Tag: Stakeholder Engagement

Management Notes

Types of Business Law

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Tax Law

In terms of business law, taxation refers to taxes charged upon companies in the commercial sector. It is the obligation of all companies (except a few tax-exempted small-time companies) to pay their taxes on time, failure to follow through which will be a violation of corporate tax laws.

Securities Law

Securities refer to assets like shares in the stock market and other sources of capital growth and accumulation. Securities law prohibits businesspersons from conducting fraudulent activities from taking place in the securities market. This is the business law section which penalises securities fraud, such as insider trading. It is, thus, also called Capital Markets Law.

Intellectual property Tax

Intellectual property refers to the intangible products of the working of the human mind or intellect, which are under the sole ownership of a single entity, such as an individual or company. The validation of this ownership is provided by intellectual property law, which incorporates trademarks, patents, trade secrets and copyrights.

Contract Law

A contract is any document which creates a sort of legal obligation between the parties that sign it. Contracts refer to those employee contracts, sale of goods contracts, lease contracts, etc.

Companies Act,2013

With an unprecedented change in the domestic and international economic landscape, India’s Government decided to replace the Companies Act, 1956, with the new legislation. The Companies Act, 2013, endeavors to make the corporate regulations in India more contemporary. In this article, we will focus on the meaning and features of a Company.

The Companies Act, 2013, completely revolutionized India’s corporate laws by introducing several new concepts that did not exist previously. One such game-changer was the introduction of the One Person Company concept. This led to the recognition of an entirely new way of starting businesses that accorded flexibility which a company form of entity can offer, while also providing the protection of limited liability that sole proprietorship or partnerships lacked.

Thus, as we can see, commercial contracts are a very essential part of the business world. Any business during its operation needs to follow all these laws, whether willfully or not. Thus, a person with any venture needs very substantial legal assistance so that any clash in legal matters won’t harm your endeavors.

The Limited Liability Partnership Act, 2008

LLP stands for a Limited Liability Partnership. Limited liability partnership definition is an alternative corporate business form that offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal body liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership. It is not the same as a limited liability company LLC.

The Indian Partnership Act,1932

The Indian Partnership Act 1932 defines a partnership as a relation between two or more parties to agree to share a business’s profits, either all or only one or more persons acting for them all. A partnership is contractual in nature. As the definition states, a partnership is an association of two or more persons. So a partnership results from a contract or an agreement between two or more persons. A partnership does not arise from the operation of law. Neither can it be inherited. It has to be a voluntary agreement between partners. A partnership agreement can be written or oral. Sometimes such an arrangement is even implied by the continued actions and mutual understanding of the partners.

The Sale of Goods Act,1930

Contracts and agreements regarding the sale of goods and services are governed under the Sale of Goods ACT, 1930. The sale of commodities constitutes one of the essential types of contracts under the law in India. India is one of the largest economies and a great country where and thus has adequate checks and measures to ensure its business and commerce community’s safety and prosperity. Here we shall explain The Sale of Goods Act, 1930, which defines and states terms related to the sale of goods and exchange of commodities.

The Indian Contract Act, 1872

It is the most prominent business law to exist in our country. It came into effect on 1st September 1872 and applied to the whole of India, with the exception of Jammu and Kashmir. It constitutes 266 sections. The Indian Contracts Act,1872 defines the essentials through various judgments in the Indian judiciary. Specific points for valid contracts are Free consent, consideration, competency, eligibility, etc. A valid contract must include at least two parties, or it will be deemed as null and void.

Management Notes

Theories of Corporate Governance

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Corporate Governance theories encompass various perspectives and frameworks that guide the structure, processes, and relationships within corporations to ensure accountability, transparency, and fairness. These theories have evolved over time in response to changes in business environments, regulatory frameworks, and societal expectations.

  • Agency Theory

Developed in the 1970s, agency theory addresses the principal-agent problem, which arises when the interests of shareholders (principals) diverge from those of managers (agents). According to this theory, managers may act in their own interests rather than maximizing shareholder value. Mechanisms such as executive compensation, board oversight, and disclosure requirements are employed to align the interests of managers with those of shareholders.

  • Stewardship Theory

In contrast to agency theory, stewardship theory suggests that managers are inherently trustworthy and will act in the best interests of shareholders. It emphasizes the importance of building trust between managers and shareholders, as well as fostering a sense of stewardship and responsibility among managers. Stewardship theory advocates for less monitoring and control mechanisms, relying instead on shared values and long-term relationships.

  • Stakeholder Theory:

Stakeholder theory expands the focus of corporate governance beyond shareholders to include all stakeholders who are affected by or can affect the corporation, such as employees, customers, suppliers, communities, and the environment. It argues that corporations should consider the interests of all stakeholders and seek to create value for them, not just shareholders. Stakeholder theory emphasizes corporate social responsibility (CSR) and sustainable business practices.

  • Resource Dependence Theory:

Resource dependence theory examines how corporations interact with their external environment to acquire the resources they need for survival and growth. It suggests that corporations are dependent on various stakeholders for resources such as capital, labor, technology, and information. Effective corporate governance involves managing these dependencies through strategic relationships, alliances, and diversification strategies.

  • Transaction Cost Economics:

Transaction cost economics (TCE) focuses on the costs associated with conducting economic transactions within organizations. It suggests that firms exist to minimize transaction costs, which include the costs of negotiating, monitoring, and enforcing contracts. Corporate governance mechanisms such as vertical integration, outsourcing, and the choice of organizational structure are influenced by TCE principles to mitigate transaction costs.

  • Institutional Theory:

Institutional theory examines how corporations are influenced by social, cultural, and institutional contexts. It suggests that corporate governance practices are shaped not only by economic factors but also by institutional norms, regulations, and societal expectations. Institutional theorists argue that corporations conform to prevailing institutional norms to gain legitimacy and support from stakeholders.

