Category: Commerce Notes PPT

Business organizations, as known, are the places where the businesses are conducted. What is probably not known is – there can be a varied type of 10 business structures! While the most prevalent six to seven forms of business organizations will be prioritized in this discussion.

Knowing about the business organization is the utmost for a business aspirant student as this is the basic fundamental by which he or she may decide to structure his or her own business. Thus, let us delve into the subject matter and know the various forms of business organizations. 

Factors Affecting the Business Forms 

Business organizations can be of different types, depending upon factors like their nature, the extent of operation, ownership, legalities, terms, financial structure, liabilities, etc. The form of a business is likely to have long-term impacts on the company. Thus, the members of an organization must choose wisely as to which sort of business would be ideal for them.

The primary aspect, based on which forms of business organizations are decided, is its characteristics. Various factors determining the character of business include:

1. Ease of Formation

2. Capital or Financial Requirements

3. Nature of Liability

4. Control

5. Stability and Continuity

6. Flexibility to Conduct Operations.

7. Secrecy

8. Legal Aspects

 

The Types of Business Structures

Depending on the factors mentioned above, there can be seven different forms of business organizations. They are as follows:

1. Sole Proprietorship

2. Hindu Undivided Family

3. Company

4. Partnership

5. Corporations or Statutory Bodies

6. Co-operative Societies

7. LLP (Limited Liability Partnerships)

But if we are to consider the three major forms of business organizations, it would include sole proprietorship, corporations, and partnerships.

The One Who Goes Solo – Sole Proprietorship 

The sole proprietorship of a company suggests that the complete ownership of that organization lies with a single person. This is one of the primary forms of business organizations where an individual not only owns the company wholly but also manages it single-handedly. Here, the business organization and the owner are a single entity. 

A sole proprietorship is among the simplest forms of business organization, which is why it has minimal or no registration formalities. This is the ideal form of organization for small or medium-scale businesses. The biggest advantage of these business organizations is that the owner gets to access the entire incentive. He is not liable to share the profits with anyone else. However, a huge amount of personal liability can be seen as a setback in these business organizations.

The Bodies Formed by the Parliament of India – Corporations or Statutory Bodies

A statutory body means any such authority or organization which is non-constitutional. Such bodies have been set up by the parliament, and hold power to take decisions on behalf of an entire nation. Some notable examples of statutory bodies in India are:

• National Green Tribunal

• National Commission for Women

• National Human Rights Commission

• National Commission for Backward Classes

• National Law Commission

• Armed Forces Tribunal

On the other hand, corporations are such forms of business organizations that consist of many shareholders. A corporation has the legal authority to act as a single entity. It usually has a board of directors (elected by all the shareholders), led by a president. The board of directors is authorized to make management decisions. To set up this legal form of business organization requires proper paperwork and lawful proceedings.

 

The Partners Business – Partnerships

If we consider the corporate scenario in India, companies set up on partnership deals are the most popular and basic form of business organization. A partnership is a mutual agreement between two or more parties that agree to carry out a common business. Parties entering into a partnership could include individuals, companies, schools, governments, etc.

This form of business organization has to follow the norms specified under the Indian Partnership Act of 1932. Such entities are known as partnership firms. Here, the partners work towards the common goal of business, which is profit.

Businesses run on charitable or non-profit causes cannot be considered partnership firms. Partnerships happen to be among the 3 main forms of business organizations, and their nature is determined by the types of partners included.

 

Exists Only in India – HUF or Hindu Undivided Family Business

This is a special form of business entity that is limited only to India. Such forms of business organizations are governed by the Hindu law prevalent in the country. Any member of a Hindu Undivided Family can co-own the business owned by that family. These members will be known as coparceners in the business. The head of a Joint family Business in India is called the ‘Karta’. He usually holds full control of the management and finance of the business.

Sharing the Bread – Companies

“Com” means ‘together’ and “Panies” means ‘bread’. The Indian Companies Act of 2013 defines different types of companies as different forms of business organizations. It is not mandatory for a company to be multinational or operate in different locations. It can be a small-scale business or even a start-up initiative.

