

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 like money, material, labor, machinery, land, etc., in the best possible and optimum manner so as
to achieve maximum result or output in return.
 Physical and Financial resources: For the production and sale of goods and services, a business
requires some physical and financial resources. Physical resources consist of plant, machinery,
land, labor, etc. However, financial resources consist of the funds or money to run and operate the
business for the production and distribution of goods and services. Therefore, acquiring the
required financial and physical resources is an objective of a business.
 Quality goods and services at a fair price: It is another social objective of a business that aims
at providing better quality goods and services to the customer at a reasonable price. For example,
providing goods with ISI mark on electrical goods, Hallmark on jewelry, etc.
 Workers Development: Human beings are the most important resource of a business, and their
development is one of the most crucial objectives. It includes providing equal opportunities to all
irrespective of caste, creed, religion, etc., proper remuneration, medical, entertainment, training,
and welfare facilities to its employees.

Business undertaking

A business undertaking is an institutional arrangement to conduct any type of business activity. The
undertaking may be run by one person or association of persons. It may be based on formal or informal
agreement among persons who undertake to run the concern.
According to Wheeler, a business undertaking is “a concern, company or enterprise which buys and sells,
is owned by one person or a group of persons and is managed under a specific set of operating policies.”
The persons join together and pool their resources and conduct the activities of the undertaking for the
benefit of all.

Characteristics of a Business Undertaking:

1. Separate Entity:A business undertaking has a separate entity. Every undertaking has its own working
and conducts its own business. It has its own assets and liabilities. The debts owned by one undertaking
cannot be recovered from any other undertaking.

2. Separate Ownership:An undertaking is owned by the persons who contribute towards its capital.
There is a direct link between capital contribution and ownership. If capital is contributed by a private
individual, it will be a private undertaking. If the capital is contributed by the government or by the
institutions owned by the government then it will be a public undertaking.

3. Separate Management:Every undertaking has its separate management. It does not mean that same
persons cannot be on the management of other concerns. In India same persons may be on the Board of
Directors of a number of companies. Separate management implies independent decision-making. Every
management decides about the utilisation of its resources, type of products to be produced, volume of
output, marketing channels etc. The levels of management will be decided on the basis of the scale of
operations.

4. Independent Risk Bearing:Every business involves many risks. Some risks can be insured but others
will have to be borne by the owners. An undertaking may earn profits but it may incur losses too. All
types of losses or risks have to be borne by the owners of the undertaking and none else.

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5. Exchange of Goods and Services:A business undertaking deals in exchange of goods and services.
The goods to be exchanged may either be produced or procured from other sources. The exchange is
generally for money or money’s worth.

6. Dealing in Goods and Services:All business undertakings deal in goods and services. The goods may
be consumers’ goods or producers’ goods. The consumers’ goods are those which are purchased by them
for consumption or day-to-day use. These goods include food products, clothes, tooth paste, soap, etc.
The producers’ goods are those which are meant for further use in production. These goods may be
machines, plants, tools, equipment’s, etc. The services, on the other hand, may be water supply,
electricity supply, transport facilities etc.

7. Profit Motive:All business undertakings are run to earn profits. An undertaking started for social
service will not be called business undertaking because the aim is not to earn profit. The incentive of
earning profit keeps the undertaking going. The aim is to get back more than what has been invested.

8. Continuity of Transactions:The transactions in business undertakings are continuous or regular. They

are engaged in a series of successive transactions over time and space.

9. Risk and Uncertainty:Every business undertaking is exposed to risks and uncertainties. Business is
influenced by future events and future is always uncertain. There are chances of price fluctuations,
demand changes, consumer likings and disliking’s, etc. There may be a fire, earthquake, strike by
workers etc. All these factors make a business undertaking risky and uncertain.

10. Social Responsibility:The only aim of business undertakings is not to increase profits. They own
some responsibility to the society also. The society expects business undertakings to provide cheap and
better quality goods to consumers. They are also expected to contribute towards social amenities by
opening schools, hospitals, parks, etc. not only for the employees but also for people living in those
localities. Business undertakings should also avoid water and air pollution by their wastes.

