College Road, Chennai-600 006.
© Government of Tamilnadu
First Edition – 2005
Prof. G. ELUMALAI
Head, Post Graduate
Department of Commerce, Government Arts College,
Salem – 636 007.
Dr. V. MURTHI
Thiru A. MANI
Reader in Commerce
Special Grade Post Graduate
Department of Commerce
Teacher in Commerce
Government Arts College
Bharathi Vidyalaya Higher
Salem – 636 007.
Maravaneri, Salem – 636 007.
Thiru V. JAYABALAN
S.G. Lecturer in Commerce
Special Grade P.G Teacher in Commerce
D.B Jain College, Thorappakkam
Pachaiyappa’s College Hr. Sec. School
187-NSC Bose Road, Chennai- 600 001.
Dr. R. VEERAMANI
Reader in Commerce
Senior Lecturer in Commerce
Department of Commerce
Directorate of Distance Education
Government Arts College
Annamalai University, Annamalai Nagar.
Salem – 636 007.
Price : Rs.
This book has been prepared by the Directorate of School Education
on behalf of the Government of Tamilnadu.
This book has been printed on 60 G.S.M.paper
Printed by Web Offset at :
HIGHER SECONDARY- SECOND YEAR
Untouchability is a Sin
Untouchability is a Crime
Untouchability is Inhuman
Dr. R. RAJESWARI
Reader in Commerce
Sri Sarada College for Women
Salem – 636 016.
This book on commerce meant for the XII Standard
students has been written in accordance with the revised and
enriched syllabus. Since the study of commerce has undergone
a sea change in the recent past, it has become inevitable to bring
out a standard book on commerce covering all the latest topics.
Chapters on forms of business organisation like sole trader,
partnership, cooperatives and joint stock companies have been
discussed in detail to enable the teachers and the students to
acquaint with the latest development in the subject. The role of
Government in business has been elaborately dealt in this book
to create an awareness in the minds of the readers to keep pace
with the recent innovative developments.
It is highly appreciable that senior and experienced
teachers in the field have been selected to provide the required
inputs to the book, keeping in view of changing needs of the
The syllabus of plus-two commerce has been divided to
depict every aspect of the syllabus in detail. The subject matter
is presented in a lucid style which would enable the students to
understand the subject easily. Further to create an awareness in
the minds of students and investors, chapters on Stock Exchange
and SEBI have been elucidated in this book which would
safeguard their interests. The recent amendments in the law
relating to cooperatives and joint stock company are duly
incorporated to give an upto-date information about the changes.
Charts, diagrams and down-loaded pictures have been included
in appropriate places for a better understanding of the subject.
We believe that some extra efforts are required from our
teachers while teaching new chapters. We solicit the teachers to
offer their esteemed opinion and criticism about this book.
While preparing for the examination students should not
restrict themselves only to the questions given in the self-
evaluation. They must also be prepared to answer the questions
and problems from the entire text.
We hope that the book is rich in its content and quality
which will enhance the knowledge of the students.
Companies – I
Companies – 11
Government in Business
1 - 26
1.1 Meaning and Definition
1.2 Principles of organisation
1.3 Types of Organisation
1.3.2 Partnership firms
1.3.3 Hindu Undivided Family
1.3.4 Joint Stock Company
1.3.6 Government in Business
1.3.7 Multinational Companies
27 - 43
2.1 Meaning and Definition
Special features of Sole trader
Merits of Sole trader
Demerits of Sole trader
Role of sole proprietorship in the society
One man Control
44 - 79
Meaning and Definition
Special features of partnership
Similarities between soletrader
Merits and Demerits of Partnership
Types of partnership
kinds of partners
Rights duties and liabilities of partners
Partners express and implied authority
3.10 Registration of firm
3.11 Dissolution of partnership
COMPANIES - I
80 - 138
Meaning - Definition-special features
- merits and demerits
Differences between partnership and
Kinds of companies
Private company- Public Company -
meaning- privileges of a Private
Differences between a private
company and a public company
Formation of a company
Memorandum of Association
Articles of Association
Allotment of shares –
share certificate – calls –
forfeiture of shares–shares issued
at par, premium,and at discount
Debentures – meaning – kinds of
Differences between shares and
139 - 170
Appointment of directors
-removal-vacation of office
-powers of directors.
