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Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 1
Important questions
Introduction to business
B.com part 1st
What are the features of a business?
1. What are the components /divisions / branches of business?(
2006,2008,2009,2010,2011)
2. What are the qualities of good businessman? (2007)
3. What is the importance of business? (2006-2007-2008-2009)
4. Explain the different forms of business (2010)
5. Explain the advantages and disadvantages of sole trader ship (2006-07-08-09 sup
2009)
6. Explain the advantages and disadvantages of partnership (SUP-2008)
7. What is co-ownership? Explain the difference between partnership and co-owner ship
(2010)
8. Explain the difference between partnership and sole trader ship
9. What are the kinds of partner?
10. Explain the right duties and liabilities of partner in a firm (2009- sup 2007)
11. Define the dissolution of firm and also explain the circumstances under which a form
may be dissolved (2006-08-10, sup 2010)
12. Describe the advantages and disadvantages of joint stock company
13. What are the types of joint stock company (2006-08-09, sup 2007)
14. Differentiate between partnership and public company (2007, sup 2006-08)
15. differentiate between private company and public company (2006-08-09, sup 2007)
16. What is the procedure of formation of joint stock company (2006-08-09, sup 2006-
07)
17. What are the three legal documents of company [2006-07-10, sup 2010-11
18. Explain the types of meeting and also state the purpose of such meeting [ sup 2008]
19. What are the advantages and disadvantages of co-operative societies [2009, sup 2006-
07]
20. Explain various kinds of cooperative society. [2006-08]
21. Difference between joint stock company and co- operative society [2007]
22. Define share capital. What are the various forms of share capital [2010]
23. What is business combination? Explain the causes of its growth [2006-08-09-11]
24. What is business combination also explain its various types [2007-10-11, sup2006-09]
25. Define marketing also explain the functions of marketing [2007-10]
26. Define advertising. what are the various types of advertising [2009-10]
27. What is insurance. explain the different types of insurance also describe its merits and
demerits [2007, sup2007]
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 2
Define business? What are the characteristics / Features of a
business?
A business should have the following characteristics
1. Deals in goods and services
2. Economic activities
3. Profit motive
4. Regular transactions
5. Element of competition
6. Size
7. Management
8. Innovation
9. Capital
10. Social process
11. Business is a system
12. Art as well as science
13. Registration of business
14. Transfer of title
15. Element of risk
16. Reliability
1. Deals in goods and services
Business always deals in goods and services. Goods include consumer ( ) goods and
industrial goods. Such as cloth, shoes, sugar, raw material etc. services include insurance
companies, teachers, lawyers, doctors etc.
2. Economic activities
Economic activities mean exchange of goods and services for the purpose of earning money.
Purpose of every business is to perform some economic activities. If a business is not
performing economic activities it cannot be called business.
3. Profit motive
Business must be formed to earn profit. If an organization is formed to serve the nation and
its primary motive is not to earn profit it cannot be called business
4. Regular transactions
Note
To remember headings
easily, focus on the first letter
of every heading it is forming
a specific name and in this
question it is
DEPRES MICS BARTER
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 3
There must be regularity ( ) in transactions of business. Only one or fewer
transactions cannot be called business. For example if a student sold his books to his friend or
at book shop it cannot be called business because of irregularity
5. Element of competition
Competition exists in every kind of business. There should be a healthy competition between
the businesses for good quality at reasonable prices.
6. Size of business
Business may be started at different levels it can be of small or large size (national and
international level). There is no restriction ( ) on the size of business.
7. Management
Management is a backbone ( ) of every business, without management business
cannot achieve its objectives or aims. So manager can control affairs of business to achieve
its objectives
8. Innovation
Business can be successful only when it introduces new and innovative product. Innovative
and new products increase consumer satisfaction.
9. Capital
Capital means the investment made by the owner in the business. Business cannot be started
without the help of capital. More the capital is more the larger scale of business is. Owner can
provide capital from his personal sources or he can borrow it from his friends, family or
Banks.
10. Social process
Business is a social process, because owner runs business with the help of persons of society
such as customers, employees and professionals.
11. Business is a system
System means a proper plan to achieve the objectives of business. To run the business
successfully, businessman should perform activities according to well established plan.
12. Art as well as science
Business is an art because experience and skills are required to run business. It is a science
because it is also based on laws and principles.
13. Registration of business
Registration of business depends upon the size and nature of business.
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 4
In sole proprietorship registration is not required
In partnership registration is optional.
In case of Joint Stock Company it is compulsory.
14. Transfer of title (ownership)
Transfer of title means that the change of ownership from one hand to another. In business
goods are purchased with intention to sale them. When goods are sold, ownership transfers
form seller to buyer.
15. Element of risk
Risk means the possibility of loss. The business may suffer losses due to change in customer
taste and fashion.
16. Reliability
The goods and services produced by the business should be reliable, so that business can
achieve goodwill.
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 5
Q#1 what are the components/ divisions/ branches of business?
Or
Explain the scope of business
Or
Explain the industry, commerce and trade
Components of business
Business includes the following components
Industry
Commerce
Industry
Industry is a part of business in which goods & services are produced. Industries convert raw
material into finished and semi finished goods. Industry has two types.
1) Primary industry
2) Secondary industry
1) Primary industry
Primary industry is engaged in the production and extraction ( ) of natural
sources from earth which are used in the secondary industry. Primary industry can be divided
into two parts.
i. Extractive industry
ii. Genetic industry
i. Extractive industry
Extractive industries are those which raise or produce natural sources from below the surface
of earth. Such as fishery, extraction of oil, gas and coal.
ii. Genetic industries
Genetic industries are those that are engaged in reproducing and multiplying the certain
species of animals and plants. Such as poultry farm, fishing farm, nursery.
2) Secondary industry
These industries use finished goods of primary industries as raw material. Secondary
industries manufacture the products that can be used by the consumer. Secondary industry
has three types.
Introduction to Business
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a. Constructive industry
b. Manufacturing industry
c. Services industry
a. Constructive industry
These industries are engaged in the construction of dams, bridges and roads
b. Manufacturing industry
These industries convert raw material into finished or semi finished goods. Such as textile
mills, sugar mills, flour mills.
c. Services industry
These industries are engaged in providing the services of professionals according to their
expertise. Such as lawyer, doctors, teachers, accountants.
Commerce
Commerce includes all those activities that facilitate transferring goods from place of
production to final customer.
Components of commerce
1. Trade
2. Aids to trade
1. Trade
Trade is the process of transferring goods from industries and persons to their final
customers. In other words trade is the process of buying and selling.
Trade has two types:
i. Home trade
ii. Foreign trade
i. Home trade
The purchase and sale of goods inside the country is called home trade. Home trade can be of
two types.
a. Whole sale trade
Selling of goods at large scale to the shopkeepers is called wholesale trade. Shopkeepers
resale those products to customers.
b. Retail trade
Selling of goods at small scale to customers is called retail trade
ii. Foreign trade
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The purchase and sale of goods between two or more countries is called foreign trade. It is
also called international trade. Foreign trade has three types.
a. Import trade
When goods or services are purchased from other countries it is called import trade.
b. Export trade
When goods or services are sold to other country it is called export trade.
c. Enter port trade
When goods are imported from one country with a view to export them in other country.
2. Aids to trade
Aids to trade include all those activities that support trade. Following are the common aids to
trade.
1. Advertisement
It is an easy way to inform large number of customers about the availability of product.
Advertisement can be made through, news papers, radio T.V
2. Agents
Agents are those persons who buy or sale goods for their principal.
3. Banking
Bank facilitates the buyer and seller for the settlement of payments both in home trade and
foreign trade. They also grant loans to businessmen.
4. Insurance
Insurance companies help trader in transferring goods from one place to another safely.
5. Transportations / Logistics
Means of transportation transfer the goods from factory to customer. Examples of
transportation are: railway, by road, by air, by sea,
6. Warehousing
Warehousing the process of storing goods that are produced by the manufacturers
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 8
Q#2 what are the qualities of good businessman?
A good businessman should have the following qualities to run business successfully
17. Professional qualities
18. Personal qualities
Professional qualities
1. Market information
2. Innovative
3. Technical skills
4. Ability to plan
5. Coordination
6. Motivating power
7. Analysis power
8. Financial soundness
9. Ability to take decisions
10. Time management
1. Market information
A business man should have the complete information about likings, disliking, taste and
fashion of his customer. A good businessman always keeps an eye on the trends and demand
of market.
