Business Studies 6 Marks Question

i. Sources of owned capital used by a company. Sources of Owners fund
a. Equity shares
b. Preference Shares
c. Retained Earnings
d. ADRs
e. GDRs
Sources of Borrowed funds
a. Trade Credits
b. Loans from Banks
c. Loans from Financial Institution
d. Debentures
e. Public Deposits
f. Commercial Paper
g. Inter-corporate Deposits
ii. Difference between Owner's Fund and Borrowed Fund:

S.No.	Basis	Owners' Fund	Borrowed Fund
(i)	Risk capital	It provides risk capital	It does not provide risk capital
(ii)	Permanent capital	It provides permanent capital	It does not provide permanent capital
(iii)	Basis of control	It provides the basis on which owners require their right of control over the management	It does not affect the owner's control over the management
(iv)	Reward	The dividend is the reward.	The interest is the reward.

It is evident that each form of organization has certain advantages as well as disadvantages. Therefore, it is important to choose an appropriate form of organization by keeping the below factors in mind:-
i. Cost and ease in setting up the organization: From the point of view of initial cost, a sole proprietorship is the preferred form as it requires very small investment. A company form of organization, on the other hand, is more complex and involves greater costs.
ii. Liability: In the case of sole proprietorship and partnership firms, the liability of the owners/partners is unlimited. In Joint Hindu Family Business, only the Karta has unlimited liability. In Co-operative societies and companies, however, liability is limited.
iii. Continuity: In case the business needs a permanent structure, the company form is more suitable. For short term ventures, Sole proprietorship is mostly preferred.
iv. Management ability: A sole proprietor may find it difficult to have expertise in all functional areas of management. In other forms of organizations like partnership and company, there is no such problem. The company is the most favored option here.
v. Capital consideration: Companies are in a better position to collect a large amount of capital by issuing shares to a large number of investors. Partnership firms also have the advantage of the combined resources of all partners. But the resources of a sole proprietor are limited.
vi. Degree of control: If direct control over operations and absolute decision-making power is required, a sole proprietorship may be preferred. But if the owners do not mind sharing control and decision making, partnership or company form of organization can be adopted.

The main types of cooperative societies are given below:
i. Consumers' cooperative societies: Consumers' cooperatives are formed by the consumers to obtain their daily requirements at reasonable prices. Such a society buys goods directly from manufacturers and wholesalers to eliminate the profits of middlemen. These societies protect lower and middle-class people from the exploitation of profit-hungry businessmen. The profits of the society are distributed among members in the ratio of purchases made by them during the year. Consumer cooperatives or cooperative stores are working mainly in urban areas in India. Super Bazar working under the control of the Government is an example of consumers' cooperative society.
ii. Producers cooperatives: Producers or industrial cooperatives are voluntary associations of small producers and artisans who join hands to face competition and increase production. These societies are of two types.
a. Industrial service cooperatives: In this type, the producers work independently and sell their industrial output to the cooperative society. The society undertakes to supply raw materials, tools, and machinery to the members. The output of members is marketed by society.
b. Manufacturing cooperatives: In this type, producer members are treated as employees of the society and are paid wages for their work. The society provides raw material and equipment to every member. The members produce goods at a commonplace or in their houses. Society sells the output in the market and its profits are distributed among the members.
iii. Marketing Cooperatives: These are voluntary associations of independent producers who want to sell their output at remunerative prices. The output of different members is pooled and sold through a centralised agency to eliminate middlemen. The sale proceeds are distributed among the members in the ratio of their outputs. As a central sales agency, the society may also perform important marketing functions such as processing, grading and packaging the output, advertising and exporting products, warehousing and transportation, etc. Marketing societies are set up generally by farmers, artisans and small producers who find it difficult to face competition in the market and to perform necessary marketing functions individually. The National Agricultural Cooperative Marketing Federation (NAFED) is an example of a marketing cooperative in India.
iv. Cooperative Farming Societies: These are voluntary associations of small farmers who join together to obtain the economies of large scale farming. In India, farmers are economically weak and their land-holdings are small. In their individual capacity, they are unable to use modern tools, seeds, fertilizers, etc. They pool their lands and do farming collectively with the help of modern technology to maximize agricultural output.
v. Housing Cooperatives: These societies are formed by a low and middle-income group of people in urban areas to have a house of their own. Housing cooperatives are of different types. Some societies acquire land and give the plots to the members for constructing their own houses. They also arrange loans from financial institutions and government agencies. Other societies themselves construct houses and allot them to the members who make payments in installments.
vi. Credit Cooperatives: These societies are formed by poor people to provide financial help and to develop the habit of savings among members. They help to protect members from the exploitation of money lenders who charge exorbitant interest from borrowers. Credit cooperatives are found in both urban and rural areas. In rural areas, agricultural credit societies provide loans to members mainly for agricultural activities. In urban areas, non-agricultural societies or urban banks offer credit facilities to the members for household needs. In India, several national federations of cooperative societies have been formed. National Cooperative Consumers Federation, National Federation of Cooperative Sugar Factories, National Agricultural Cooperative Marketing Federation, National Cooperative Dairy Federation, National Cooperative Housing Federation, All India State Cooperative Banks Federation are some examples.

