bus orgn unit iv

8/4/2019 Bus Orgn Unit IV

1/43


2/43

Sole Proprietorship

Sole Proprietor is an individual who ownsand manages a business with own or

borrowed capital, bears all the risksalone, enjoys all profits and suffers allthe losses.

He takes all business decisions, uses his

own skill and intelligence, is free tohire employees, and is in personaltouch with the business routine.


3/43

Sole Proprietorship contd..Features

Sole

ownership

Own/Borrowed

capital

Solemanagement

No profit

sharing

No risk sharing

No legal

formalities


4/43

Sole Proprietorship contd..Merits

Ease of

formation

Quick

Decisions &

Actions

Personal

Touch

Maintains

SecrecyIncentive for

hard work

Flexibility

Lowers Cost

Social

significance


5/43

Sole Proprietorship contd..Demerits

Limited

Capital

Limited

ability &

skillUnlimited

liability

No legal

entity

Small scale

production


6/43

Joint Hindu Family Business

Joint Hindu Family is a unique non-corporate, groupownership form of business organizationprevailing only in India.

Is owned and operated by the co-parceners of JointHindu Family under the management and controlof the Karta.

The senior most member of the Hindu Family is

called Karta. Other members of the family arecalled Co-parceners.

It comes into existence by the operation of HinduLaw i.e. Hindu Succession Act, 1956.


7/43

Joint Hindu Family Business contd..

Characteristics of JHF business:

Formation by the operation of Hindu law

Fluctuating membership Management and control

No separate legal status

Liability of the Karta

Sharing Of profits and losses Continuous life


8/43


Merits of JHF business:

Simplicity of formation

Quick decisions

Centralized management

Business secrecy

Continuity and stability

Least government control Flexibility

Division of labour


9/43


DEMERITS

Limited

managerial

ability

Lack of

stability/

continuity

Limited

capital

Unlimited

liability

No rights toco-parceners

Lack of

motivation


10/43


Joint Hindu Family business is generally found insmall trading, manufacturing and serviceconcerns.

This business is gradually declining in India becauseof;

industrialization,

urbanization,individualistic attitude, and

gradual breaking of the joint family system itself.


11/43

PartnershipAccording to the Indian Partnership Act, 1932;

partnership is the relation between two or morepersons who have agreed to share profits of a

business, carried on by all or any of them actingfor all.

Features: (i) oral or written agreement (ii) minimumof 2 members and maximum of 10 in case ofbanking business and 20 in case of general business(iii) sharing of profits and losses (iv) agencyrelationship (v) unlimited liability (vi) notransferability of interest/share (vii) no legalstatus (viii) pooling of resources


12/43

Partnership contd..Kinds of Partnership

Kinds of Partners

Partnership at

willPartnership for

specific period

Partnership for a

specific purpose

Active

partnerSleeping

partnerNominal

partner

Minor

partner

Holding out

partner


13/43

Partnership contd.. Partnership Deed: Partnership agreement

containing terms and conditions relating to

partnership and the regulations governing itsinternal management.

Such agreement may be oral or in writing. An

agreement in writing takes the form of a deed; is

duly stamped sealed and registered in the Courtof Law. The deed can act as a legal evidence to

settle disputes and differences.


14/43

Partnership contd..The deed contains the following clauses;

Name of the partnership

Nature and duration of business

Capital contribution

Distribution of profits

Management Rights

Accounting system

Provision in case of death, insolvency,retirement

Drawings and remuneration of partners

Provision for Arbitration


15/43

Partnership contd..

Registration: Registration of partnership is

optional. Any firm which wishes to register

must submit a statement (duly dated andsigned by all the partners) to the Registrar

of Firms with the relevant registration

fee. The Registrar enrolls the name of thefirm in the Register of firms. The register

is open for inspection to the public.


16/43

Partnership contd..Effects of Non-registration:

The firm or its partners cannot take legal actionagainst third parties.

The rights of third parties or outsiders areunaffected by non-registration.

An unregistered firm cannot demand a setoff ofdebt against its credit.

A partner cannot sue the firm or other partnersas long as unregistered.

The unregistered firm cannot take any of itspartners to the Court of Law.


