business perspective (2)

8/8/2019 Business Perspective (2)

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All Economic activities pursued

for the purpose of earning profit

Tests of Business

Profit Motive &

Recurring Nature of

Activities &

Enhance National Income

OR

Enhance Individual Gain &

Government Regulations

Which of the following areBusiness

Investing in Stock Market

Hospital

Educational Institutions

Daily Trading in Stock Market Charity Institutions

Co-operative Society

Religious Institutions

Cogeneration of Power in SugarIndustry

Advertisement Working in a Company

Working for a Company

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Govt.

Regu

Individual

Gain

National

Gain

RecurringProfitActivity

NoYesYesYesYesStock Market

NoYesYesYesNoHospital

NoYesYesYesNoEducation

YesYesYesYesYesDay Trading

NoYesYesYesNoCo-Operative

YesYesNoYesYesAdvertisement


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Business =

Industry +

Commerce +

Trade

Barriers to business :

Place -

TransportTime - Warehousing

Risk - Insurance

Publicity-

AdvertisementFinance - Bank

Possession- Trade

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Resp.Authority

Hierarchy

Function

Division OfLab.

Objective

Activity

YesYesYesYesYesYesPolitical

PartyYesYesYesYesYesYesHospital

yesYesYesYesYesyesEducation

YesYesNoNoNoYesFamily

YesYesYesYesYesYesCommunityGroup


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Economic Activity ( Industry + Commerce +

Trade ) +

Common Objective ( Profit ) +Division of labour +

Functions +

Hierarchy +Authority +

Responsibility

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Economic Activity ( Industry + Commerce +

Trade ) +

Common Objective (Non Profit ) +Division of labour +

Functions +

Hierarchy +Authority +

Responsibility

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Choices about

Division of labour +

Functions +

Hierarchy +

Authority +

Responsibility

Factors Determining

the forms of

Organisations

Nature of BusinessMotive Risk Capital Requirement Scale of operation Legal RequirementGovernment Control Tax Considerations

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Choices about

Division of labour +Functions +

Hierarchy +

Authority +

Responsibility

y Forms ofOrganisations

y Sole Proprietorship

y Partnership

y Joint stockCompanies

y Joint Hindu UndividedFamily

y Co-OperativeSocieties

y PSEs

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Highlights:

Except Bank &Insurance

High Risk & High profit No Registration Not legal entity Own Capital Own Labour

Suitability

1) Professional jobs likeaccounting, legal andhealth

2) Small retail stores

3) To satisfy purely localneeds

4) To satisfy the tastes ofcustomers (Beautyparlours, saloons)

5) Business involvingfrequent changes shareBroker.

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Merits:

1) Easy formation

2) Simple and

flexible3) Strong motivation

4) Personal contact

5) No dispute

6) Self employment

7) Less overheads

8) Quick decision

making

Demerits:1) Limited capital

2) Limited skill

3) Unlimited liability4) Uncertain future

5) Limited scope Absence of economies

of large scale6) No scope for much of

diversification Noplace of economies ofscope.

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Highlights: Governed by Partnership Act -

1932Essence of Partnership (sec-4)

1. Arises from Contract2. 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 apartner

-General partner Unlimited Liability-Limited Partner Limited Liability-Not a Legal Entity

Called Firm

Criteria followed byCourt in decidingvalid Partnership

Cox V Hickman1. Terms of agreement

2. Conduct of theparties3. Mode of doing

business4. Who controls the

property5. Mode of keeping

accounts6. Manner of

distribution ofprofits

7. How loses areshared

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Highlights: Partnership Deed

1. Agreement can be verbal ,written or may be inferredfrom the conduct of the parties

2. Legally Deed or Written agreement is not required3. Partnership Deed - Written agreement duly Stamped and

Registered

Contents of Deed:Name & Description of Partners , Firm , BusinessDuration of partnershipContribution of Capital by eachDivision of Profit & LossSalaries, Interest, Management of BusinessPreparation , maintenance & authorised persons to

signEffect of death or retirement of partnerAdmission of new members & Dissolution of firm

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Highlights:In the absence ofPartnership Deed

Indian Partnership Act -1932will 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 beexpelled without majority

All members can inspect , takecopy of accounts

The firm must indemnify thepartner who incurred liability

y Consequencesy No suit can be brought by

partner against each otheror against third party

y The partner suing mustappear in the register offirm maintained atRegistrar of firms

y Can not sue third party torecover claim more thanRs.100

y Third part can sue anypartner and firm

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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

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Rights of partners

1) Right to take partin business

2) Right to beconsulted

3) Right to haveaccess toaccounts

4) Right to shareprofits.

5) Right to intereston capital

6) Right to act as anagent of the firm

7) Right to prevent the

introduction of a newpartner

8) Right to retire

9) Right to continue in

the business.

