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ECO-01: Business Organization

ECO-01: Business Organization

IGNOU Solved Assignment Solution for 2021-22

If you are looking for ECO-01 IGNOU Solved Assignment solution for the subject Business Organization, you have come to the right place. ECO-01 solution on this page applies to 2021-22 session students studying in BCA, ADIR, CBS, BDP courses of IGNOU.

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ECO-01 Solved Assignment Solution by Gyaniversity

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Assignment Code: ECO-01/TMA/2021-22

Course Code: ECO-01

Assignment Name: Business Organisation

Year: 2021-2022

Verification Status: Verified by Professor

Marks: 100

Q1) Briefly explain various sources from which companies may raise long term capital.

Ans) The various sources from which companies may raise long term capital:

Capital Market

The capital market is the structure and method by which businesses, other institutions, and governments raise long-term funds. As a result, it includes all long-term borrowings from banks and financial institutions, as well as borrowings from international markets and capital raising through the issuance of various instruments such as stock, debentures, and bonds. In the capital market, there are two major sectors for trading securities. The first is the primary market, and the second is the secondary market. The primary market, often known as the new issue market, deals with new/fresh securities issues. The secondary market, on the other hand, is a place where existing securities can be bought and sold and is also known as a stock market or stock exchange.

Special Financial Institutions (SFI)

The federal and state governments have established a variety of special financial institutions to provide long-term financing to businesses. They also provide assistance with the start-up of new businesses, as well as the expansion and modernization of current businesses. Industrial Finance Corporation of India (IFCI), Industrial Investment Bank of India (IIBI), Industrial Credit and Investment Corporation of India (ICICI), Industrial Development Bank of India (IDBI), Infrastructure Development Finance Company Ltd. (IDFC), Small Industries Development Bank of India (SIDBI), State Industrial Development Corporations (SIDCs), and State Financial Corporations (SFCs), to name a few, are some of the most important.

These institutions are often known as Development Banks or Development Financial Institutions since they provide developmental finance (DFI). Aside from these development banks, there are a few other financial institutions that provide long-term finance to companies and subscribe to their shares and debentures, such as the Life Insurance Corporation of India (LIC), the General Insurance Corporation of India (GIC), and the Unit Trust of India (UTI).


Commercial banks typically provide short-term financing to businesses in the form of loans, advances, cash credit, overdrafts, and other forms of credit. However, most commercial banks have started term lending (long and medium term) and offering need-based funding to businesses of all sizes in recent years. Banks have been allowed to develop their own techniques of assessing borrowers' financial needs and extending term loans for higher amounts and longer terms in accordance with the liberalisation policy. Some banks have opened industrial branches to provide financing solely to industrial businesses.

As a result, commercial banks are now a major source of medium and long-term financing for businesses. You may be aware that our country today has a huge number of cooperative banks. The RBI has granted these banks permission to function as commercial banks. They also provide long-term financing to small and medium-sized cooperative industrial units, such as sugar factories and food processing plants.

Non-Banking Financial Companies (NBFCs)

Housing finance companies, investment firms, auto finance firms, and other private-sector entities operating in various sections of the country. Because they accept public deposits and provide loans, these businesses are classified as Non-Banking Financial Companies. They are not considered banking companies, however, because they do not engage in traditional banking activities. They raise cash from the general public by granting low-interest loans to wholesale and retail traders, small-scale businesses, and self-employed people. These financing organisations' loans are typically unsecured, and the interest rates they charge range from 24 to 36 percent each year. In addition to providing loans and advances, NBFCs offer purchase and discount hundis, as well as merchant banking, housing finance, lease financing, and hire purchase services. Because of the simplified loan sanction procedure, attractive rate of return on deposits, flexibility, and timeliness in satisfying clients' credit demands, NBFCs have emerged as a significant financial intermediary in our country.

Mutual Funds

A mutual fund is a trust that a sponsor has formed to raise money through one or more schemes for investing in securities. It's a unique sort of financial organisation that operates as an investment middleman, gathering or pooling the money of a large number of individuals and investing them in a reasonably large and well-diversified portfolio of sound investments. This reduces their risk and ensures that investors get a good return. As a result, they serve as a small investor's investment agency and a solid source of long-term financing for businesses.