Duties-liabilities-civil and criminal
Managing director-meaning-manager -
importance of secretary-functions
171 - 207
definition-primary secondary market
Procedures regarding new issues
Investor and speculators-kinds-differences
Mutual funds - Advantages - Bombay
On Line Trading ( BOLT)
208 - 238
Merits and demerits.
Types of co-operatives.
Differences between companies and
GOVERNMENT IN BUSINESS 239 - 267
Introduction-objectives of state
8.2.2. Public corporation-features-merits
8.2.3. Government companies-features-
merits and demerits.
Differnces between private sector and
BIBLIOGRAPHY / REFERENCES 268 - 272
CHAPTER - 1
“The business is coming to realise that,
education is to business what fertiliser is to farming”
Learning Objectives : After reading this chapter you will be able
to learn the following.
v 1.1. Meaning of business organisation
v 1.2. Principles of organisation
v 1.3. Types of organisation
1.1. MEANING OF BUSINESS ORGANISATION
Literally speaking, business means “ State of being busy”
throughout. In economic sense, the word business means work
efforts and acts of people which are connected with the production
of wealth. Functionally, “ those human activities which involve
production or purchase of goods with the object of selling them at
a profit.” are called business.
The term business organisation is very often used in different
senses. Firstly it is used to represent a business enterprise such as
Tata Iron & Steel. “ Secondly business organisation is a subject of
study consisting of topics concerned with organisation and
management of industrial and commercial organisation. Thirdly,
the term ‘Organisation’ is used to mean bringing together various
elements of business with the object of establishing harmonious
relationship and adjustment in their functioning.
The objects of business organisation are
1. Profit motive
2. Service motive
3. To get the economies of large scale production
4. To achieve in time and efforts
5. Harmonious relations with employees
The important functions of business are as follows
1. Production function
2. Marketing function
3. Finance function
4. Personnel function
5. Purchase function
6. Public relations function
7. Legal function
Sound organisation is essential for the success of a business.
The reason is that it makes administration easy. It consists of
determining the activities to be undertaken for achieving the
objectives. The activities are arranged in groups. Each group of
activities are entrusted to each department. The duties and functions
of each individual in each department are defined. So organisation
consists of department and grouping of activities, delegation of work
and establishment of relationship between various persons.
The word organisation has originated from the word
‘organism’ which means any system with parts dependent upon
each other. In a human body, it is the brain which controls, directs
and co-ordinates the activities of different parts of the body. The
human body is a combination of various limbs. If any one of the
limbs stops functioning properly, then some defects will develop
in the body. If the goals of an enterprise are to be achieved, the
activities of the different departments must be welded together.
Organisation does this co-ordination. It establishes inter-relations
According to Urwick and Hunt, “ A business is an enterprise
which makes, distributes or provides an article or service which
other members of the community need and are able and willing to
pay for it”.
According to Lewis H.Haney, “Organisation is a harmonious
adjustment of specialised parts for the accomplishment of some
common purpose or purposes”.
Louis A. Allen has defined organisation as “the process of
identifying and grouping the work to be performed, defining and
delegating responsibility and authority and establishing relationship
for the purpose of enabling people to work most effectively together
in accomplishing objectives
Organisation means finding out the objectives, grouping
the activities aimed at their achievement, assigning them for
performance and coordinating them, are the features of an
organisation. The study of organisation is important for the
a) Organisation pervade all the important phases of human life. A
man is born in organisation (hospitals and clinics). He is educated
in an organisation (Schools, Colleges and universities). He works
in an organisation (office, factories and business).
b) Knowledge of organisation helps the manager to work effectively.
c) Organisation satisfies and sometimes frustrates, if it is not well
1.2 PRINCIPLES OF ORGANISATION
The following principles are helpful in developing a sound
and efficient organisation to achieve the objectives of the business
1. Unity of Objectives
The term objective means a goal to be achieved.The
organisation structure depends upon the objectives of the enterprise.
Therefore the objectives of an enterprise must be clearly fixed.
Every part of the organisation should be designed to facilitate the
accomplishment of common objectives.
2. Division of Work
The total work should be divided. This is known as
departmentation. All the activities must be planned. This gives an
idea of the total workload of the enterprise. Effective organisation
must promote specialisation.
