Functions of Management

1. Planning

It is the basic function of management. It deals with chalking out a

future course of action & deciding in advance the most appropriate
course of actions for achievement of pre-determined goals. According to
KOONTZ, “Planning is deciding in advance - what to do, when to do &
how to do. It bridges the gap from where we are & where we want to
be”. A plan is a future course of actions. It is an exercise in problem
solving & decision making. Planning is determination of courses of
action to achieve desired goals. Thus, planning is a systematic thinking
about ways & means for accomplishment of pre-determined goals.
Planning is necessary to ensure proper utilization of human & non-
human resources. It is all pervasive, it is an intellectual activity and it
also helps in avoiding confusion, uncertainties, risks, wastages etc.
2. Organizing

It is the process of bringing together physical, financial and human

resources and developing productive relationship amongst them for
achievement of organizational goals. According to Henry Fayol, “To
organize a business is to provide it with everything useful or its
functioning i.e. raw material, tools, capital and personnel’s”. To
organize a business involves determining & providing human and non-
human resources to the organizational structure. Organizing as a
process involves:

 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
3. Staffing

It is the function of manning the organization structure and keeping it

manned. Staffing has assumed greater importance in the recent years
due to advancement of technology, increase in size of business,
complexity of human behavior etc. The main purpose o staffing is to put
 right man on right job i.e. square pegs in square holes and round pegs
in round holes. According to Kootz & O’Donell, “Managerial function
of staffing involves manning the organization structure through proper
and effective selection, appraisal & development of personnel to fill the
roles designed un the structure”. Staffing involves:

 Manpower Planning (estimating man power in terms of

searching, choose the person and giving the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
4. Directing
It is that part of managerial function which actuates the organizational
methods to work efficiently for achievement of organizational purposes.
It is considered life-spark of the enterprise which sets it in motion the
action of people because planning, organizing and staffing are the mere
preparations for doing the work. Direction is that inert-personnel aspect
of management which deals directly with influencing, guiding,
supervising, motivating sub-ordinate for the achievement of
organizational goals. Direction has following elements:

 Supervision
 Motivation
 Leadership
 Communication

Supervision- implies overseeing the work of subordinates by their

superiors. It is the act of watching & directing work & workers.
Motivation- means inspiring, stimulating or encouraging the sub-
ordinates with zeal to work. Positive, negative, monetary, non-monetary
incentives may be used for this purpose.
5. Controlling

It implies measurement of accomplishment against the standards and

correction of deviation if any to ensure achievement of organizational
goals. The purpose of controlling is to ensure that everything occurs in
 conformities with the standards. An efficient system of control helps to
predict deviations before they actually occur. According to Koontz &
O’Donell “Controlling is the measurement & correction of performance
activities of subordinates in order to make sure that the enterprise
objectives and plans desired to obtain them as being accomplished”.
Therefore controlling has following steps:

a. Establishment of standard performance.

b. Measurement of actual performance.
c. Comparison of actual performance with the standards and
finding out deviation if any.
d. Corrective action.

Forms of Ownership

Sole Proprietorship:

A sole proprietorship is the most common type of business.

There are sole proprietorships everywhere. Small grocery
stores, Internet Cafe are mostly proprietorship businesses.

A “Sole Proprietorship” business means that there is only

ONE owner. There may be employees or helpers hired
under the owner, but there is only one “head” who
administors and runs the show.

The definition of a Sole Proprietorship is: A business

enterprise exclusively owned, managed and controlled by a
single person with all authority, responsibility and risk.

The basic advantage of a sole proprietorship is that since

you are the only owner, you are free to run the business just
the way you want to run it. Also, in a sole proprietorship
you get to keep all the profits.

The biggest disadvantage is that there is “unlimited

liability” on the “Sole Owner”.
What is the meaning of unlimited
liability?

In the case of “Sole Proprietorship”, the Govt. does not see

any difference between the firm and the individual. If you
are a plumber named Raju Sharma and you start a
plumbing service firm called “Flush” which is a sole
proprietorship, the government does not differentiate
between “Flush” and “Raju Sharma”

This is the biggest disadvantage of sole proprietorships.