Leasing Companies

In the prior unit, the lease agreement was used as a long-term financing technique. This strategy is becoming increasingly popular among manufacturing firms. Leasing is normally arranged through leasing companies, who purchase the necessary plant and machinery from the manufacturer and lease it to the company that requires it for a set length of time in exchange for an annual rent.

A appropriate lease agreement is formed between the lessor (leasing business) and the lessee for this purpose (the company hiring the asset). The lessee is typically required to acquire the machinery at the conclusion of the lease period at a mutually agreed-upon and set price. It should be mentioned that during the lease duration, the leasing firm retains ownership.

To meet its financial needs, a firm may sell an existing fixed asset (equipment or a building) to a leasing company at market value on the condition that the leasing company leases the asset back to the selling company for a specific length of time. The term for this type of deal is 'Sell and Lease Back.' The corporation receiving the funds does so without having to relinquish custody of the asset in question, which it continues to use in exchange for annual lease payments. It should be emphasised that, in any type of leasing arrangement, the lease rent includes a portion of interest in addition to the leasing company's expenses and profits. In fact, the leasing business needs to make a respectable profit on its lease asset investment.

Foreign Sources

Foreign Sources also play an important part in meeting the long-term financial needs of the business in India. These usually take the form of:

External Borrowings: These include loans with low interest rates and long maturities, as well as commercial borrowings. The International Monetary Fund (IMF), Aid India Consortium (AIC), Asian Development Bank (ADB), World Bank (International Bank for Reconstruction and Development), and International Financial Corporation have all been key providers of concessional loans. The World Bank provides loans for high-priority industrial projects, which can be supplied directly to a company or through a government agency. The International Finance Corporation, a World Bank affiliate, provides industrial units with loans for 8 to 10 years. These loans do not need to be backed by the government.

Foreign Investments: Foreign direct investment (FDI) or foreign collaborations are the most common forms of foreign investment in our country. The term "foreign direct investment" usually refers to foreigners buying shares and debentures in Indian companies. This is also referred to as portfolio investment and refers to their holdings of ADRs, GDRs, and FCCBs (Foreign Currency Convertible Bonds).

Non-resident Indians (NRIs): You are aware that Non-Resident Indians (NRIs), also known as individuals of Indian origin (PIOs), are an essential source of long-term capital for Indian industry. Deposits in the Foreign Currency Non-Resident Account (FCNRA) and Non-Resident (External) Rupee Account are the most typical ways they contribute (NRERA). It's worth noting that the share of NRI deposits in total foreign capital flows (net) in 2001-02 was 26.7 percent. NRI deposits, like external borrowing, are a high-cost form of external money and are only good in bad weather. As a result, relying too heavily on NRI deposits is not a good policy. It should be emphasised that they are also permitted to subscribe to Indian company shares and debentures, with the option of selling them and receiving a refund. This is an important aspect of foreign direct investment.

Retained Earnings

The term "retained earnings" refers to a company's undistributed profits that are often held in the form of a general reserve. It is primarily utilised as a hedge against future low profits and for the issuance of bonus shares by the corporation. However, for enterprises with a zero cost of capital, it works as an import source of long-term finance. The companies can use the retained revenues to expand and modernise their operations. The quantity of retained earnings is governed by the amount of profits, the management's dividend payout strategy, the legal rules for dividend payment, and the rate of corporation taxes, among other factors.

It is a self-contained source that avoids the costs of flotation and the risks of external financing. In fact, it is widely recognised as the most reliable long-term financing source. It also enhances the company's stock foundation, allowing it to borrow at better rates. The main disadvantages of this source are that it is entirely reliant on profit accuracy, as well as the danger of management misusing funds.

Q2) “Company form of organization is the most ideal form for all types of business.” Discuss.

Ans) A corporation is a group of people. To start a business, more than one individual is required. A partnership firm must also have more than one person working for it. A partnership firm, on the other hand, has no legal existence apart from its partners. A firm, on the other hand, acquires its own legal character after it is founded. It is considered a separate legal entity from the members who join it. Because of this aspect, a company's promotion necessitates the completion of a number of legal processes before it can be founded. A promoter or a group of promoters might be in charge of forming a business.

