Business Environment

BUSINESS PERSPECTIVE : 

BUSINESS PERSPECTIVE Module-1 12/14/2008 1 manavazhaganr@bsnl.in

Business : 

Business Tests of Business Profit Motive & Recurring Nature of Activities & Enhance National Income OR Enhance Individual Gain & Government Regulations Which of the following are Business Investing in Stock Market Hospital Educational Institutions Daily Trading in Stock Market Charity Institutions Co-operative Society Religious Institutions Cogeneration of Power in Sugar Industry Advertisement Working in a Company Working for a Company 12/14/2008 2 manavazhaganr@bsnl.in

Business : 

Business 12/14/2008 3 manavazhaganr@bsnl.in

Business : 

Business All Economic activities pursued for the purpose of earning profit Tests of Business Profit Motive & Recurring Nature of Activity & Enhance National Income OR Enhance Individual Gain & Government Regulations 12/14/2008 4 manavazhaganr@bsnl.in

Scope of Business : 

Scope of Business Business = Industry + Commerce + Trade Barriers to business : Place - Transport Time - Warehousing Risk - Insurance Publicity- Advertisement Finance - Bank Possession - Trade 12/14/2008 5 manavazhaganr@bsnl.in

Organisations : 

Organisations Coordination of activities of number of people for the achievement of common purpose / Objective through a division of labour and function and through a hierarch of authority and responsibility Common Objective + Division of labour + Functions + Hierarchy + Authority +Responsibility Which of the following are Organisations Clubs Churches / Temples Hospitals Family Educational Institutions Charity Institutions Co-operative Society Political Parties Government agencies Business Concerns Community Groups 12/14/2008 6 manavazhaganr@bsnl.in

Organisations : 

Organisations 12/14/2008 7 manavazhaganr@bsnl.in

Business Organisations : 

Business Organisations Economic Activity ( Industry + Commerce + Trade ) + Common Objective ( Profit ) + Division of labour + Functions + Hierarchy + Authority + Responsibility 12/14/2008 8 manavazhaganr@bsnl.in

Non-Business Organisations : 

Non-Business Organisations Economic Activity ( Industry + Commerce + Trade ) + Common Objective (Non Profit ) + Division of labour + Functions + Hierarchy + Authority + Responsibility 12/14/2008 9 manavazhaganr@bsnl.in

Forms of Organisations : 

Forms of Organisations Choices about Division of labour + Functions + Hierarchy + Authority + Responsibility Factors Determining the forms of Organisations Nature of Business Motive Risk Capital Requirement Scale of operation Legal Requirement Government Control Tax Considerations 12/14/2008 10 manavazhaganr@bsnl.in

Forms of Organisations : 

Forms of Organisations Choices about Division of labour + Functions + Hierarchy + Authority + Responsibility Forms of Organisations Sole Proprietorship Partnership Joint stock Companies Joint Hindu Undivided Family Co-Operative Societies PSEs’ 12/14/2008 11 manavazhaganr@bsnl.in

Forms of OrganisationsSole Proprietor : 

Forms of OrganisationsSole Proprietor Highlights: Except Bank & Insurance High Risk & High profit No Registration Not legal entity Own Capital Own Labour Suitability Professional jobs like accounting, legal and health Small retail stores To satisfy purely local needs To satisfy the tastes of customers (Beauty parlours, saloons) Business involving frequent changes – share Broker. 12/14/2008 12 manavazhaganr@bsnl.in

Forms of OrganisationsSole Proprietor : 

Forms of OrganisationsSole Proprietor Merits: Easy formation Simple and flexible Strong motivation Personal contact No dispute Self employment Less overheads Quick decision making Demerits: Limited capital Limited skill Unlimited liability Uncertain future Limited scope – Absence of economies of large scale No scope for much of diversification – No place of economies of scope. 12/14/2008 13 manavazhaganr@bsnl.in

Forms of OrganisationsPartnership : 

Forms of OrganisationsPartnership Highlights: Governed by Partnership Act -1932 Essence of Partnership (sec-4) 1. Arises from Contract 2. Agree to share Profit 3. Agent-Principal relation - Max. No. of Partners not mentioned - Companies Act :Bank – 10, others-20 Sharing of loss not mentioned -Each partner has to contribute / Knowledge -Firm is dissolved on death of a partner -General partner – Unlimited Liability -Limited Partner – Limited Liability -Not a Legal Entity Called Firm Criteria followed by Court in deciding valid Partnership Cox V Hickman Terms of agreement Conduct of the parties Mode of doing business Who controls the property Mode of keeping accounts Manner of distribution of profits How loses are shared 12/14/2008 14 manavazhaganr@bsnl.in

Forms of OrganisationsPartnership : 