  • Ethical Leadership Theory:

Ethical leadership theory emphasizes the role of leaders in shaping the ethical culture of organizations. It suggests that ethical leaders who demonstrate integrity, transparency, and accountability set the tone for ethical behavior throughout the organization. Corporate governance mechanisms such as codes of conduct, ethics training, and whistleblower protection aim to promote ethical leadership and decision-making.

  • Dynamic Capabilities Theory:

Dynamic capabilities theory focuses on a firm’s ability to adapt and innovate in response to changing market conditions and competitive pressures. It suggests that corporate governance should facilitate the development of dynamic capabilities by fostering a culture of learning, experimentation, and risk-taking. Flexibility, agility, and responsiveness are key principles of dynamic capabilities theory.

  • Legitimacy Theory:

Legitimacy theory argues that corporations must maintain legitimacy in the eyes of society to secure their continued existence and success. It suggests that corporate governance practices are influenced by the need to gain and maintain legitimacy through compliance with legal, ethical, and social norms. Transparency, accountability, and corporate social responsibility are central to legitimacy theory.

  • Network Theory:

Network theory explores the relationships and interdependencies among actors within corporate networks, such as boards of directors, executive teams, investors, and other stakeholders. It suggests that corporate governance effectiveness depends on the strength and quality of these networks, as well as the flow of information and resources among network members. Network theory emphasizes the importance of social capital and relational governance mechanisms.

Management Notes

Objective and Need of Corporate Governance

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Corporate Governance encompasses the systems, processes, and practices by which companies are directed and controlled. It aims to safeguard shareholders’ interests, enhance transparency and accountability, manage risks, foster ethical conduct, improve decision-making, and promote long-term sustainability, thereby ensuring the company’s success and stakeholders’ trust.

Objective of Corporate Governance:

  • Enhancing Transparency:

Corporate governance aims to ensure that all stakeholders have access to accurate, relevant, and timely information about the company’s performance, financial condition, and decision-making processes.

  • Promoting Accountability:

It seeks to establish clear lines of responsibility and accountability throughout the organization, ensuring that decision-makers are held responsible for their actions and outcomes.

  • Safeguarding Shareholder Interests:

Corporate governance aims to protect the rights and interests of shareholders by ensuring fair treatment, equitable access to information, and mechanisms for recourse in case of misconduct or negligence.

  • Managing Risk:

It involves implementing effective risk management processes to identify, assess, and mitigate risks that may impact the company’s operations, finances, reputation, and stakeholders.

  • Fostering Ethical Conduct:

Corporate governance promotes a culture of integrity, honesty, and ethical behavior within the organization, setting standards for acceptable conduct and enforcing compliance with laws, regulations, and ethical principles.

  • Improving Decision-making:

By establishing clear structures, processes, and mechanisms for decision-making, corporate governance aims to facilitate informed and strategic decision-making that aligns with the company’s objectives and creates long-term value.

  • Enhancing Long-term Sustainability:

Corporate governance focuses on ensuring the company’s long-term sustainability and resilience by balancing short-term interests with the needs of future generations, considering environmental, social, and governance (ESG) factors, and fostering responsible business practices.

Need of Corporate Governance:

  • Protection of Shareholder Interests:

Corporate governance ensures that the rights and interests of shareholders, who have invested their capital in the company, are protected. This includes mechanisms for fair treatment, equitable access to information, and safeguards against abuse of power by management.

  • Enhanced Transparency and Accountability:

Good corporate governance promotes transparency by providing stakeholders with accurate, timely, and relevant information about the company’s performance, financial health, and decision-making processes. It also fosters accountability by establishing clear lines of responsibility and consequences for actions.

  • Effective Risk Management:

Corporate governance frameworks help identify, assess, and mitigate risks that may affect the company’s operations, finances, reputation, and stakeholders. By implementing robust risk management practices, companies can enhance their resilience and ability to navigate challenges.

  • Ethical Conduct and Compliance:

Ethical behavior is fundamental to corporate governance, as it ensures that the company operates with integrity, honesty, and respect for laws, regulations, and ethical standards. By fostering a culture of ethics and compliance, corporate governance helps prevent misconduct and promotes trust among stakeholders.

  • Improved Decision-making Processes:

Clear governance structures and processes facilitate informed and strategic decision-making within the organization. By defining roles, responsibilities, and decision-making authorities, corporate governance enables efficient and effective decision-making that aligns with the company’s objectives and values.

  • Long-term Sustainability and Value Creation:

Corporate governance emphasizes the long-term sustainability and value creation of the company. By considering environmental, social, and governance (ESG) factors, companies can mitigate risks, identify opportunities, and create value for all stakeholders over the long term.

  • Stakeholder Engagement and Trust:

Good corporate governance fosters constructive engagement with stakeholders, including employees, customers, suppliers, and communities. By listening to stakeholders’ concerns, addressing their interests, and building trust through transparent and accountable actions, companies can enhance their reputation and resilience.

Management Notes

Insolvency and Bankruptcy Code 2016

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The Insolvency and Bankruptcy Code (IBC), 2016 is a comprehensive law introduced in India to address issues of insolvency and bankruptcy in a time-bound and efficient manner. Prior to the IBC, India lacked a uniform legal framework to address corporate insolvency, leading to delayed and often ineffective resolutions. The IBC aims to provide a structured process for resolving corporate insolvency, improving the ease of doing business, and enhancing the credit culture in India.

Background and Objectives:

The Insolvency and Bankruptcy Code (IBC) was enacted in 2016 to consolidate and amend the existing laws relating to insolvency and bankruptcy. It aims to:

  • Provide a time-bound process for resolving insolvency of individuals and businesses.
  • Improve the overall business environment by addressing issues such as non-performing assets (NPAs) and corporate debt.
  • Promote entrepreneurship by offering a clean slate to viable businesses that face insolvency.
  • Protect the interests of creditors and other stakeholders while providing an opportunity for companies in distress to restructure.