2. Innovative
A good businessman should have the quality to manufacture new products according to the
taste and demand of customer. If a businessman ignores ( ) the taste and trend (
) of customer he may suffer great lose.
3. Technical skills
A businessman can run business successfully only, when he have adequate ( )
technical skills and command over specialized knowledge.
4. Ability to plan
Plan is a set of predetermined actions. Businessman should have the ability to plan the
activities of business. More the plans are strong, more the business is profitable
Note
To remember headings easily,
focus on the first letter of every
heading it is forming a specific
name and in this question, it is
MIT, ACMA, FAT
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0334 – 5040190, 0313 – 5040191 Page 9
5. Coordination
A businessman should have the cooperation with his employees and customers. Coordination
helps businessman to make business more profitable and successful.
6. Motivating power
A good businessman should have the ability to inspire his customers and employees. If
employees are motivated they will work with more devotion ( )
7. Analysis
A businessman should have the quality to analyze the performance of business, so that he can
improve the management of business.
8. Financial soundness
Finance or cash is an important factor in the success of business. A business should have
enough cash to meet the day to day requirements.
9. Ability to take decisions
A businessman should have the ability to take quick and wise decisions. If he fails to decide
or he has low decision making power he may lose growth opportunities.
10. Time management
Time management is an art of scheduling and arranging business activities. Time
management is not only important in business life it is also important in social life.
Personal qualities
Following are the personal qualities of a businessman.
1. Honesty
2. Attitude
3. Patients
4. Intelligent
5. Hardworking
6. Ability to forecast
7. Personality
8. Initiative
1. Honesty
A businessman should be honest with his employees and customers. If a business shows
dishonesty to his customers and employees, than he may lose the goodwill of business.
Note
To remember headings easily, focus on the first letter of every
heading it is forming a specific name and in this question, it is
HAPI, HAPI
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0334 – 5040190, 0313 – 5040191 Page 10
2. Attitude
The attitude of businessman should be ethical. Ethical attitude means that there should not be
cheating and fraud. Cheating and fraud in business affairs results in loss of customer.
Incomes earned by cheating and fraud are illegal.
3. Patients
Patients mean controlling temper at the time of anger of problem. A businessman should
show patients in daily affairs of business. If he loses his temper he suffer lose.
4. Intelligent
Intelligent means taking right decision at the right time. An intelligent businessman can
handle his affairs at the right time in the right way.
5. Hardworking
Another quality of good businessman is that he should be hardworking. A lazy man cannot
run his business successfully.
6. Ability to forecast
A good businessman should have the ability to anticipate the future circumstances to take
correct action. For example if he is forecasting increase in demand then he may increase
level of production.
7. Personality
Personality of businessman should be cheerful & smiling face. A cheerful greeting may help
him to attract customers.
8. Initiative
Initiative means the ability to start and complete the work. A business man should have the
ability to initiate.
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 11
Q#3
Explain the importance of business
Business
Any legal activity undertaken to earn profit is called profit.
Importance of business
Business is playing a vital role in the economic development of company. Business is
organized and run by the entrepreneurs to earn profit. They make the best use of available
resources and provide goods and services to the people. Importance of business can be jugged
form the following points.
1. Variety of products and services
Businesses are producing variety of products. Customer may choose those products that are
suitable to his taste and choice and purchasing power.
2. Better living standard
Business improves the living standard of the people by providing quality products at low
rates.
3. Source of employment
Business provides employment to large number of people. It is not possible for the
government to provide jobs to whole population, business helps government in solving the
problem of unemployment.
4. Investment opportunities
Business provides investment opportunities to the general public. People can invest their idle
savings in any profitable business to earn profit on it.
5. Innovation
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 12
Business introduces new and innovative products that may best suit their life style. Research
and development process of business helps consumers by providing innovative products
6. Mobility of labour
The labour can move from one place to another place in search of work better pay and
promotion. Mobility of labor is possible with the help of business.
7. International relationship
Imports and exports of goods bring two countries closer by creating strong relationship with
each other. Due to close relationship countries may share ideas and new techniques of
production with each other
8. Use of resources
It makes possible to sue idle resources of country with the help of business. In the absence of
business the natural goods like crude oil, gas, coal, and iron etc. remain idle.
9. Creation of customers
The business of today is creating markets for its markets all over the world by introducing
new products and new methods of products
10. Change in consumer mind
Business is going to change the mind of customer with the passage of time. The products
which are used now are quite different from those of thirty years back
11. Increase in national income
Business is providing revenues in form of taxes to the government that is used on the welfare
of the society.
12. Indicates rate of development
Production level indicates the rate of economic development. More the production is made in
an economy more the developed country would be. Business plays vital role in the economic
development.
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Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 13
Q#4
Explain the different forms / types of business
1. Sole proprietorship
Sole tradership is the oldest from of business organization which is managed owned and
controlled by a single person. This form of business can be easily formed without any legal
formality. One man invests his capital in the business. He alone is responsible for the profit
and loss of business. He manages business by using his skills. Sole proprietor has unlimited
liability which means that personal property of the owner can be sold for the payment of
debts.
2. Partnership
When two or more person carries on business for the purpose of earning profit is called
partnership. Such types of business can be formed easily without any legal formality. Each
partner invests his money in business. Profit and losses of the business are distributed
between the partners. Partners are responsible for the management of business. They use their
skills to run business. Liability of partners in partnership is unlimited which means that their
personal property can be sold for the payment of debts.
3. Joint stock company
A joint stock company is voluntary association of different persons created by law. A
company is formed under company’s ordinance 1984.company issue shares for the
accumulation of capital. General public and other financial institutions invest in company.
Company has many kinds but most popular form of company is public limited. Liability of
members is limited to the value of their share in company. Joint Stock Company is managed
by the skilled and experienced directors.
4. Cooperative society
A cooperative society is a voluntary association of individuals for the common interest of its
members. It is form in various sectors like trading, commerce, industrial and technical. Its
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 14
capital is generally divided into numbers of share shares of equal value. In such form of
organization all the members have the equal right of ownership and management
It is formed under cooperative society’s act 1925. It can be formed with limited and unlimited
liability.
5. Business combination
When two or more business units combine to carry on business together for the economic
benefit, combination take place. if object of business is against public interest it would be
considered unlawful. Combination can be temporary and permanent.
6. Joint Hindu family business
When a business is run by the persons of same family and they run the business as family
business, it is called joint Hindu family business. Such business is run only in India. Joint
Hindu family business is governed under Hindu law.
7. Public corporation
Public corporation is formed under the act of parliament. The acts define the powers, objects
and limits of corporation. Pakistan air lines and state life insurance are the examples of public
corporation
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 15
Q#5
Define sole proprietorship. What are the merits and demerits of
sole proprietorship?
Or
What are the advantages and disadvantages of one man business?
Or
One man control is best, explain. (Only advantages)
Sole proprietorship
A business which is carried on under the ownership of one person is called sole
proprietorship
Advantage/ Merits of sole proprietorship
1. Easy formation
Formation of business is easy. Any legal business can be started without any legal formality
2. No legal Formality
There is no legal formality is required in sole proprietorship. Because registration and other
legal documents are not required to start the sole proprietorship
3. Entire profit
Sole proprietor manages all the activities of business himself and he is the sole owner of
business, so he enjoys entire or whole profit of the business.
4. Low cost
In sole proprietor are the sole owner, manager and controller of business. He look after all the
matters of business himself, in this way he can save the cost of management.
5. Tax saving
Sole owner can get the advantage of tax saving because tax is only paid on the personal
income of owner.
6. Less chances of fraud
Introduction to Business
Written by; Ahmed Raza (MBA, ACMA) providing quality education of ACCOUNTING, B.LAW, AUDITING, MBF, ITB
0334 – 5040190, 0313 – 5040191 Page 16
Another advantage of sole proprietorship is that there are the less chances of fraud because
owner performs all the activities himself
7. Easy transfer of ownership
Sole owner can sale his business to other person without any legal formality.
8. Easy dissolution
Dissolution means when the activities of business come to an end. Sole owner can easily
dissolve his business at any time.
9. Quick decision
One man control is best to take quick decision because there is no need to consult any other
person.
10. Direct relation with customers
Sole owner has the direct relation with customers. In this way he can understand the needs,
wants and demand of customer which may help him for the growth of business.