Forms of OrganisationsPartnership Highlights: Partnership Deed 1. Agreement can be verbal ,written or may be inferred from the conduct of the parties 2. Legally Deed or Written agreement is not required 3. Partnership Deed - Written agreement duly Stamped and Registered Contents of Deed: Name & Description of Partners , Firm , Business Duration of partnership Contribution of Capital by each Division of Profit & Loss Salaries, Interest, Management of Business Preparation , maintenance & authorised persons to sign Effect of death or retirement of partner Admission of new members & Dissolution of firm 12/14/2008 15 manavazhaganr@bsnl.in

Forms of OrganisationsPartnership : 

Forms of OrganisationsPartnership Highlights: In the absence of Partnership Deed Indian Partnership Act -1932 will apply Equal share in Profit & Loss Each partner can take part in management of business No partner shall be eligible for remuneration No new partner can be introduced or existing to be expelled without majority All members can inspect , take copy of accounts The firm must indemnify the partner who incurred liability Consequences No suit can be brought by partner against each other or against third party The partner suing must appear in the register of firm maintained at Registrar of firms Can not sue third party to recover claim more than Rs.100 Third part can sue any partner and firm 12/14/2008 16 manavazhaganr@bsnl.in

Forms of OrganisationsPartnership : 

Forms of OrganisationsPartnership Highlights: Registration of Partnership With Registrar of Firms by paying fees and Statement signed by partners Name of the firm & Nature of Business Place of Business Dates on which partners joined Duration of the firm Permanent address of Partners 12/14/2008 17 manavazhaganr@bsnl.in

Forms of Organisations Partnership : 

Forms of Organisations Partnership Rights of partners Right to take part in business Right to be consulted Right to have access to accounts Right to share profits. Right to interest on capital Right to act as an agent of the firm Right to prevent the introduction of a new partner Right to retire Right to continue in the business. 12/14/2008 18 manavazhaganr@bsnl.in

Forms of Organisations Partnership : 

Forms of Organisations Partnership Merits: Easy formation More capital and managerial efficiency. Division of labour Discussion of business problems. Secret No strict government control. Demerits: Unity among partners in essential Not adequate capital Unlimited liability. Lacks continuity of existence. Does not enjoy public confidence 12/14/2008 19 manavazhaganr@bsnl.in

Forms of Organisations Partnership : 

Forms of Organisations Partnership Suitability: Accounting, medical and legal professions 12/14/2008 20 manavazhaganr@bsnl.in

Forms of Organisations Hindu Undivided Family / Joint Hindu Family : 

Forms of Organisations Hindu Undivided Family / Joint Hindu Family Mitakshara Hindu Law Except Bengal , Assam It consists of all males lineally descended from common ancestor including minor, male , wife & Unmarried daughters & daughter-in-laws. All of them are members of HUF. All male members acquire ownership to property by birth- Co-Parceners/Co-Owners Three generations next to the holder in Unbroken male descendent constitute a coparsneary Senior member is Karta/Manager Dayabhaga Hindu Law Bengal , Assam Son does not acquire ancestral property by birth However acquire the right on death of Father Father has absolute right to dispose the property according to his desire ------------------------------ Jain , Sikh , Buddhists are covered by under the Hindu Law. From 9.9. 2005 – Daughters of a coparcener will also become Coparceners by birth – Hindu Succession Act Contd … 12/14/2008 21 manavazhaganr@bsnl.in

Forms of Organisations Hindu Undivided Family / Joint Hindu Family : 

Forms of Organisations Hindu Undivided Family / Joint Hindu Family Ownership & Control Ownership share fluctuates with the birth and the death of its coparseners. Legal Status: No separate legal entity Registration not required Capital: Supplied by HUF / Inherited property Management: Karta Stability: Continue as long as HUF does not break Not terminated on death or insolvency of coparcener Risk: Karta has unlimited liability Karta has personal liability Others – limited liability Profit sharing: Equal share Share of profit fluctuates – increase by death and decrease by birth Surplus – under the custody of Karta Contd … 12/14/2008 22 manavazhaganr@bsnl.in

Forms of Organisations Hindu Undivided Family : 

Forms of Organisations Hindu Undivided Family Merits: Greater stability No restriction on the number of co –owners Karta can take quick decisions Scope for division of labour Limited liability for co-owners Family training Flexibility Protection of old, sick and disabled members. 12/14/2008 23 manavazhaganr@bsnl.in

Forms of Organisations Hindu Undivided Family : 

Forms of Organisations Hindu Undivided Family Demerits: Limited financial resources. Limited managerial ability only karta. No innovative spirit. Frequent conflicts. Contd … 12/14/2008 24 manavazhaganr@bsnl.in

Forms of Organisations Hindu Undivided Family : 