The Indian Companies Act, 1956, specifies the legal requirements for forming a corporation. You are aware that the Corporations Act allows for the formation of primarily two types of companies in terms of ownership: private companies and public companies. The promoters must choose whatever type of company they want to create. Promoters typically want members' responsibility to be limited to the amount of capital they agree to invest for the purposes of running a firm.

As a result, the company that will be formed can be either a private limited company or a public limited corporation. It is required that a company be officially registered under the Companies Act, whether it is a private limited or a public limited business. The Registrar of Companies is the authority in charge of company registration. In India, there is a Registrar of Companies for each state or set of states.

For example, in the Union Territory of Delhi and Haryana, there is a Registrar of Companies. His place of business is in New Delhi. A company is a legally recognised voluntary organisation of persons with a distinctive name, a common seal, and capital divisible into transferable shares, limited liability, a corporate body, and perpetual succession created to carry out business for profit. An examination of this definition will reveal a company's distinguishing qualities.

Creature of Law

A corporation is a legal entity that is frequently referred to as an artificial person. It has no physical shape or form because it only exists in the mind of law. Despite being unseen and intangible, it has practically all of the rights of a natural person as a legal person. It has the ability to form contracts and own property. It has the ability to sue and be sued. One of its distinguishing characteristics is its legal personality.

Distinct Legal Entity

A company is a legal entity that is distinct from the individuals that make up its membership. Even though he owns nearly all of the company's shares, a shareholder is not accountable for the company's actions. Furthermore, the actions of the shareholders cannot bind the corporation. They aren't its handlers. Because the corporation is a legal entity distinct from its members, a shareholder can both own and owe money to the corporation. The company's existence is separate from that of its members. Even if all of the members die, the business does not cease to exist as a result of their deaths.

Limited Liability of Members

A company's restricted liability is another significant trait. By purchasing shares in a firm, a person gains an interest in the company and is free to sell these shares at any time. If something goes wrong with the company, he is only liable for the nominal value of the shares he owns. In other words, even though he stands to lose the money he has invested, he cannot be forced to pay a paisa from his own assets to help the firm meet its obligations.

Perpetual Succession

The incorporation procedure creates a corporate body that is different from the individuals that make up its membership. The ability for shareholders to transfer their shares without impacting the company's position ensures the company's survival. The firm has eternal succession or interrupted existence as a natural result of incorporation and transferability of shares. As previously said, the company's life expectancy is not restricted to that of its numerous founders because the company's existence is independent of the lives of its members. Members may come and go, yet the business continues to run well (until, of course, wound up according to law). The company is formed by the law, and the company is terminated by the law.

Common Seal

Every firm is required by law to have a seal with its name etched on it. Because the corporation has no physical form, it is unable to sign contracts in its own name. As a result, all documents and contracts originally required the use of a seal. However, the majority of transactions are now signed by the directors, who operate as the company's agents. It must be witnessed by two directors when it is fastened to any document.

Divorce between Ownership and Management

The company's personality is distinct from the persons that make up its makeup, the stockholders. As a result, the actions of the shareholders cannot bind the corporation. Because capital investors are a diverse set of people from all over the world, they are unable to handle the company's activities. They delegate this responsibility to their elected officials, the Board of Directors. This quality of a business goes against capitalism's Golden Rule, which will be explained later.

The following is a summary of the main implications of the company's above analytical description:

  1. It is a voluntary association

  2. Of mutually agreeing persons, natural and legal;

  3. It is an autonomous legal unit,

  4. Distinct from its associating members

  5. In name, in the duration of its life, and its liability to creditors;

  6. It exists because the State has by statute enabled to exist.

In all respects company organizations differs radically from a partnership business.

Q3) Distinguish between the following:

(a) Primary market and Secondary market


Primary Market

Secondary Market

A primary market is a market where new securities are launched for first-time investors.

The secondary market, on the other hand, is characterised as a location where issued shares are traded among investors.

The firm is the one who issues the shares, and the government becomes involved.

The government or the company are not interfering.

A new issue market is referred to as the primary market.

The secondary market is an aftermarket.

