class 11 notes

Class 11 Business Studies Notes Chapter 3 (Private; Public and Global Enterprises) – Business Studies Book

Philoid

Philoid

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Business Studies
Detailed Notes with MCQs of Chapter 3: 'Private, Public and Global Enterprises'. This is a crucial chapter, not just for your Class 11 understanding, but also because questions frequently appear from this section in various government exams. We need to understand the different forms of business organisations that operate within our mixed economy.

Chapter 3: Private, Public and Global Enterprises - Detailed Notes for Government Exam Preparation

1. Introduction: The Indian Economic Context

  • India operates as a Mixed Economy, meaning it features the coexistence of both the private sector and the public sector.
  • Private Sector: Businesses owned, managed, and controlled by individuals or groups of individuals. The primary motive is usually profit maximisation.
  • Public Sector: Businesses owned, managed, and controlled wholly or partly by the Central or State Government. The primary motive often includes social welfare along with earning returns.
  • Global Enterprises (MNCs): Huge industrial organisations which extend their industrial and marketing operations through a network of their branches or affiliates in several countries.

2. Private Sector Enterprises

These are forms of organisation predominantly driven by private ownership and profit motives.

  • (a) Sole Proprietorship:

    • Definition: Owned, managed, and controlled by a single individual.
    • Features: Single ownership, Full control, Unlimited liability (personal assets at risk), No separate legal entity (owner and business are one), Undivided risk, Ease of formation and closure.
    • Merits: Quick decision-making, Confidentiality, Direct incentive (all profits to owner), Sense of accomplishment, Ease of formation/closure.
    • Limitations: Limited financial resources, Limited managerial ability, Unlimited liability, Uncertain life (depends on owner's health/life), Limited scope for expansion.
    • Exam Relevance: Often tested on 'unlimited liability' and 'no separate legal entity'.

  • (b) Partnership:

    • Definition: Governed by the Indian Partnership Act, 1932. An association of two or more persons who agree to share profits of a business carried on by all or any of them acting for all (mutual agency).
    • Features: Agreement (oral or written - Partnership Deed is recommended), Two or more persons (Min 2, Max 50 as per Companies Misc. Rules 2014), Lawful business, Profit sharing ratio, Unlimited liability (jointly and severally), Mutual agency (each partner is principal and agent).
    • Merits: Ease of formation/closure, More funds available (than sole prop.), Balanced decision making, Sharing of risks.
    • Limitations: Unlimited liability, Limited resources (compared to company), Possibility of conflicts, Lack of continuity (affected by death/insolvency of partner), Lack of public confidence (accounts not published).
    • Exam Relevance: 'Mutual agency' and 'unlimited liability' are key concepts. The maximum number of partners is important.

  • (c) Hindu Undivided Family (HUF) Business / Joint Hindu Family Business:

    • Definition: Found only in India, governed by Hindu Law. Business owned and carried on by members of a Hindu Undivided Family.
    • Features: Formation (at least two members, ancestral property), Membership by birth, Liability (Karta - unlimited; Coparceners - limited to their share in property), Control rests with the Karta (eldest male member, now female also), Continuity (continues even after Karta's death). Governed by two schools of Hindu Law: Dayabhaga (West Bengal) and Mitakshara (Rest of India).
    • Merits: Effective control (by Karta), Continued existence, Limited liability of members (coparceners), Increased loyalty and cooperation.
    • Limitations: Limited resources (ancestral property), Unlimited liability of Karta, Dominance of Karta, Limited managerial skills (depends on Karta).
    • Exam Relevance: Karta's role and liability, membership by birth.

  • (d) Cooperative Society:

    • Definition: Governed by the Cooperative Societies Act, 1912 or respective State Cooperative Societies Acts. A voluntary association of persons who join together with the motive of welfare of the members.
    • Features: Voluntary membership, Separate legal entity (after registration), Limited liability (to the extent of capital contributed), Democratic control (One Member, One Vote principle), Service motive (primary), State control (must follow govt. regulations).
    • Types: Consumer Coops, Producer Coops, Marketing Coops, Farmers' Coops, Credit Coops, Housing Coops.
    • Merits: Equality in voting status, Limited liability, Stable existence, Economy in operations (eliminates middlemen), Government support.
    • Limitations: Limited resources, Inefficiency in management (often honorary positions), Lack of secrecy, Government control and interference, Differences of opinion.
    • Exam Relevance: 'One Member, One Vote' principle, service motive, legal status, limited liability.