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Merits:

1) Easy formation

2) More capital andmanagerial

efficiency.

3) Division of labour

4) Discussion ofbusiness

problems.5) Secret

6) No strictgovernmentcontrol.

Demerits:1) Unity among partners

in essential

2) Not adequate capital

3) Unlimited liability.

4) Lacks continuity ofexistence.

5) Does not enjoy public

confidence

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Forms ofForms of OrganisationsOrganisationsPartnershipPartnership

Suitability:

Accounting, medical and legal professions

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Forms ofForms of OrganisationsOrganisationsHindu Undivided Family / Joint Hindu FamilyHindu Undivided Family / Joint Hindu Family

Mitakshara Hindu Law Except Bengal , Assam It consists of all males lineally

descended from commonancestor 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 theholder in Unbroken maledescendent constitute a

coparsneary Senior member isKarta/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 propertyaccording to his desire

------------------------------

Jain , Sikh , Buddhists arecovered by under the

Hindu Law. From 9.9. 2005

Daughters of acoparcener will alsobecome Coparceners bybirth Hindu SuccessionAct

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Forms ofForms of OrganisationsOrganisationsHindu Undivided Family / Joint Hindu FamilyHindu Undivided Family / Joint Hindu Family

Ownership & Control

Ownership share fluctuateswith the birth and thedeath of its coparseners.

LegalS

tatus: No separate legal entity

Registration not required

Capital:

Supplied by HUF /

Inherited property Management:

Karta

Stability:

Continue as long as HUFdoes not break

y Not terminated on death orinsolvency of coparcener

y Risk:

y Karta has unlimited liability

y Karta has personal liabilityy Others limited liability

y Profit sharing:

y Equal share

y Share of profit fluctuates

increase by death anddecrease by birth

y Surplus under thecustody of Karta

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Forms ofForms of OrganisationsOrganisationsHindu Undivided FamilyHindu Undivided Family

Merits:

1) Greater stability

2) No restriction on the number of co owners

3) Karta can take quick decisions

4) Scope for division of labour

5) Limited liability for co-owners

6) Family training

7) Flexibility

8) Protection of old, sick and disabled members.

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Demerits:

1) Limited financial resources.

2) Limited managerial ability only karta.

3) No innovative spirit.

4) Frequent conflicts.

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Contd


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Suitable:

Money lending business

Retail trade

Jewellery

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Forms ofForms of OrganisationsOrganisationsJOINTJOINT STOCK COMPANIESSTOCK COMPANIES

HighlightsIt is a voluntary association of

persons, formed for the purposeof business

It is an artificial person createdby law.

Perpetual succession(continuous existence) Limited liability. Transferability of shares. Separation of ownership from

management. Power of the company are

regulated by Memorandum ofAssociation

The rights and duties ofDirectors are regulated byArticles of Association

y Need not possess fixedcapital divided into numberof units

y A share holder is notentitled to actively takepart in Management

y Management is vested witha team

y A share holder can work asan employee

y Shares of Public limitedcompanies are transferable

y Required to comply withvarious statutoryobligations like Filing ofbalance sheet, Maintainingaccounts ,audit by CA etc.

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Forms ofForms of OrganisationsOrganisationsJOINTJOINT STOCK COMPANIESSTOCK COMPANIES

y Private Limitedy Min. 2 to Max.50 Membersy Min 2 Directorsy Name Suffix Private

Limited

y On incorporation cancommence business

y Need not issue Prospectus Private placement

y Shares cannot be issued topublic

y Shares cannot betransferred

y Statutory meeting need notbe held

y Remuneration not limitedy Board meeting minimum 2

persons

y Public Limitedy Min. 7 to Max. limited by no. of

sharesy Min 3 Directorsy Name Suffix - Limited

y On incorporation should applyfor CCB

y Shares to be issued to publicy Shares can be transferredy Meeting compulsoryy Remuneration 11% of net profity

Mini. 3 persons for meetingy Index of members to be

maintained.y Proxy can be appointed for a

meeting.y Directors should retire by

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JOINT STOCK COMPANIES RegistrationJOINT STOCK COMPANIES RegistrationProcedureProcedureApproval 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 holderPublic Limited : Min 3 director, 7 share holders

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JOINT STOCK COMPANIES Registration ProcedureJOINT STOCK COMPANIES Registration Procedure

Commencement of BusinessCommencement 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

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JOINT STOCK COMPANIES RegistrationJOINT STOCK COMPANIES Registration

ProcedureProcedure

Three important documents

1) Memorandum of association:

It describes the proposed company and defines Objectiveand powers of the company proposed to be incorporated.

