STOCK SPLIT

A stock split occurs when a company releases additional stock in a structured manner without decreasing shareholder equity. For example, in a 2 for 1 stock split, an investor who owns 100 shares of a stock valued at $100 per share before the stock split will own 200 shares valued at $50 per share after the split. After the stock split the investor owns twice as many shares, with each share worth exactly half as much as before the stock split.

IGNOU PCO-01 SOLVED ASSIGNMENT 2015-16

Course Code: PCO- 01

Assignment Code: PCO-01/TMA/2015-16

1.      What do you mean by business? Explain various forms of business organization.

Answer: The term ‘Business’ can be defined as production of goods and services that are involved in flow of goods from the point of consumption or final use with a view to earn profit.

So we can say that any activity carried with profit motive is business.

The various forms of organization are as follows:

1) Sole proprietorship

2) Partnership

3) Company

These are explained in brief as follows:-

SOLE PROPRIETORSHIP:

The sole proprietorship is a form of business that is owned, managed and controlled by an individual. He has to arrange capital for the business and he alone is responsible for its management. He is therefore, entitled to the profits and has to bear the loss of business. This type of business organisation is also called single ownership or single proprietorship. If the business primarily consists of trade, the organization is a sole trading organization. Small factories and shops are often found to be sole proprietorship organisations.

Features of Sole Proprietorship:

The important features of a sole-proprietary organization include the following:

(i) Individual Initiative: One person is the owner in sole proprietary forms of organization.

(ii) Risk Bearing: The proprietor is the sole beneficiary of profits in this form organisation. If there is a loss he alone has to bear it. Thus the risks of business are borne by the proprietor himself.

(iii) Management and control: Management and control of this type of organization is the responsibility of the sole proprietor. He may, however, employ a manager or other people for the purpose.

(iv) Minimum government regulations: The government does not interfere with the working of the sole proprietorship organization. However, they have to comply with the general laws and rules laid down by government.

(v) Unlimited liability: The sole proprietor has to bear the losses and is responsible for the liabilities of the business. If the business assets are not sufficient to meet the liabilities, he may also have to sell his personal property for that purpose.

Merits of Sole Proprietorship:

A sole proprietary organization has the following advantages:

(i) Easy formation: A sole proprietorship business is easy to form where no legal formality involved in setting up this type of organization. It is not governed by any specific law. It is simply required that the business activity should be lawful and should comply with the rules and

Regulations lay down by local authorities.

(ii) Better Control: In sole proprietary organization, all the relating to business operations is taken by and easy. The sole proprietor can also bring about changes in the size and nature of activity. This gives better control to business.

(iii) Sole beneficiary of profits: The sole proprietor is the only person to whom the profits belong. There is a direct relation between effort and reward. This motivates him to work hard and bear the risks of business.

iv) Inexpensive Management: The sole proprietor does not appoint any specialists for various functions. He personally supervises various activities and can avoid wastage in the business

Limitations of Sole Proprietorship:

A sole proprietor generally suffers from the following limitations:

(i) Limitation of management skills: A sole proprietor may not be able to manage the business efficiently as he is not likely to have necessary skills regarding all aspects of the business. This poses difficulties in the growth of business also.

(ii) Limitation of Resources: The sole proprietor of a business is generally at a disadvantage in raising sufficient capital. His own capital may be limited and his personal assets may also be insufficient for raising loans against their security. This reduces the scope of business growth.

(iii) Unlimited liability: The sole proprietor is personally liable for all business obligations. For payment of business debts, his personal property can also be used if the business assets are insufficient.

(iv) Lack of continuity: A sole proprietary organization suffers from lack of continuity. If the proprietor is ill this may cause temporary closure of business. And if he dies the business may be permanently closed.

PARTNERSHIP

Partnership is an association of persons who agree to combine their financial resources and managerial abilities to run a business and share profits in an agreed ratio. Since the resources of a sole proprietor to finance, and his capacity to manage a growing business are limited, he feels the need for a partnership firm. Partnership business, therefore, usually grows out of the need for expansion of business with more capital, better supervision and control, division of work and spreading of risks.

Features of Partnership:

The features of partnership are as follows:

(i) Existence of an agreement: Partnership is formed on the basis of an agreement between two or more persons to carry on business. The terms and conditions of partnership are laid down in a document known as Partnership Deed.

(ii) Engagement in business: A partnership can be formed only on the basis of a business activity. Its business may include any trade, industry or profession. Thus, a partnership can engage in any occupation – production and/or distribution of goods and services with a view to earning profits.

(iii) Sharing of profits and losses: In a partnership firm, partners are entitled to share in the profits and are also to bear the losses, if any.