The IBC combines various laws and procedures related to insolvency and bankruptcy into one comprehensive code. It also introduces mechanisms for resolving insolvency both for individuals and corporate entities, ensuring transparency, accountability, and fairness in the process.

Features of the Insolvency and Bankruptcy Code, 2016:

  1. Insolvency Resolution Process: The IBC sets out a clear, standardized process for insolvency resolution. It is divided into three primary parts:
    • Corporate Insolvency Resolution Process (CIRP): A process for resolving insolvency of companies and limited liability partnerships (LLPs). The process is initiated by creditors, who can file a petition with the National Company Law Tribunal (NCLT).
    • Individual Insolvency Resolution Process (IIRP): For individuals and partnership firms, the IBC provides a process to address insolvency situations.
    • Liquidation: In cases where a resolution plan fails, the company may undergo liquidation, where its assets are sold to settle outstanding debts.
  2. Time-Bound Process: The IBC mandates that the insolvency process be completed within 180 days (extendable by another 90 days). This is to ensure that resolution or liquidation occurs without unnecessary delays. The time-bound nature of the process is crucial in preserving the value of distressed assets and ensuring a quicker recovery for creditors.
  3. Resolution Professional: During the insolvency resolution process, an external expert known as a “Resolution Professional” is appointed. The Resolution Professional manages the affairs of the company and works with creditors and other stakeholders to come up with a resolution plan that maximizes the recovery value of the company. The professional is responsible for overseeing the process and ensuring that the interests of all parties are protected.
  4. Committee of Creditors (CoC): The IBC establishes a Committee of Creditors, composed of financial creditors, which has the power to approve or reject resolution plans. The CoC plays a central role in the insolvency process, and their decision is binding on the debtor company. The committee also oversees the role of the Resolution Professional.
  5. Insolvency and Bankruptcy Board of India (IBBI): The IBBI is the regulatory authority responsible for overseeing the functioning of the insolvency and bankruptcy framework. It is tasked with laying down the regulations and ensuring that professionals involved in the process, including Resolution Professionals and Insolvency Professionals, adhere to the standards set by the law.
  6. Creditor’s Hierarchy and Recovery Process: The IBC provides a clear hierarchy of creditors during the resolution process. Secured creditors (such as banks) are given priority, followed by unsecured creditors. Shareholders, however, are the last in line when it comes to recovery. This ensures that creditors’ interests are prioritized in the distribution of proceeds from asset sales.
  7. Adjudicating Authorities: The National Company Law Tribunal (NCLT) and the Debt Recovery Tribunal (DRT) are the primary adjudicating authorities under the IBC. The NCLT resolves disputes related to the corporate insolvency process, while the DRT is responsible for individual insolvency matters. Appeals can be filed with the National Company Law Appellate Tribunal (NCLAT) and the Appellate Tribunal for Debt Recovery.
  8. Cross-Border Insolvency: The IBC allows for cooperation between Indian courts and foreign courts in cases involving cross-border insolvencies. This ensures that assets held by an Indian company abroad or foreign creditors can participate in the insolvency proceedings. This provision helps multinational companies and foreign creditors resolve insolvency issues efficiently.

Advantages of the Insolvency and Bankruptcy Code:

  • Faster Resolution:

IBC ensures quicker resolution of insolvency cases compared to earlier methods. With a fixed timeline, the process helps to minimize delays.

  • Improved Credit Market:

IBC has led to a cleaner and more transparent credit market by providing a legal framework that ensures quicker recovery of debts and reducing defaults.

  • Higher Recovery Rate:

Creditors can expect a higher recovery rate compared to the earlier approach, where a significant portion of their debt went unpaid due to prolonged legal battles.

  • Reduction in Non-Performing Assets (NPAs):

The introduction of IBC has contributed to the reduction of NPAs in the banking sector, improving the financial health of banks and financial institutions.

  • Promotes Entrepreneurship:

By offering a mechanism for revival, the IBC allows businesses to restructure their operations rather than be forced into liquidation. This encourages entrepreneurship and reduces the fear of failure.

Management Notes

Preparation of Minutes of Meeting

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The minutes of a meeting are the official written record of the discussions, decisions, and actions taken during a formal meeting. They provide a comprehensive account of the key points deliberated and serve as a reference for participants and stakeholders. Properly documented minutes are vital for legal compliance, organizational transparency, and tracking progress.

Purpose of Minutes of Meeting:

  1. Documentation: Minutes capture the essence of the meeting, including the agenda, discussions, and resolutions.
  2. Accountability: They ensure that responsibilities assigned during the meeting are tracked and executed.
  3. Reference: They act as an official record for reviewing past decisions and actions.
  4. Legal Compliance: For corporate meetings, such as board or shareholder meetings, minutes are a legal requirement under company law.

Structure of Minutes

  1. Header: Includes the meeting title, date, time, venue, and type (e.g., board meeting, annual general meeting).
  2. Attendance: Lists the names of participants, including those present, absent, or excused.
  3. Agenda Items: Summarizes the topics discussed during the meeting.
  4. Discussion Points: Provides a brief overview of key points raised by participants.
  5. Decisions Made: Records resolutions, approvals, or actions agreed upon.
  6. Action Items: Details the tasks assigned, responsible persons, and deadlines.
  7. Conclusion: Notes the meeting’s end time and the date of the next meeting, if applicable.

Steps to Write Effective Minutes:

  1. Prepare Before the Meeting: Familiarize yourself with the agenda and distribute it to attendees in advance.
  2. Record Key Points: Focus on capturing essential details like decisions, action points, and deadlines. Avoid unnecessary commentary.
  3. Use Clear Language: Write in a concise, formal, and neutral tone to ensure clarity.
  4. Organize Chronologically: Follow the sequence of the agenda items discussed.
  5. Review for Accuracy: Cross-check with meeting participants or the chairperson to confirm the accuracy of the notes.