It has to be registered with Registrar of Companies. It

contains

a) Name clause

b) Situation

c) Objects

d) Liability

e) Capital

- Company cannot exceed the powers mentioned andcannot alter the provisions except Name , Jurisdiction, Object, Capital

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JOINT STOCK COMPANIES RegistrationJOINT STOCK COMPANIES Registration

ProcedureProcedure

2) Articles of association:

Subordinate to the Memorandum of Association

a) Share capital

b) Rights of share holders

c) Transfer of shares

d) Shareholders meetings

e) Voting system

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JOINT STOCK COMPANIES RegistrationJOINT STOCK COMPANIES RegistrationProcedureProcedure

3) Prospectus:

It is a document issued to the public for raising capital bythe issue of Shares or for raising loan by the issue of Debenture..

Any notice , circular, advertisement or other documents invitingoffer 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. ofshares subscribed

-Mini. Subscription, Premium on share, Underwriters, particulars ofdirectors, voting & divident rights, particulars of auditors,balansesheet, P&L accounts 10/09/2010 31


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Allotment ofShares:

Directors can allot shares under the following conditions:

1. A prospectus or a statement in lieu is submitted to ROC

2. At least 5 % of the share value is received and deposited in ascheduled bank and

3. Minimum no. of shares are subscribed.

Obtaining Certificate of Commencement:

When minimum subscription is raised, either the Director orSecretary has to declare to ROC that :

1. Shares have been allotted not less than the MinimumSubscription

2. The prospectus or statement in lieu thereof had been filed

3. Directors have duly paid to their shares

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JOINT STOCK COMPANIESJOINT STOCK COMPANIES

Merits of Company:

1) Limited liability

2) Business continues.

3) Transfer of shares

4) Huge capital

5) Legal protection and regulation

6) Professional management.

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Demerits:

1)Company formation is difficult.

2)It is expensive

3)Many legal formalities

4)Lacks unity of management Management is in the hands ofa Board of Directors

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JOINT STOCK COMPANIESJOINT STOCK COMPANIES

5) Quick changes cannot be made

6) Lacks initiative and enterprise.

7) No secrecy

8) May promote frauds.

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COCO--OPERATIVE FORM OF BUSINESSOPERATIVE FORM OF BUSINESS

ORGANIS

ATIONORGANIS

ATION

A voluntary association on the basis of equality for the

promotion of economic interests of members.

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COCO--OPERATIVE FORM OF BUSINESSOPERATIVE FORM OF BUSINESSORGANISATIONORGANISATION

FeaturesVoluntary association

Open membership & Subscribeto objective

Membership unlimited

Capital equally divided amongmembers

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 to3rd party

Equal voting rights

Non profit motive

Registration is not compulsory

Registration under Co-operative Societies Act -

1912Legal entity

Managing committee elected

Policy decided in GB to beimplemented by Committee

Exception from Income tax,

stamp, Registration feesIt has priority over other

creditors in realising duesfrom debtors

Strict government control

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Types:Co-Operative Credit

Societies:

To grant Credit or Loan foragriculture, Artisans

Co-Operative ProducersSocieties:

To have a common sellingorganisation to selltheir products

Consumers Co-OperativeSocieties:

To buy goods from traders &wholers at cheap price

Industrial Co-OperativeSocieties:

By Cottage & small industriesto sell

Multipurpose Co-OperativeSocieties:

To meet economic and socialneeds of villagers.

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Formation:10 Members submit joint

application to theRegistrar of Co-operatives with bye-

laws.8 members for Housing

Societies

No registration, Stamp dutycollected

Can be Limited or Unlimited

Annual accounts are auditedby government auditorsfree of cost.

Industrial Co-OperativeSocieties:

By Cottage & small industriesto sell

Multipurpose Co-OperativeSocieties:

To meet economic and socialneeds of villagers.

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Merits:

1) Formation is simple

2) Continuity of existence.

3) Pool of resources

4) Suitable to the weaker sections ofsociety.

5) Not profit motive but servicemotive

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Demerits:1) Need of co-operative spirit.

2) Loyalty of members.

3) No scope for large scale operationsbecause of limited resources.

4) Insufficient motivation to membersbecause of the low rate of return to themembers staff salary is low.

5) Lack of public confidence because of thefailure of many co-operative societies.

6) Excessive state interference.

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Forms of BusinessForms of BusinessJOINTJOINT SECTORSECTOR

Joint sector is a form of partnership between the

private sector and the government.

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Forms of BusinessForms of BusinessJOINT SECTORJOINT SECTOR

Merits:

1) Social control over industries2) Failure of private and public sectors.

3) Acceleration of economic growth.

4) State sponsored industrialization.

5) Mobilization of financial resources

6) Mobilization of technical and managerialresources.

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Forms of BusinessForms of BusinessJOINT SECTORJOINT SECTOR

Examples of joint sector:

Cochin Refineries

Madras Refineries

Madras Fertilizers.

Gujarat state Fertilizer company.

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business perspective (2)

Documents