Unit II- Entrepreneurial Planning

Long Answer Type Question I- (4 marks each)

1. Explain the meaning of Non-Economic Activities with the help of examples.

Ans: The activities which are undertaken by an individual with a motive of
getting psychological satisfaction are known as non-economic activities. The
end result of non-economic activities is not-earning profit or creation of
wealth but self-satisfaction.
Examples: Charity, production for self-consumption, etc.
2. Explain economic activities with the help of examples.
Ans: Activities which are undertaken by people with the object of earning
money are known as economic activities. These activities are concerned with
production, exchange and distribution of goods and services. The purpose of
economic activities should be expectation of money income which is used for
further creation of wealth or assets.
Examples: Production of goods in a factory, distribution of goods by a
retailer, working as a teacher in a school, etc.

3. Give some examples of economic activities which are involved in business.

Ans: Following are the activities involved in business:
i. Creating customers by promotion of goods and services produced.
ii. Converting economic resources into goods and services keeping in mind
the preferences of custoomers.
iii. Innovating new products or services.
iv. Marketing the innovating products and services so that they can reach
the customer.

4. Ram and Shyam the partners of an ‘Accounting firm’ wants to register their
firm. Explain the procedure for registration of a Partnership Firm?
 Ans: The registration of a partnership firm although is not compulsory, there
are certain benefits of registration, when it comes to exercising legal rights.
A partnership firm can be registered at the start of a partnership or at any time
later.
A partnership firm desiring registration applies to the Registrar of Firms in the
prescribed form along with a registration fee.
The applicant should state the following:
1. Name of the firm.
2. The principal place of business of the firm.
3. The name of any other place where the firm is to carry on business.
4. Date of admission of the partners in the firms.
5. Names and addresses of the partners.
6. Duration of partnership.
The application must be signed by each partner.
The Registrar will verify the above said information and if satisfied, he will issue
a Certificate of Registration.

5. What is public sector enterprise? What are its various form?

Ans: These enterprises are owned, controlled and operated by public
authorities, with welfare as primary and profit as secondary goals, are called
public sector enterprises.
Either the whole or most of the investment in these undertakings is done by
the Government(s).
These enterprises can be of following types:
(i)Departmental undertaking
(ii)Public corporations
(iii)Government companies
6. Which form of business is suitable for following types of businesses and
why?
i. Beauty Parlor
ii. Shopping malls
iii. Hotels
iv. Medium size trading concerns
Ans: i.Sole proprietorship as it requires personal touch.
 ii. Public company as huge capital outlay is needed.
iii. Private Company as it requires more capital and managerial skills.
iv.Partnership as it requires involvement of more persons.
7. What is a Public Company?
Ans: Under Section 3 (i) (ii) of the Companies Act, a public company is a
company which is not a private company. By implication, a public company is
one which:
(i)Has minimum seven people to commence it with no upper limit to
membership.
(ii)Does not restrict any transfer of shares.
(iii)Invite public to subscribe for its shares, debentures and public deposits.
(iv)Has a minimum paid up capital of five lakh rupees.
(v)Uses the word ‘Ltd.’ at the end of its name.

Long Answer Type Questions-II (6 marks each)

1. Jaishree started a ready-made garments shop for ladies in a residential area

where mostly government servants live. Suggest her the ways to make her
business a successful one.
Ans: To make her business successful she should have:

1. Adequate industry experience: The internal resources of a firm must-match

the needs of the environment in which it operates.
2. Adequate financing: Proper financing planning and support opportunities for
growth. Entrepreneurs should plan in advance – quantity and sources of
finance, capital structure, etc.
3. Ensure adequate cash flow: Cash flow is the measure of a firm, ability to
maintain sufficient funding to meet its expenses for the day-to-day activities
of business.
4. Effective business planning: A good business plan helps to identify the
mission, cost structure, market, external influences, strengths and weakness
of a business along with plans for operations, marketing, etc.
5. Good management competency: Good management efficiently implements
and monitors the strategic and operational plan of a business.
6. Eye on competitors/Analysis of competitors’ strategy: Customers are always
looking for the best deal or at least a better deal. Keeping an eye on
competitors and positioning the products accordingly is vital for staying in the
business.
7. Realistic Goods: A business should set smart goals balancing its risk taking
capacity and optimism.
8. Diversifying customer base: Flexibility in operations and openness towards
adaptation of new trends and ideas are important for business success.
9. Good control system: A lack of proper control on internal activities can lead
to business failure.
10. Entrepreneur skills: During the startup phase of a new business
entrepreneurial skills in an owner is inevitable.