11. Direct relation with employees
Sole owner has direct relation with his employees. In this way he can understand the
problems of his employees. He may help them in completing their task.
12. Credit facility
Sole trader has unlimited liability. It means that his personal assets can be sold for the
payment of debts. Due to unlimited liability lenders do not hesitate in granting loans.
13. Control on monopoly
Sole proprietorship businesses are in large numbers and they cannot create monopoly. There
is competition among them which helps in controlling price level.
Disadvantage/ Demerits of sole proprietorship
Following are the disadvantages of business
1. Low capital
One man invests from his limited personal resources. There are always low investments in
such type of business. Due to low capital owner can not expand his business on a large scale.
2. Unlimited liability
The second main drawback of sole owner business is that the liability of owner is unlimited.
It means that the personal property can be sold if his insolvency
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0334 – 5040190, 0313 – 5040191 Page 17
3. Entire loss
Sole owner enjoys the whole profit of the business and he is alone responsible for the profits
and losses of business therefore he suffers the whole loss of business.
4. Limited size of business
Sole owner has limited capital and limited skills which do not allow him to expand his
business on large scale. Normally his business limited to one city or small area of a city.
5. Lack of skilled persons.
The sole owner cannot hire the services of qualified and experienced persons due to limited
sources and small scale of business which restrict innovation and new ideas.
6. Lack of management
One man performs all the activities of business himself but he may not be expert in
performing every activity. If he is a good accountant, he may not be a good manager.
7. Lack of advertisement
Advertisement is best to inform customers about the availability of the products. There is a
lack of advertisement in sole proprietorship because he cannot afford advertisement expenses.
8. Lack of public confidence
Public shows less confidence because this type of business is not registered and there are no
legal rules to control such type of business.
9. Lack of inspection
In sole proprietorship there is no need of audit therefore some time owner is found in illegal
activities like smuggling.
10. Difficulty in borrowings
The banks and other financial institutions hesitate to advance loans to sole proprietor.
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Q#6
Define sole partnership. What are the merits and demerits of sole
partnership?
Or
What are the advantages and disadvantages of partnership?
Partnership
Partnership is association of two to twenty people who agree to carry on business together for
the purpose of earning profit.
Advantage/ Merits of Partnership
14. Easy formation
Formation of business is easy. Two to twenty people can start business without any legal
formality.
15. No legal Formality
Legal formalities are not compulsory to start the partnership business. It can be started at any
time with the consent of partners.
16. Low cost
In many partners, manage and control business. They look after all the matters of business
themselves, in this way they can save the cost of management.
17. Tax saving
Firm can get the advantage of tax saving because tax is only paid on the personal
income of partners.
18. Less chances of fraud
Another advantage of partnership is that there are the less chances of fraud because partners
perform all the activities themselves.
19. Easy dissolution
Dissolution means when the activities of business come to an end. Partners can easily
dissolve business at any time.
20. Better decision
Partners can consult each other all the matters of business. They can take better decisions in
this way.
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21. Direct relation with employees
Partners have direct relation with their employees. In this way they can understand the
problems of employees. They may help them in completing their task.
22. Credit facility
Liability of partners is unlimited. It means that personal assets of partners can be sold for the
payment of debts. Due to unlimited liability lenders do not hesitate in granting loans.
23. Direct relation with customer
Partners have the direct relation with the customers; they can understand the likings and
disliking of their customers.
24. Strong management
Management is backbone of every business. Partners can manage the business easily because
every partner works according to his skills and abilities.
25. Business expansion
Expansion of partnership is easy as compared to the sole tradership because every partner
invest money to grow business more and more.
26. Change in business
The change in business is simple. All the partners must agree to change the nature of
business. For example a firm dealing in cloth can decide to buy and sell books.
27. Secrets
Secrets of the business remain with the partners. There is no legal requirement to publish
business accounts for general public.
Disadvantage/ Demerits of Partnership
Following are the disadvantages of business
11. Low capital
Partners invest from their limited personal resources. There are always low investments in
such type of business. Due to low capital expansion of business is not possible on large scale.
12. Unlimited liability
The second main drawback of partnership business is that the liability of partners is
unlimited. It means that the personal property can be sold in case of insolvency
13. Lack of public confidence
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Public shows less confidence because this type of business is not registered and there are no
legal rules to control such type of business.
14. Lack of inspection
In partnership there is no need of audit therefore some time partners are found in illegal
activities like smuggling.
15. Difficulty in borrowings
The banks and other financial institutions hesitate to advance loans to firms because they are
not registered.
16. Limited life
Life of partnership firm is limited because if a partner dies or declared insolvent partnership
comes to an end
17. Lack of mutual cooperation
There is lack of cooperation between the partners because every partner has different opinion
about the matter.
18. Transfer of share
Partners cannot transfer their share to any other person easily. Share can be transferred with
the consent of all the partners
19. Limited size of business
Partners have limited capital and limited skills which do not allow them to expand business
on large scale.
20. Chances of fraud
There are always chances of fraud. A dishonest partner may involve in theft of business cash
and goods.
21. Lack of management
The small capital keeps the business small. They cannot hire the services of experts
22. Lack of advertisement
Advertisement is best to inform customers about the availability of the products. There is a
lack of advertisement because they cannot afford advertisement expenses.
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Q#7 Define Co – ownership. Differentiate between co-ownership and
partnership.
Co-ownership
It is the joint ownership of more than one person without the intention to carry on business.
For example, if two or more persons purchased land without the intention to carry on
business on it, it is called co ownership.
Difference between partnership and co ownership
Partnership co ownership
1. Purpose
Purpose of partnership is to carry on
business.
Purpose of co ownership is to not to carry on
business
2. Agreement
Partnership is the result of agreement
Agreement is not necessary for the formation
of co-ownership
3. Laws
Partnership is formed under partnership act
1932
There is no separate law for the formation of
co-ownership
4. Number of members
Maximum number of partners is twenty.
There is no restriction for the maximum
numbers of co owners
5. Profit & loss
Partners share profit and loss of business
There is no concept of profit. only income
earned form property is shared
6. Transfer of share
Partner cannot transfer his share to another
person without the consent of all the partners
Co owner has right transfer his share to
another person without the consent of other co
owners
7. Minor
A minor cannot become a regular partner
A minor can become regular co- owner
8. Division of property
Partner cannot divide property of business in
parts Co owner has the right to separate his property
9. Dissolution
Partnership can be dissolved if a partner
dies or become insolvent.
Co ownership cannot be dissolved due to any
such reasons.
10. Relation
Every partner is an agent of every other
partner. A co owner is not the agent of other co owners
11. Liability
Liability of partners is unlimited they are
responsible for the payment of debts.
Liability of co owner is limited only to his
share in property
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Q#8 Differentiate between partnership and sole proprietorship.
Difference between partnership and sole proprietorship
Partnership Sole proprietorship
1. Agreement Agreement is not required to start this type
of business Partnership is the result of agreement
2. Laws
There is no separate law for the formation of
sole proprietorship
Partnership is formed under partnership act
1932
3. Number of members There is only person who is responsible for
the activities of business Maximum number of partners is twenty.
4. Profit & loss Sole owner enjoys the whole profit and bears
whole. Partners share profit and loss of business
5. Transfer of share
Co owner can freely transfer his right to
other person.
Partner cannot transfer his share to another
person without the consent of all the partners
6. Minor There is no restriction on minor to start this
type of business A minor cannot become a regular partner
7. Dissolution
Sole ownership is dissolved if sole owner
dies, or become insolvent
Partnership can be dissolved if a partner
dies or become insolvent.
8. Relation
As the sole owner runs business alone, so
there is no relation of agent and principal
Every partner is an agent of every other
partner.
9. Suitability It is suitable for the medium scale business It is suitable for small scale business
10. Management
All the partners are responsible for the
management of business
A sole owner is responsible for the
management of whole business
11. capital
All the partners invest in the business Only one person invests in the business
12. Chances of growth
There are more chances of growth because
of larger capital.
There are limited chances of growth because
of lack of capital
13. Accountability
Every partner is answerable to other person
about the expenses and incomes of business
Sole owner is not answerable to any other
person
14. decisions
All the partners decide all the matters of
business by the mutual consent
Only the one person is responsible to handle
and to take decisions
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Q#9 What are the kinds of partner?