As per the Indian Companies Act, a company can either be private or public. Private companies are the ones in which the minimum paid-up share capital has to be Rs.1 lakh. On the other hand, public companies are separate legal entities that must have a paid-up share capital of at least Rs.5 lakh. The shares of these companies can be owned by members of the public.

Common Interest and Benefit Type Business – Co-operative Societies and Trusts

A cooperative society is a type of business organization that combines joint ownership with shared leadership. Such forms of business organizations are common in sectors like healthcare, finance, food, agriculture, and so on. Co-operative societies and trusts work towards the welfare of a section of people.

A Blend of Company and Partnership – Limited Liability Partnerships

This form of business organization is operated by organizations facing troubles of several liabilities in the business. LLP or Limited Liability Partnerships enable partners to hold separate obligations in business. Here, the partners continue to share the profits, just like a regular partnership firm. But unlike regular firms, the partners in LLP can choose the profit-sharing ratio by themselves. In this form of business organization, the minimum number of partners has to be two.

A lease is a type of agreement where a person has a right to use an asset for quite a certain period of time from another person who is the owner of the asset in return for a definite payment.  So, the owner here is the Lessor. While, the user is the Lessee and the amount paid by the lessee for acquiring the lessor’s asset is termed as royalty, which he pays to the lessor. 

Accounting Treatment in Books of Lessor

Royalty is the sum that is payable by the lessee to the lessor for the use of his rights vested in the lessor. Royalty is a type of periodic payment, which is generally paid on grounds of sale or output. Example:  Royalty is paid for extraction of mines from the minefield, for use of patents, for using the technical know-how, also to an author for the sale of his books.

The accounting treatment used here is – Royalty received by the lessor is credited to Trading or Manufacturing Account as it is considered as regular business income in the books of the lessor. While, the royalty that is received on the basis of sales is credited to the Profit and Loss Account. 

Again, minimum rent is the amount that is paid by the lessee to the lessor irrespective of any benefit derived from the asset. Thus, this rent payable is known as Dead Rent or Rock Rent.

The Landlord also may allow the lessee the right to recoupment of short-workings. Here, the lessor will receive only the minimal rent until the period of recoupment.

Royalty Meaning in Accounting

Royalty is the periodical payment by the user of the asset to the actual owner or the creator of the same asset for its use in his tenure. The owner or the author of the asset like mine, patent, book, artistic work, and others may allow the third party like the licensee, publisher, etc to use its own creation in return for a consideration, and that is meant by royalty.

The royalty payment is made by the user to the owner. While, the consideration that is paid in lieu of using the asset of the owner is determined in terms of the number of items that are produced or sold.

Parties in Royalties Accounting

The parties who are engaged in this royalty are the lessor and a lessee, we will discuss both of their role in detail now –

1. Lessor

Lessor as mentioned already, is the person who creates or owns the asset, in particular, he also provides the right of using the asset to the third party who is known as the lessor or the landlord. Further to detail, the lessor receives consideration from the third party for using the rights to use his own asset. Examples included in lessons are the owner of the mine or a quarry, an author of a book, could be an artist in the case of music composition.

2. Lessee

Next about Lessee, Lessee is an important person here, who initiates the contract. He is the person who uses the asset and thus makes a contract to repay the owner of the asset with royalty. He pays a royalty to the creator or the owner in lieu of consideration for using such an asset. Examples of Lessees can be publishers, miners, etc.

Accounting Treatment of Royalties

The accounting treatment for royalty which will be in the books of the lessee will be royalty paid on the basis of output is debited to Trading or Manufacturing Account as it is considered as normal business expenditure. Whereas, the royalty which is paid on the basis of sales, is debited to the Profit & Loss A/c.

An Internal Audit is an important topic and we all should have basic knowledge about it. Let us start with the discussion of its importance. The importance of Internal Audit is given below:

1. Helps in the Improvement of Efficiency of Operations : 

By impartially assessing the affiliations courses of action and methodologies, one can finish affirmation that work is as indicated by the strategies and techniques and that these methodologies are palatable in mitigating the special risks. By perseveringly noticing and auditing methodology, one can recognize control ideas to work on the usefulness and suitability of these techniques. Along these lines, allowing your relationship to be liable to structures, instead of people.