17/43

Partnership contd..Merits

Pooling

of

capital

Greater

managerial

skill

Easy

formation

Simple

dissolutionBusiness

secrecy


18/43

Partnership contd..Demerits

LimitedCapital

Lacks legal

status

Unlimited

liability

Shares not

transferable

No publicconfidence


19/43

Co-operative OrganisationCo-operation is a form of business organisation

wherein persons voluntarily associate together ashuman beings on the basis of equality, for the

promotion of economic interests of themselves.The guiding principle of co-operation is joiningtogether of people for mutual help.

Each for all and all for each is the motto of co-

operation. Co-operative spirit is the heart of aco-operative society. It always prefers servicemotive to profit and emphasises on self-help andself-reliance.


20/43

Co-operative Organisation contd..Features:

Spirit of co-operation

Unity

Common Interest

Economic democracy and democratic management

Open membership

Moral emphasis

Fair return on Capital

Cash sale

Corporate Status


21/43

Co-operative Organisation contd..

Types of co-operatives

Credit co-operation: Rural credit co-operatives(having unlimited liability) were formed to solvethe problem of agricultural finance, while urbanco-operatives (having limited liability) helpartisans and labour population in towns.

The co-operative movement is replacing themoneylenders as a primary source of credit forrural masses.


22/43

Co-operative Organisation contd..Consumers Co-operation: It mainly caters to the

needs of labourers, students, and lower middle-

class population. They acted as agencies to

distribute rationed food and other articles for

daily use.

Producers Co-operation: It was formed forpurchasing raw-material, tools and equipment

for members. It grants loans and advances tomembers against security of goods. They also

arrange for training of members.


23/43

Co-operative Organisation contd..Merits:

Suitable for entrepreneurs having limited means.

It fits with the government ideology of

democracy and secularism. They can ensure reduction of monopoly and

concentration of wealth & power.

Limited liability, separate legal status,

democratic management & easy to form. Best service organisations for promoting public

welfare.

Government gives financial and managerial aid.


24/43

Co-operative Organisation contd..Demerits:

Co-operative spirit may be missing.

Does not possess capital raising power. Not possible to avail specialised management.

Excessive state participation kills the voluntary

character.

Business secrecy cannot be maintained. Members have internal quarrels and rivalry

thereby affecting autonomy of management.


25/43

CompanyA company is an artificial person created by law,

having perpetual succession and a common seal.The entire capital of the company is divided into

equal units called shares.Features:

(i) Compulsory Incorporation (ii) Artificial person(iii) Common seal (iv) Perpetual/continuous life

(v) Expert management (vi) Lower tax liability(vii) Wide distribution of loss (viii) Enterprisingmanagement (ix) Limited liability (x) Transfer ofownership (xi) Large membership


26/43

Types of Companies

TypesofCompanies

Private company Public companyDeemedpublic

company


27/43

Types of Companies contd.. Private Company: "private company" means a

company which, by its articles

(a) restricts the right to transfer its shares, if any;

(b)limits the number of its members to fifty notincluding

(i) persons who are in the employment ofthe company, and

(ii) persons who, have been formerly in theemployment of the company; and

(c) prohibits any invitation to the public tosubscribe for any shares in, or debentures of, thecompany.


28/43

Types of Companies contd..Private company Features:

Membership: Min. is 2; max. is 50

Restriction on transfer of shares

Prohibition on public issue of capital Should have min. of 2 directors

Public is not allowed to inspect accounts

Directors can borrow from the company

The quorum for meetings is 2 members Directors need not retire by rotation

No restriction on remuneration to directors


29/43

Types of Companies contd..

Public Company: "public company" means acompany which is not a private company.

Features:

Membership: min. is 7; max. is unlimitedApproaches the public for capital

Shares are freely transferable

Must have atleast three directors

Legal restrictions on remuneration of directorsDirectors retire by rotation

Directors cant borrow without Govt. approval


30/43

Types of Companies

Deemed Companies: A private company is deemedto be a public company in the following situations:

When 25 percent or more of the private companys

paid-up capital is held by one or more publiccompany.

The private company holds 25 percent or more ofthe paid-up share capital of a public company.

The private company accepts or renews depositsfrom the public.

The private companys average annual turnoverexceeds Rs. 250 million during a period of 3consecutive financial years.


31/43

Sectoral Organisations

Sectors

Private Sector Public Sector

Joint Hindu

Family

Partnership

Sole

Proprietorship

Co-operativesStatutory

Company

DepartmentalundertakingGovernment

Company


32/43

Sectoral Organisations contd..

Departmental Undertaking: they are managed by

Government departments entrusted to Ministers.

