BUSINESS

PERSPECTIVE

10/09/2010 1
 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
Business
• 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
10/09/2010 2
Govt. Individual National Recurring Profit Activity
Regu Gain Gain

No Yes Yes Yes Yes Stock Market

No Yes Yes Yes No Hospital

No Yes Yes Yes No Education

Yes Yes Yes Yes Yes Day Trading

No Yes Yes Yes No Co-Operative

Yes Yes No Yes Yes Advertisement

Business
10/09/2010 3
 Barriers to business :
Place -
Business = Transport
Time - Warehousing
Industry +
Risk - Insurance
Publicity-
Commerce + Advertisement
Finance - Bank
Trade
Possession - Trade
Scope of Business
10/09/2010 4
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
10/09/2010 5
.Resp Authori Hierarc Functi Divisi Obj Activity
ty hy on on Of ecti
.Lab ve
Yes Yes Yes Yes Yes Yes Political
Party
Yes Yes Yes Yes Yes Yes Hospital

yes Yes Yes Yes Yes yes Education

Yes Yes No No No Yes Family

Yes Yes Yes Yes Yes Yes Community

Group

Organisations
10/09/2010 6
 Economic Activity ( Industry + Commerce +
Trade ) +
Common Objective ( Profit ) +
Division of labour +
Functions +
Hierarchy +
Authority +
Business Organisations
Responsibility
10/09/2010 7
 Economic Activity ( Industry + Commerce +
Trade ) +
Common Objective (Non Profit ) +
Division of labour +
Functions +
Hierarchy +
Authority +
Non-Business Organisations
Responsibility
10/09/2010 8
 Choices about
Division of labour +
Factors Determining
Functions + the forms of
Hierarchy + Organisations
 Nature of Business
Authority +
 Motive
Responsibility  Risk
 Capital Requirement
 Scale of operation
 Legal Requirement
 Government Control
 Tax Considerations
Forms of Organisations
10/09/2010 9
 Choices about Forms of
Organisations
Division of labour + Sole Proprietorship
Functions + Partnership
Joint stock
Hierarchy +
Companies
Authority +  Joint Hindu Undivided
Family
Responsibility Co-Operative
Societies
PSEs’

Forms of Organisations
10/09/2010 10
 Highlights: Suitability
1) Professional jobs like
accounting, legal and
 Except Bank & health
Insurance 2) Small retail stores
 High Risk & High profit 3) To satisfy purely local
 No Registration needs
 Not legal entity 4) To satisfy the tastes of
 Own Capital customers (Beauty
parlours, saloons)
 Own Labour
5) Business involving frequent
Forms of Organisations changes – share Broker.
Sole Proprietor
10/09/2010 11
Forms of Organisations
Sole Proprietor

Merits: Demerits:
1) Limited capital
1) Easy formation
2) Limited skill
2) Simple and
flexible 3) Unlimited liability
3) Strong motivation 4) Uncertain future
4) Personal contact 5) Limited scope –
Absence of economies
5) No dispute
of large scale
6) Self employment
6) No scope for much of
7) Less overheads diversification – No
8) Quick decision place of economies of
making scope.
10/09/2010 12
 Highlights: Criteria followed by
 Governed by Partnership Act Court in deciding
-1932 valid Partnership
Essence of Partnership (sec-4)
1. Arises from Contract Cox V Hickman
2. Agree to share Profit 1. Terms of agreement
3. Agent-Principal relation 2. Conduct of the
- Max. No. of Partners not mentioned parties
- Companies Act :Bank – 10, others-20 3. Mode of doing
 Sharing of loss not mentioned business
-Each partner has to contribute / 4. Who controls the
Knowledge property
-Firm is dissolved on death of a partner 5. Mode of keeping
Forms of Organisations
-General partner – Unlimited Liability accounts
-Limited Partner – Limited Liability Manner of
Partnership
-Not a Legal Entity
6.
distribution of profits
 Called Firm 7.
10/09/2010
How loses are shared 13
 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
Forms of Organisations
Admission of new members & Dissolution of firm
Partnership
10/09/2010 14
  Consequences
 No suit can be brought by
Highlights: partner against each other
In the absence of Partnership or against third party
Deed  The partner suing must
Indian Partnership Act -1932
appear in the register of
will apply
• Equal share in Profit & Loss
firm maintained at
• Each partner can take part in Registrar of firms
management of business  Can not sue third party to
• No partner shall be eligible for recover claim more than
remuneration Rs.100
• No new partner can be introduced  Third part can sue any
or existing to be expelled without partner and firm
majority
• All members can inspect , take
Forms of Organisations
copy of accounts
• The firm must indemnify the
Partnership
partner who incurred liability
10/09/2010 15
 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
•
Forms of Organisations
Permanent address of Partners