Classification of Business Undertakings:

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Business undertakings may broadly be classified as:
1. Industrial undertakings
2. Marketing undertakings
3. Financial undertakings
4. Service undertakings.

1. Industrial Undertakings: Industrial undertakings are concerned with production or manufacturing of

goods. Manufacturing processes convert raw materials into products or goods. Thus a form utility is
added to the goods by industrial undertakings. Industrial undertakings cover industries such as: primary
and genetic, extractive, construction and manufacturing. Manufacturing industries may further be divided
into analytical, processing and synthetic industries.

2. Marketing Undertakings:Marketing undertakings are concerned with buying and selling of goods.
These undertakings may be in the form of trading firms, agency firms or warehouses. Trading firms
purchase goods either from manufactures or from other intermediates. The goods are purchased for resale
purpose.The wholesalers, retailers or other concerns dealing in goods are called trading concerns. The
importers and exporters of goods are also a part of trading undertakings. The other categories of people
connected with marketing are brokers, commission agents, auctioneers etc.

3. Financial Undertakings:Financial undertakings provide financial help to those who need it. The
industrial, marketing and service undertakings are helped by financial institutions like banks, investment
trusts, stock exchanges, stock brokers, underwriters etc. Some institutions like banks accept deposits from
public and extend loan facilities to other business undertakings.

4. Service Undertakings:These undertakings support services required for uninterrupted production and
exchange of goods. They provide services such as transportation, insurance, communication, electricity,
eating house, etc. The expansion and development of business depends upon the facilities provided by
service undertakings.

There are three types of business undertakings:

1. Private Undertakings
2. Public Undertakings
3. Joint Sector Undertakings.

Private Undertakings:
These undertakings have the following types of organisation:
(i) Sole Proprietorship (ii) Partnership
(iii) Joint Hindu Family Business (iv) Joint Stock Company (v) Co-operative Societies.

Size of Business Unit

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The size of a business unit means the size of a business firm. It means the scale or volume of operation
turned out by a single firm. The study of the size of a business is important because it significantly affects
the efficiency and profitability of the firm. One of the most important entrepreneurial decisions in
organizing a business is realizing its ‘size’ as it affects in company and profitability of business
enterprises. The term’ size of business’ refers to the scale of organization and operations of a business
enterprise. It is essential here to have a clear understanding of the terms’ size’ of the ‘plant’ size of ‘firm’
and the size of the industry. A ‘plant’ means an establishment of the manufacturing of goods. It
represents a production unit where the due provision of all the activities facilitating the production
process as made. A ‘firm’ means as an organization that owns manages and controls a plant or number of
plants and also arranges for the marketing of products, provision of finance, and other facilities to run the
organization. The term industry’ implies the aggregate of all firm which manufacture similar types of
products.

Measures of Size
Business firms vary in size-small, medium, and large. To measure the size of a business unit, the
standards of measurement can be grouped into the following two categories.

Measures About Input

This includes capital employed, net worth, total assets, labor employed, and raw material and power
consumed.
 Capital employed :- The capital includes owned capital and borrowed capital. The larger the
amount of capital employed, the larger the size of the firm.
 Net worth :- Net worth is the excess of assets over liabilities, as shown in the balance sheet of a
firm. However, for all practical purposes, it refers to the amount of paid-up capital plays reserves
and surpluses built up during business. This measure is appropriate for comparing the size of
different firms in an industry or to measure the rate of growth for a particular firm.
 Total assets :-Another measure of size if the size of the total assets of a firm. The value of total
assets is calculated by taking into account the amount invested in fixed (land, building, plant, and
machinery), current (cash, short-term securities, stock, debtors, etc.) and intangible assets
(goodwill, planet, rights, etc.).
 Labor employed :-The number of laborers employed in a firm is another measure commonly
employed to measure the size of the business, which is producing similar types of goods and
which are in the same stage of development.
 Amount of raw materials and power consumed. :-The quantity or value of raw materials and
power used is yet another measure that can be used to adjudge a firm.

Measure About Output

This includes a volume of output, the value of output, and value-added.