2. Helps in Giving Objective Insights:

Internal Auditor, or inside survey bunch, can’t have any functional obligation to achieve this objective. In conditions where more modest associations don’t have extra resources to focus on this present, it’s satisfactory to extensively teach workers in different workplaces to have the choice to audit another division. By giving a free and fair-minded view, the Internal Audit work builds the worth of the affiliation.

3. Helps in Evaluation of Risks and Protects Assets : 

One more significance of Internal Audit is the assurance of resources by assessment of risk. Internal Audit program distinguishes and focuses on chances by helping the executives and partners through efficient danger to the board. This aids in the recognizable proof of any holes and permits a healing arrangement.

4. The Internal Audit Ensures Compliance with Laws and Regulations: 

By normally playing out an Internal Audit, there is guarantee consistent with all pertinent laws and guidelines. It can likewise help us to give a true serenity that the team is set up for the next external audit. Picking up customer trust and maintaining a strategic distance from exorbitant fines related to rebelliousness makes Internal Auditing a significant and beneficial activity for the association.

Merits and Demerits of Internal Audit

In an organization, there are both advantages and disadvantages of the internal control system of the firm. However, one cannot deny its importance and what role it plays to bring efficiency and effectiveness inside a company. Continuous audit advantages and disadvantages also bring both positivity and negativity as at times the procedure becomes difficult to incorporate leading to limitation of internal control. 

Advantages of Internal Audit

Some of the advantages of Internal Audit are:-

• The extent of the Internal Audit is characterized by the executives or the board (not an adversarial entity or outside agency)

• Internal Audit “reports” straightforwardly to the board or the management (not an outside organization)

• Improves the “control condition” of the association.

• Makes the association procedure dependent rather than individual dependency.

• Recognizes redundancies in operational and control methodology and gives suggestions to improve the productivity and viability of systems.

• Fills in as an Early Warning System, empowering lacks to be distinguished and remediated on an opportune premise (for example preceding outer, administrative or consistency audits)

• At last, it builds responsibility inside the association. All these are some of the advantages of Internal Audit.

Limitations of Internal Control

There are both advantages and disadvantages of Internal Audit. Some of the limitations of the internal control system in auditing are:

• High Cost: The expense of setting up and working an Internal Audit in an association is extravagant.

• Unsatisfactory for a Small Organization: Internal Audit is not reasonable for small associations because of the inclusion of significant expenses. 

• Questionable Opinion: Internal Auditors are workers of the association and subsequently the report given by them may not be valid and reasonable. Frequently, the outside examiner has hesitations about the assessments communicated by the Internal Auditor.

• Insufficiency: When the records of tasks are not checked after they are finished or when there is a delay between two reviews, Internal Audit may get inadequate.

• Absence of Expertise: Internal Audit staff often come up short on the necessary aptitude and skills as they are not, in most cases, as qualified as chartered accountants. These are some of the limitations of the internal control system in auditing.

The above-mentioned are some of the advantages and disadvantages of Internal Audit.

An auditor creates an audit opinion to depict if the entity has financial statements, taking into account the material aspects. The material elements stay relevant to the proper framework of economic evaluation. The auditors must specify if the statements lack in errors. The primary purpose of the auditors is to create the audit, pointing out the more explicit sides of the financial reports. An auditor does the same, with the aid of pieces of evidence secured. Interpretation of the financial statements involves many aspects like judgment, qualitative sides, accounting ways, etc. Limitation of scope audit report signifies, inability to secure adequate information or evidence on the particular financial statement.

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Evaluation of Factors by Auditors

The auditors generally interpret these factors while concluding any audit report on the financial statements of an entity.

• He checks if the entity is set, following the detailed accounting ways during the development of financial statements.

• The auditor also evaluates if there is consistency in the accounting methods, relevant to the framework. They detect if the misstatement is both material and pervasive or an exception.

• One of the essential things they do is checking the management. They estimate whether the same is reasonable.

• The auditors keep an eye if the entity has crisp and untreatable information to provide.

• They also conduct a thorough check regarding the usage of terms and conditions in the statements.