Partnership
10/09/2010 16
Forms of Organisations
Partnership

Rights of partners
6) Right to act as an
1) Right to take part
agent of the firm
in business
7) Right to prevent the
2) Right to be
introduction of a new
consulted
partner
3) Right to have
8) Right to retire
access to
accounts 9) Right to continue in
the business.
4) Right to share
profits.
5) Right to interest
on capital
10/09/2010 17
Forms of Organisations
Partnership

Merits: Demerits:
1) Easy formation 1) Unity among partners
in essential
2) More capital and
managerial 2) Not adequate capital
efficiency. 3) Unlimited liability.
3) Division of labour 4) Lacks continuity of
4) Discussion of existence.
business 5) Does not enjoy public
problems. confidence
5) Secret
6) No strict
government
control. 10/09/2010 18
Suitability:

Accounting, medical and legal professions

Forms of Organisations
Partnership
10/09/2010 19
 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
10/09/2010 20
Contd …
• Ownership & Control  Not terminated on death
• Ownership share fluctuates
or insolvency of
with the birth and the coparcener
death of its coparseners.  Risk:
• Legal Status:
 Karta has unlimited
• No separate legal entity
liability
• Registration not required  Karta has personal liability
• Capital:  Others – limited liability
• Supplied by HUF /  Profit sharing:
Inherited property  Equal share
• Management:
 Share of profit fluctuates –
Forms of Organisations
• Karta
• Stability:
increase by death and
Hindu Undivided Family / decrease
Joint by birth
Hindu Family
• Continue as long as HUF  Surplus – under the
does not break custody
10/09/2010 of Karta 21
Contd …
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.

Forms of Organisations
Hindu Undivided Family
10/09/2010 22
Demerits:
1) Limited financial resources.
2) Limited managerial ability only karta.
3) No innovative spirit.
4) Frequent conflicts.

Forms of Organisations
Hindu Undivided Family
10/09/2010 23
Contd …
Suitable:
 Money lending business
 Retail trade
 Jewellery

Forms of Organisations
Hindu Undivided Family
10/09/2010 24
 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.
10/09/2010 25
 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
Forms of Organisations
be held
 Remuneration not limited
JOINT STOCK COMPANIES
 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
10/09/2010
should retire by rotation
26
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

10/09/2010 27
JOINT STOCK COMPANIES Registration Procedure
Commencement 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

10/09/2010 28
 Three important documents
1) 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
a) Name clause
b) Situation
c) Objects
d) Liability
e) Capital
– - Company cannot exceed the powers mentioned and
cannot alter
JOINT STOCK the provisions
COMPANIES except NameProcedure
Registration , Jurisdiction ,
Object, Capital

10/09/2010 29
Contd …
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

JOINT STOCK COMPANIES Registration Procedure

10/09/2010 30
Contd …
3) 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
JOINT STOCK COMPANIES Registration Procedure
subscribed
Mini.Subscription, Premium on share, Underwriters, particulars of
directors, voting & divident rights, particulars of auditors,balanse
sheet, P&L accounts 10/09/2010 31
 Allotment of Shares:
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 a
scheduled bank and
3. 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 “
JOINT STOCK COMPANIES Registration Procedure
2. The prospectus or statement in lieu thereof had been filed
3. Directors have duly paid to their shares
10/09/2010 32

On verification CCB is issued..