Partnership can be classified into following kinds
1. According to age
2. According to experience
3. According to liability
4. According to participation
5. General partner
1. According to age
i. Major partner
A person who is over 18 years of age is called major partner. Major is partner in profit and
losses of firm.
ii. Minor partner
A person who have not attained the age of majority (or) other words a person who is below
18 year of age is called minor. Minor is partner in profits of the firm only
2. According to experience
i. Senior partner
A person who has invest large amount of capital and he has more experience than other
partners. Senior partner has more share in profit of the company
ii. Junior partner
A person who has small investment in company and he has less experience than the senior
partner. Junior partner has less share in the profit of the company
3. According to liability
i. Unlimited partner
A partner who has unlimited liability is known as unlimited partner. He and his personal
property both are liable for the payment of debts.
ii. Limited partner
A partner whose liability is limited to his share in business is called limited partner. Limited
partner has no right to take active part in the management of firm
4. According to participation
i. Active partner
A person who invests capital in the business and takes active part in the affairs of the
business, such partner is called active partner. He is liable for the debts of firm
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ii. Sleeping partner
A partner who invests his capital in the business but does not take active part in the affairs of
the business, is called sleeping partner
iii. Nominal partner
A partner who neither invests capital nor take part in the activities of business, He lend his
name due to his goodwill or repute.
iv. Secret partner
Secret partner invests his capital in business and he takes active part in the business but
public does not know him as a partner. Secret partner is responsible for the debts of business
v. Silent partner
A partner who does not take part in the management of business but public knows him as a
partner.
5. General partner
i. Incoming partner
A person who is newly admitted in the firm with the consent of all the partners is called
incoming partner
Incoming partner is not responsible for any act performed before his admission
ii. Partner in profits only
If a partner is entered in to the profits of the firm only and he is not liable for the loses of firm
Partner in profits is not allowed to take part in the management of firm
iii. Deceased partner
A partner whose life has expired is known as deceased partner. The share in capital of that
partner is paid to his legal heirs.
iv. Retired partner
A partner who leaves firm due to certain reasons is known as retired partner or outgoing
partner.
v. Quasi partner
A partner who has retired from active participation but he has left his capital in the firm.
Capital of quasi partner is considered as loan.
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Q#10 what are the rights, duties and liabilities of partner in absence of
agreement?
Rights of partner
1. Right to take part
Every partner has right to take part in the activities of business.
2. Right to share profit
Every partner has right to share profit equally
3. Right of opinion
Every partner has right to give opinion before the matter is decided
4. Right of salary
If a partner is performing extra ordinary duties, than he has right to get salary for the duties
performed.
5. Right to use property
Every partner has right to use the property of business for the business use
6. Right to inspect
Every partner has right to inspect the books of accounts. He can check the performance of
business.
7. Right of agent
Every partner has right to act as an agent on behalf of remaining partners
8. Right to receive damages
If a partner personally suffer loss due to any act of other partner than he has right to recover
damages
9. Right to retire
A partner has right to retire from business after giving notice of retirement to the other
partners
10. Right of existence
A partner cannot spell other partner because every partner has right to live in the business
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11. Interest on capital
Partner has a right to receive interest on the amount of capital according to the terms and
conditions.
12. Right to exercise powers
Every partner has right to exercise his powers to run the business successfully.
Duties of partner
1. Common benefit
It is the duty of every partner to work for the common benefit.
2. Personal use of property
Partners should not use the business property for their personal use.
3. Communication
It is the duty of every partner to communicate information to other partners about the
business dealing.
4. Act within authority
It is the duty of every partner to act within the scope of authority given to him
5. Immoral activities
It is the duty of every partner to avoid doing illegal activities that are against the benefit of
firm.
6. Honesty & sincerity
Every partner should be honest and he must attend the activities of business carefully and
honestly
7. Willful neglect
If firm suffers loss due to the willful negligence of any partner than it is the duty of partner to
repay the amount of loss
8. Transfer of share
Any partner should transfer his share to the other person without the consent of all partners
9. Work without remuneration
In the absence of agreement, all the partners are bound to perform the activities without
salary.
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10. Abide by decision
A partner should accept decisions taken by the majority of partners
Liabilities of partners
1. Joint liability
All the partners are jointly liable for the debts of firm. Personal property and business
property can be sold for the payment of debts
2. Liable for fraud
If a partner or partners commit fraud then he will be liable to compensate the loss suffered by
the firm
3. Liability of insolvent partner
The firm is not liable for any transaction of insolvent partner after the date of his insolvency
4. Liability of incoming partner
An incoming partner is liable for all the obligations incur after his admissions. Incoming is
not liable for the obligations before his date of admission
5. Liability of retired partner
A retired partner is not liable for the obligations occurred after his retirement but he is liable
for all the obligations that arises before his retirement
6. Liability of deceased partner
Property of deceased partner is not liable for the obligations arising after his death
7. Liability of expelled partner
A person who is terminated form partnership will not be responsible for the debts of firm
arising after his termination
8. Liability to pay loss
It is the liability of all the partners to pay losses of firm
9. Liability of minor
A minor is not responsible for the losses of the firm because he is partner in profits of the
firm only
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Q#11 what are the ways in which a firm can be dissolved?
Dissolution of firm
Dissolution of firm means when the activities of the business come to an end it is called
dissolution of firm. When a firm is dissolved, partnership is also dissolved.
Dissolution of partnership
Dissolution of partnership means when a partner dies, become insolvent or become of
unsound mind the partnership is dissolved but the remaining partner can continue business
Ways of dissolution
There are the five different ways for the dissolution of firm
1. Dissolution by agreement
2. Compulsory dissolution
3. Contingent dissolution
4. Dissolution by notice
5. Dissolution by court
1. Dissolution by agreement
A firm may be dissolved with the consent of all the partners or in accordance with the
contract between the partners
2. Dissolution by notice
The firm may be dissolved at any time if a partner gives notice of 14 days to all the partner of
his intention to dissolve the firm.
3. Compulsory dissolution
Following are the causes for the compulsory dissolution
i. Insolvency
If one partner or all partners become insolvent the firm is dissolved
ii. Unlawful business
If any event happens due to which business become unlawful than the firm is dissolved
4. Contingent dissolution
A firm may be dissolved due to the following reasons.
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i. Expiry of period
If a partnership is formed for a fixed period, firm will be dissolved on the completion of time
period
ii. Completion of venture
If a firm is formed to perform a particular venture, the firm will be dissolved on the
completion of venture.
iii. Death of partner
A firm may also be dissolved when a partner dies.
iv. Insolvency
If a partner becomes insolvent the partnership is dissolved
5. Dissolution by court
The court may dissolve the firm on the following grounds
i. Case of unsound mind
A partnership may be dissolved by the court if a person become of unsound mind
ii. Incapability of partner
Court may dissolve partnership if any partner become permanent incapable of performing his
duties
iii. Transfer of share
If a person has transferred his share without the consent of other partners, the court may order
to dissolve partnership
iv. Continuous losses
The court may order to dissolve firm if business is suffering losses continuously.
v. Other reasons
Court has right to accept or reject the application of dissolution. He may or may not order to
dissolve the firm on any other reason.
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Q#12
What are the advantages and disadvantages of Joint Stock Company?
Joint stock company
Company is an association of persons created by law with long-lasting run and common seal
Joint Stock Company is the biggest form of business organization. It is formed and registered
under company’s ordinance 1984.
Merits of company
Following are the advantages of business
1. Expansion of business
The main advantage of Joint Stock Company is that its business activities can be expanded
easily because there is large capital.
2. Larger capital
Joint Stock Company can collect large amount of capital by issuing shares and debentures to
general public because there is no limit for the number of owners in company.
3. Limited liability
Liability of owners in Joint Stock Company is limited to the value of shares held by them.
For example if a person holds the 100 Rs share of company, he would be liable for the debts
of 100 Rs.
4. Easy transfer of share
Shareholders of public limited company can easily transfer (sell) their share to other person.
There is no need to get consent of other shareholders.
5. Increase in employment
Joint stock companies are also playing a very important role in providing employment to
many unemployed persons. This improves the living standard of society.
6. Large scale production
Joint Stock Company produces goods on large scale. Large scale production reduces the cost
of production.
7. Public confidence
Joint Stock Company is registered form of business which enables him to win public
confidence.
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8. Credit facility
Joint stock company is registered form of business so the banks and other financial
institutions do not hesitate in granting loan to company. Company issues debentures to
borrow money.
9. Larger profit
With the help of better management, services of experts and reduction in cost, company can
increase rate of profit.