The buying and selling of shares occurs between investors and businesses.

The only people who trade are the investors.

The primary market is a source of funding for businesses looking to expand and thrive.

Companies do not receive funding from the secondary market.

In the intermediary step, underwriters are involved.

In the intermediary phase, brokers are involved.

The prices in the primary market are fixed and do not change.

The secondary market, on the other hand, sees a lot of price fluctuation due to demand and supply.

A primary market has a limited number of products, such as an initial public offering (IPO) and a first public offering (FPO).

The secondary market sells shares, debentures, warrants, derivatives, and other financial instruments.

The buying process takes place on the primary market.

The corporation that issues the shares is not involved in the purchase.

The number of times an investor can purchase and sell is limited, i.e., investors can only invest once in the market.

The frequency of buying and selling, on the other hand, is relatively high, i.e., investors can trade as many times as they want.

In the primary market, the corporation is the winner.

The investor is the primary benefit of the secondary market.

There is no organisation in the primary market.

The secondary market is well-structured.

Companies that issue shares and debentures must adhere to all requirements.

The secondary market's investors adhere to the rules set forth by the stock exchanges and the government.

The primary market's main disadvantage is that it takes a long time and costs a lot of money.

The primary downside of the secondary market is that price fluctuations can result in significant losses for investors.

(b) Public limited company and Co-operative organization



  1. The essential objectives of cooperatives and companies are not the same.

  2. The primary goal of a cooperative organisation is to provide valuable services to its members.

  3. A firm, on the other hand, is a commercial enterprise with the goal of profit.


A cooperative society's membership is often drawn from a certain geographic area, whereas a company's stockholders come from all over the country. The Companies Act requires at least 7 persons for the formation of a public limited company and at least 2 persons for the formation of a private limited company. The minimum number of members required for the registration of a cooperative is 10, while the Companies Act requires at least 7 persons for the formation of a public limited company and at least 2 persons for the formation of a private limited company.

Members’ Liability

Members of a company's responsibility is limited, but members of a cooperative society's liability is often unrestricted.


Share capital may or may not be present in a cooperative society. The shares of the society cannot be transferred by a member. A corporation, on the other hand, must have its capital divided into shares by its shareholders. A company's shares are freely transferable.


Profits are distributed among members of a company in the form of a dividend, which varies depending on the amount of capital invested by individual members. A cooperative society, on the other hand, does not divide profits based on the amount of capital possessed by its members. A cooperative's surplus or profit is distributed to its members in proportion to the purchases they make.

Q4) Write short notes on the following:

(a) Listing of a security on a stock exchange

Ans) The admittance of a company's securities to trading on a stock exchange is known as listing. The Companies Act of 2013/1956 makes listing optional. It is required when a Public Limited Company wishes to issue public shares or debentures. When securities are listed on a stock exchange, the company must adhere to the exchange's rules. The listing gives securities on the stock exchange an exclusive advantage. On the stock exchange, only listed shares are traded. Transparency in listed securities transactions, as well as equality and competitive circumstances, are provided by the stock exchange. The company, the investor, and the general public all benefit from the listing.

Objectives of Listing

  1. To provide liquidity to securities

  2. To provide a mechanism for effective control and supervision of trading

  3. To mobilize savings for economic development

  4. To provide free negotiability to stocks.

  5. Ability to raise further capital

Eligibility Criteria

The applicant company that wishes to be listed on the stock exchange must meet the stock exchange's Eligibility requirements. New Company Minimum Listing Requirements:

  1. The minimum post-issue paid-up capital of the company shall be INR. 10 Crore for IPOs and INR.3 crore for FPOs, and

  2. The minimum issue size shall be INR. 10 crore, and

  3. The minimum market capitalization of the Company shall be INR. 25 crore ;

  4. Default in compliance with the listing agreement shall not be done by applicant, promoters and /or group companies

  5. In addition to the above eligibility criteria, certain conditions prescribed under SEBI ICDR (Issue of Capital & Disclosure Requirements) Regulations, 2009.