Because of this reason, sole proprietorships are generally
started if the business is small and there is “not much risk
involved”.

To properly understand the nature of a sole proprietorship,

here are a few characteristics of a sole proprietorship
explained in detail:

Single Ownership:
A single individual owns the sole proprietorship! That
individual owns all the assets and properties of the business.
He alone bears all the risk of the business.

No sharing of profit & loss:

The entire profit out of the sole proprietor ship business
goes to the sole proprietor. If there is any loss, it is also
borne by the sole proprietor alone. Nobody else shares any
of the profit and loss of the business.

Low capital:
The capital required by a sole proprietorship is totally
arranged by the sole proprietor. He raises the capital either
from his personal resources or by borrowing from friends,
relatives, banks or financial institutions. Since there is only
one person raising capital, very low capital can be raised.
One-man control:
The controlling power in a sole proprietorship business
always remains with the owner alone. The owner or
proprietor alone takes all the decisions to run the business.
He may take decisions though a consultant or some advice,
but the final decisions are always in his hand.

Unlimited Liability:
The liability of the sole proprietor is unlimited. This implies
that, in case of loss the business assets along with the
personal properties of the proprietor shall be used to pay
the business liabilities.

Almost no legal formalities:

The formation and operation of a sole proprietorship
requires almost no legal formalities. However, the owner
may be required to obtain a license from the local
administration or from the health department of the
government, whatever is necessary depending on the nature
of the business.

Easy to form and wind up:

A sole proprietorship form of business is very easy to form.
With a very small amount of capital you can start the
business. There is no need for any legal formalities. (Except
for those businesses which require a license from local
authorities or health department of government etc.) It is
also very easy to wind up the business. It is the owners
decision to form or wind up the business at any time.

Direct motivation:
The profits earned belong to the sole proprietor alone and
he bears the risk of losses as well. Thus, there is a direct link
between the effort and the reward. If he works hard, then
there is a possibility of getting more profit and he will be the
sole beneficiary of this profit. Nobody will share this reward
with him. This provides strong motivation for the sole
proprietor to work hard.
Quick decisions:
In a sole proprietorship business the sole proprietor alone is
responsible for all decisions. He is free to take any decision
on his own. Since no one else is involved in decision making
it becomes quick and prompt action can be taken on the
basis of the decision.

Better control:
In sole proprietorship business the proprietor has full
control over each and every activity of the business. Since
the proprietor has all authority with him, it is possible to
exercise better control over business.

Maintenance of business secrets:

Business secrecy is an important factor for every business.
It refers to keeping the future plans, business strategies, etc.,
secret from outsiders or competitors. In the case of sole
proprietorship business, the proprietor is in a very good
position to keep his plans to himself since management and
control are in his hands.

Close personal relation:

The sole proprietor is always in a position to maintain good
personal contact with the customers and employees. Direct
contact helps the sole proprietor to know the individual
likes, dislikes and tastes of the customers. It also helps in
maintaining close and friendly relations with the employees
and thus, the business can run smoothly.

Encourages self-employment:
Sole proprietorship form of business organization leads to
creation of employment opportunities for people. Not only is
the owner self-employed, sometimes he also creates job
opportunities for others. Thus, it helps in reducing poverty
and unemployment in our country.

Disadvantages of Sole Proprietorship

Limited capital:
In a sole proprietorship business, the owner arranges for
the required capital for the business. It is difficult for a
single individual to raise a huge amount of capital. The
owner’s own funds as well as borrowed funds sometimes
become insufficient to meet the requirement of the
business’s growth and expansion. Venture capitalists and
banks generally do not lend money to sole proprietorships.

Unlimited liability:
In case the sole proprietor fails to pay the expences arising
out of business activities, his personal properties may have
to be used to pay for those. This generally discourages the
sole proprietor from taking risks. He thinks cautiously
while deciding to start or expand the business activities.

Lack of continuity:
The existence of a sole proprietorship business is dependent
on the life of the proprietor. Illness, death etc. of the owner
brings an end to the business. The continuity of business
operation is therefore uncertain.