Benefits of Maintaining Minutes:

  1. Transparency: Minutes foster an environment of openness and accountability in decision-making.
  2. Continuity: They provide continuity for participants who may not have attended the meeting, keeping them informed.
  3. Dispute Resolution: Official records can clarify misunderstandings or resolve disputes.
  4. Audit Trail: They serve as evidence for audits, legal matters, or regulatory inspections.

Best Practices

  1. Use Templates: Employ a consistent format or template for uniformity.
  2. Timely Circulation: Share minutes promptly to ensure tasks are started on time.
  3. Digital Archiving: Store minutes electronically for easy retrieval and backup.
Management Notes

International Trade Laws Objectives Set 2

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  1. The exchange of goods and services are known as …………………………
  • Domestic Trade
  • International Trade
  • Trade
  • None of these.

 

  1. Which of the following is not considered as factors of production?
  • Land
  • Labour
  • Money
  • Capital

 

  1. Trade between two countries is known as ………….
  • External
  • Internal
  • Inter-regional
  • None of Above

 

  1. International Trade is most likely to generate short-term unemployment in:
  • Industries in which there are neither imports nor exports
  • Import-competing industries
  • Industries that sell to domestic and foreign buyers.
  • Industries that sell to only foreign buyers

 

  1. Free traders maintain that an open economy is advantageous in that it provides all the following except:
  • Increased competition for world producers
  • A wider selection of products for consumers
  • Relatively high wage levels for all domestic workers
  • The utilization of the most efficient production methods

 

  1. Which of the following is not a benefit of international trade?
  • Lower domestic prices
  • Development of more efficient methods and new products
  • A greater range of consumption choices
  • High wage levels for all domestic workers

 

  1. Which is not an advantage of international trade:
  • Export of surplus production
  • Import of defence material
  • Dependence on foreign countries
  • Availability of cheap raw material

 

  1. Trade between two countries can be useful if cost ratios of goods are …………..
  • Equal
  • Different
  • Undetermined
  • Decreasing

 

  1. Foreign trade creates among countries ………………
  • Conflicts
  • Cooperation
  • Hatred
  • Both a. and b.

 

  1. All are advantages of foreign trade except ………….
  • People get foreign exchange
  • Cheaper goods
  • Nations compete
  • Optimum utilization of countries’ resources

 

Q.2. Fill in the blanks.

  1. International Trade means trade between …………………. (Provinces/ Countries/ Regions)
  2. Two countries can give from foreign trade if ………… are different. (Effect/ Tariff/ Cost)
  3. ………….. encourages trade between two countries. (Different tax system/Reduced tariffs/ National currencies)
  4. Drawback of protection system is ……… (Consumers have to pay higher prices/ Producers get higher profits/ Quality of goods may be affected/ All above)
  5. ………….. is a drawback of free trade. (Prices of local goods rise/ Govt. looses incomes from custom duties/National resources are underutilized)
  6. International trade is possible primarily through specialization in production of …… goods. (All/ One/ Few)
  7. A country that does not trade with other countries is called …… country. (Developed/ Closed/ Independent)
  8. Policy of Protection in trade ……… (Facilitates trade/ Protects foreign producers/ Protects local producers/ Protects exporters)
  9. The largest item of Indian import list is ……….. (Consumer goods/ Machinery/ Petroleum/ Computers)
  10. Trade between two states in an economy is known as …… (External/ Internal/None)

 

SET 2

Q.1. Multiple Choice Questions.

  1. Who among the following enunciated the concept of single factoral terms of trade?
  • Jacob Viner
  • G.S.Donens
  • Taussig
  • J.S.Mill

 

  1. ‘Infant industry argument’ in international trade is given in support of:
  • Granting Protection
  • Free trade
  • Encouragement to export oriented small and tiny industries
  • None of the above

 

  1. Terms of trade that relate to the Real Ratio of international exchange between commodities is called:
  • Real cost terms of trade
  • Commodity terms of trade
  • Income terms of trade
  • Utility terms of trade

 

  1. The main advantage in specialization results from:
  • Economies of large-scale production
  • The specializing country behaving as monopoly.
  • Smaller Production runs resulting in lower unit costs.
  • High wages paid to foreign workers.

 

  1. Net export equals ……
  • Export * Import
  • Export + Import
  • Export – Import
  • Exports of service only

 

  1. A tariff ………………….
  • Increase the volume of trade
  • Reduces the volume of trade
  • Has no effect on volume of trade
  • Both a. and c.

 

7. Terms of Trade of developing countries are generally unfavourable because …….

  • They export primary goods
  • They import value added goods
  • They export few goods
  • Both a. and b.

 

  1. Terms of Trade a country show ……………
  • Ratio of goods exported and imported
  • Ratio of import duties
  • Ratio of prices of exports and imports
  • Both a. and c.

 

  1. Terms of trade between two countries refer to a ratio of …..
  • Export prices to import prices
  • Currency values
  • Export to import
  • Balance of trade to Balance of payments

 

10. Rich countries have deficit in their balance of payments ……..

  • Sometimes
  • Never
  • Alternate years
  • Always

 

Q.2. Fill in the blanks.

  1. BOP means balance of Receipts and payments of …… (all banks/ State bank/ Foreign exchange by a country/ Government)
  2. Favourable trade means exports are ……. than imports. (More/ Less/ Neutral)
  3. Net barter terms of trade is also known as …. Terms of trade.(Commodity/ Income/Utility)
  4. ….. is not a factor affecting TOT. (Reciprocal demand/ Size of demand/ Price of demand)
  5. If tariff is higher, then the imports will …… (Increase/ Decrease/ Same as before)
  6. ……. has given the concept of reciprocal demand. (Mills/ Adam/ Ricardo)
  7. ……… is the curve, which expresses the total demand for one good (imports) in terms of the total supply of another good (exports). (Offer/ Official / Corporate)
  8. Balance of payment is prepared by an economy ……. (Yearly/ Monthly/ Weekly)
  9. …….. kinds of accounts are included in BOP. (2/ 3/4)
  10. …….is not a type of disequilibrium in BOP. (Cyclical/ Seasonal/ Frictional/ Disguised)

 

SET 3

Q.1. Multiple Choice Questions.