  6. The issuer shall comply with all the applicable guidance, regulations interlaid from

  7. Securities Contracts (Regulations) Act 1956

  8. Securities Contracts (Regulation) Rules 1957

  9. Securities and Exchange Board of India Act 1992[1]

  10. And any other circular, clarifications, guidelines issued by the appropriate authority.

  11. Companies Act 2013/1956

Permission to Use the Name of BSE Listing Process in Issuer Company’s Prospectus

Companies have to take prior approval from BSE to use the name of BSE in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies

Submission of Letter of Application

A Letter of Application need to be submitted to all the stock exchanges where they want to get it listed before filing to the Concerned ROC.

Allotment of Securities

As per the Listing Agreement, a company is required to complete the allotment of securities within 30 days of the date of closure of the subscription list to the public.

Trading Permission

  1. After the completion of allotment, within 7 working days, the issuer Company has to complete the formalities for trading at all the stock exchanges, where the securities are to be listed.

  2. The requirement of 1% Security

  3. Companies have to deposit 1% of the issue amount with the designated stock exchange before the issue opens.

Listing Fees

All listed companies are required to pay to BSE, an Annual Listing Fees by 30th April of every financial year.

Compliance with the Listing Agreement

When companies get listed at stock exchanges, whether it is BSE/NSE Listing Process they are required to enter into an agreement which is called the listing Agreement under which they are required to file certain compliances and disclosures which are given by listing Agreement, failing which the company may face some disciplinary action, including suspension/delisting of securities. Under listing agreements, all the terms and conditions are written on the basis of which the company has to perform like:

  1. Provide facilities for direct transfer, registration, sub-division, and consolidation of securities;

  2. Send proper notices of the closure of transfer books and record dates, forward 6 copies of Annual Reports, Balance Sheets and Profit and Loss Accounts to BSE

  3. To file shareholding patterns and financial results on a quarterly basis;

  4. To intimate Exchange the happenings which are likely to materially affect the financial performance of the Company and its stock prices,

  5. To comply with the conditions of Corporate Governance, etc.

(b) Entrepreneurship and characteristics of an entrepreneur

Ans) The act of being an entrepreneur is referred to as entrepreneurship. The name "entrepreneur" comes from the French word "entrepreneur," which means "to undertake, to explore chances, to fulfil people's needs and wants via innovation and starling business." All of this is carried out by the entrepreneur. He starts a business, organises it, raises funds to fund it, and assumes all or a large portion of the risk. As a result, "entrepreneurship" is defined as "the process of starting a new enterprise."

Entrepreneurship is defined by two fundamental elements: innovation and taking risks.

Innovation: It is not entrepreneurship if a business activity does not necessitate any specific skills. In fact, a person cannot be considered an entrepreneur unless he or she contributes something new, something unique, into their business. This is referred to as innovation or doing something different from the norm. Entrepreneurs are always on the lookout for something unique to meet people's needs or desires. They may or may not be creators of new items or manufacturing methods, but they can envision the prospect of commercialising the invention. Others who learn about the same discovery will be unable of considering its practical utility in business. Or they may lack the motivation or self-confidence to seize the opportunity.

Risk Bearing: Another component of entrepreneurship that every entrepreneur must deal with is risk taking. Entrepreneurs must be risk takers rather than risk avoiders. In truth, beginning a new business is always risky because money is invested in the hopes of making money in the future.

It's also risky to try anything new. A new business initiative may or may not make the predicted profits, or it may fail and result in losses. It could occur as a result of increased competition, a shift in client preferences, a shortfall of raw material supply, or unforeseen natural disasters. An entrepreneur, on the other hand, is willing to take chances. He is willing to accept risks in exchange for a payoff. Even if he fails in one endeavour, he perseveres, which aids his success.

Characteristics of an Entrepreneur

Independence: Many entrepreneurs who launched their enterprises fought being labelled or adhering to a set of routines. Entrepreneurs, in fact, grow irritated when they are forced to follow someone else's instructions. They must be in charge. They prefer to be in command. Working under the guidance of others is tough for them.

Hard Work: Entrepreneurs are known for their willingness to work—and work hard. You can trust that the successful business owner has paid for his or her achievement with long, sweaty hours, emotional stress, and perseverance. The company most certainly came close to failing several times in the beginning, but the proprietor would not let it die. A successful entrepreneur once said that he and his colleagues used to work twelve-hour days and sometimes seven days a week. That could be said that it was his entire life.