 The volume of output :-The number of goods produced or services rendered may also serve as a
good basis for comparison between firms. The greater the number of goods and services
produced, the larger the size.
 Value of Output :-The monetary value of goods and services produced by a firm also serves as a
basis for measuring the size of a firm.
 Value Added ;-A useful variation or combination of the two output criteria is the measure of net
value-added, calculated by deducting the costs of production from the value of production. It must
be mentioned here that no one measure is fully comprehensive, and the accuracy, adequacy, and
utility of each standard will depend upon three factors – nature of industry and character of its

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 output, the uniformity and accuracy of data available, and the purpose for which it is required. On
the whole, the output seems to be the best indicator to measure the size of the firm.

Factors Affecting the Size of the Firm

 Nature of Industry :-The nature of the industry has a direct influence on the size of the firm.
Manufacturing industries are, by and large, bigger compared to trading and service firms.
Manufacturing industries heavy machinery, produce goods on a large scale, make higher capital
investments, and therefore large.
 Nature of Products :- When the product is less standardized, the size of the firm is often small
when the product is standardized, complex, and durable; the size of the firm is often big.
 Capital employed :- When the capital involved is large, and the firm can raise it, the size of the
firm is large, when the capital involved in small, the size of such a unit will be small.
 Size of the market :- If the size of the market is large for the product, the firm will also be large
and vice-versa.
 Quality of management :- The competence and integrity of management largely determine the
size of a business unit. If the management is competent to manage the complex tasks of modern
business, the firm can afford to be large.
 Factors Determining Size of the Firm :- Every business is striving towards attaining the optimum
size. Usually, any business starts as a small entity, and then during its operating period, it expands
till it reaches the optimum size.
 Capital Investment Factor :- The capital employed by shareholders in the form of share capital,
reserves, and surplus (net worth) determines the size of the business. It is mainly used to compare
two firms or more that are producing similar or differentiated products.
 Number of Employees :- The number of employees employed by any business determines its size.
This is done by comparing the wages paid to employees with other businesses. This factor is used
where firms produce similar goods. If you use it in comparing firms that are producing
differentiated products, then you end up with false results.
 Power Used :- The amount of power used determines the size of the business. Business firms
don’t rely on this factor as it is inaccurate because of the amount of power used by any business
may be more or less.
 Raw Materials Used :- The annual consumption of raw materials of any firm determines its size.
It used only on those firms that are producing similar products.
 The volume of the output :- This factor is used for those firms that are producing homogeneous
goods.
 The capacity of Plant :- It is used by firms that produce similar products.
 Total Assets :- The total assets of any business determine its size. The value of all assets (current
and fixed) is taken as a means of measure. It is used in both similar and differentiated firms.

Promotion
Promotion is a type of communication between the buyer and the seller. The seller tries to persuade the
buyer to purchase their goods or services through promotions. It helps in making the people aware of a

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product, service or a company. It also helps to improve the public image of a company. This method of
marketing may also create interest in the minds of buyers and can also generate loyal customers.
It is one of the basic elements of the market mix, which includes the four P’s: price, product, promotion, and
place. It is also one of the elements in the promotional mix or promotional mix or promotional plan. These
are personal selling, advertising, sales promotion, direct marketing publicity and may also
include event marketing, exhibitions, and trade shows.

Types of Promotion

 Advertising :- Advertising means to advertise a product, service or a company with the help of
television, radio or social media. It helps in spreading awareness about the company, product or
service. Advertising is communicated through various mass media, including traditional media such
as newspapers, magazines, television, radio, outdoor advertising or direct mail; and new media such
as search results, blogs, social media, websites or text messages.
 Direct Marketing :- Direct marketing is a form of advertising where organizations communicate
directly to customers through a variety of media including cell phone text messaging, email,
websites, online adverts, database marketing, fliers, catalog distribution, promotional letters and
targeted television, newspaper and magazine advertisements as well as outdoor advertising. Among
practitioners, it is also known as a direct response.
 Sales Promotion :- Sales promotion uses both media and non-media marketing communications for
a pre-determined, limited time to increase consumer demand, stimulate market demand or improve
product availability.
 Personal Selling:- The sale of a product depends on the selling of a product. Personal Selling is a
method where companies send their agents to the consumer to sell the products personally. Here, the
feedback is immediate and they also build a trust with the customer which is very important.
 Public Relation:-Public relation or PR is the practice of managing the spread
of information between an individual or an organization (such as a business, government agency, or
a nonprofit organization) and the public. A successful PR campaign can be really beneficial to the
brand of the organization.