  1. The first classical theory of International Trade is given by …………………..
  • Keynes
  • Adam Smith
  • Friedman
  • Heckscher-Ohlin

 

  1. In classical theory of International Trade, the exchange of goods and services takes on the basis of ………….. system?
  • Barter
  • Money
  • Labour
  • capital

 

  1. If capital is available in large proportion and labour is less, then that economy is known as ……………..
  • Capital Intensive
  • Labour Intensive
  • Both a. and b
  • None of above

 

  1. In Heckscher Ohlin theory, what is assumed to be same across the countries?
  • Transportation cost
  • Technology
  • Labour
  • capital

 

  1. Opportunity cost is also known as ……………………
  • Next Best alternative
  • Transformation cost
  • Both a. and b
  • None of above.

 

  1. Factor proportions theory is also known as the
  • comparative advantage theory
  • laissez faire theorem.
  • HeckscherOhlin theorem
  • product cycle model.

 

  1. Trade between two countries can be useful if cost ratios of goods are:
  • Equal
  • Different
  • Undetermined
  • Decreasing

 

  1. According to Hecksher and Ohlin basic cause of international trade is:
  • Difference in factor endowments
  • Difference in markets
  • Difference in political systems
  • Difference in ideology

 

  1. The theory explaining trade between two countries is called:
  • Comparative disadvantage theory
  • Comparative cost theory
  • Comparative trade theory
  • None of the above

 

  1. David Ricardo presented the theory of international trade called:
  • Theory of absolute advantage
  • Theory of comparative advantage
  • Theory of equal advantage.
  • Theory of total advantage

 

Q.2. True or False.

  1. Absolute advantage theory is given by Adam Smith.

True

  1. Ricardo has supplemented Absolute advantage theory.

 True

  1. Heckscher and Ohlin have given comparative cost advantage theory of International Trade.

False

  1. Multilateral trade means one country comes into trade with more than one country.

True

  1. Opportunity cost means unforgiving cost.

False

  1. Modern theory of International Trade is given by Ricardo.

False

  1. 2×2×2 model of International Trade is known by Heckscher Ohlin model.

True

  1. Transformation cost is also known as opportunity cost.

True

  1. Gravity model of trade was first used by Jan Tinbergen.

True

  1. Adam Smith advocated free trade and specialized.

True

 

Set 4

Multiple Choice Questions.

  1. GATT was made in the year ………………..
  • 1945
  • 1947
  • 1950
  • 1951

 

  1. The new world Trade organization WTO., which replaced the GATT came into effect from____
  • 1ST January 1991
  • 1st January 1995
  • 1st April 1994
  • 1st May 1995

 

  1. 5 banks of BRICS nations have agreed to establish credit lines in ….. currencies.
  • Legal
  • Plastic
  • Crypto currency
  • National

 

  1. Where was the 11th meeting of BRICS Trade Ministers held from 13 Nov 2019 – 14 Nov 2019?
  • Shanghai
  • Beijing
  • Tokyo
  • Brasilia

 

  1. What is the name of the SAARC satellite to be launched on May 5, 2017?
  • South Asia Satellite
  • South Asian Association Satellite
  • South East Asia satellite
  • SAARC satellite

 

  1. Full form of SAFTA is ……………………..
  • South Asia Free Trade Agreement
  • South Asia Foreign Trade Agreement
  • South Asia Framework Trade Agreement
  • Both a and b

6. Which of the following commitments has not been made by India to WTO?

  • Reduction in tariffs
  • Increase in quantitative restrictions
  • Increase in qualitative restrictions
  • Trade related Intellectual Property Rights

 

  1. The European Union was formally established on …..
  • November, 1993
  • April, 1995
  • January, 1997
  • May, 1996

 

8. SAARC was established in …..

  • 1980
  • 1985
  • 1990
  • 1995

 

  1. NAFTA came into effect in …..
  • 1990
  • 1994
  • 1998
  • 2004

10. The dominant member state of OPEC is ……………..

  • Iran
  • Iraq
  • Kuwait
  • Saudi Arabia

 

Q.2. Fill in the blanks.

  1. Headquarter of WTO is in ………….. Geneva/USA/Germany.
  2. Before WTO, ……………… was working instead of that. GATY/ GATR/ GATT.
  3. …………….. round negotiations initiated the establishment of WTO. Uruguay/ Urdun/ Urbuny .
  4. India had joined WTO in the year …………. (1995/ 1996/ 1997)
  5. In …………….. , SAARC was established. (1985/ 1986/ 1987)
  6. The first SAARC summit was organized at …….. (Dhaka/ Kathmandu/ Nepal)
  7. ……..is not a country in SAFTA. (India/ Nepal/ Pakistan/ USA)
  8. ……… countries are member of OECD. (34/ 35/ 36)
  9. ………… is not a country under OECD. (Norway/ Canada/ China)
  10. ………….. are the member states of European Union. (28/ 29/30)
Management Notes

Corporate Governance, Nature, Scope, Challenges

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Corporate Governance refers to the systems, processes, and practices by which companies are directed, controlled, and managed. It encompasses the mechanisms through which corporate objectives are set and achieved, the means by which performance is monitored, and accountability is ensured. Effective corporate governance establishes a framework that guides decision-making and behavior, promoting transparency, accountability, and fairness. Key elements include the composition and functioning of the board of directors, the relationship between shareholders and management, risk management practices, and adherence to legal and regulatory requirements. Strong corporate governance fosters investor confidence, enhances the company’s reputation, and ultimately contributes to long-term sustainable growth and value creation for all stakeholders, including shareholders, employees, customers, and the broader community.