Limited size:
There is a limit beyond which it becomes difficult for a sole
proprietor to expand the business activities. It is not
possible for a single person to supervise and manage the
affairs of the business if it grows beyond a certain limit.

Lack of managerial expertise:

A sole proprietor may not be an expert in every aspect of
management. He/she may be an expert in administration,
planning, etc., but may be weak in marketing. Again,
because of limited financial resources it is also not possible
to employ a professional manager. Thus, the business lacks
benefits of professional management.

When one is starting a business, one may form a sole

proprietorship when the business is small. The problem
with this kind of business is that it cannot grow beyond a
certain limit. This is because a sole proprietorship will not
be readily sponsored by banks other sources of finance.

Also the amount of money that the sole proprietor can

contribute to the business “alone” is not very high. Besides
this, the sole proprietor has to take wise decisions in
running the business. If he is unable to do so, the business
will not be very successful and will not grow.

A sole proprietor might be an expert at marketing or might

be technically strong. But it is not likely that he will be
strong in all the fields that are important for making wise
and successful business decisions.

Partnership

For all the above reasons, one may choose to form a

partnership firm right from the start or later change their
firm to a partnership firm. So, one may start a partnership
firm with the objective of pulling in people so that more
capital is generated or making specifically skilled people
partners so that wise business decisions may be made.

Before a partnership is formed, a “partnership deed”

should be prepared. This partnership deed may be oral or
in writing. However it is wise to make sure that the
partnership deed is in writing so that future conflicts may
be resolved. More about the partnership deed shall be
explained ahead.

To understand all the characteristics of a partnership

consider the following:

Two or more members:

At least two members are required to start a partnership
business. But the number of members should not exceed 10
in case of “banking business” and 20 in case of “other
business”. If the number of members exceeds this maximum
limit, then that business is not called as a partnership
business legally. (All the rules stated in this complete article
are for a business in India)

Partnership agreement:
Whenever you think of starting a partnership business,
there must be an agreement between all the partners. This
agreement must contain-

 The amount of initial capital contributed by each

partner
 Profit or loss sharing ratio for each partner
 Salary or commission payable to the partners, if
any
 Duration of business, if any
 Name and address of the partners and the firm
 Duties and powers of each partner;
 Nature and place of business; and
 Any other terms and conditions to run the business

The partnership deed is usually not very hard to prepare

through a trusted local lawyer.

Lawful business:
The partners should always carry on any kind of lawful
business. To start a business in smuggling, black marketing,
etc., is not termed as a partnership business in the eye of the
law. Again, doing social work is not termed as a partnership
business.

Competence of partners:
Since individuals join hands to become partners, it is
necessary that they must be “competent” to enter into a
partnership. Thus, minors, lunatics and insolvent people are
not eligible to become partners. However, a minor can be
admitted to the benefits of partnership i.e., he can have a
share in the profits only.

Sharing of profits:
The main objective of every partnership firm is to make and
share the profits of the business. In the absence of any
“agreement” for profit sharing, it should be shared
“equally” among the partners. Suppose, there are two
partners in the business and they earn a profit of Rs.20,000.
They may share the profits equally i.e., Rs.10,000 each or in
any other agreed proportion, say one forth and three fourth
i.e. Rs.5,000/- and Rs.15,000/-

Unlimited liability:
Just like a sole proprietorship, the liability of partners in a
parnership is also unlimited. This means, if the assets of the
firm are insufficient to meet the liabilities, the personal
properties of the partners, if any, can be utilized to meet the
business liabilities. Suppose, the firm has to make payment
of Rs.25,000/- to the suppliers for some goods. The partners
are able to arrange for only Rs.19,000/- from the business.
The balance amount, of Rs.6,000/- will have to be arranged
from the personal properties and assets of the partners.

Voluntary registration:
It is not compulsory that you register your partnership
firm. However, if you don’t get your firm registered, you
will be deprived of certain legal benefits, therefore it is
desirable to register. The effects of non-registration are:

 Your firm cannot take any action in a court of law

against any other parties for settlement of claims.
 In case there is any dispute among partners, it is
not possible to settle the disputes through a court
of law.