JOINT 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.
7)More employment and business.
10/09/2010 33
Demerits:
1)Company formation is difficult.
2)It is expensive
3)Many legal formalities
4)Lacks unity of management –
Management is in the hands of a
Board of Directors

JOINT STOCK COMPANIES Registration Procedure

10/09/2010 34
Contd …
 5) Quick changes cannot be made
6) Lacks initiative and enterprise.
7) No secrecy
8) May promote frauds.

JOINT STOCK COMPANIES

10/09/2010 35
 CO-OPERATIVE FORM OF BUSINESS
ORGANISATION

A voluntary association on the basis of equality for the

promotion of economic interests of members.

10/09/2010 36
Features Equal voting rights
Voluntary association Non profit motive
Open membership & Subscribe to Registration is not compulsory
objective Registration under Co-
Membership unlimited operative Societies Act -
Capital equally divided among 1912
members Legal entity
If liability is limited “ Limited “ Managing committee elected
should be included and max. Policy decided in GB to be
value of share Rs.2500/- implemented by Committee
25% of profit to reserve fund Exception from Income tax,
10% to Charitable purposes stamp, Registration fees
It has priority over other
CO-OPERATIVE
Unlimited FORM
– Profit sharing OF
Govt. BUSINESS
creditors in realising dues
approval
ORGANISATION from debtors
Shares cannot be transferred to 3 rd
Strict government control
party 10/09/2010 37
Types: Industrial Co-Operative
Co-Operative Credit Societies:
Societies: By Cottage & small industries
To grant Credit or Loan for to sell
agriculture, Artisans Multipurpose Co-Operative
Co-Operative Producers Societies:
Societies: To meet economic and social
To have a common selling needs of villagers.
organisation to sell
their products
Consumers Co-Operative
Societies:
CO-OPERATIVE FORM& OF BUSINESS
To buy goods from traders
ORGANISATION
wholers at cheap price
10/09/2010 38
Formation: Industrial Co-Operative
10 Members submit joint Societies:
application to the By Cottage & small industries
Registrar of Co- to sell
operatives with bye-
laws. Multipurpose Co-Operative
Societies:
8 members for Housing
Societies To meet economic and social
needs of villagers.
No registration, Stamp duty
collected
Can be Limited or Unlimited
Annual accounts are audited
CO-OPERATIVE FORM OF BUSINESS
by government auditors
free of cost.
ORGANISATION
10/09/2010 39
Merits:
1) Formation is simple
2) Continuity of existence.
3) Pool of resources
4) Suitable to the weaker sections of
society.
5) Not profit motive but service
CO-OPERATIVE FORM OF BUSINESS
motive
ORGANISATION
6) Democratic. 10/09/2010 40
Demerits:
1) Need of co-operative spirit.
2) Loyalty of members.
3) No scope for large scale operations
because of limited resources.
4) Insufficient motivation to members
because of the low rate of return to the
members – staff salary is low.
5) Lack of public confidence because of the
failure ofFORM
CO-OPERATIVE many OF
co-operative
BUSINESS societies.
6) Excessive state interference.
ORGANISATION
10/09/2010 41
 Forms of Business
JOINT SECTOR

Joint sector is a form of partnership between the

private sector and the government.

10/09/2010 42
Four possible types:
1) Existing private enterprises can be
brought under joint sector
2) Existing public sector companies can be
transformed into joint sector.
3) New companies can be set up with equity
participation by the government.
4) The state governments can set up new
enterprises with private sector.

Forms of Business
JOINT SECTOR
10/09/2010 43
Merits:
1) Social control over industries
2) 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 managerial
resources.

Forms of Business
JOINT SECTOR
10/09/2010 44
Examples of joint sector:
Cochin Refineries
Madras Refineries
Madras Fertilizers.
Gujarat state Fertilizer company.

Forms of Business
JOINT SECTOR
10/09/2010 45