Business combination

A business combination is a transaction or event in which one company, the acquirer, gains control of
another company, the acquiree. This can happen when the acquirer purchases the acquiree's assets, equity
interests, or people. The acquirer can also gain control by obtaining a majority stake in the company or
having the power to direct its operations. In exchange for the acquiree, the acquirer may offer cash,
equity interests, or other consideration.

Scientific management

Scientific management theory, introduced by Frederick Winslow Taylor in the late 19th century,
revolutionised work efficiency. It focuses on scientific analysis to enhance productivity, efficiency, and

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organisational workflow. By standardising methods and involving workers and managers in decision-
making, it aims to eliminate inefficiencies. Taylor's principles, shaping modern management theories,
continue to influence industries today. Learn how this theory transformed work dynamics and explore its
relevance in contemporary business environments.
Scientific management theory is an objective approach that leads to economic efficiency and workflow
productivity in an organization. Frederick Winslow Taylor, the father of scientific management theory,
used it as a management practice in the manufacturing sector back in the late 19th century.
It is not used to its fullest extent today, but many modern industries still use it to some degree. It is on
this theory of management, that many of the modern management theories are based.

Principles of Scientific Management

Mentioned below are the four principles that are still followed by many organizations in different
industries in some form or the other.

First Principle – Replace the “rule of thumb” with science and standardization
There should only be one method of working. It must be defined scientifically. According to Taylor, the
best way to do a job must be determined beforehand in a scientific fashion. If workers have devised their
own ways of working, it will not lead to productivity.
The ‘ways of working’ here refer to the tools used. These tools must be standardized and that will remove
the factor of bad working conditions.
There should be no rule of thumb, nor any trial and error for any job. That way, the worker’s
performance will increase.

Second Principle – The Right Person for the Job

For any job, the management should hire the right person for the right job. That worker should have the
necessary skills to perform the tasks to fruition. The management should also hire a worker knowing they
will have challenges too. For that, training workers would be required once they are selected. Then the
worker should be introduced to standardized tools for their work process.
Third Principle – Proper Division of Work Between Workers and Managers
The core functions of management, planning, organising, controlling, and directing, must be adopted by
the organization. The worker who is assumed to be able to work should not be assumed to know and
apply these facets of management. By assigning the worker with the correct workload, there can be a
better mutual understanding between two parties, and will further eliminate uncertainties in the future.
Fourth Principle – Collaboration Between Workers and Managers
Workers and managers should work in harmony, according to this principle. It is the responsibility of the
management to create a healthy environment for the workers by eliminating distrust. For that, there
should be clear communication and development of team spirit.
Additionally, read up on POSDCORB to discover how closely related they are.

Goals of Scientific Management

 Improving productivity by standardizing tools to achieve a high production rate.

 Ensuring quality is consistent in products through research and quality control.
 Introducing cost control techniques to minimize the cost of production.
 Making sure consumers find a regular supply of goods.

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Limitations of Scientific Management Theory
.
 The basic limitation is that workers are not treated humanely, as the focus is only on productivity
and efficiency. There is no concern for the emotional or psychological well-being of the
employees.
 Focusing on one type of skill, the other skills the worker may have are not considered in this
theory. So any initiative a worker may have is not considered by the management.
 Doing the same kind of work can lead to monotony in the future.
 Too much focus on performance based on time can demotivate employees. This can lead to
absenteeism. It can also adversely affect their mental states, of which the theory is unconcerned
with.