Note: Registration is voluntary in most states. However it

would be best to check up the rules of your state to be sure.
In states like Maharashtra, registration is almost
compulsory.

No separate legal existence:

Just like sole proprietorships, partnership firms also have
no separate legal existence from its owners. The partnership
firm is just a name for the business as a whole. If somone
sues the firm, it is as good as someone sueing all the
partners.

Restriction on transfer of interest:

No partner can sell or transfer his share or part or
parnership of the firm to any one without the consent of the
other partners. For example, A, B, and C are three
partners.If “A” wants to sell his share to “D” as his health
problems prevent him from working, he can not do so until
B and C both agree.

Advantages:

Continuity of business:
A partnership firm comes to an end at death, lunacy or
bankruptcy of any partner. Even otherwise, it can stop it’s
business at the will of the partners. At any time, they may
take a decision to end their partnership.

Easy to form:
Like sole proprietorships, partnership businesses can be
formed easily without any compulsary legal formalities. It is
not necessary to get the firm registered. A simple agreement
or parnership deed, either oral or in writing, is sufficient to
create a partnership.

Note: Registration of the parnership is voluntary in most

states. However it would be best to check up the rules of
your state to be sure. In states like Maharashtra,
registration is almost compulsory.

Availability of large resources:

Since two or more partners join hands to start a
partnership business, it may be possible to pool together
more resources as compared to a sole proprietorship. The
partners can contribute more capital, more effort and more
time for the business.
Better decisions:
The partners are the owners of the business. Each of them
has equal right to participate in the management of the
business. In case of any conflict, they can sit together to
solve the problem. Since all partners participate in the
decision-making process, there is less scope for reckless and
hasty decisions.

Flexibility in operations:
A partnership firm is a flexible organization. At any time,
the partners can decide to change the size or nature of the
business or area of it’s operation. There is no need to follow
any legal procedure. Only the consent of all the partners is
required.

Sharing risks:
In a partnership firm all the partners “share” the business
risks. For example, if there are three partners and the firm
makes a loss of Rs.12,000 in a particular period, then all
partners may share it and the individual burden will be
Rs.4000 only. Because of this, the partners may be
encouraged to take up more risk and hence expand their
business more.

Protection of interest of each partner:

In a partnership firm, every partner has an equal say in
decision making and the management of the business. If any
decision goes against the interest of any partner, he can
prevent the decision from being taken. In extreme cases an
unsatisfied partner may withdraw from the business and
can dissolve it. In such extreme cases the “partnership
deed” is required. In absence of the partnership deed, no
legal protection is given to the partners.

Benefits of specialization:
Since all the partners are owners of the business, they can
actively participate in every aspect of business as per their
specialization, knowledge and experience. If you want to
start a firm to provide legal consultancy to people, then one
partner may deal with civil cases, one in criminal cases, and
another in labor cases and so on as per the individual
specialization. Similarly, two or more doctors of different
specialization may start a clinic in partnership.

Disadvantages

Unlimited liability:
All the partners are jointly liable for the debt of the firm.
They can share the liability among themselves or any one
can be asked to pay all the debts even from his personal
properties depending on the arrangement made between the
partners.

Uncertain life:
The partnership firm has no legal existance separate from
it’s partners. It comes to an end with death, insolvency,
incapacity or the retirement of a partner. Further, any
unsatisfied or discontent partner can also give notice at any
time for the dissolution of the partnership.

Lack of harmony:
In a partnership firm every partner has an equal right to
participate in the management. Also, every partner can
place his or her opinion or viewpoint before the
management regarding any matter at any time. Because of
this, sometimes there is a possibility of friction and
discontent among the partners. Difference of opinion may
lead to the end of the parnership and the business.

Limited capital:
Since the total number of partners cannot exceed 20, the
capital to be raised is always limited. It may not be possible
to start a very large business in partnership form.