After the complete evaluation, the auditor is required to prepare the report. He needs to brief his opinion on the financial statements that he checked. It is significant for them to point out if the accounts are in relevance to the framework and statutory needs. Depending on the fact if the statement is material and pervasive or not, he concludes the report.

Types of Audit Opinions

There are four types of audit opinions and they are as follows.

• Unqualified Opinion

• Qualified Opinion

• Disclaimer of opinion

• Adverse Opinion

Now, we will read in detail the significance of each opinion.

Unqualified Opinion

The auditor comes up with an unqualified opinion when he states the financial statements are fair enough and lack any substantial error. It signifies the entity is set with relevance to the real framework and checking all the material sides. The auditor eventually concludes an unqualified opinion when both the statements and evidence depicts an accurate view.

Qualified Opinion

In case the auditor concludes an opinion that can be made to the preparation of the entity, it is called a qualified opinion. It is not pervasive. Suppose, they are unable to gather ample information or evidence regarding the entity, it is not pervasive. It is at this point when the auditors state a qualified opinion. Pervasive meaning in audit is the description of financial reports concerning the misstatement.

Disclaimer of Opinion

The auditor comes up with a disclaimer of opinion, being unable to detect adequate audit evidence. The unidentified misstatement can be both called as material and pervasive. He only expresses this opinion concerning the less availability of audit evidence.

Adverse Opinion

Among the four types of audit opinions, the last one is an adverse opinion. The auditor only expresses an adverse inference in the case, and he receives ample audit evidence. Based on the indications, he concludes if the misstatements are material or pervasive in accordance to the financial evaluation.

Factors that Affect Audit Opinion

Certain factors limit the auditor in expressing his professional opinion on a particular statement. Some of them are given as follows.

Solved Example

Q1: Note down the difference between qualified reports and adverse report opinion.

Answer: A fair difference between the qualified report and the adverse report is briefed here.

A qualified opinion is concluded by the auditor when there’s no scope of unqualified opinion. The misstatements do not seem to be both material and pervasive in relevance to the final statements of the particular entity.

On the other hand, the auditor places an adverse opinion considering the misstatements to be both material and pervasive in relevance to the said entity.

Fun Facts about Audit Opinion

Here are some of the exciting facts about the audit opinion that is sure to surprise you!

• Few instances show the audit may require a declarative language to the report.

• The audit opinion is significant in developing the audit scope, and whatever the accountant is concluding. It depicts if the financial statements clarify the financial situation of any particular brand or organization.

Online Business also known as e-business is a kind of business, where the commercial transaction includes sharing information across the internet.

 

E-business or the electronic business is the conduct of business processes over the internet. E-business includes the buying and selling of goods and services, also serving the customers, processing business payments, managing production control, collaborating with the worthy business partners, sharing information via the internet, running automated employee services, recruiting, and more all over the internet.

Online business is another term for electronic business. An online business is one in which all transactions take place through the internet. The buyer and seller do not meet face to face in this situation. In 1996, IBM’s marketing and Internet team invented the phrase “e-business.” E-business is a subset of electronic commerce.

What is E-Business?

E-business consists of a range of functions and services which range from including the intranets and extranets by providing the e-services over the internet by the application of service providers. 

 

In today’s generation, with the effect of modernization and to make their business effective to function it is utmost for every corporation to conduct their business over the internet. Corporations continuously reshape their businesses in terms of the internet, availability of the internet, reach and ever-changing capabilities over the net. They conduct e-business to buy raw materials from other companies, the companies collaborate on sales promotions and also in joint research.

 

The growth of this e-business in recent decades has given rise to new business requirements encompassing the scope of recruitment of able employees. In companies, on the customer front, consumers expect the organisations to offer self-service options for conducting their personalised transactions for personalised experiences, they want speedy and secure interactions both in the course of purchasing the products and also while paying for the same. In the regulatory section, implementation of new laws and best precaution for keeping the electronic data secure have been installed. As e-commerce has accelerated, companies adopted stringent security services which include encryption and digital certificates, to protect against the hackers, fraud and theft.

Advantages of E-Business

The advantages of E-business are as follows –

1. Removes Location and Availability Restrictions

Starting an electronic business is simple. If you have the necessary software, a device, and access to the internet, you may start an online company from the comfort of your own home. E-business has no geographical boundaries. Anyone, at any moment, may order anything from any place.