Desire-to Achieve Goals: They have a strong drive to solve difficulties and establish profitable commercial enterprises that will yield adequate revenues in the long run. Rather than focusing solely on producing money, they viewed profit as a gauge of their success and performance.

Foresight arid Dynamic Outlook: In general, these individuals have a broad understanding of the business environment, including the market, customer attitudes, technical advancements, and so on. They are also more dynamic in projecting business uncertainties and risks, and as a result, they make faster and more informed judgments.

Open-mindedness: They are adept at anticipating changes in the corporate environment. They never reject change, though, since they know they can't stop it. As a result, they have been accustomed to being open-minded, even when they have lost crores of rupees owing to changes in customer tastes, which led them to update their technology, etc.

Optimistic Outlook: They are often of the opinion that current issues are only temporary and that situations will improve in due time. Entrepreneurs are constantly keen to achieve their objectives in the most efficient manner possible, in order to provide excellent outcomes that they can be proud of.

Working Relationship : The success of a company is largely determined by its employees, followed by their connections with other businesses. The majority of successful business owners have had positive interpersonal interactions. As a result, their market reputation improves.

Good Organisers : They excel in bringing together the many sorts of resources required to launch a company and make it operationally efficient. They can persuade others about the business's prospects, gain their cooperation, generate cash, buy machinery, arrange material supply, hire the suitable people, and coordinate numerous commercial activities.

Innovative Aptitude: The majority of successful businesses are creative thinkers.

They invest a portion of their profits in research and development so that they may provide items that match consumer needs. Some of our business leaders, including as Tata, Birla, and Kirloskar, have created their own research institutes.

Q5) Comment very briefly on the following statements:

(a) There is no element of risk in business.

Ans) a) Business risk refers to a company's or organization's exposure to factors that could reduce profitability or cause it to fail. A business risk is anything that jeopardises a company's capacity to meet its financial objectives. Risk is an unavoidable part of doing business. Risk is an unavoidable part of running a business. Because all business actions are planned for the future, and the future is always uncertain, when a businessman decides to manufacture or purchase goods and services, he anticipates the future and calculates risk in advance.

(b) Loans are sanctioned for short term only.

Ans) Short, medium, and long-term loans are available. Short-term loans are those that must be paid back within a year. They are appropriate for meeting the working capital requirements of businesses. Medium-term loans are those that are repayable in one to five years and are used to fund expansion and development objectives.

Short- and medium-term loans are the most common types of loans given by commercial banks. A long-term loan is one that is issued for a period of more than five years. Individual loans are issued on the basis of personal security and a third-party guarantee. Trade, industry, and agriculture loans are secured by both tangible and intangible assets. A secured loan or advance is a loan or advance based on the security of assets whose market worth is not less than the loan or advance amount at any time.

(c) There is no difference between the money market and capital market.

Ans) The term ‘money market' is sometimes used in a wide sense to refer to both short-term and long-term fund markets. Money market, strictly speaking, refers to the market for short-term funds. This distinction aids us in comprehending the nature of money transactions that occur in the course of business financing. The capital market and the money market, on the other hand, have a close relationship. Both markets are frequently dealt with by the same entities. Companies take out loans to fund their operations.

Many financial institutions lend money for both short and lengthy periods of time. The two markets are mutually linked, aside from having shared linkages. Changes in short-term interest rates compared to the predicted yield on long-term funds impact the relative demand and supply of money in the two markets. As a result, if interest rates rise in the money market, demand for funds in the capital market should rise as well. A rise in the projected yield in the capital market, for example, could lead to an increase in money market demand.

(d) All the business risks are insurable.

Ans) Risks that insurance companies will cover are known as insurable risks. These can involve a variety of losses, such as those caused by fire, theft, or lawsuits. You pay premiums to your insurance company when you purchase commercial insurance. In exchange, the corporation promises to compensate you if you incur a covered loss. Insurers are able to pay the claims of the few who do incur losses by pooling premiums from many policyholders at once, while also providing protection to everyone else in the pool in case they need it.

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