10. Better management
Joint Stock Company is administrated by the qualified and experienced directors which
increases efficiency of business.
11. Spread of loss
The loss of company is divided among the number of share holders, so the loss per
shareholder becomes very low.
12. Quality products
As the cost of production of company is low so it can produce quality products which
improves the living style of a society
13. Investment opportunities
Joint Stock Company has made it possible for the poor people to invest in a large and secure
form of business. People can invest their savings in company to earn profit
14. Long run
Joint Stock Company has permanent life if one or more shareholders become insolvent, dies
or sell their share. It does not affect the solvency of company
15. Expert’s services
Joint Stock Company has strong financial position; it may hire the services of experts and
skilled person.
16. Recognized legal entity
Company is registered under company’s ordinance as a spate legal entity. It can enter into
contract and borrow money with its own name.
Demerits of company
1. Complicated formation
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Formation of Joint Stock Company is so complicated because many legal formalities are to
be fulfilled.
2. Corruption
There are the several chances of corruption. Managers and directors may shape the policies
for their personal interest.
3. Double tax
Joint Stock Company has to pay double tax. Firstly tax is paid on the income of company,
secondly share holders pay tax on their personal income
4. Lack of secrecy
A joint stock company cannot maintain secrecy of accounts because it has to submit various
reports to general public.
5. Misuse of funds
As all the power is in few hands, they may misuse funds of company
6. Centralization of power
In Joint Stock Company the whole power is in few hands and the share holders are not
allowed to participate in the activities of business
7. Lack of responsibility
There is lack of responsibility and interest everybody tries to transfer his responsibility to
other person.
8. Lack of quick decision
In joint stock company there is lack of quick decision because a meeting of directors of or
managers is necessary to solve the problem.
9. Speculation
Due to easy transfer of share and limited liability the speculation in stock market take place.
Which effects economy
10. Favoritism
In joint stock company directors employee their inefficient and incapable relatives and
friends on key jobs which affects the performance of company.
11. Labor disputes
In large companies, workers do not have close contact with owners. This leads labor union to
fight against management
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Q#13
Define Joint Stock Company. What are the kinds of company?
Joint stock company
Company is an association of persons created by law with long-lasting run and common seal
Joint Stock Company is the biggest form of business organization. It is formed and registered
under company’s ordinance 1984.
Kinds of companies / classifications of company
Following are the five main classifications of company
A) According to formation
1. Chartered company
A company which is formed by the royal orders is called chartered company. This type of
company is not formed in present world. Examples of such type of companies are chartered
bank of England, east India bank
According to Formation
chartered company
statutory company
registered company
According to Ownership
Private ltd Company
public limited company
Holding Company
subsidiary Company
Goverment company
According to
liability
company limited by gurantee
company limited by
shares
unlimited company
According to Nationality
Domestic company
Foreign
company
Other companies
single member company
Modarba company
Leasing company
associated comPany
licensed company
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2. Statutory company
A company formed by order of president, governor general or prime minister is called
statutory company. National bank of Pakistan, state bank of Pakistan is the examples of
statutory company.
3. Registered company
A company formed and registered under company’s ordinance 1984 is called registered
company.
B) According to ownership
4. Public limited company
A company which has right to issue shares to general public and liability of shares holder’s
is limited to the value of their share in company. Minimum number of member in public
company must be seven but there is no limit of maximum number of members. Public limited
company has two types; listed companies and unlisted companies
5. Private limited company
A company which cannot issue shares to general public and the liability of share holder’s is
limited to the value of their share in company. Minimum number of members in private
company must be two and maximum is fifty.
6. Holding company
A company which buys 50% or above shares of other company is called holding company or
parent company
7. Subsidiary company
A company whose 50% shares are held by other company is called Subsidiary Company.
8. Government company
A company which sells 50% shares to government is called Government Company.
C) According to liability
9. Company limited by guarantee
A company whose members give the guarantee to pay a specific amount on winding up of
company is called company limited by guarantee
10. Company limited by shares
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A company in which liability of share holder’s is limited to the value of their share in
company is called company limited by shares. Company limited by shares has two types:
public limited company and private limited company.
11. Unlimited company
A company in which liability of share holder is unlimited, it means that the personal property
of share holder’s can be sold to pay the debts of company. This type of company does not
exist in Pakistan
D) According to nationality
12. Foreign company
A company which is registered and having head office outside Pakistan outside Pakistan is
called Foreign Company
13. Domestic company
A company which is formed and registered inside Pakistan is called domestic company.
E) Miscellaneous company
14. Single member company
A company which is managed and owned by a single member is called single member
company.
15. Modarba company
A company in which one person invests his money and other person devote his skills, time
and management.
16. Leasing company
A company which is doing the business of leasing is called leasing company.
17. Associated company
A company whose 20% or more shares are held by the other company is called associated
company.
18. Licensed companies
These are the non trading concerns who work for the welfare of society. The aim of Licensed
Company is not earn profit. Federal government grant them license to perform social
activities.
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Q#14
Differentiate between partnership and public limited company
Partnership Public Ltd company
1. Formation
Joint stock company is formed under
companies ordinance 1984
Partnership is formed under partnership act
1932
2. Number of members
There must be minimum 2 members and no
limit for the maximum members
There must be minimum 2 members and
maximum limit is 20
3. Transfer of share
Share holders can freely transfer shares to
other person
Partner cannot transfer his share to other person
without the consent of other person
4. Dissolution
Company is dissolved under the provisions of
company’s ordinance 1984
Partnership is dissolved if a partner dies,
become insolvent or become of unsound mind
5. Relationship
Share holder are not the agent of each others Every partner is agent of every other partner
6. Suitable Company is suitable for the large scale
business Partnership is suitable for small scale business
7. Management Directors and skilled managers are
responsible for the management of company.
Share holders are not allowed to take part in
the management.
All the partners are responsible for the
management of firm
8. Accountability Share holders are not answerable to other
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Every partner is answerable to other person
about the expenses and incomes of business
shareholders of the company
9. Chances of growth
There are more chances of growth because of
large capital
There are less chances of growth as compared to
the company
10. Liability
Liability of members is limited to the value of
their share in company.
Liability of partners is unlimited. Unlimited
liability means that the personal property of the
partners can be sold for the payment of debts
11. Legal entity
Company is a separate legal entity from its
owners
Firm is not separate from its owners, liability of firm
is the liability of partners
12. Audit Audit of accounts is compulsory by the
chartered accountant Audit of firm is optional
13. Issuance of prospectus Public company has right to issue share for
raising funds A firm cannot issue prospectus for raising capital
14. Change in business nature
A firm cannot change nature of business.
Nature of business can be changed with the consent
of partners.
15. Issuance of debenture Public company has right to issue share for
fund raising A firm cannot issue debentures for the fund raising
16. Annual reports Public ltd company is bound to publish
reports an A firm cannot publish financial reports of business
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Q#15
Differentiate between private Ltd Company and public limited company
Private Ltd Company Public Ltd company
1. Number of members There must be minimum 7 members and no limit
for the maximum members
There must be minimum 2 members and
maximum limit is 50
2. Transfer of share
Members of public ltd company can freely
transfer shares to other person
Members of private company cannot
transfer their share
3. Issuance of prospectus
Public company has right to issue share to general
public for raising funds
Private company cannot issue shares to
general public
4. Issuance of debenture
Public company has right to issue share for fund
raising
A private company cannot issue
debentures for the fund raising
5. Number of directors There must be at least seven directors
There must be at least two directors
6. Prospectus
Public ltd company has right to issue prospectus to
general public
Private company cannot issue prospectus
to general public for subscription in shares
7. Tax relief
Tax relief is given to the share holders of public
company
Tax relief is not given to the Share holders
of private company
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8. Loans to directors Public company cannot give loans to directors
Private company can give loans to
directors
9. Suitability
Public company is suitable for both medium and
large scale business
Private company is suitable for medium
scale business
10. Title
Every public company has to write word “ltd” after
its name.
Every private company has to write word
“private” after its name
11. Statutory meeting Public ltd company is bound to hold statutory
meeting at regular intervals
It is not required to hold statutory meeting
12. list on stock exchange
Public can be listed on the stock exchange
Private company cannot be listed on stock
exchange
13. certificate of
incorporation
it can start business after receiving
certificate of incorporation
Public company cannot start business on receiving
certificate of incorporation unless it receives
certificate of incorporation
14. Minimum subscription
Public company cannot get certificate of
commencement without fulfilling requirement of
minimum subscription.