No transferability of share:
If you are a partner in any firm, you cannot transfer your
share or part of the company to outsiders, without the
consent of other partners. This creates inconvenience for the
partner who wants to leave the firm or sell part of his share
to others.

Depending on the reason behind which a particular

partnership is made, partners may be of different types. To
understand this better, consider the following:

Active partners:
The partners who actively participate in the day-to-day
operations of the business are known as active partners.
They contribute capital and are also entitled to share the
profits of the business. They also share the losses that the
business faces.

Dormant partners:
Those partners who do not participate in the day-to-day
activities of the partnership firm are known as dormant or
“sleeping partners”. They only contribute capital and share
the profits or bear the losses, if any.

Nominal partners:
These partners “only” allow the firm to use their “name” as
a partner. They “do not” have any real interest in the
business of the firm. They do not invest any capital, or share
profits and also do not take part in the business of the firm.
However, they do remain liable to third parties for the acts
of the firm.

Minor as a partner:
In special cases a minor can be admitted as partner with
certain conditions. A minor can only share the profit of the
business. In case of loss his liability is limited to the extent of
his capital contribution for the business.

Joint Stock Companies

In a partnership, there can be a maximum of 20 people.

Because of this limit, the amount of capital that can be
generated is limited. Also, because of the unlimited liability
of partnerships, the partners may be discouraged from
taking huge risks and further expanding their business. To
overcome these problems a public or a private company
may be formed.

Private and public companies are much better investments

because of “Limited liability”. This means that if an
investor has invested Rs.1000/- in a particular company,
and the company goes bankrupt, the investor only looses the
money he has invested. To pay of the debt, the investors
property, bank accounts etc. are "not" used.

Because of this limited liability, many investors are

interested in investing in these private or public companies.
Hence, a large capital can be generated and a huge business
can be run.

The major disadvantage of Private and Public companies, is

that they have a costly and elaborate process of setting up.
They are also closely regulated by the government.

So what are Public or Private

companies?

These companies are also know as “joint stock companies”.

The companies in India are governed by the Indian
Companies Act, 1956. The Act defines a company as an
artificial person created by law, having a separate legal
entity, with perpetual succession and a common seal.

What this means is that, the company “is different” from

the investors. The investors put in money and capital is
raised. But the company is treated as a virtual person. The
company is treated as a person who is different from it’s
investors. The company has an identity of it’s own. If some
one sues the company, he does not sue the investors, he sues
the virtual person that is the company.
To understand the concept of joint stock (private and public
limited) companies, consider the following characteristics:

Legal formation:
No single individual or a group of individuals can start a
business and call it a joint stock company. A joint stock
company can come into existence only when it has been
registered after completion of all the legal formalities
required by the Indian Companies Act, 1956.

Artificial person:
Just like an individual takes birth, grows, enters into
relationships and dies, a joint stock company takes birth,
grows, enters into relationships and dies. However, it is
called an artificial person as it’s birth, existence and death
are regulated by law.

Separate legal entity:

Being an artificial person, a joint stock company has its own
separate existence independent of it’s investors. This means
that a joint stock company can own property, enter into
contracts and conduct any lawful business in it’s “own”
name. It can sue and can be sued by others in the court of
law. The shareholders are “not” the owners of the property
owned by the company. Also, the shareholders cannot be
held responsible for any of the acts of the company.

Common seal:
A joint stock company has a “seal”, which is used while
dealing with others or entering into contracts with
outsiders. It is called a common seal as it can be used by any
officer at any level of the organization working on behalf of
the company. Any document, on which the company's seal
is put and is duly signed by any official of the company,
becomes binding on the company.

For example, a purchase manager may enter into a contract

for buying raw materials from a supplier. Once the contract
paper is sealed and signed by the purchase manager, it
becomes valid. The purchase manager may leave the
company or may be removed from his job or may have
taken a wrong decision, yet, the contract is valid till a new
contract is made or the existing contract expires.

Perpetual existence:
A joint stock company continues to exist as long as it fulfills
the requirements of law. It is not affected by the death,
lunacy, insolvency or retirement of any of it’s investors. For
example, in case of a private limited company having four
members, if all of them die in an accident, the company will
“not” be closed. It will continue to exist. The shares of the
company will be transferred to the legal heirs of the
members.