Nature of Corporate Governance:

  • Legal Framework:

Corporate governance operates within a legal framework defined by laws, regulations, and codes of conduct that govern corporate behavior and set standards for transparency, accountability, and shareholder rights.

  • Board of Directors:

The board of directors plays a central role in corporate governance, overseeing the company’s strategy, monitoring management performance, and representing shareholders’ interests.

  • Shareholder Rights:

Corporate governance ensures that shareholders have appropriate rights and mechanisms to exercise control over the company, including voting rights, access to information, and opportunities to participate in decision-making processes.

  • Transparency:

Transparency is crucial in corporate governance, requiring companies to provide clear, accurate, and timely information to stakeholders about their financial performance, operations, risks, and governance practices.

  • Accountability:

Corporate governance establishes mechanisms to hold management accountable for their actions and decisions, ensuring that they act in the best interests of the company and its stakeholders.

  • Ethical Standards:

Ethical conduct is fundamental to corporate governance, guiding the behavior of directors, executives, and employees in line with principles of integrity, honesty, fairness, and respect for stakeholders’ interests.

  • Risk Management:

Effective corporate governance includes robust risk management processes to identify, assess, and mitigate risks that could impact the company’s ability to achieve its objectives and protect shareholder value.

  • Stakeholder Engagement:

Corporate governance recognizes the importance of engaging with a wide range of stakeholders, including employees, customers, suppliers, communities, and regulators, to understand their interests, address their concerns, and build trust and cooperation.

Scope of Corporate Governance:

  • Internal Governance Mechanisms:

This includes the structures, processes, and policies within the organization that guide decision-making, such as the composition and functioning of the board of directors, management oversight, and internal controls.

  • External Governance Mechanisms:

External governance mechanisms involve interactions with external stakeholders, including shareholders, regulators, creditors, and the broader community. This may involve compliance with regulatory requirements, engagement with shareholders, and transparent reporting practices.

  • Ethical Standards and Corporate Culture:

Corporate governance extends to promoting ethical behavior and fostering a corporate culture that prioritizes integrity, accountability, and responsible business practices. This includes establishing codes of conduct, whistleblower mechanisms, and ethical training programs.

  • Financial Reporting and Transparency:

Ensuring transparent and accurate financial reporting is a critical aspect of corporate governance. This involves adherence to accounting standards, disclosure of material information to investors and stakeholders, and the auditing process to provide assurance on financial statements’ reliability.

  • Risk Management and Internal Controls:

Corporate governance encompasses risk management practices and internal control systems designed to identify, assess, mitigate, and monitor risks that could impact the organization’s objectives, operations, and reputation.

  • Shareholder Rights and Engagement:

Corporate governance addresses the rights of shareholders and mechanisms for shareholder engagement, such as annual general meetings, proxy voting, and communication channels for dialogue between the company’s management and shareholders.

  • Corporate Social Responsibility (CSR):

Many corporate governance frameworks include considerations for corporate social responsibility, which involves integrating social, environmental, and ethical concerns into business operations and decision-making processes.

  • Legal and Regulatory Compliance:

Corporate governance ensures compliance with applicable laws, regulations, and industry standards, including corporate governance codes, securities regulations, and other legal requirements relevant to the company’s operations.

  • Long-Term Value Creation:

Ultimately, the scope of corporate governance is to create long-term sustainable value for shareholders and stakeholders by aligning corporate objectives with ethical principles, responsible management practices, and effective risk management strategies.

Challenges of Corporate Governance:

  • Board Independence and Effectiveness:

Ensuring a diverse, independent, and competent board of directors is crucial for effective corporate governance. However, challenges such as boardroom dynamics, conflicts of interest, and the influence of management can hinder board independence and effectiveness.

  • Executive Compensation:

Designing executive compensation packages that align with long-term shareholder interests while discouraging excessive risk-taking and short-termism is a persistent challenge in corporate governance. Ensuring transparency and fairness in executive pay practices remains a concern.

  • Shareholder Activism and Engagement:

Balancing the interests of various shareholders, including institutional investors, activist shareholders, and retail investors, presents challenges for corporate governance. Managing shareholder activism and facilitating meaningful shareholder engagement require robust communication and governance mechanisms.

  • Ethical Conduct and Corporate Culture:

Establishing and maintaining a strong ethical culture throughout the organization is a significant challenge. Issues such as ethical lapses, misconduct, and cultural inertia can undermine trust in corporate governance and damage reputation.

  • Regulatory Compliance and Legal Risks:

Keeping pace with evolving regulatory requirements and managing legal risks is a continuous challenge for corporate governance. Compliance with complex regulations, disclosure requirements, and international standards adds complexity to governance processes.

  • Cybersecurity and Data Privacy:

Protecting sensitive corporate information and mitigating cybersecurity risks is increasingly challenging in the digital age. Cyber threats, data breaches, and privacy concerns pose significant governance challenges, requiring proactive risk management strategies.

  • Globalization and Complexity:

Operating in a globalized business environment with diverse stakeholders, supply chains, and regulatory frameworks adds complexity to corporate governance. Managing cross-border operations, cultural differences, and geopolitical risks presents governance challenges for multinational corporations.

  • Environmental and Social Responsibility:

Integrating environmental, social, and governance (ESG) factors into corporate decision-making presents governance challenges. Addressing issues such as climate change, human rights, and diversity requires a holistic approach to governance that goes beyond traditional financial metrics.

  • Stakeholder Expectations and Activism:

Meeting the evolving expectations of stakeholders, including employees, customers, communities, and regulators, is a challenge for corporate governance. Managing stakeholder relationships, addressing social issues, and responding to activism requires agility and responsiveness from corporate leaders.

  • Long-Term Value Creation:

Balancing short-term financial performance pressures with the need for long-term value creation is a perennial challenge in corporate governance. Fostering a culture of sustainable growth and responsible stewardship requires strategic foresight and disciplined decision-making.