Private company can start business without
fulfilling the conditions of minimum
subscription
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Q#16
What is the procedure for the formation or incorporation of Joint
Stock Company?
Formation of joint stock company
Following are the four steps in the formation of Joint Stock Company
A) Promotion stage
It is the first stage in the formation of Joint Stock Company. At this stage initial steps are
taken for the formation of company. The persons who take initial steps in the formation of
company are called promoters.
1. Idea generation
At this stage, promoters generate different ideas about the nature of business. They may
generate different alternatives.
2. Investigation
When the nature of company business is decided, the promoters go in the investigation stage
and make plans about the availability of capital, labour, electricity, gas, water and other
sources
3. Assembling various factors
Promotion Stage
idea
inestigation
Assembling of factors
Financial reources
essential documnets
incorporation stage
submission of application
payment of registration
fee
verification of application
certificate of incorporation
Subscription Stage
raising capital
Certificate of comencement
issue of prospectus
alootment of shares
minimum subscription
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At this stage different factors of business are accumulated. Promoters arrange license,
copyright, and appointment of necessary employees.
4. Finance planning
At this stage promoters estimate the total amount of capital that is needed and the ways
through which capital can be raised.
5. Preparation of essential documents
In addition to the above discussed matters the promoters also prepare the essential documents
that are to be submitted to the registrar. These documents are;
i. Memorandum of association
ii. Articles of association
iii. Prospectus
B) Incorporation stage
The second stage in the formation of company is to get it registered.
1. Submission of application of registration
At this stage, application of registration is submitted to the registrar along with the following
documents;
i. Memorandum of association
ii. Articles of association
iii. List of directors
iv. Consent of directors
v. Prospectus
vi. Qualification shares
vii. Statutory declaration
i. Memorandum of association
A document containing the name, address, object, authorized capital etc
ii. Article of association
A document containing laws and rules about the management of company is called article of
association.
iii. List of directors
A list containing the name, address, occupation and other details about the directors
iv. Written consent of directors
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A document showing the willingness of them to act as directors
v. Qualification shares
An undertaking signed by the directors that they are agree to take and pay for the
qualification shares
vi. Prospectus
Promoters have to submit prospectus to the registrar.
vii. Statutory declaration
A statutory declaration has to be sent to the registrar that all the legal formalities has been
completed
2. Payment of registration fee
The registration fee of the company is also paid to the registrar.
3. Verification of application
The registrar verifies to the promoters about the completion of document
4. Certificate of incorporation
If registrar is satisfied and he thinks that all the formalities are fulfilled then he issues a
certificate of incorporation to promoters
C) Capital subscription stage
The third stage is to make arrangements for raising capital. Company can raise capital by
issuing shares and debentures.
D) Certificate of commencement
A public company cannot start business without getting certificate of commencement.
Company can obtain certificate of commencement after fulfilling the following conditions
1. Issuance of prospectus
At this stage, Promoters issue prospectus to invite general public for subscription of shares
and debentures. A private company cannot issue prospectus.
2. Allotment of shares
When applications for subscription have been received then the promoters allot shares on
these applications.
3. Minimum subscription
It is also certified that the shares have been allotted up to or more than the minimum
subscription.
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Q#17
What are the three important documents of Joint Stock Company?
Every company has to submit legal documents for the registration of company but out of
these documents following three documents are important
1. Memorandum of association
Memorandum of association is the constitution of company. It is also known as chartered of
company. This document defines the limits, object and powers of company. Through this
share holders can know the range of business activities. Any work or business that is not
stated in the memorandum cannot be started by the management
Contents of memorandum
1. Name
Full name of company with the word “ltd” after its name, name of company should be
different from the existing company
2. Head office
Complete address of registered head office must be given. A company must have the head
office in that state where it is registered.
3. Object
In this clause it is mentioned that what type of business a company will do. If the company
does not work according to the object, than it will be considered illegal
4. Capital
Basic legal documents
Memorandum of
Association Article
of
Associaiton
Prospectus
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It is also mentioned that what will be the authorized capital, its division in shares and value of
each chare.
5. Liability
It is clearly Witten that the liability of shareholders is limited or unlimited.
Alteration in memorandum
Company can alter its memorandum with the sanction of court or central government.
2. Article of association
Article of association includes the rules and regulations necessary to manage the internal
affairs of company and to achieve objectives stated in the memorandum.
Article states the regulation about the following matters
i. Total capital
ii. Rules regarding change in capital
iii. Total number of shares
iv. Value of each share
v. Kinds of shares
vi. Rules regarding issuance of shares
vii. Rules regarding the transfer and registration of share
viii. Rights and duties of share holders
ix. Voting right of share holders
x. Power, duties and remuneration of management
xi. Total number of directors
xii. Appointment of directors
xiii. Appointment of auditors, their rights and duties
xiv. Rules regarding issue of debenture
xv. Procedure of winding up of company
xvi. Declaration of dividend and company reserve
xvii. Seal of the company
Alteration in article
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Shareholders of company can change the contents of article by passing special resolution.
But this change should not be against the memorandum and company’s ordinance 1984.
3. Prospectus
A document, advertisement, notice, circular or other invitation to the general public for the
subscription in shares is called prospectus. A private company cannot issue prospectus to
invite public for the subscription in shares
Contents of prospectus
1. Brief history
Brief history of company
Object of company
Information about its plant, machinery, and raw material etc
2. Financial information
Financial information of company
Auditor report
Auditor’s certificate on share capital
3. Board of directors
Name address, occupation and address of the directors
4. Remuneration of directors
Remuneration to be paid to the chief executive, directors and secretary
5. General information
Appointment of chief executive
Election of directors
Borrowing power of directors
Transfer of shares
Voting right of share holders
6. Miscellaneous
Address of registered office and factory
Banker of the company
Legal advisor and consultant
7. Application and allotment
The procedure of applying of share & their allotment is also made
clear
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Q#18
Define meeting. What are the types of meeting?
Meeting
When two or more persons gather to discuss some matters in order to make decision is called
meeting
Company’s meeting
When the members of company gather to discus business matters to make decision it is called
company’s meeting.
Types of business meeting
Following are the types of business meeting.
Share holder’s meeting
The meeting which is called to discuss the affairs of business with shareholders is called
shareholder’s meeting.
Types of shareholder’s meeting
Shareholder’s meeting is further sub divided in to the;
i. Statutory meeting
ii. Annual general meeting
iii. Extraordinary meeting
i. Statutory meeting
Statutory meeting is held only once in a life of company. It is the first meeting of the
members of a public limited company. Object of this meeting is to provide information to the
shareholders about the affairs of company.
i. By whom;
Following companies must hold statutory meeting
Business
Meeting
shareholder's
Meeting
Direcorts's Meeting
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a) Company limited by shares
b) Company limited by guarantee
c) Private company converted into the public company
ii. Purpose of meeting
a. To give idea about the working of company
b. To introduce directors with share holders
c. To give details about the use of capital
iii. Time of meeting
Every public company shall hold the meeting within the period of not less than 3months and
not more than 6 months after getting the certificate of commencement
iv. Notice
A written notice to every shareholder must be given 21 days before meeting.
v. Default in holding statutory meeting
A company may be wound up if it fails to submit statutory report to the registrar and holding
statutory meeting
2. Annual general meeting
Annual general meeting is also called ordinary meeting. Every company is bound to hold
meeting of share holders once in a year. In this meeting, shareholders discuss the efficiency
and performance of directors and other officers that are running business.
i. By whom;
Every listed company is bound to hold annual general meeting.
ii. Time of meeting
First general meeting can be held within 18 months from the date of incorporation and once
in every financial year. The gap between two general meetings should not be more than 15
months.
iii. Notice
A written notice to every shareholder must be given 21 days before meeting.
iv. Place of meeting
In case of listed (registered) company the meeting should be held in that city where the head
office of the company is situated.
v. Purpose of meeting
Followings are the objects of annual general meeting
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a. Appointment of auditor
b. Elections of director
c. To declare the profit of company
d. Declaration of dividend
vi. Default in holding statutory meeting
If company fails to hold meeting, than every officer shall be liable to fine. Court may wind up
company if it fails to hold two consecutive annual general meeting.