2. How many choices are there to start a business by a businessman? Explain

them.
Ans: A businessman has following choices to start a business:

1. Sole Proprietorship: It is a business initiated and operated by one

individual who carries all financial and administrative
responsibilities, employing such assistants as may be necessary.
2. Partnership: A partnership is an association of two or more persons
to carry on, as co-owners, a business and to share its profits and
losses. Two or more persons may form a partnership by making a
written or oral agreement to carry a business jointly and share its
proceeds.
3. Joint stock company: A joint stock company is a voluntary
association of individuals for profit, having a capital divided into
transferable shares, the ownership of which is the condition of
membership.
4. Joint Hindu Family/HUFs: HUFs consists of males lineage of a
common ancestor including their wives and unmarried daughters.
The relation of HUFs arises from the status not from legal contracts.
5. Co-operative Organizations: Co-operation is a form of organization
wherein persons voluntarily associate together as human beings on
the basis of equality for the promotion of the economic interest of
themselves.
3. Explain the categories of economic activities with the help of examples.
Three categories of economic activities are as follows:

1. Business: Business refers to those economic activities which are

connected with the production, purchase, sale or distribution of
goods or services with the main objective of earning profit. Example :
fishing, mining, manufacturing, etc.
2. Profession: Profession refers to the activities which require special
knowledge and skill to be applied by an individual in his work to earn
a living. These activities are subject to guidelines or codes of conduct
laid down by the professional bodies. Example : lawyers, doctors,
etc.
3. Employment: Employment refers to an activity in which an individual
works regularly for another person and gets remuneration in return.
Those who are employed by others are called employees and those
who engage these employees are called employers. Remuneration
paid to employees is known as salary or wages. Examples : Working
in banks, clerks, salesman, etc.

4. Explain the categories of business enterprises. Give examples.

1. Private Sector Enterprise: The business enterprises which are owned,

controlled and managed by private individuals are known as private sector
enterprises. Their main object is to earn profits. Example: Wipro, TATA, etc.
2. Public Sector Enterprises: The business enterprises which are owned,
controlled and managed by the Central and State Government are known as
public sector enterprises. Their main objective is service. Example : LIC.
3. Joint Sector Enterprises: The business enterprises which are owned,
controlled and managed jointly by private entrepreneur and government are
called joint sector enterprises. The day-to-day management lies in the hands
of private entrepreneurs whereas government control and supervise the
enterprise with the help of its members which are part of the Board of
Directors. Example : Maruti Udyog Ltd.

5. What are the characteristics/features of a sole proprietorship firm?

Following are the characteristics/features of a sole proprietorship business:
1. Individual Ownership: The sole proprietorship firm is exclusively owned by a
single individual only. All the capital is supplied by the single individual from
his own wealth or from borrowed funds.
2. One-man Management and Control: The proprietor is the sole owner of the
firm and the affairs of business are managed and controlled by the sole
proprietor. Hence, the ownership and management lies in the hands of one
person only. Though competent people or manager may be employed to help
the owner for efficient management.
3. Small Size: The sole proprietorship business operates on a very small scale. A
sole proprietor can arrange limited funds and has limited ability. Therefore,
the scale of operations is generally limited.
4. Individual Financing: Generally, all funds are arranged by the sole proprietor
from its own sources. Though, if required the sole proprietor has access to
loans and debts to procure funds for smooth running of business.
5. No Separate Legal Entity: A sole proprietorship has no separate legal entity,
distinct from its owner. Law makes no difference between the owner and the
proprietorship firm. Business and the owner exist together.
6. Limited Area of Operations: This form of business has limited area of
operation due to:
 Limited finance availability.
 Limited managerial abilities.
7. Unlimited Liability: In sole proprietorship firm, the sole proprietor is
personally liable for all the debts of the proprietorship business. In case the
business assets are insufficient to pay off all business liabilities, the
proprietor’s personal property can be called upon to pay off the liabilities.
8. Sole Beneficiary: In a sole proprietorship business, the proprietor alone is
entitled to all the profits and losses of the business.
6.What do you mean by HUF business and explain its features.
Ans: The HUFs have been defined under the Hindu Law “as a family, which consists
of male lineally descended from a common ancestor and included their wives and
unmarried daughters.”
Features of HUF:
1. Creation: It arises by status or operation of Hindu Law.
2. Membership: A male member becomes a member merely by his birth. An
outsider can be admitted to its membership by adoption only but not
otherwise.
 3. Management: The senior most male member of the family known as 'Karta'
manages the affairs, having unlimited powers. The other male members
called 'Coparceners' have no right to deal with outsiders or inspect accounts.
4. Liability: The liability of Karta is unlimited and that of coparceners is limited
to the extent of their share in property which is jointly held by the family.
The self-acquired property of any member cannot be taken in order to satisfy
business liabilities.
5. Right of Accounts: The members other than Karta do not have right to
inspect and/or copy contents of the account books.
6. Minor as member: A male from the time of his birth becomes the member in
this form of enterprise.
7. Dissolution: The HUF continues to operate forever as death of members
does not effect it. As upper links are removed by death, the lower ones are
added by birth. So there is no limit to its membership. But if all members
want to mutually dissolve the firm, they can do so.
8. Implied Authority: Only the Karta has implied authority to bind the HUF by
acts done in the ordinary course of the business of the firm. That's why he
alone has unlimited liability.