 

The internet reaches wide across the world and spans in all time zones. This means that when businesses take off their business online, they have similar capabilities to conduct the business. While conducting business offline, customers are limited by visiting the store which may be situated close or far from their location. Also, they are limited by the store’s operation time. In the opposite case, when the e-businesses are conducted over the internet connectivity, it makes the customers access the store from any area with internet access which is open 24 hours a day. Because the internet is constantly available, you may set your business hours.

2. Reduces Time and Money Spent

Expenses rise up a good deal like the rent, electricity, phones, and general office upkeep, expenses for conducting the business physically, from physical locations can be cost-ineffective. By taking the business online, the expenses can be reduced or at least a lot of overhead costs can be eliminated. In addition to this, the logistics sector also gets a lot easier. Mass communicating with the customers can be done and this would save the cost.

Your online business is open for online transactions 24/7, around the clock, with no business hours limits once your website or social media channels are up and operating. Having an e-business gives you access to your customers 24 hours a day, seven days a week. There are no limitations to the usual 9-to-5 workday that you see in a traditional firm.

3. Expedites Customer Service

With the queries of the customers, they want a fast solution to their answer, in this regard email and live chat are available which can solve the problem. The flexible forms of customer service also extend with the use of online in the business platform.

 

4. Cheaper than Traditional Business

Electronic business is far less expensive than a traditional business. The cost of starting an e-company is significantly greater than the cost of starting a traditional firm. Furthermore, the transaction costs are effectively lower.

Having a traditional business or a real brick and mortar retail store necessitates paying employees to come to work in order to persuade clients to purchase goods and services. However, with your online business, your consumers may perform their online shopping whenever and wherever they choose, regardless of the day or time. This helps to improve your brand’s consumer experience. To do business with you, all they need is an internet connection, an internet-connected phone or computer, and a debit or credit card. Though your actual items will still need to be housed in real storefronts, commercial storage facilities are generally less expensive than retail spaces, and you won’t have to worry about foot traffic or parking for potential consumers. Because the government is attempting to encourage digitization, online firms benefit from government subsidies.

Your website is a priceless e-business resource. There is no such thing as an e-business concept or an e-business owner without a website. Having a website provides you with additional commercial benefits.

5. Updates on the Go

You have access to make rapid updates and order processing on things like promos, holiday specials, shipping costs, and so on, whether it’s on your website, blog, or social media platforms. Another good avenue for bringing out rapid updates to your global audience is email marketing. Another big advantage of an online firm is its email marketing strategy. Email marketing’s benefits to this company strategy cannot be overstated. You may leverage your real retail business to bring foot traffic to your door if you have one.

6. Profiling of Customers

You may collect data on how long visitors or customers remain on your site, what pages they look at, and how they go about completing purchases if you have an e-commerce site and use various digital marketing methods.

The more information you have about your customers, the more you’ll be able to personalise your product or service to their needs. This kind of information is invaluable to your web marketing efforts. As a result, whether customers visit your website, e-commerce store, use your app, or connect with your brand on social media, e-business makes it more probable to collect valuable data about them. Such information is required to create an effective company strategy.

The cornerstone for great marketing strategy and customer service is consumer profiling. And having a robust customer service system in place is crucial to your physical or online business’s success.

Limitations of E-Commerce

There are also drawbacks in conducting business online. The limitations are as follows 

1. Security

The biggest drawback of e-commerce is the security of business information. It is a general fear among the clients/customers to provide personal and financial information, even though several improvements and steps are taken up for its security. There are websites which do not have the capabilities to conduct authentic transactions.

Several individuals make money by scamming others over the internet. Additionally, hackers will have an easier time obtaining your financial information. This creates scepticism among potential clients.

With an e-business, there is a risk of corporate fragility, since you risk losing market share faster due to domestic and international competition. As a result, you must continually be on your toes (so to speak) and come up with new tactics to keep your consumers coming back. This is the only method to keep your company from losing a significant amount of money.

2. Lack of Privacy

Even now many websites do not have high encryption to secure the online transaction or to protect the online identity. Some websites illegally collect the statistics of the consumers even without their permission.

