IMPORTANT CONCEPTS OF COMMERCE FOR NTA NET

  1. 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.
  2. 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
  3. 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.
  4. The liability of a sole proprietor is limited to the extent of the value of business assets and all private assets.
  5. 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 cases 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.
  6. A 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.
  7. Liability of partners in respect of the firm’s debts is limited up the amount of his capital and loan to the firm if any.
  8. 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 a partner 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.
  9. A manager with a share in the profits is only a servant of the firm.
  10. 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.
  11. 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.
  12. 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.
  13. A Company is called an artificial person because It is invisible and intangible. The 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.
  14. The liability of members of a co-operative society is limited or unlimited depending upon what the society has opted for it.
  15. 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.
  16. A minimum of ten members is required to form a cooperative society. The Co operative Societies Act does 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.
  17. 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.
  18. 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.
  19. 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 be held responsible for its actions.
  20. A 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.
  21. An association of 25 people not registered under the company’s act, but carrying on business, is an illegal association. An illegal association is not recognized by law.
  22. 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.
  23. Preference shares are those which carry preferential right in respect of both dividend and repayment of capital.
  24. Debentures is not an ownership security. Preference Share Is an Ownership Security. A debenture is a type of debt instrument that is not secured by collateral and usually has a term greater than 10 years. Debentures are backed only by the creditworthiness and reputation of the issuer. Both corporations and governments frequently issue debentures to raise capital or funds.
  25. In Debentures, interest/dividend is payable even if the company does not earn profit. No matter what happens – profit or loss, a firm need to pay interest to its debenture holders/lenders. Only when a company makes a profit, a dividend is distributed.
  26. Debentures cannot be registered. A debenture is issued to the general public by an organization.
  27. According to the Companies Act 1956, no public limited company or which is subsidiary of a public company can issue deferred shares. Only private companies can issue deferred shares.
  28. Public limited companies may issue share warrants. Warrants are sold by companies as a way to raise capital. Although a company could sell stock to raise money, the Securities and Exchange Commission regulates the number of shares a company is allowed to issue. Some companies will issue warrants as a way to sweeten a deal during a takeover or restructuring.
  29. A bearer of a share warrant of a company is not a member of the company. But if the articles of association of the company provide it, then the bearer is deemed to be a member of the company.
  30. Bank overdraft is a good source of finance in the Short term. An overdraft facility allows the business to spend more money than is deposited in the bank account. The amount of the overdraft will rise and fall as funds are deposited and spent from the account.
  31. The most important economic function of the new issue market is to provide facilities for converting saving into investments.
  32. Investors in securities are components of the organized sector of stock exchange. The organised sector of the capital market comprises all the term-lend­ing financial institutions (or development banks or non-banking financial institutions, like 1DB1, ICICI, etc.), banks with their me­dium-term and their merchant banking divi­sions or subsidiaries, LIC, GIC, UTI and the stock exchanges (an essential component of the capital market).
  33. Stock exchange placing methods is not used for raising capital through the sale of new securities. The companies raise money in the primary market through securities such as shares, debentures, loans and deposits, preference shares etc. Let us take a look the various methods of how new securities are floated in the primary market.
  34. The first stock exchange was set up in India in Bombay. The Bombay Stock Exchange (BSE) is the first and largest securities market in India and was established in 1875 as the Native Share and Stock Brokers’ Association.
  35. Members of the Bombay stock exchange are unofficially classified into brokers and tarawaniwalas. In India there are two types of members in the Mumbai stock exchange. They are called Brokers and Tarawaniwalas. All this is done unofficially. The Tarawaniwalas act both as jobbers and brokers. A tarawaniwala makes transactions on his behalf like a jobber but he may also act as a broker on behalf of the public.
  36. A transfer signed by the transferor, but with a blank for the name of the transferee is called a blank transfer. In a blank transfer neither the transferee’s name and signature nor the date of sale are filed in the transfer form. The transferee is at liberty to sell it again without filling his name and signature to a subsequent buyer.
  37. Dividend and interest are debited to profit and loss account. Debentures interest is a business expensed and therefore, it is a charge against profit and as such profit and loss account is debited with the total amount of interest payable during the accounting year whether the company has earned the profit or not.
  38. Indexing is an important method of maintaining account books. Indexes are used to quickly locate data without having to search every row in a database table every time a database table is accessed.
  39. A certain percentage of the sum assured is paid periodically according to the terms of the policy is known as Money-Back Policy.
  40. The primary aim of co-operative is to serve the members. The main purpose of a Co-operative Society is to provide service to its members. It also provides better-quality goods to its members and the general public.
  41. A sleeping partner is one who contributes capital. A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the management of the business. Such a partner only contributes to the share capital of the firm, is bound by the activities of other partners, and shares the profits and losses of the business.
  42. The principle of indemnity does not apply to Life and Personal Accident insurance. According to the principle of indemnity, the purpose of an insurance contract is to bring back the insured to the same financial position as he or she was before the loss occurred to him or her (because of a mishap). But in the case of life insurance, the life of a person can not be brought back.
  43. In a vertical filing system, files or folders are kept in a standing upright position.
  44. The primary function of an office is making, using and preserving records. Processing and arranging information It is the most significant function of an office. The information collected and recorded cannot be readily used for decision making and other purposes in the organization. Therefore, it must be processed and arranged.
  45. Decentralization of authority means departmentalizing activities. Departmentalization involves dividing an organization into different departments, which perform tasks according to the departments’ specializations in the organization. Departmentalization as a means of structuring an organization can be found in both public and private organizations.
  46. Vertical filing methods are recommending for a large size undertaking. The vertical filing indicates the vertical position of the files. The files are kept in a standing position under this method. The vertical filing method is developed to overcome the difficulties of horizontal filing.
  47. Planning and control are administrative functions of an office. Organizing the office on modem lines involves performing the management functions of planning, organizing, directing and controlling. In other words, the office work must be properly planned, organized and then executed according to the plan.
  48. Office location is an important consideration for setting up an office. Various factors should be considered while selecting the location for an office. Nature of business, nearness, infrastructure, cost, law etc, are the main factors that affect the selection of office location.
  49. Insurance is based on the principle of economic co-operation. It is a pooling of risks and spreading over a number of persons. It is the basic principle of insurance. The premium is collected from a number of persons, and an insurance fund is created. From this fund, compensation is given to the contributors who suffer contingent loss. In modern days, it is now a specialized branch of commerce. Today, insurance covers a wide range of risks. It now closely related to the day-to-day life of individuals as well as of the nation. It also plays a prominent role in the national economy.
  50. The building used by the professional is called Quiet office.
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