Management Notes

Audit Committee, Composition, Role, Responsibilities, Importance

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Audit Committee is typically composed of independent non-executive directors, with at least one member having expertise in finance, accounting, or auditing. Its main purpose is to assist the board of directors in fulfilling its oversight responsibilities, particularly related to financial reporting, internal control, and compliance with laws and regulations. The committee works closely with both external and internal auditors to monitor the effectiveness of the audit process and ensure that financial statements provide a true and fair view of the company’s financial performance and position.

Composition of the Audit Committee:

  • Independent Directors:

The audit committee must include a majority of independent non-executive directors to ensure impartiality and prevent conflicts of interest. The inclusion of independent directors ensures objectivity in overseeing the audit process.

  • Financial Expert:

At least one member of the audit committee must have financial expertise to understand complex accounting principles, financial statements, and audit processes.

  • Chairperson:

The chairperson of the audit committee is typically an independent director. This role is crucial in ensuring the proper functioning of the committee and its collaboration with auditors and the board.

Role and Responsibilities of the Audit Committee:

  • Overseeing Financial Reporting:

The committee ensures that the company’s financial statements are prepared in accordance with applicable accounting standards and regulatory requirements. It reviews the annual financial reports before submission to the board and shareholders.

  • Monitoring Internal Control Systems:

The audit committee evaluates the effectiveness of the company’s internal control systems, ensuring that policies and procedures are in place to mitigate risks, prevent fraud, and ensure the accuracy of financial records.

  • Reviewing the External Audit Process:

The committee selects and appoints external auditors and ensures their independence. It meets regularly with auditors to discuss their audit findings, key concerns, and any issues that may affect the company’s financial reporting.

  • Risk Management Oversight:

The audit committee is involved in reviewing the company’s risk management framework and processes. It assesses potential risks (financial, operational, or compliance-related) and evaluates how they are being managed or mitigated.

  • Compliance with Laws and Regulations:

The committee ensures that the company complies with legal and regulatory requirements, such as tax laws, securities regulations, and corporate governance standards. It plays a key role in overseeing compliance with laws that affect financial reporting.

  • Internal Audit Function:

The audit committee is responsible for overseeing the internal audit function, which evaluates the company’s internal controls and operational effectiveness. The committee works with internal auditors to identify areas for improvement and ensures timely action is taken.

Importance of the Audit Committee

  • Enhancing Transparency:

By ensuring proper oversight of the financial reporting process and the internal and external audits, the audit committee enhances transparency and accountability in the company’s financial disclosures. This boosts the confidence of shareholders, investors, and other stakeholders in the financial health of the company.

  • Strengthening Corporate Governance:

The audit committee is a cornerstone of good corporate governance. It promotes transparency, ethical conduct, and sound financial practices, helping the company to operate in a manner that is aligned with the best interests of its shareholders.

  • Improving Internal Controls and Risk Management:

The audit committee helps identify weaknesses in internal controls and ensures corrective actions are implemented. This strengthens the company’s ability to manage risks effectively and ensures that operations are running efficiently and securely.

  • Facilitating Effective Auditing:

The audit committee ensures that auditors have the resources, access, and independence they need to perform their duties. It facilitates the smooth functioning of the auditing process by acting as a bridge between the auditors and the company’s management.

  • Protecting Stakeholder Interests:

By ensuring proper financial reporting and compliance, the audit committee helps protect the interests of stakeholders, including shareholders, employees, regulators, and creditors.

Regulatory Framework Governing Audit Committees

In many countries, including India, the establishment of an audit committee is mandated by law for listed companies and certain public interest entities. In India, the Companies Act, 2013 and SEBI (Securities and Exchange Board of India) regulations require that listed companies form an audit committee. Some key requirements under Indian law include:

  • The committee must consist of at least three directors, with a majority of independent directors.
  • The committee must meet at least four times a year, with a quorum of two members present for meetings.
  • The audit committee must review and discuss financial statements, the internal audit process, the external audit’s scope, and the company’s risk management strategy.
Management Notes

CSR Committee, Composition, Role and Responsibilities, Importance, Challenges

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Corporate Social Responsibility (CSR) Committee is a specialized committee formed within a company’s board of directors to oversee and implement its CSR activities. The committee ensures that the company fulfills its social, environmental, and ethical obligations in accordance with the law and promotes sustainable development. It plays a vital role in strategizing, monitoring, and evaluating CSR initiatives to align them with the organization’s vision and regulatory requirements.

Meaning and Legal Mandate

CSR Committee is mandated under Section 135 of the Companies Act, 2013 in India for companies that meet specific criteria related to net worth, turnover, or net profit. It is responsible for formulating and monitoring CSR policies and ensuring compliance with statutory obligations. The formation of a CSR Committee underscores the growing importance of corporate accountability towards societal and environmental welfare.

Composition of CSR Committee

  • Members:

CSR Committee should consist of at least three directors, with at least one being an independent director. For private companies, the committee may include only two directors, and for unlisted public companies without independent directors, it is not mandatory to have an independent director on the committee.

  • Chairperson:

The committee often elects a chairperson from among its members to lead its activities.

The composition ensures diversity in perspectives and expertise, enabling the committee to design and execute effective CSR strategies.

Role and Responsibilities of CSR Committee

The CSR Committee is tasked with several critical responsibilities, including:

a. Formulating CSR Policy

  • Developing a detailed CSR policy that outlines the company’s CSR vision, objectives, and areas of focus, such as education, healthcare, environmental sustainability, and community welfare.
  • Aligning the policy with the company’s long-term goals and the provisions of Schedule VII of the Companies Act, 2013.

b. Recommending CSR Activities

  • Identifying specific CSR projects or programs to be undertaken.
  • Ensuring that these activities align with the objectives mentioned in the CSR policy.

c. Budget Allocation

  • Recommending the amount of expenditure to be incurred on CSR activities.
  • Ensuring that the prescribed percentage of profits (2% of the average net profit of the preceding three years) is allocated for CSR activities.

d. Monitoring and Implementation

  • Monitoring the implementation of CSR projects to ensure compliance with the CSR policy and timelines.
  • Evaluating the impact of CSR initiatives and ensuring that they contribute positively to the targeted beneficiaries.

e. Reporting

  • Preparing an annual report on CSR activities, including details of projects undertaken, expenditure incurred, and outcomes achieved.
  • Ensuring that the report is included in the company’s board report and submitted to regulatory authorities.