Rationalization
Rationalization is the reorganization of a company in order to increase its operating efficiency. This sort
of reorganization may lead to an expansion or reduction in company size, a change of policy, or an
alteration of strategy pertaining to particular products offered.Similar to a reorganization, a
rationalization is more widespread, encompassing strategy as well as structural changes. Rationalization
is necessary for a company to increase revenue, decrease costs, and improve its bottom line.
Rationalization may also refer to the process of becoming calculable. For example, the introduction of
certain financial models or financial technologies rationalizes markets and makes them more efficient.
The introduction of the Black-Scholes model for options pricing, for instance, helped to rationalize
the options markets in Chicago in the late 1970s.

The Need for Rationalization

There are several reasons that a particular organization might need to go through the process of
rationalization. They include the need to:
 Reduce costs
 Maximize profits
 Conserve resources
 Unlock shareholder value
 Improve transparency and governance
 Simplify the business model
 Eliminate unnecessary products and idle capacity
 Update old machinery and other business processes

Plant Location
Plant location refers to the choice of a region and site for setting up a business or factory. It's a strategic
decision that involves considering the costs and benefits of different sites and can't be changed once
made. When choosing a location, you might consider things like:

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  Availability of raw materials
 Proximity to potential markets
 Availability of labor
 Transportation and communication facilities
 Availability of power, fuel, and water
 Finance and research facilities
 Government policies

Business Organisation

A business organisation is the structured arrangement of individuals, resources, and activities

orchestrated to achieve specific commercial objectives. It is the framework within which business
activities are planned, coordinated, and executed. At its core, a business organisation encompasses
deploying human capital, financial resources, technology, and other assets systematically to generate
goods or services aimed at satisfying customer needs or demands. This structure can take various
forms, including sole proprietorships, partnerships, corporations, limited liability companies (LLCs),
or cooperatives, differing in ownership, management, legal liabilities, and taxation structures.
The fundamental purpose of a business organisation revolves around facilitating efficient operations,
optimising resource utilisation, managing risks, and, ultimately, driving profitability and growth. It
establishes hierarchies, roles, and responsibilities, clearly delineating tasks and fostering coordinated
efforts toward common business objectives. Business organisations also establish policies, procedures,
and systems to govern operations, ensure compliance with regulations, and adapt to evolving market
dynamics. A business organisation is the backbone of commercial enterprises, providing structure and
direction to mobilise resources effectively and achieve sustainable success in the competitive
marketplace.

Forms of Business Organisations

Every form of business organisation is like a different genre of music—it has its own beat, rhythm,
and set of fans. It's all about picking one that makes your foot tap (or, in your case, the cash roll in).
Here's an in-depth exploration of the five forms of business organisations: Sole Proprietorship,
Partnership, Limited Liability Company (LLC), Corporation, and Cooperative, highlighting their
features, advantages, and disadvantages.

1. Sole Proprietorship:
Features:
 Ownership: Sole proprietorships are businesses owned and operated by a single individual. The
owner assumes all responsibilities and liabilities.
 Easy Setup: They are the simplest form of business to establish, requiring minimal legal
formalities and paperwork.
 Profit Retention: The owner retains all profits generated by the business.
 Unlimited Liability: The owner has unlimited personal liability for business debts and
obligations, risking personal assets.
 Taxation: Profits are taxed as the personal income of the owner.
Advantages:
 Full Control: The owner maintains complete control over business operations and decisions.

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  Ease of Decision-Making: Quick decision-making due to a lack of hierarchical structure.
 Tax Benefits: Potential tax advantages as business losses can offset personal income.
 Flexibility: Easy to start, manage, and dissolve as per the owner's discretion.
Disadvantages:
 Unlimited Liability: The owner is liable for debts, lawsuits, and business obligations, risking
personal assets.
 Limited Capital: Difficulty in raising substantial capital compared to larger business structures.
 Limited Expertise: Sole proprietors may lack expertise in various business aspects, impacting
growth potential.
 Continuity: Business continuity may be uncertain due to its dependence on the owner's lifespan
and health.