  • (e) Company (Joint Stock Company):

    • Definition: Governed by the Companies Act, 2013. An artificial person created by law, having a separate legal entity, perpetual succession, and a common seal. Capital divided into transferable shares.
    • Features: Incorporated association, Separate legal entity (distinct from members), Artificial person (can sue, be sued, own property), Perpetual succession (unaffected by death/insolvency of members), Limited liability (limited to unpaid value of shares held), Transferability of shares (freely in public co.), Common seal (official signature, now optional under Co. Amendment Act 2015 if authorized directors sign).
    • Types:
      • Private Company: Restricts right to transfer shares; Max members 200 (excluding employees); Prohibits invitation to public to subscribe to securities. Min members: 2, Min Directors: 2. Must use "Private Limited" (Pvt. Ltd.) in name.
      • Public Company: Not a private company; Min members: 7, Max members: No limit; Min Directors: 3. Can invite public subscription; Shares freely transferable. Must use "Limited" (Ltd.) in name.
      • One Person Company (OPC): A type of private company with only one member.
    • Merits: Limited liability, Transfer of interest (liquidity), Perpetual existence, Scope for expansion (large funds), Professional management.
    • Limitations: Complexity in formation (expensive, time-consuming), Lack of secrecy, Impersonal work environment, Numerous regulations, Delay in decision making, Oligarchic management (control by few - Directors), Conflict of interests (shareholders, debenture holders, employees, etc.).
    • Exam Relevance: Separate legal entity, perpetual succession, limited liability, distinction between Private and Public companies (members, transferability, public subscription). Key documents: Memorandum of Association (defines objectives, relationship with outsiders), Articles of Association (internal rules).

3. Public Sector Enterprises (PSEs / PSUs)

Owned and managed by the government. Established to accelerate economic growth, develop infrastructure, achieve balanced regional development, and ensure social welfare.

  • (a) Departmental Undertaking:

    • Definition: Oldest form. Managed by government officials as part of a government ministry. No separate legal existence.
    • Features: Part of Government (extension of ministry), Financed by government budget appropriations, Subject to government accounting and audit rules (CAG), Staff are government employees (recruited via UPSC/SSC etc.), Directly controlled by the concerned Ministry, Accountable to Parliament/State Legislature.
    • Examples: Indian Railways, Post & Telegraph, All India Radio (Prasar Bharati now a statutory corporation), Doordarshan, Defence Production Units.
    • Merits: High degree of public accountability, Direct parliamentary control, Revenue is source of government income, Suitable for activities requiring strict control and secrecy (e.g., Defence).
    • Limitations: Inflexibility (bound by rigid rules), Red-tapism and bureaucracy (delays), Political interference, Lack of financial autonomy, Inability to take quick business decisions.
    • Exam Relevance: No separate entity, funding, staffing, accountability.

  • (b) Statutory Corporation (Public Corporation):

    • Definition: Established by a Special Act passed in the Parliament or State Legislature. The Act defines its powers, functions, rules, and regulations.
    • Features: Created by a Special Act, Separate legal entity, Wholly owned by the State, Financially independent (can borrow, use revenues), Not subject to government accounting/audit procedures (though audited, often by CAG or specified auditors), Employees are not government servants (recruited under own terms).
    • Examples: Reserve Bank of India (RBI), Life Insurance Corporation of India (LIC), Food Corporation of India (FCI), State Bank of India (SBI - though also considered a Govt. Company due to shareholding structure), Oil and Natural Gas Corporation (ONGC - initially).
    • Merits: Operational flexibility and autonomy (compared to Dept. Und.), Freedom from political interference (in theory), Quick decision making possible, Can raise own funds, Service motive guided by the Act.
    • Limitations: Autonomy exists only on paper (practical interference), Government appoints board members, Act can be rigid and difficult to amend, Clashes among different interests possible.
    • Exam Relevance: Creation by Special Act, separate legal entity, financial autonomy.

  • (c) Government Company:

    • Definition: A company registered under the Companies Act, 2013 (or previous Acts) in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government(s), or partly by Central and partly by one or more State Governments. Includes subsidiary of a government company.
    • Features: Registered under Companies Act, Separate legal entity, Management by Board of Directors (mostly nominated by Govt.), Can sue and be sued, Can enter contracts and own property in its name, Staff recruited under own rules (not civil servants), Governed by provisions of Companies Act (some exemptions possible), Funding from Govt., private shareholders, capital market. Auditor appointed by CAG.
    • Examples: Steel Authority of India Ltd. (SAIL), Bharat Heavy Electricals Ltd. (BHEL), Hindustan Aeronautics Ltd. (HAL), Gas Authority of India Ltd. (GAIL), Mahanagar Telephone Nigam Ltd. (MTNL).
    • Merits: Easy formation (registration under Companies Act), Operational autonomy (compared to Dept. Und.), Ability to compete with private sector, Flexibility in operations, Can tap capital markets.
    • Limitations: Autonomy only on paper (Govt. is major shareholder, appoints directors), Evades constitutional responsibility (not directly answerable to Parliament like Dept. Und.), Board often packed with politicians/civil servants lacking business expertise.
    • Exam Relevance: 51% shareholding rule, registration under Companies Act, separate legal entity.

4. Changing Role of the Public Sector

  • Initially, PSEs were crucial for infrastructure development, basic industries, regional balance, and checking private monopolies.
  • Over time, many PSEs became inefficient, loss-making, and a drain on national resources.
  • Government Policy Shift (Since 1991):
    • Restructuring and Reviving potentially viable PSUs.
    • Closing down non-viable PSUs.
    • Bringing down government equity (Disinvestment / Privatisation): Selling part of PSU equity to the public or strategic partners. Aims to raise resources, improve efficiency through private participation and wider ownership.
    • Focusing public sector on strategic/core areas.
    • Improving performance through Memorandum of Understanding (MoU): An agreement between the PSU management and the concerned Ministry defining targets and granting greater operational autonomy to achieve them.