Limited liability:
In a joint stock company, the liability of a member is limited
to the amount he has invested. While repaying debts, for
example, if a person has invested only Rs.10,000 then only
this amount that he has invested can be used for the
payment of debts. That is, even if there is liquidation of the
company, the personal property of the investor can not be
used to pay the debts and he will lose his investment worth
Rs.10,000.

Democratic management:
Joint stock companies have democratic management and
control. Since in joint stock companies there are thousands
and thousands of investors, all of them cannot participate in
the affairs of management of the company. Normally, the
investors elect representatives from among themselves
known as ‘Directors’ to manage the affairs of the company.

The above discription must have given you an idea about

public and private limited companies in general. There are
some special charecterstics of Public and Private limited
companies that must be understood. There are given below.
Special charecerestics of Private
Limited Comapnies

These companies can be formed by at least two individuals

having minimum paid-up capital of not less than Rupees 1
lakh.

As per the Companies Act, 1956 the total membership of

these companies cannot exceed 50.

The shares allotted to it’s members are also not freely

transferable between them.

These companies are not allowed to raise money from the

pub-lic through open invitation.

They are required to use “Private Limited” after their

names.

The examples of such companies are Combined Marketing

Services Private Limited, Indian Publishers and
Distributors Private Limited etc.

Special charectersetics of Public

Lmited Companies

A minimum of seven members are required to form a public

limited company.

It must have minimum paid-up capital of Rs 5 lakhs.

There is no restriction on maximum number of members.

The shares allotted to the members are freely transferable.

These companies can raise funds from general public
through open invitations by selling its shares or accepting
fixed deposits.

These companies are required to write either ‘public

limited’ or ‘limited’ after their names.

Examples of such companies are Hyundai Motors India

Limited, Jhandu Pharmaceuticals Limited et

Large financial resources:

A joint stock company is able to collect a large amount of
capital through contributions from a large number of
people. In a public limited company, shares can be offered
to the general public to raise capital. The companies can
also accept deposits from the public and issue debentures to
raise funds.

Limited liability:
In case of a joint stock company, the liability of it's
members is limited to the value of shares held by them.
Private property of members cannot be confiscated for
overcoming the debts of the company. This advantage
attracts many people to invest their savings in the company
and it encourages the company to take more risks.

Professional management:
Management of a company is in the hands of the directors,
who are elected democratically by the members or
shareholders. These directors are known as the "Board of
Directors". They manage the affairs of the company and are
accountable to all the investors. So, the investors elect
capable persons who have sound financial, legal and
business knowledge to the board so that they can manage
the company efficiently.

Large-scale production:
Since there is an availability of large financial resources and
technical expertise, it is possible for the companies to have
"large-scale" production. This enables the company to
produce more efficiently and at a lower cost.

Research and development:

Only in joint stock company form of business, it is possible
to invest a lot of money on research and development so that
new design, better quality products, etc. can be achieved.

Difficult to form:
The formation & registration of joint stock company
involves a long and complicated procedure. A number of
legal documents and formalities have to be completed
before a company can start business. The process of
formation requires the services of specialists such as
chartered accountants, company secretaries, etc. Becuse of
all this, the cost of formation of a company is very high.

Excessive government control:

Joint stock companies are regulated by government through
the Companies Act and other economic legislations.
Especially, public limited companies are required to
complete various legal formalities as provided in the
Companies Act and other legislations. Non-compliance with
these causes a heavy penalty. This affects the smooth
functioning of the companies.

Delay in policy decisions:

Generally policy decisions are taken at the “Board of
Directors” meetings of the company. Further, the company
has to fulfill certain procedural formalities. These
procedures are time consuming and therefore, may delay
action on the decisions.

A joint stock company form of business organization is

found to be suitable where the volume of business is large
and huge financial resources are needed.

Since members of a joint stock company have limited

liability it is possible to raise capital from the public without
much difficulty. This form of organization is also suitable
for businesses which involve heavy risks.