7. What is Partnership form of Business? Explain its features.

Partnership is an association of two or more persons who have agreed to carry
on a business and to share its profits and losses. The features of partnership
firm is explained below:

1. Agreement: There must be an agreement between the partners to form a

partnership. This agreement can be oral or written.
2. Membership: There must be minimum two members to form a partnership
firm. Maximum there can be 50 members.
3. Profit Sharing: The profits of the partnership firm, should be distributed
between the partners in the ratio specified in the agreement. In case, if no
ratio is specified in the agreement then, the profile is divided equally among
all the partners.
4. Registration: According to the Partnership Act, 1932, it is not compulsory for
a partnership firm to get itself registered. However, the partners prefer to get
the partnership firm registered because there are certain advantages of
registration.
5. Non-Transferability of Share: No partner can transfer his/her share in the
partnership firm to any other person.
6. Liability: The liability of all the partners of a partnership firm is unlimited. The
partners are individually and collectively liable to pay back the debts of the
partnership firm. (Any five)
8.Distinguish between a Private Company and a Public Company.

Ans:

9. Enlist the privileges or benefits of a Private Company over a Public Company?

Following are some privileges or benefits of a Private Company over a Public
Company:

1. A private company can be formed with only two members whereas in a public
company at least seven members are needed.
2. A private company must have at least two directors, whereas a public
company must have three directors.
3. It is not compulsory for a private company to maintain index of its members.
4. It is also not compulsory for a private company to hold a statutory meeting
and file a statutory report with the Registrar, whereas it is essential for a
public company.
5. Private company can commence its business after getting certificate of
registration whereas public company can start business only after receiving
the certificate for the commencement of business.
6. It is not necessary for a private company to issue a prospectus, whereas it is
mandatory for a public company.

10. Bob, Panny, Honey and Lily were childhood friends. They studied together till
class XII. Bob and Panny became doctors and Honey and Lilly became Engineers.
All of them had good earnings. They were creative and innovative and wanted to
start a business. Bob and Panny gave an idea to manufacture a machine which
would help the surgeons in doing surgery without much blood loss. Honey and
Lily agreed to it, but they were short of capital. They estimated that
approximately `2 crore would be required to finance the project, which would be
collected by them from their friends and relatives. They also wanted that their
private properties should not be used to pay off the liabilities of the business.
(i) Considering the above facts suggest the suitable ‘type of business
organisation’ to be formed.
(ii) State any three features of the suggested type of business organisation,
including the one stated in the above para.
(iii) List any four privileges of this type of business organisation.

(i) Private Ltd. Company (Joint Stock Company) 1

(ii) A features of company are:

(a) Has a minimum of 2 and maximum of 200 members excluding its part and
present employees.
(b) Restrict the right of its members to transfer shares.
(c) Prohibits an invitation to the parties to subscribe for any shares in or
debentures of the company, or accepts any deposits from persons other than
its directions, members or relatives. (Given in paragraph)
(d) Minimum paid-up capital of `1.00 lakh.
(e) Uses the word ‘Pvt. Ltd.’ at the end of its name.

(iii) Four privileges of this business are:

(a) It is not compulsory for a private company to maintain index of its members.
(b) It is also not compulsory for a private company to hold a statutory meeting
and file a statutory report with the Registrar, whereas it is essential for a pub lic
company.
(c) Private company can commence its business after getting certificate of
registration whereas public company can start business only after receiving the
certificate for the commencement of business.
(d) It is not necessary for a private company to issue a prospectus, whereas it is
mandatory for a public company