3. Span of Control
No executive in the organisation should be required to
supervise more subordinates than he can effectively manage. An
executive should be asked to supervise a reasonable number of
4. Scalar Principle
Line of authority must proceed from the highest executive
to the worker at the bottom level through a downward flow. This is
known as ‘chain of command’. The superior has a direct authority
over his immediate subordinate. He is responsible for efficient
performance of the work entrusted.
5. Unity of Command
Each individual should receive orders from only one boss.
A person cannot serve under two masters. He is accountable to his
immediate superior. Dual subordination should be avoided. It
creates disorder and confusion and leads to indiscipline.
6. Functional Definition
The authority and responsibility of every individual should
be clearly defined. The relationship between different jobs should
be clearly specified.
7. Unity of Direction
There must be one head and one plan for a group of activities
directing towards the same objectives. This is necessary to ensure
completion of tasks and co-ordination of activities.
The various activities of undertaking should be co-ordinated
to secure the desired results. The different departments may have
to function frequently in close consultation with other departments
in a departmental store. The purchase department and sales
department activities must be well coordinated to increase profit.
9. Delegation of Authority
Delegation means the entrustment of part of the work or
some duties to the subordinates. Superior has to entrust some of
his duties to his immediate subordinate. The subordinates should
be granted necessary powers and rights. He becomes accountable
to his superior. Delegation creates obligation on the part of the
10. The Principle of Responsibility
The superior should be held responsible for the acts of his
subordinates. He cannot escape from the responsibility. He is
accountable to his higher authorities.
The organization should be flexible. It should be adaptable
to changing circumstances. There should be scope for expansion
without disrupting the basic design.
Efficiency should be the watchword of the organisation. The
organisation structure should enable the enterprise to function
efficiently and accomplish its objective with the lowest possible
13. Personal Ability
As people constitute an organisation there is need for proper
selection, placement and training of staff. The organisation must
ensure optimum use of human resources and encourage
Another principle of organisation is that it should be simple.
Too many levels of authority for example, complicate
communication channels and by causing confusion and friction
makes achievement of co-ordination impossible.
The above principles are the essential requirements for a
sound organisation. In olden days, the needs and requirements of
the people were very much limited. As such, the size and volume
of business was at a low level. In course of time, the population
increased and the demand for goods and services increased
correspondingly. As a result ‘Machine age’ emerged resulting in
large scale production. This task necessitated more investment in
labour. It involved more risk. Small business concern could not
face these challenges. These failures led to the establishment of
corporate enterprises. On the basis of ownership, the following are
the main forms of organisation. They have emerged to cope up
with the needs of the people.
Since we are going to deal at length, the other forms of
business organisation under separate chapters, only a very brief
description of them is given below:
A Business organisation can be classified in two types, viz,.
Individualistic Institutions and Government Institutions. The
following chart exhibits the various types of business organisation
1.3 TYPES OF BUSINESS ORGANISATION
1. Sole Trader
1. Departmental Undertaking
2. Joint Hindu Family
2. Public Corporation
3. Government Company
4. Joint Stock company
4. Board organization
6. Multinational companies
Individualistic institutions are established by a single
individual or by a number of individuals. The following are the
different forms of business organisation.
1.3.1 Sole Trading Institutions
Any business unit which is owned and controlled by a single
individual is known as a sole trading concern. The person who
manages it, is called a sole trader. It is also named sole
proprietorship business or single entrepreneurship or individual
proprietorship. It is stated to be the oldest of all the forms of business
enterprises. He may use his own savings for carrying on the
business. He may borrow from his friends, relatives and others.
He himself manages the business with an assistance from relatives
The sole trader makes all purchases and sells on his own
and maintains all the account. He alone enjoys all profits and bears
all losses in business. He is the founder as well as the controller of
the business. The sole trading concern is run on the principle “All
is he and he is all in all”. It is easy to set up and manage the sole
proprietor’s business. No legal formalities are required.
1.3.2 Joint Hindu Family
India is unique in the system of Joint Hindu Families. A
Joint Hindu Family comprises of father, mother, sons, daughters,
grandsons and granddaughters. They hold the property jointly. They
do the business under the control of the head of the family. These
families have been engaged in occupations like agriculture
,handicrafts, small industries etc. These business units are known
as Joint Hindu family business. This system is found only in India.
The system of Joint Hindu family came into existence by
the operation of Hindu law. There will not be any agreement among
members. The firm is owned by the members of the family who
have inherited their ancestral property. Their membership is
conferred upon the members by virtue of their birth in the family.