Forms of Organisations Hindu Undivided Family Suitable: Money lending business Retail trade Jewellery 12/14/2008 25 manavazhaganr@bsnl.in

Forms of Organisations JOINT STOCK COMPANIES : 

Forms of Organisations JOINT STOCK COMPANIES Highlights It is a voluntary association of persons, formed for the purpose of business It is an artificial person created by law. Perpetual succession (continuous existence) Limited liability. Transferability of shares. Separation of ownership from management. Power of the company are regulated by Memorandum of Association The rights and duties of Directors are regulated by Articles of Association Need not possess fixed capital divided into number of units A share holder is not entitled to actively take part in Management Management is vested with a team A share holder can work as an employee Shares of Public limited companies are transferable Required to comply with various statutory obligations like Filing of balance sheet, Maintaining accounts ,audit by CA etc. 12/14/2008 26 manavazhaganr@bsnl.in

Forms of Organisations JOINT STOCK COMPANIES : 

Forms of Organisations JOINT STOCK COMPANIES Private Limited Min. 2 to Max.50 Members Min 2 Directors Name Suffix – Private Limited On incorporation can commence business Need not issue Prospectus – Private placement Shares cannot be issued to public Shares cannot be transferred Statutory meeting need not be held Remuneration not limited Board meeting minimum 2 persons Public Limited Min. 7 to Max. limited by no. of shares Min 3 Directors Name Suffix - Limited On incorporation should apply for CCB Shares to be issued to public Shares can be transferred Meeting compulsory Remuneration 11% of net profit Mini. 3 persons for meeting Index of members to be maintained. Proxy can be appointed for a meeting. Directors should retire by rotation 12/14/2008 27 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES Registration Procedure : 

JOINT STOCK COMPANIES Registration Procedure Approval of the Name of the Company by ROC ( Reg. Office, No same name , last word – Private Limited , Limited, 6 months ) Prepare Memorandum of Association ( Objective, Scope of the function etc.) Prepare Articles of Association ( Rules & Regulations for internal Management.) Certificate of Incorporation by ROC ( Rules & Regulations for internal Management.) Private Ltd: Min 2 director, 2 share holder Public Limited : Min 3 director, 7 share holders 12/14/2008 28 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES Registration ProcedureCommencement of Business : 

JOINT STOCK COMPANIES Registration ProcedureCommencement of Business On Issuing Certificate of Incorporation by ROC Private Ltd: Can start business immediately Public Limited :1 ) If does not opt for IPO ROC will issue certificate of commencement of business ( CCB ) : 2 ) If opts for IPO Go for Public issue – Allot Share - Obtain CCB 12/14/2008 29 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES Registration Procedure : 

JOINT STOCK COMPANIES Registration Procedure Three important documents Memorandum of association: It describes the proposed company and defines Objective and powers of the company proposed to be incorporated. It has to be registered with Registrar of Companies. It contains Name clause Situation Objects Liability Capital - Company cannot exceed the powers mentioned and cannot alter the provisions except Name , Jurisdiction , Object, Capital Contd … 12/14/2008 30 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES Registration Procedure : 

JOINT STOCK COMPANIES Registration Procedure Articles of association: Subordinate to the Memorandum of Association Share capital Rights of share holders Transfer of shares Shareholders meetings Voting system Contd … 12/14/2008 31 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES Registration Procedure : 

JOINT STOCK COMPANIES Registration Procedure Prospectus: It is a document issued to the public for raising capital by the issue of Shares or for raising loan by the issue of Debenture.. “ Any notice , circular, advertisement or other documents inviting offer from public for the Subscription of share or purchase of debenture of a body corporate “ ( sec-2(36) ) Objective – To draw attention , interest Should make full disclosure, Printed , signed - Directors will be held responsible for misrepresentations - Having furnished prospectous to ROC to be made public in the advertisement Contents – Objective , Signatories to the memorandum, no. of shares subscribed Mini. Subscription, Premium on share, Underwriters, particulars of directors, voting & divident rights, particulars of auditors,balanse sheet, P&L accounts 12/14/2008 32 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES Registration Procedure : 

JOINT STOCK COMPANIES Registration Procedure Allotment of Shares: Directors can allot shares under the following conditions: A prospectus or a statement in lieu is submitted to ROC At least 5 % of the share value is received and deposited in a scheduled bank and Minimum no. of shares are subscribed. Obtaining Certificate of Commencement: When minimum subscription is raised, either the Director or Secretary has to declare to ROC that : 1. Shares have been allotted not less than the “ Minimum Subscription “ 2. The prospectus or statement in lieu thereof had been filed 3. Directors have duly paid to their shares On verification CCB is issued.. 12/14/2008 33 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES : 

