Business And Commerce — Part 1 MCQs with Explanations

Business means Industry and commerce. Industry is an economic activity, concerned with the procurement and processing of raw materials into finished products, that reaches the customer. Commerce is a business activity, wherein exchange for goods and services for value, is done on a large scale. Capital Required.

A student playing cricket is not an economic activity. Economic activity is the activity of making, providing, purchasing, or selling goods or services. Any action that involves producing, distributing, or consuming products or services is an economic activity.

Hunting is an extractive industry. These industries extract or draw out products from natural sources. Raw materials that are mostly products of the soil are some basic supply of extractive industries.

Mining is not a manufacturing industry. It is an extractive industry. The extractive industry consists of any operations that remove metals, mineral and aggregates from the earth.

A valid definition of a business purpose is to Create a customer. The customer is a foundation of a business and keeps it in existence. The customer alone gives employment. And it is to supply the customer that society entrusts wealth-producing resources to the business enterprise.

Sole-trade organization is also called as Individual proprietorship. It is the type of entity that is fully owned and managed by one natural person (not a legal person/entity) known as the sole proprietor. The business and the man are the same, it does not have a separate legal entity.

One who takes no active part in business is dormant partner. But is entitled to a share of the profits, and subject to a share in losses; - called also sleeping partner or silent partner.

In case of minor acting as a partner, his personal properties are not liable for the debts of the firm.

A partnership is dissolved in any case of death of any of the partner, by mutual consent and by insolvency of any of the partner.

The liability of a sole proprietor is limited to the extent of the value of business assets and his all private assets.

According to section 464(1) of the Companies Act,2013, no association or partnership consisting of more than such number of persons as may be prescribed shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the association or partnership or by the individual members thereof, unless it is registered as a company under this Act or is formed under any other law for the time being in force: Provided that the number of persons which may be prescribed under this sub-section shall not exceed one hundred. Further, the Companies (Miscellaneous) Rules, 2014, provides that no association or partnership shall be formed, consisting of more than 50 persons for the purpose of carrying on any business that has for its objects the acquisition of gain by the association or partnership or by individual members thereof, unless it is registered as a company under the Act or is formed under any other law for the time being in force. Simply, The new Companies Act 2013 has prescribed the maximum number of members in case of a partnership firm should not be more than 100 in case of partnerships. As per the previous Companies Act 1956, the maximum limit in case of partnerships was 10 and 20 for banking business and other businesses respectively. So now as per Companies Act 2013 there is no such limitation specific to banking business but overall limitation laid down in 50 as per Companies Rule 2014.

The partnership is an agreement between two or more persons who decided to do business and share its profits and losses. To have a legal relationship between the partners, the partnership agreement becomes the basis. The agreement can be in written form or oral form. An oral agreement is equally valid.

Partners of typical partnership firms have unlimited liability towards their collective debts and legal consequences.

A partner in a firm cannot transfer his share to an outsider. A partner of a firm cannot transfer his interest in the firm to an outsider and make the transferee apartner without the consent of all the others. A shareholder of a company can transfer his shares and the transferee can become a member of the company.

A manager with a share in the profits is only a servant of the firm.

A nominal partner is a partner in the business who has no actual interest in the trade or its profits. However, the person allows his/her name to be used in the business. A nominal partner holds himself/herself out to the world as having an apparent interest in the business. A nominal partner will be liable as a partner, because of the false appearance the person holds before the world.

The minimum number of members in a private limited company is 2.

A Joint stock company is governed by Companies Act 2013. A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders.

Memorandum of association of a firm contains rules regarding the constitution and activities of the company. Memorandum of Association (MOA) is a legal document which specifies the scope of business activities of the company and information about shareholding of the company. The MoA is a document prepared for the Company registration procedure.

The liability of shareholders of a public company is limited to the paid up value of shares. "Limited by shares" means that the liability of the shareholders to creditors of the company is limited to the capital originally invested, i.e. the paid up value of the shares and any premium paid in return for the issue of the shares by the company.

A “Government company” is defined under Section 2(45) of the Companies Act, 2013 as “any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company”. Thus, the cardinal feature of a government company is not less than 51% ownership by Central/state government, either individually or jointly.

A Company is called an artificial person because It is invisible and intangible. Corporation is an artificial being, invisible, intangible and existing only in contemplation of law. It has neither a mind nor a body of its own.

The liability of members of a co-operative society is limited or unlimited depending upon what the society has opted for it.

Membership of a co-operative is voluntary. "Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, political, racial, or religious discrimination.”

A minimum of ten members are required to form a cooperative society. The Co operative societies Act do not specify the maximum number of members for any co-operative society. However, after the formation of the society, the member may specify the maximum number of members.

A member of a co-operative society can leave the society by withdrawing his capital from the society. Member who wants to quit the society has to return his shares back in order to get his money back.

Industrial Finance Corporation of India Ltd is an example of a company incorporated by a special act of parliament.

Dividend on preference capital will be paid only when directors recommend. The shareholders may approve the directors’ recommendation by passing a written resolution or at a general meeting. They may decide that a lower dividend should be paid, but they cannot declare a dividend that is higher than the amount recommended by the directors.

A public corporation means Statutory corporation. Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament. The Act defines its powers and functions, rules and regulations governing its employees and its relationship with government departments.

The partnership entity is legal entity and accountable entity. A legal entity has legal capacity to enter into agreements or contracts, assume obligations, incur and pay debts, sue and be sued in its own right, and to be held responsible for its actions.

Promoter is a person who takes part in the incorporation of a company. A promoter is the one, who undertakes to form a company with reference to a given object and sets it going and takes the necessary steps to accomplish that purpose.

Section 3 of companies act 2013 (1) A company may be formed for any lawful purpose by— (a) seven or more persons, where the company to be formed is to be a public company; (b) two or more persons, where the company to be formed is to be a private company; or (c) one person, where the company to be formed is to be One Person Company that is to say, a private company, by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration

A private company should have at least 2 members.

The charter of a company is its memorandum of association. An important step in the formation of a company is to prepare a document called memorandum of association. It is the charter of the company and is very important document as it contains the basic conditions on which the company is incorporated.

An association of 25 people not registered under the companies act, but carrying on business, is an illegal association. An illegal association is not recognised by law.

A partnership firm cannot raise funds by debentures. A common source of funding for a new or expanding partnership is the pockets, deep or otherwise, of the partners themselves. Known as self-funding or bootstrapping, consider how much of your own financial resources you can put in toward your business, and ask your partners to do the same. Sources can include savings, stocks and bonds, and even retirement account funds.

The term Capitalization is used in relation to Joint stock companies. Capitalization is the sum of a corporation's stock, long-term debt, and retained earnings. Capitalization also refers to the number of outstanding shares multiplied by share price.

Over-capitalization results from raising more money than can be profitably used. Over-capitalisation takes place when a company raises more money by the issue of shares and debentures than can be profitably used.

Equity shares securities is not redeemable. Issuing redeemable equity shares would mean company is willing to pay back entire amount of the money invested by the equity shareholders. Hence, the companies act does not allow the equity shares to be redeemed.

Preference shares are those which carry preferential right in respect of both dividend and repayment of capital.