a. The two kinds of trade Jayant's family is engaged in on the basis of the area covered are internal trade and external trade.
b. The difference between internal trade and external trade is given below:

S.No.	Basis	Internal Trade	External Trade
1.	Nationality of buyers and sellers	It involves dealings between people or organisations from the same country.	It involves dealings between people or organisations from different countries.
2.	Nationality of other stakeholders	The other stakeholders involved in the process such as suppliers, employees, middlemen, shareholders, and partners generally belong to the same country.	The other stakeholders involved in the process such as suppliers, employees, middlemen, shareholders, and partners may belong to different countries.
3.	Customer heterogeneity across markets	The customers are homogeneous in the domestic markets.	The customers are heterogeneous in the international markets due to differences in language, preferences, customs, etc. across countries.
4.	Business regulations and policies	The rules, laws and policies, taxation system, etc. of a single country are applicable to internal trade.	The rules, laws and policies, taxation system, etc. of multiple countries are applicable to external trade.
5.	Currency used in business transactions	The dealings in internal trade are carried out in the home currency itself.	The dealings in external trade may be carried out in different currencies as multiple countries are involved.

In order to promote foreign trade, the Government has set up the following institutions:
a. Indian Institute of Foreign Trade (IIFT): Established in 1963 under the Societies Registration Act, the IIFT is an autonomous body responsible for the management of the country's foreign trade. It is also a deemed university that provides training in international trade, conducts research in areas of international business.
b. Export Inspection Council (EIC): The EIC was established by the Government of India under Section 3 of the Export Quality Control and Inspection Act, 1963, with the objective of promoting exports through quality control and pre-shipment inspections.
c. Indian Institute of Packaging (IIP): The IIP is a training and research institute established in 1966 by the joint efforts of the Ministry of Commerce of the Government of India, Indian Packaging Industry and Allied Industries. The institute caters to the packaging needs of domestic manufacturers and exporters.
d. Indian Trade Promotion Organisation(ITPO): The ITPO was formed on January 1, 1992, under the Companies Act, 1956. Its main objective is to maintain close interactions among traders, industry and the government.
e. Department of Commerce: The Department of Commerce is the apex body in the Ministry of Commerce of the Government of India and is responsible for formulating policies related to foreign trade as well as evolving import and export policies for the country.
f. State Trading Organisation: State Trading Organisation (STC) was established in. May 1956. The main purpose of STC is to promote trade, primarily export trade among different trading partners of the globe.
g. Export Promotion Councils (EPCs): Export Promotion Councils are non-profit institutions register under the Companies Act or the Societies Registration Act. The fundamental objective of the export promotion councils is to market and produce the nation's exports of particular products falling under their jurisdiction.