2. Partnership:
Features:
 Ownership: Partnerships involve two or more individuals sharing ownership, responsibilities,
and profits.
 Types: General partnerships (GP) involve equal management and liability sharing, while
limited partnerships (LP) offer limited liability to some partners.
 Agreement: Partnerships operate based on a partnership agreement detailing roles,
responsibilities, profit-sharing, and decision-making.
 Taxation: Profits are passed through to partners' personal income tax.
Advantages:
 Shared Responsibility: Partnerships benefit from shared responsibilities, skills, and expertise
among partners.
 Complementary Skills: Partners can bring the business diverse skills, knowledge, and
resources.
 Capital Access: Easier access to capital due to contributions from multiple partners.
 Tax Benefits: Profits are taxed as personal income, offering tax flexibility.
Disadvantages:
 Unlimited Liability (in General Partnerships): Partners share unlimited liability for business
debts and obligations.
 Conflict Risks: Disagreements and conflicts among partners can affect decision-making and
business operations.
 Shared Profits: Profits are divided among partners based on the partnership agreement,
potentially leading to disputes.
 Limited Life Span: The business's continuity may be affected by a partner's withdrawal, death,
or bankruptcy.

3. Limited Liability Company (LLC):

Features:
 Ownership: LLCs blend features of partnerships and corporations, offering limited liability to
owners (members) while maintaining pass-through taxation.
 Limited Liability: Members have limited liability, protecting personal assets from business
debts and obligations.
 Flexible Structure: LLCs have flexible management structure and profit distribution among
members.
 Taxation: Profits pass through to members' personal income tax returns.

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Advantages:
 Limited Liability: Members are shielded from personal liability for business debts and
lawsuits.
 Tax Flexibility: LLCs can choose taxation as a sole proprietorship, partnership, S corporation,
or C corporation.
 Flexible Management: Less stringent management requirements, offering operational
flexibility.
 Pass-Through Taxation: Avoids double taxation; profits are taxed only at the individual level.
Disadvantages:
 Complexity: An LLC may involve more paperwork and formalities than sole proprietorships or
partnerships.
 State Laws: Compliance with state-specific regulations and requirements.
 Investor Restrictions: May face limitations in attracting investors due to ownership and
management structures.
 Perpetual Succession Uncertainty: LLCs' continuity may be uncertain due to member changes
or dissolution.

4. Corporation
Features:
 Ownership: Corporations are legal entities separate from their owners (shareholders),
providing limited liability to shareholders.
 Structure: They have a complex management structure involving shareholders, directors, and
officers.
 Limited Liability: Shareholders have limited liability, protecting personal assets from business
debts and obligations.
 Taxation: Corporations face double taxation (profits taxed at the corporate level and dividends
taxed at the individual shareholder level).
Advantages:
 Limited Liability: Shareholders' personal assets are protected from business liabilities.
 Capital Raising: Easier access to capital by selling stocks and attracting investors.
 Perpetual Existence: Continuity unaffected by changes in ownership or management.
 Credibility: Corporations may have increased credibility and prestige.
Disadvantages:
 Double Taxation: Corporations face taxation at both corporate and individual levels, resulting
in potential double taxation of profits.
 Complexity and Formalities: Compliance with legal formalities, extensive paperwork, and
regulatory requirements.
 Costs: Higher costs associated with formation, compliance, and operational expenses.
 Lack of Control: Shareholders may have limited control due to the separation between
ownership and management.

5. Cooperative
Features:
 Ownership: Cooperatives are owned and democratically operated by their members, who share
profits and benefits.
 Membership: Members can be customers, employees, or producers with shared goals and
needs.

Prof. T RAMA KRISHNA RAO 8839271225 CONTACT –BBA, B.COM , BANKING , MBA
  Democratic Control: One member, one vote principle for decision-making and governance.
 Profit Distribution: Profits are shared among members or reinvested in the cooperative.
Advantages:
 Shared Benefits: Members benefit from shared profits, services, or resources.
 Democratic Structure: Members have an equal say in decision-making regardless of investment
or ownership.
 Risk Sharing: Members share risks and responsibilities, fostering community and support.
 Stability: Cooperatives may provide stability by catering to members' needs and local
communities.
Disadvantages:
 Decision-Making Challenges: Democratic decision-making processes can be time-consuming
and may lead to conflicts or inefficiencies.
 Capital Limitation: Limited access to capital due to members' contributions and potentially
fewer external funding sources.
 Limited Growth: May face challenges in scaling operations due to the cooperative structure
and shared governance.
 Potential Inequality: Disparities in contributions or participation among members could lead to
conflicts or dissatisfaction.