Eg; Railways, Post and Telegraph, etc

Features:

(a) Managed by Government (b) The minister has

direct control on the enterprise (c) Financed

entirely by the Government (d) Subject to strictgovernmental controls (e) Enterprise cannot be

sued without government consent (f) The

management is in charge of employees.


33/43


Departmental Undertaking - Merits:

Government has full control over affairs

It acts as a tool for implementing social and

economic objectives of State Helps the government to earn revenue

Public grievances can be removed immediately

Secrecy can be maintained

Departmental Undertaking - Demerits: Lacks flexibility and initiative

Shortage of competent, qualified and experiencedpersonnel for professional management


34/43


Departmental Undertaking Demerits contd.:

Subject to undue scrutiny, criticism byParliament

Turns out to be a state monopoly Losses and inefficiency not taken seriously

Absence of stability and continuity of policies

Political rather than economic issues givenimportance

Excessive centralisation in finance andmanagerial control

Lack of autonomy and presence of red-tapism


35/43


Government Company: they are usually State

owned private limited companies which permit

flexibility and autonomy for successful operation.

Features:

(i) The entire capital or atleast 51% of capital is

owned by the Central and/or State Government (ii)

All/ majority of the directors are nominated by the

Government (iii) The concerned ministry exercisescontrol over operations (iv) It is a separate entity

having legal status (v) It is free from the budget,

audit laws.


36/43


Government Company Merits:

It has the rare combination of flexibility, autonomy

and State control.

They can be run in a businesslike manner just like

private enterprises.

It is easy to form with minimum legal formalities

Is suitable for foreign collaboration in skill/capital.

Government Company Demerits:

It can avoid constitutional responsibilities of State

enterprises


37/43


Government Company Demerits contd.:

Separate legal status exists only in theory. Inreality, all functions are reserved for theGovernment

Since it is free from Government audit andcontrols, critics consider it as fraud

Salaried and nominated directors cannot takepersonal interest in management

Official domination reduces incentive forefficiency.

This form of organisation is suitable for taking overexisting enterprises in emergency and to start newbusiness and run it as public enterprise.


38/43


Statutory Company:

These are companies incorporated under the

Special Act of Parliament. Almost all public

utility concerns like railways, electricity,

water works, etc are incorporated by Special

Acts of Parliament. In India, the Reserve Bank

of India, State Bank of India, etc. are instances

of Statutory companies.


39/43

Changing Role of Public Sector

Governments of developing countries need to gobeyond offering a passive open door regimefor FDI to one that positively enhances required

human resource skills for the absorption of FDI.In that regard, Governments, through the public

sector, need to create a conducive policyenvironment that enables FDI to contributetowards enhancing the international

competitiveness of the host country on the basisof a dynamic development of comparativeadvantage.


40/43

Changing Role of Public Sector

The most obvious manifestation of this change inthinking has been the widespread deregulation andliberalization of markets, the privatization of

State-owned enterprises that is open to foreignparticipation and deeper integration of markets.

Just as country attitudes have changed in favour ofmarket-oriented and private-led economies, aparallel shift in thinking has been evolving that

recognizes that the cost of giving up domesticownership and management control in somesectors is outweighed by the benefits from FDI.


41/43

Changing Role of Public Sector contd..

The key issue about the role of the Government is notwhether it should intervene but the kind ofintervention. Some macroeconomic and investment-

friendly policies are necessary, although notsufficient in todays world of increasingcompetitiveness in attracting investment.

The crucial role for the host Government is to createconditions as well as be proactive. The challenge for

the Government is achieving the right balance interms of a win-win situation for the citizens. At theheart of these endeavours is improving thecompetitiveness of a countrys economy.


42/43

Changing Role of Public Sector contd..

The challenge for developing countries in this newcompetitive context is to tap FDI to promoteeconomic development in terms of their ownendowments and development objectives.

Comparative advantage is not a static concept butis dynamic in nature.

The Governments role in this fast-changingtechnological and competitive environment is notmerely one of a passive open door but onewhere it is proactive. A conducive economic andpolitical environment, transparent governmentpolicies and business ethics remain paramount tosustaining investor confidence.


43/43

MultinationalCompanies

Multinational corporation (MNC) or transnationalcorporation (TNC) is a corporation or enterprise thatmanages production or delivers services in morethan one countries.

Features ofMNCs

Multiple currency

problem

Legal, institutional

and economicconstraints

Internal control

problem

bus orgn unit iv

Documents