Importance of CSR Committee

CSR Committee plays a pivotal role in bridging the gap between corporate objectives and societal needs. Its importance can be summarized as follows:

  • Strategic Oversight: Provides a structured approach to CSR by integrating it into the company’s strategic framework.
  • Compliance: Ensures adherence to legal mandates and regulatory requirements related to CSR.
  • Sustainability: Promotes sustainable development through impactful initiatives addressing social and environmental concerns.
  • Accountability: Enhances transparency and accountability by monitoring and reporting CSR activities.
  • Corporate Reputation: Strengthens the company’s image as a socially responsible organization, fostering goodwill among stakeholders.

Key Activities of the CSR Committee

Some of the typical activities undertaken by the CSR Committee:

  • Identifying key areas of intervention such as education, healthcare, sanitation, rural development, and environmental sustainability.
  • Partnering with non-governmental organizations (NGOs), government bodies, or other organizations for effective project implementation.
  • Reviewing and approving CSR proposals and budgets.
  • Assessing the long-term impact of CSR projects and making necessary adjustments to the CSR policy or projects as needed.

Challenges Faced by CSR Committees

  • Limited Resources: Balancing financial constraints with the need for impactful CSR initiatives.
  • Measuring Impact: Accurately assessing the outcomes of CSR projects can be challenging.
  • Stakeholder Engagement: Ensuring alignment with the expectations of all stakeholders, including communities, employees, and shareholders.
  • Regulatory Compliance: Keeping up with changes in CSR regulations and ensuring adherence.

CSR Committee in India

In India, the Companies Act, 2013 makes CSR mandatory for companies meeting certain financial thresholds:

  • Net worth: ₹500 crore or more.
  • Turnover: ₹1,000 crore or more.
  • Net profit: ₹5 crore or more.

Such companies must spend at least 2% of their average net profit from the preceding three financial years on CSR activities. The CSR Committee ensures that these requirements are met effectively.

Management Notes

Certificate of Commencement of Business

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Certificate of Commencement of Business is an official document issued by the Registrar of Companies (RoC), which authorizes a company to begin its operations. This certificate is a key legal requirement under the Companies Act, 2013, particularly for public companies. It signifies that the company has met all the necessary conditions stipulated by law and can officially commence its business activities.

In India, the need for a Certificate of Commencement of Business was initially required only for public companies that issued shares to the public. However, with amendments to the Companies Act, 2013, the issuance of this certificate remains a critical step for such companies.

Requirements for Obtaining the Certificate of Commencement of Business:

Before a company can commence its business, it must fulfill several legal obligations. These requirements include:

  • Incorporation of the Company:

The company must first complete the process of incorporation. This involves the submission of the necessary documents, such as the Memorandum of Association (MoA), Articles of Association (AoA), and the directors’ details to the Registrar of Companies (RoC).

  • Minimum Subscription:

A public company must raise a minimum subscription for its issued shares. This ensures that there is adequate financial backing to commence business. The company must receive at least 90% of the issued capital within a specified period, as stipulated by the Companies Act, 2013.

  • Filing of Declaration:

The directors of the company are required to submit a declaration stating that the minimum subscription has been received, and the company is ready to commence business. This declaration is filed with the RoC.

  • Payment of Share Capital:

The company must ensure that the shareholders have paid the full amount of the subscribed capital. In the case of shares issued at a premium, the company must ensure that the premium is collected as well.

  • Appointment of Statutory Auditor:

The company must appoint its first statutory auditor, who will be responsible for auditing the company’s financial statements.

  • Filing with RoC:

After fulfilling the above requirements, the company must submit the necessary forms (Form 20A) to the Registrar of Companies (RoC) for approval.

Once these conditions are met and the Registrar of Companies is satisfied, the Certificate of Commencement of Business is issued. This certificate serves as official proof that the company is legally permitted to commence its business operations.

Importance of the Certificate of Commencement of Business:

  • Legality of Operations:

The certificate signifies that the company has fulfilled all legal requirements to begin its business activities. Without this certificate, the company cannot engage in any commercial transactions, sign contracts, or carry out its operations.

  • Investor Confidence:

Investors often rely on the Certificate of Commencement of Business to ensure that a company is in compliance with the law and is legally allowed to begin its operations. This document assures investors that their investments are secure and that the company is operational.

  • Financial Security:

By obtaining the certificate, the company assures its stakeholders, including creditors and suppliers, that it has met the necessary capital requirements and is ready to begin its business activities. This adds a layer of credibility and financial stability to the company.

  • Legal Compliance:

For public companies, obtaining the certificate is an essential part of complying with the Companies Act, 2013. It ensures that the company follows the regulatory framework governing business activities in India.

  • Commencement of Legal Transactions:

The certificate serves as the official permission for the company to commence legal transactions. This includes signing contracts, borrowing funds, and engaging in business dealings that are crucial for the company’s success.

  • Avoiding Penalties:

Failure to obtain the Certificate of Commencement of Business within the prescribed period may result in penalties or legal consequences. The company may face fines or the possibility of being struck off from the register of companies if it does not comply.

Consequences of Not Obtaining the Certificate:

If a company fails to obtain the Certificate of Commencement of Business, it cannot legally engage in any business activity. The consequences include:

  • Inability to operate: The company cannot begin its business operations, sign contracts, or make transactions.
  • Legal penalties: The company may be fined or even struck off from the Registrar of Companies.
  • Loss of investor confidence: Lack of this certificate may cause investors to question the legitimacy of the company.
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