Objective Type Questions

Select the suitable answer: (C) Industry
1. The meaning of size of business is: (B) Firm
(A) Plant (D) Factory

Prof. T RAMA KRISHNA RAO 8839271225 CONTACT –BBA, B.COM , BANKING , MBA
2. A measure of the size of a business unit is not
expressed in terms of 7. Technical forces are most important in:
(A) Net Worth (A) Oil refinery
(B) Volume of Output (B) Fertilizer
(C) Capital Employed (C) Iron and Steel
(D) Loan Borrowed (D) All these

3. The optimum firm is not which has: 8. Factors affecting optimum firm were first
(A) Been started with optima considerations described by:
(B) Attained optimum after expansion (A) Robinson
(C) Average cost of production is highest (B) Marshall
(D) Maximum profit at a certain level (C) Pigou
(D) None of these
4. Concept of Optimum Firm is not based on:
(A) Lowest average cost of production
(B) Maximum profit earning size 9. An optimum firm is one having:
(C) Market is imperfect (A) Minimum normal cost
(D) Maximum efficient management (B) Minimum Average Cost
(C) Minimum Average cost in long-term
5. Which one is most widespread in scope: (D) Minimum Average cost in short-term
(A) Firm
(C) Industry 10. Concept of Equilibrium Firm was
(B) Plant propounded by:
(D) Factory (A) Marshall
(C) Robinson
6. Small scale unit is measured in terms of: (B) Pigou
(A) Capital employed (D) None of these
(B) No. of employees
(C) Quantity of Production [Ans. 1. (A). 2. (D), 3. (C), 4. (A). 5. (C), 6. (A),
(D) Value of Production 7. (D). 8. (A), 9 (C). 10. (A).)

QUESTIONS

Long Answer Type Questions

1. Define Promotion'. Explain the method of Promotion of business unit.

2. Define Promotion and describe its different stages.
3. What do you mean by the term Promoter? Explain the different types of promoters? Also discuss their
functions.

Prof. T RAMA KRISHNA RAO 8839271225 CONTACT –BBA, B.COM , BANKING , MBA
4. What do you mean by the term 'Promotion'? What factors are to be taken into consideration while
starting a new business enterprise?
5. "The promotion of a new business enterprise is, in many ways, like the birth of a child." Discuss the
chief problems in the organisation of a new business enterprise.
6. Define Promotion. What types of entrepreneurial decisions have to be taken
while launching a new business enterprise? Explain fully.
7. Discuss the procedural and legal aspects in the starting of a new business enterprise.
8. Explain the term Optimum Firm. Also, explain the factors that determine the size of the business unit.
How can the various optima be reconciled?
9. Critically evaluate the different measures of the size of a business unit.
10. There are many advantages available to large business units yet these are not
free from its limitations. Explain.
11. Explain the concept of 'Optimum' firm. What are the factors effecting the size of such a firm?
12. Define business and explain its scope.
13. Define industry and describe various kinds of industries.
14. What is commerce and what are its functions? Explain its importance.
15. Explain clearly inter-relation between commerce and trade and commerce and business.
16. What do you understand by Business Organisation ? Explain its importance
and functions.
17What do you mean by business? What are its important characteristics?
Explain the importance of business.
18. Explain the Characteristics of Business Organisation, also give details of its
components.
19. What are objectives of business?
20. What problems have business organisations have to face in India ?

Short Answer Type Questions

Write short notes on:

1. What do you mean by Promotion of a Business? 2. What are the stages in Promotion?
3. What do you mean by Promoter?
4. What is the position of a Promoter?
5. What are the Functions/importance of a Promoter?
Write short notes on:
1. Size according to Net Worth
2. Size according to Total Assets
3. Value of Output 4. Volume of Output
5. Optimum Firm

Prof. T RAMA KRISHNA RAO 8839271225 CONTACT –BBA, B.COM , BANKING , MBA