2. Extra ordinary general meeting
All the meetings other than the annual general meeting and statutory meeting are called extra
ordinary meeting. The directors may call extra ordinary meeting for doing some urgent
business. The meeting can also be called by the directors on the request of shareholders
i. Notice
A written notice to every shareholder must be given 14 days before meeting.
ii. Object
Such meeting is conducted for doing some special nature of business
a) For issuing debentures
b) For making alteration in memorandum or article of association
c) For making alteration in share capital of the company
3. Directors’ meeting
The person who run the management as representative of company are called directors
All the business affairs are settled with the mutual consultation of directors. So the meeting
called for directors to discuss the affairs of business is called directors meeting.
i. Time of meeting
The meeting must be held once in 3 months and at least four times in a year.
ii. Object
a) To issue shares of company
b) To invest companies fund
c) To make calls for meeting of company
d) To appoint the officer of the company
e) To check and approve the accounts of company
f) To declare the profit of the company
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Q#19
Define share capital. What are the different types of share
capital?
Share capital
The amount of money invested in business by its shareholders (owners) is called share
capital.
Types of share capital
Share capital of the company is divided into the following types
1. Authorized capital
The amount of capital with which a company is registered is called authorized capital.
Company cannot issue shares more than the authorized capital. The authorized capital of the
company is mentioned in the memorandum of association. If company wants to raise the
limit of authorized capital, then alteration in memorandum of association is required to be
made after the approval of the registrar. Authorized capital is also called nominal capital and
registered capital.
2. Issued capital
The part of authorized capital that is issued to the general public for subscription is called
issued capital. Company may issue entire authorized capital at one time or in parts, how
much amount is to be issued, depends upon the need of funds.
3. Unissued capital
The amount of authorized capital that is not offered to the general public is called unissued
capital. Company may issue this capital later on at the time of need of funds.
4. Subscribed capital
The part of issued capital purchased or taken up by the general public is called subscribed
capital. An application form is to be submitted along with the value of shares for the
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subscription in shares. The application received may be more or less than the offered shares.
If company received more application, it is known as over subscription. If applications are
less than the offered shares, it is known as under subscription.
5. Paid up capital
The part of subscribed capital against which money has been received is called paid up
capital. For example if a share has face value of Rs 100 and the company has received Rs 100
or any other amount less than Rs100 ) against issue of share, that amount is called paid up
capital.
6. Called up capital
It is that part of subscribed capital which is subscribed from subscribers. The company may
not demand entire amount of subscribed capital at once. Amount of shares may be collected
in installments. The amount of each installment that is demanded by the company is called up
capital. For example a company has issued a share of Rs 100, but it demanded Rs 30 to be
submitted with application and balance is paid afterwards. The amount of Rs 30 is the paid
up capital. Installment system is not used in Pakistan; according to the company’s ordinance
1984 the joint stock company can issue only fully paid shares.
7. Uncalled capital
The part of subscribed capital which has not yet been demanded by company is called
uncalled capital in the above example the balance of Rs 70 is uncalled capital.
8. Reserve capital
Reserve capital is the part of uncalled capital which is demanded at the time of winding up of
company. Reserve capital is created by passing a special resolution in general meeting.
9. Redeemable capital
A company can also raise capital by issuing redeemable capital. Company may issue
participation term certificate, musharika certificate, term finance certificate and other
securities that are not based on interest.
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Q#20
Define cooperative society. Explain the merits and
drawbacks of cooperative society
Cooperative society
Cooperation means working together for achieving some common goal. Cooperative society
is a voluntary association of person who work together for their self help and mutual help.
Purpose of cooperative society is to help the members of society by providing the necessities
of life at cheaper rate. Purpose of society is not to earn profit
Advantages of cooperative society
1. Easy formation
Formation of joint stock is easy as compared to the joint stock company. 10 persons who
have attained the age of majority can apply for the registration of society.
2. Management
There is democratic system in society very person in cooperative society has the right to vote
and elect the management.
3. Limited liability
Liability of members of society is limited to the value of their investment in the society.
4. Low prices
Members of society are the buyers and distributers of goods, in this way the role of
middlemen is eliminated. Thus members are in a position to purchase goods at cheaper rate
5. Low costs
The members of society belong to the small income group. They individually cannot produce
goods at large scale. When a cooperative society is formed they gather their sources and
produce goods at large scale which enable them to minimize the cost of production
6. Employment opportunities
Societies give employment to its own members, which play a vital role in growth of
economy.
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7. No monopoly
Cooperative societies discourage monopoly. The societies provide goods at cheaper rate
which eliminate monopoly of some firms and consumer can get goods at reasonable price.
8. Exemptions
Cooperative society enjoys the exemption of tax. Tax is not paid on the income of society.
9. Economic development
Society plays a vital role in the economic development of country by producing goods at
large scale and cheaper rate.
10. Better living standard
Cooperative society helps its members in improving their living standards by providing
employment, job opportunities, goods at cheaper rate and increases the income of members.
In this ways society helps in improving living standard of members.
11. Equal distribution of wealth
Profit earned by the society is distributed between the members. In this way the profit goes in
the hands of general public (small income group) instead of industrialists.
12. Promotion of savings
The savings of the members is used in productive purposes that motivated them to save more
for the investment purpose. Savings and investments are not only beneficial for the members
but also for the members of society.
13. Low expenses
Cooperative societies are managed and run by its members, in this way they can save
administration and management cost which maximizes the profit of society.
Disadvantages of cooperative society
1. Lack of capital
Generally all the members of a society belong to the small income group. They have small
savings and investments. Thus there is always lack of capital.
2. Poor management
Society is run and managed by the members of society. Generally the managers and
administrative are not experienced enough to manage the society.
3. Lack of motivation
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Cooperative societies are not formed to run earn profit. This does not provide motivation to
the members to work hard.
4. Lack of technology
The resources of a society are limited. It cannot use new and innovative techniques of
production which is necessary for the success of business.
5. Legal restrictions
Society has to follow many legal restrictions imposed by the registrar. This becomes the
hurdle in the success of business
6. Lack of research and development
There is lack of research and development because of insufficient funds. Research and
development helps in introducing verity of products which increases the consumer
satisfaction.
7. Chances of disputes
All the matters of the society are decided after the consultation it with all the members. The
dispute may arise if any member does not agree with other members.
8. Chances of loss
The members of society are uneducated. They cannot make the best use of resources so
society may suffer loss due to inefficiencies.
9. Lack of secrecy
All the members take active part in the management of society. They take all the decisions of
business, so the business secrecy is impossible and due to this business may suffer loss
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Q#21
What are the types of cooperative society?
There are many societies which have been started. Few of them are given below
1. Producer’s cooperative societies
When the members of society combine their resources for the production of goods and
services are called producer’s cooperative society. Members of this society produce goods in
their houses. The facilities are provided by the society. The output is collected by the society
and sold wholesale rate. The profit is then distributed by the members in proportion to the
output.
2. Consumer’s cooperative society
The societies are working to provide goods to the members at low price. The main purpose of
such society is to eliminate the role of middlemen and distributers which reduces the price of
goods. They purchase goods at wholesale rate and sell them to members at low rate.
3. Fisherman societies
These societies are working to provide different facilities to the poor fishermen. Society
provides them loans to purchase fish trap and other tools. In Pakistan there were 110 societies
up to 2004.
4. Rural societies
Rural societies are working to protect rights of people of rural area. These societies help to
provide goods at lower rate to its members.
5. Dairy farming society
People linked with dairies form such society. The dairy owners keep cows and buffalos. They
make arrangements to sell milk and products that are made of milk. Numbers of such
societies are working for the benefit of dairy owners in Punjab.
6. Housing societies
Cooperative societies are working to provide loan facilities to the poor members for the
construction of houses. Housing society provides land to its members for the construction of
houses. They also provide gas, water and electricity facility to its members.
7. Labour cooperative societies
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These societies are working to provide the employment to the unskilled labour. This labour
force is used for the construction of houses, bridges and roads. Individual labour has low
contractual powers.
8. Storage cooperative societies
These societies provide storage facility to its members for perishable and non perishable
goods at lower rate.
9. Credit societies
These societies are working to provide loan facility to its small business owners at lower rate
of interest. These societies also provide credit facility to the farmers. Loans are granted for
the purchase of seeds, castles fertilizers, raw material etc.
10. Insurance cooperative society
Insurance cooperative provide insurance facility to its members. Cooperative society may
take purchase group insurance policy at lower rate. Sometimes society may issue insurance
policy to the general public
11. Marketing cooperative society
A group of producers may start its own marketing network by forming a cooperative society.