3. Tax Issue

Sales tax is an issue when the buyer and seller are actually situated in different locations and then they need to compute sales tax which poses problems as the buyer and seller are in different states.

4. Personalization

E-business is lacking in the personalization department. The product cannot be touched or felt. As a result, consumers have a tough time determining a product’s quality. In addition, the personal touch is lacking. One can maintain regular touch with the salesman conventionally. It gains a sense of humanity and trustworthiness as a result of this. It also fosters consumer confidence. Such characteristics will always be a hindrance in any e-Business model.

5. Product Shipping Time

Product delivery takes time. You get the thing as soon as you buy it in conventional business. In internet business, however, this is not the case. Customers are frequently turned off by this lag time. E-businesses, on the other hand, are attempting to address these difficulties by offering extremely short delivery times. Amazon, for example, now guarantees one-day delivery. This is a step forward, but it does not fix the problem.

Business is an ever-expanding world comprising several industries. How Business functions is a complex topic to understand. You will need an in-depth understanding of several concepts. Do not worry! If you want to be a successful business person, we will introduce you to the often ignored building blocks of this industry. It is impossible to understand business functions without first understanding the concept of strategy, features of strategy and strategy meaning or strategy definition. This article will cover all the necessary knowledge you need to start an independent business and some critical insights for the experts. Let us begin by exploring what you mean by strategy. 

What is the Meaning of Strategy or Strategy Definition?

As discussed above, a strategy is an imperative part of the business world. A good strategy can significantly influence your progress or growth. After all, without a well-placed strategy or plan, you can not possibly see your business’s future or where your business is heading? So what is this concept of strategy? The word strategy is derived from a Greek word called Strategos, which means “military general.” Although, in business terms, it is a decision-making process at the managerial level to oversee the business’s overall flow. It also involves understanding your competition i.e., how your competitors are moving forward and devise an intricate plan to stay ahead of them. 

It is all about surpassing your rivals and competitors. In terms of strategy definition, choosing a company’s scope and direction over a long period is a process of choosing a company’s scope and direction. You can gain an immense advantage over your competition by strategizing ahead of time. The concept of strategy can be extremely beneficial in the ever-challenging market. Strategizing is the job of the bright minds of top management in a company. Now let us look at some of the features of strategic management. 

Several Features of Strategy

There are several key features of strategy irrespective of business requirements. Some of these features are listed below:

• The concept supports planning ahead of time to surpass your competitors over a long period. 

• It will enable you to plan minute details of how your managerial positions should react or respond to the business changes. 

• All businesses function with a clear goal in mind. Strategizing will help you clearly define the direction of your business towards that goal.

• It provides a way to use the available resources at your disposal efficiently. 

•  Ultimately, it will bring your organization towards a common goal and will help achieve those goals effectively. 

Different Business Levels and Role of Strategy

The strategy meaning doesn’t change at any business level. However, the role of the strategy varies with different business levels. Your strategy can include several levels of your business, such as from the top position to the individuals working in it. We will look at some of these types of strategies:

• Operational Strategies: This strategy is at the most basic level of your business and supports all the strategic direction of your business’s top branches. These strategies mainly incorporate the individual people, resources, processes, etc. and bring them together to form a well-oiled machine that functions efficiently. Your top strategic decisions will only be effective once your operation strategy is well placed and functioning. Obviously, if your smallest units are not working, you won’t be able to deliver results. 

• Competitive or Business Unit Strategies: This strategy mainly involves analyzing your competition and how your business competes with them. It also includes making several critical strategic decisions such as deciding the products, what your customers want, how you can gain an advantage over the competition, finding new opportunities, etc. 

• Corporate Strategies: Corporate strategy is the topmost level of strategic planning for your business. It involves clearly defining your objectives or missions for the business. You will be determining the overall scope and the company’s primary purpose to meet your stakeholders’ requirements. This strategy is of utmost importance because it also incorporates your investors’ decisions and hence influences your entire business. It should be clearly defined because it will be forming a basis as the whole of your other strategic plannings. 

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Fun Facts

Did you know that in 2012, one hundred wealthiest people on earth earned so much money that it could end poverty in the entire world?