The head of the family is known as ‘KARTA’. The members are
called coparceners. It is regulated by the provisions of Hindu Law.
According to Hindu Law, a Hindu can inherit the property
from three generations. In other words, a son, a grand son, a great
grand son become joint owners for the property by birth in the family.
The law provides rights to women for their living and marriages in
the joint family.
According to Hindu Succession Act, 1956, a coparcener
will have a share in the coparcenaries property after the death of
the coparcener. Since 1985, female members of the family are also
eligible to get a share in the property of the family.
No Act has defined the term Joint Hindu family. However,
a Jurist, while pronouncing a judgment in a case, held the view
that, “A joint hindu family is a family which has the same place of
worship, share the same food and share the same property of the
According to ‘mitakshara’ Law only the male members in
the family get the right of inheritance by birth. It is applied
throughout India except Assam and West Bengal.
According to Dayabhaga Law, the right of property devolves
on the coparceners by succession and not by birth. The share in the
property is not fluctuating on the basis of births and deaths. The
shares are specified prior to partition. The coparceners can alienate
their share of property even without the consent of their coparceners.
With the advent of industrialisation the joint families are
reduced to small families. As a result, this system is declining.
A sole trading concern has certain limitations. It cannot be
expanded beyond a certain stage. Where large capital, and skill are
necessary, a single individual cannot provide both. Two or more
persons may join together and provide necessary capital and skills.
Then partnership comes in to existenc.e
According to Prof. Haney, “Partnership is the relation
existing between persons competent to make contracts who agree
to carry on a lawful business in common with a view to private
The partnership is formed as a result of an agreement
between two or more persons. The minimum number is two and
the maximum number is 10 in banking and 20 in the case of non-
banking business. Partnership should not carry on any unlawful or
Partners may share profit or loss in an agreed proportion. If
there is no agreement, partners share profit or loss equally. Every
partner has a right to take part in the management of the business.
He has right to give his opinion. The partners are jointly and
severally liable for the debts of the firm.
Persons who enter into partnership with one another are
called partners. They are collectively called as a firm.
1.3.4 Joint Stock Company
A company is an association of many persons. The capital
of the company is divided into small units called a share. Any one
who holds or buys a share in a company is called a shareholder.
Shareholders are the members of the company. A company is called
a joint stock company as the capital is contributed by a large number
of investors. A joint stock company may be a public company a
A company is defined as, “an incorporated association
which is an artificial person created by law having a common seal
and perpetual succession”.
A company is considered as a person by law. It can enter
into contract in its own name. It must have a common seal as it
cannot sign documents. A company has continuous perpetual
existence. The liability of a share holder is limited.
Shares can be freely transferred from one person to another.
It encourages the people to save even small amount.
A company is an artificial person. It acquires legal entity
through incorporation. Incorporation implies registration of the
company with the Registrar as a body corporate. Whether it is a
private company or a public company, it should be incorporated
with the Registrar of companies as per the Companies Act of 1956.
The management of joint stock company is entrusted to the board
1.3.5 Co-Operative Society
A co-operative society is a voluntary association of persons.
Persons hailing from the same locality voluntarily join together to
achieve a common economic objective. Any person can join the
society. There is no compulsion to become a member of a society.
A person can join a co-operative society whenever he likes and
leave it whenever he wishes.
In a co-operative society all the members are equal. Every
member has only one vote irrespective of the number of shares
held by him.
One man one vote
is the most important principle.
The society is managed on democratic principles. Every member
has equal voice in the management of a society to render service to
its members. Service is primary and profit is secondary.
The business of a co-operative society is generally carried
on cash basis. Every state government has appointed a Registrar of
co-operative societies for registering, controlling and supervising
the societies. When a co-operative society is registered, it becomes
a body corporate. It has separate legal existence. It is exempted
from payment of stamp duty and registration fees. It also enjoys
the special feature of limited liability.
1.3.6 Multinational Companies (MNC’s)
The term “multinational” consists of two different words,
‘multi’ and ‘national.’ The prefix ‘multi’ means ‘many’, while the
word ‘national’ refers to nations or countries. Therefore, a
multinational company may be defined as a company that operates
in several countries. Such a company has factories, branches and
in more than one country. According to the United Nations
Commission on Multinational Corporations, a multinational