Marketing societies make the arrangements for the sale of goods. They often sell their goods
without the help of middlemen and distributers which maximizes their profit.
12. Farming societies
These societies are formed to facilitate the poor farmers who have low produce and cannot
use the new techniques of cultivation. Farming societies provide machinery, financial help
and help in using new methods of production.
13. Miscellaneous cooperative societies
The cooperative society may be formed for other purposes like fisheries and poultry farming
etc. societies provide financial assistance to its members in their specific field of life
The main purpose of society is to provide financial help to its members.
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Q#22 Differentiate between cooperative society and Joint Stock
Company
Cooperative society Joint stock company 1. Formation
Joint stock company is formed under companies
ordinance 1984
It is formed under the cooperative
society’s act 1925
2. Number of members There must be minimum 7 members and no limit for
the maximum members. In private company there
must be at least 2 members and it cannot exceed 50
number of members
There must be minimum 10 members
who have attained the age of majority
(18 years)
3. Transfer of share
Share holders can freely transfer shares to other
person
Member can transfer his share to other
person as per the laws of society. If the
transfer of share is restricted than it
cannot be transferred
4. Dissolution
Company is dissolved under the provisions of
company’s ordinance 1984
Cooperative society has a short life. it
may be dissolved due to the lack of
interest of members
5. Object Object of company is to earn profit.
The object of cooperative society is the
welfare of its members. Society is not
formed to earn profit
6. Suitable
Company is suitable for the large scale business
Cooperative society is suitable for small
scale business
7. Management Directors and skilled managers are responsible for
the management of company. Share holders are not
allowed to take part in the management.
All the members are responsible for the
management of firm
8. Locality
Share holders of a company are from the different
territories (areas).
Members of a society belongs to the
same village, town or group
9. Chances of growth
There are more chances of growth because of large
capital
There are less chances of growth as
compared to the company
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10. Liability
Liability of members is limited to the value of their
share in company.
Liability of members of a society is
limited only when it is registered as
limited liability society
11. Distribution of wealth Company becomes the cause of unequal distribution
of wealth Cooperative society is removing the unequal
distribution of wealth
12. Voting rights
In company right to vote depends upon the amount of
capital invested in the company
Its members have equal voting right
regardless of their investment.
13. Issuance of prospectus
Public company has right to issue prospectus for
raising funds
A society cannot issue prospectus for
raising funds
14. Tax Exemptions Tax exemption is not given to the company. Certain tax exemptions are available to it.
15. Issuance of debenture
A society cannot issue debentures for
the fund raising
Public company has right to issue share for fund
raising
16. Annual reports
Public ltd company is bound to publish reports.
A society cannot publish financial
reports of business
17. Role of middlemen
Middlemen plays a vital role in the business of
company
Cooperative society eliminates the role
of middlemen.
18. Registration in stock exchange
A company can be registered in stock exchange.
A society cannot be registered in stock
exchange
19. Capital
Company has the right to issue share to general
public. It can also raise capital by issuing debentures
The society can increase the capital by
increasing the number of members. It
cannot issue share to general public.
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Q#23
Define business combination. What are the causes of
its growth?
Business combination
Business combination is joining of two or more businesses to form a single business to
perform the business activities jointly.
Combination takes place due to the tough competition. Competition reduces the profit of
business which affects the solvency of business. Combination takes place to remove the
competition elements and to make sure the solvency of business. Combination can be
temporary or permanent.
Causes or reasons of its growth
Following are the reasons for the formation of business combination
1. Competition
The tough completion in business has increased the solvency risk and decreased the profit of
business. Business combination takes place to make sure the survival in the market and to
increase the profit ratio by joining their business
2. Over production
Over production also becomes the reason for the business combination. When produce more
than the demand in market, it reduces the profit margin of business. Business combination
may check on the production and level and help in maintaining the supply and demand level
which stables the price of goods.
3. Shortage of capital
The small scale business cannot compete large scale business due to the shortage of capital. If
small scale business joins any small or large or large scale business, then it may help in
accumulation of capital.
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4. Modern technology
The purpose of combination may be to improve the quality of product by improving methods
of production. So technology also becomes the cause of business combination.
5. Creation of monopoly
Sometimes the businessmen combine their business activities to create monopoly in the
market. Such combination help producer to charge prices of their own choice but it is not
favorable for the general public and consumers
6. High cost
The small businesses may combine with other business to reduce cost of production ad other
expenses, because cost of production decreased per unit at large scale production
7. Effects of trade cycle
The effects of trade cycle also become the cause of combination. During depression phase the
inefficient firms are unable to survive, so they may join and efficient firm to survive in the
market.
8. Credit facility
Small firms may face difficulty in borrowing loans from the banks and institutions due to the
weak financial position. The business combination increases the financial worthiness of
combined business and they can return loan from their joint funds. So the banks and other
financial institutions do not hesitate in granting loans
9. Adoption of same policy
Adoption of the same policy is by the different firms is only possible by the business
combination. It may reduce the cost and competition and increases the profit.
10. General tendency
When combination becomes the trend in an industry, other industries also affected. So they
form combination for their common objective
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11. Status in the market
A small firm may join a large firm to enjoy the higher status in the market because a larger
firm has the higher status and repute in the market
12. Management
A small firm cannot hire the expert and skilled managers because of limited resources. They
may join a large firm to get the benefit of skilled management
13. Modern transportation
Combination may take place to share transport system with each other. Quick and fast
transportation give an edge to business over others
14. Lack of research
The lack of research is also the reason of combination. Success of every business depends
upon the research and development. A small firm cannot conduct research due to limited
resources but with the help of combination such problem can be solved.
15. Reduction in marketing expenses
Combination may help firms to control the advertising expenses of its products which
increase the profit margin of firms.
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Q#24
What are the various types of business combination?
1. Horizontal combination
When two or more firms relating to a similar business are combined under the same
management is called horizontal combination for example if number of steel mills combined
under the same management is called horizontal management. It can be explained with the
help of following diagram.
Advantages or objectives
1. To reduce cost of management
2. To reduce cost of production
3. To eliminate competition
4. To reduce selling expenses
5. To increase profit margin
6. To use new methods of production
7. To control over production
8. To supply goods at lower price
2. Vertical combination
When various departments of large industrial units combine under the single management it
is called vertical combination. Under vertical combination, form purchasing of raw material
to selling of goods, all stages are linked up by the combination. For example if a business unit
is engaged in cotton spinning, cotton weaving, cotton processing and cotton wholesaling are
combining together, it is called vertical combination
Managemnet
steel mill B
steel mill A
Marketing
steel mill C
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Advantages or objectives
Regular supply of raw material
1. Economy in purchasing raw material
2. For better selling of goods
3. To eliminate the role of middlemen
4. For better management
5. To reduce per unit cost
6. To control over production
3. Circular combination
When the business of different nature combines into a single large company it is called
circular combination. It is also called mixed or complementary combination
For example if sugar, chemical, paper and glass industries are combine together under single
management it is called circular combination
spinning
weaving
processing
selling
Managment
Management
glass Industry
paper industry
chemical industry
sugar industry
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Advantages / objectives
1. For better management
2. For saving in cost
3. For saving in advertisement expense
4. For better credit facility
5. To establish relationship between the firms
6. For better research system
7. To increase the efficiency of business
4. Diagonal combination
When a business unit is combined with different business units which supply him helping
goods and services it is called diagonal combination.
For example a distributing unit and repairing unit is combined with textile industry. It is
called diagonal combination
Advantages / objects
1. To maintain the quality of products
2. To reduce per unit cost
3. To increase efficiency of business
4. To overcome various expenses
5. To reduce the selling cost
5. Lateral combination
When the different business units combine their business activities on the basis of associated
nature of work is called lateral combination
Lateral combination is possible only when different business units are producing different
products and supplying them to the one big business.
Distribution unit
• Textile industry
Repairing unit
Introduction to Business
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For example the paper mill, ink company, printing company and binding firm can combine
their work to supply products to publishing house.
6. Divergent lateral combination
Divergent combination take place when using the common raw material, different products
are produced.
For example a steel mill is producing steel and it is used in making of ships, trains, cars and
machines
Binding firm Paper mill Ink, co Printing co,
Publishing house
Books
Steel mills
Ship Train Car factory Machine Factory