5. Global Enterprises (Multinational Corporations - MNCs)

  • Definition: Companies that own or control production facilities in more than one country. Characterized by large size, operations in multiple nations, and centralized control (usually from headquarters in the home country).
  • Features: Huge capital resources, International operations, Centralized control, Advanced technology, Product innovation, Sophisticated marketing strategies, Large scale operations.
  • Examples: Coca-Cola, Pepsico, Unilever, Nestle, Sony, Samsung, Hyundai, Microsoft, Google.
  • Merits (to host country): Inflow of foreign capital, Employment generation, Use of advanced technology, Access to managerial expertise, Growth of ancillary industries, Increased exports, Healthy competition.
  • Limitations (to host country): Disregard for national priorities, Exploitation of natural resources, Adverse effect on domestic industries, Repatriation of profits (drain of foreign exchange), Interference in local politics, Exploitation of consumers/labour sometimes.
  • Exam Relevance: Definition, key features, impact on host country (both positive and negative).

6. Joint Ventures (JV)

  • Definition: A business arrangement where two or more independent companies pool their resources to accomplish a specific task or project. Can be short-term or long-term. Can involve private, public, or foreign companies.
  • Reasons/Benefits:
    • Increased Resources and Capacity: Pooling financial and human resources.
    • Access to New Markets and Distribution Networks: Partnering with a local company provides immediate market access.
    • Access to Technology: Acquiring advanced technology from a partner.
    • Innovation: Sharing ideas and expertise leads to new products/services.
    • Low Cost of Production: Accessing cheaper raw materials or labour in a partner's location.
    • Established Brand Name: Leveraging a partner's well-known brand.
  • Example: Maruti Suzuki (Maruti Udyog Ltd. of India and Suzuki Motor Corp. of Japan - initially a JV, structure evolved later). Hero Honda (Hero Cycles of India and Honda of Japan - now separated).
  • Exam Relevance: Definition and key benefits of forming a JV.

Multiple Choice Questions (MCQs)

  1. In which form of private sector enterprise is the liability of the owner unlimited, and there is no separate legal entity distinct from the owner?
    (a) Public Company
    (b) Cooperative Society
    (c) Sole Proprietorship
    (d) Statutory Corporation

  2. The 'Karta' has unlimited liability in which form of business organisation?
    (a) Partnership
    (b) Hindu Undivided Family (HUF) Business
    (c) Private Limited Company
    (d) Cooperative Society

  3. The principle of 'One Member, One Vote' is a characteristic feature of:
    (a) Partnership
    (b) Company
    (c) Cooperative Society
    (d) Departmental Undertaking

  4. What is the minimum number of members required to form a Public Limited Company?
    (a) 2
    (b) 3
    (c) 7
    (d) 50

  5. Indian Railways is an example of which form of public sector enterprise?
    (a) Government Company
    (b) Statutory Corporation
    (c) Departmental Undertaking
    (d) Multinational Corporation

  6. A Statutory Corporation is established by:
    (a) Registration under the Companies Act, 2013
    (b) An agreement between partners
    (c) A Special Act of Parliament or State Legislature
    (d) Membership in a Hindu Undivided Family

  7. A company is classified as a Government Company if the government holds at least ______ percent of the paid-up share capital.
    (a) 49%
    (b) 50%
    (c) 51%
    (d) 100%

  8. Which of the following is a key characteristic of a Multinational Corporation (MNC)?
    (a) Operations confined to one country
    (b) Primary motive is only social welfare
    (c) Centralized control with operations in multiple countries
    (d) Limited financial resources

  9. Pooling resources, accessing new markets, and sharing technology are potential benefits of forming a:
    (a) Sole Proprietorship
    (b) Departmental Undertaking
    (c) Joint Venture
    (d) Hindu Undivided Family Business

  10. The policy of the government selling equity shares of Public Sector Undertakings (PSUs) to the public or private sector is known as:
    (a) Nationalisation
    (b) Disinvestment
    (c) Joint Venture
    (d) Departmentalisation

Answer Key for MCQs:

  1. (c) Sole Proprietorship
  2. (b) Hindu Undivided Family (HUF) Business
  3. (c) Cooperative Society
  4. (c) 7
  5. (c) Departmental Undertaking
  6. (c) A Special Act of Parliament or State Legislature
  7. (c) 51%
  8. (c) Centralized control with operations in multiple countries
  9. (c) Joint Venture
  10. (b) Disinvestment

Make sure you revise these concepts thoroughly. Pay special attention to the features, merits, limitations, and key distinguishing points between these different forms of enterprises. Understanding the legal framework (like the Acts governing them) and key terms is essential for competitive exams. Good luck with your preparation!

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