JOINT STOCK COMPANIES Merits of Company: Limited liability Business continues. Transfer of shares Huge capital Legal protection and regulation Professional management. More employment and business. 12/14/2008 34 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES Registration Procedure : 

JOINT STOCK COMPANIES Registration Procedure Demerits: Company formation is difficult. It is expensive Many legal formalities Lacks unity of management – Management is in the hands of a Board of Directors Contd … 12/14/2008 35 manavazhaganr@bsnl.in

JOINT STOCK COMPANIES : 

JOINT STOCK COMPANIES Quick changes cannot be made Lacks initiative and enterprise. No secrecy May promote frauds. 12/14/2008 36 manavazhaganr@bsnl.in

CO-OPERATIVE FORM OF BUSINESS ORGANISATION : 

CO-OPERATIVE FORM OF BUSINESS ORGANISATION A voluntary association on the basis of equality for the promotion of economic interests of members. 12/14/2008 37 manavazhaganr@bsnl.in

CO-OPERATIVE FORM OF BUSINESS ORGANISATION : 

CO-OPERATIVE FORM OF BUSINESS ORGANISATION Features Voluntary association Open membership & Subscribe to objective Membership unlimited Capital equally divided among members If liability is limited “ Limited “ should be included and max. value of share Rs.2500/- 25% of profit to reserve fund 10% to Charitable purposes Unlimited – Profit sharing Govt. approval Shares cannot be transferred to 3rd party Equal voting rights Non profit motive Registration is not compulsory Registration under Co-operative Societies Act - 1912 Legal entity Managing committee elected Policy decided in GB to be implemented by Committee Exception from Income tax, stamp, Registration fees It has priority over other creditors in realising dues from debtors Strict government control 12/14/2008 38 manavazhaganr@bsnl.in

CO-OPERATIVE FORM OF BUSINESS ORGANISATION : 

CO-OPERATIVE FORM OF BUSINESS ORGANISATION Types: Co-Operative Credit Societies: To grant Credit or Loan for agriculture, Artisans Co-Operative Producers Societies: To have a common selling organisation to sell their products Consumers Co-Operative Societies: To buy goods from traders & wholers at cheap price Industrial Co-Operative Societies: By Cottage & small industries to sell Multipurpose Co-Operative Societies: To meet economic and social needs of villagers. 12/14/2008 39 manavazhaganr@bsnl.in

CO-OPERATIVE FORM OF BUSINESS ORGANISATION : 

CO-OPERATIVE FORM OF BUSINESS ORGANISATION Formation: 10 Members submit joint application to the Registrar of Co-operatives with bye-laws. 8 members for Housing Societies No registration, Stamp duty collected Can be Limited or Unlimited Annual accounts are audited by government auditors free of cost. Industrial Co-Operative Societies: By Cottage & small industries to sell Multipurpose Co-Operative Societies: To meet economic and social needs of villagers. 12/14/2008 40 manavazhaganr@bsnl.in

CO-OPERATIVE FORM OF BUSINESS ORGANISATION : 

CO-OPERATIVE FORM OF BUSINESS ORGANISATION Merits: Formation is simple Continuity of existence. Pool of resources Suitable to the weaker sections of society. Not profit motive but service motive Democratic. 12/14/2008 41 manavazhaganr@bsnl.in

CO-OPERATIVE FORM OF BUSINESS ORGANISATION : 

CO-OPERATIVE FORM OF BUSINESS ORGANISATION Demerits: Need of co-operative spirit. Loyalty of members. No scope for large scale operations because of limited resources. Insufficient motivation to members because of the low rate of return to the members – staff salary is low. Lack of public confidence because of the failure of many co-operative societies. Excessive state interference. 12/14/2008 42 manavazhaganr@bsnl.in

Forms of Business JOINT SECTOR : 

Forms of Business JOINT SECTOR Joint sector is a form of partnership between the private sector and the government. 12/14/2008 43 manavazhaganr@bsnl.in

Forms of Business JOINT SECTOR : 

Forms of Business JOINT SECTOR Four possible types: Existing private enterprises can be brought under joint sector Existing public sector companies can be transformed into joint sector. New companies can be set up with equity participation by the government. The state governments can set up new enterprises with private sector. 12/14/2008 44 manavazhaganr@bsnl.in

Forms of Business JOINT SECTOR : 

Forms of Business JOINT SECTOR Merits: Social control over industries Failure of private and public sectors. Acceleration of economic growth. State sponsored industrialization. Mobilization of financial resources Mobilization of technical and managerial resources. 12/14/2008 45 manavazhaganr@bsnl.in

Forms of Business JOINT SECTOR : 

Forms of Business JOINT SECTOR Examples of joint sector: Cochin Refineries Madras Refineries Madras Fertilizers. Gujarat state Fertilizer company. 12/14/2008 46 manavazhaganr@bsnl.in