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