Again, for business activities which require public support

and confidence, joint stock form is preferred as it has a
separate legal status.

Certain types of businesses, like production of

pharmaceuticals, machine manufacturing, information
technology, iron and steel, aluminum, fertilizers, cement,
etc., are generally organized in the form of joint stock
companys.
The basic procedure for incorporation

For a company to be incorporated, it must be registered

with the “Registrar Of Companies” (ROC). After the
company is registered, it receives a “Certificate Of
Incorporation” after which the company becomes a legal
entity.

Registration of the company

The following documents must be filed for the registration

of the company:

1. The Memorandum of Association

2. The Articles Of Association
3. An agreement, if any, which the company proposes
to enter into with any individual for appointment
as its managing director or whole-time director or
manager.
4. A statutory declaration in Form 1 by an advocate,
attorney or pleader entitled to appear before the
High Court or a company secretary or Chartered
Accountant in whole-time practice in India who is
engaged in the formation of the company or by a
person who is named as a director or manager or
secretary of the company that the requirements of
 the Companies Act have been complied with in
respect of the registration of the company and
matters precedent and incidental thereto.

In addition to the above, in case of a public company, the

following documents must also be filed:

 Written consent of directors in Form 29 to agree to

act as directors
 The complete address of the registered office of the
company in Form 18
 Details of the directors, managing director and
manager of the company in Form 32.

What is the Memorandum Of

Association?

The Memorandum of the company is a compulsory

document to be filed by any type of a company. The
importance of the memorandum is as follows:

 It specifies the basic constitution of the company. It

defines the scope and limitations of the company.
 Memorandum is considered as a unalterable
charter of the company. It is very difficult to alter
the memorandum of the company , because it
defines certain powers of the company and the
company cannot go beyond those powers.
 Memorandum becomes a public document as soon
as the company gets registered. This is because; it
enables shareholders, creditors and those who deal
with the company to know what kind of enterprise
they are dealing with.
 Memorandum forms the outer framework within
which the company operates.

What is the articles of association?

The articles of association contains the rules and regulations
for the internal administration of the company. It includes
bye laws relating to the management of the company.

All the above stated documents have to be sent to the

Registrar along with the registration fee, filing fee, stamp
duty, as specified. The Registrar, on receipt of the
documents, undertakes a scrutiny and if he finds nothing
objectionable, issues, under his seal and signature, the
“Certificate of Incorporation”

This certificate needs to be collected from the Registrar's

office. After obtaining the Certificate of Incorporation the
secretary of the company must send the notice of registered
address of the company, if it was not sent earlier, within 30
days of registration.

On obtaining the incorporation certificate, a “Private

Company” is eligible to transact business. The private
company is now incorporated.

A “Public Company”, however cannot transact business

unless it obtains a ‘trading certificate'

Public companies, generally wish to transact business by

raising capital from the general public. The process of
raising capital from the public is carried out in this stage.

For the purpose of raising capital from the public, the

company needs to prepare and issue a document known as
‘prospectus’. Public companies that are confident of raising
capital on their own need to prepare a document known as
‘statement in lieu of prospectus’.

In this stage, a draft of the prospectus is finalized. Copies of

the prospectus are printed. A copy of the prospectus, duly
signed by minimum 2 directors and countersigned by the
secretary is filed with the ROC.
Thereafter the Prospectus is issued to the public.
Advertisement of issue of the prospectus is usually carried
out in newspapers. The public need to pay a nominal
application fee and subscribe to the capital of the company
within a specified period.

There are other steps that also need to be carried out during
this phase:

Application to Stock exchange:

An application must be sent to the regional stock exchange
for getting the name of the company listed.

Opening of bank account:

The company must open its bank account for receiving of
application money.

Appointment of experts:
The company must appoint it’s brokers, solicitors and
auditors of the company.

Expert opinion:
An expert’s opinion regarding the bright prospects of the
company is usually written in the prospectus. Experts are
usually, accountants, values, solicitors etc.

There are certain guidelines given by SEBI (security

exchange board of India) regarding listing of the company
on Stock exchange and issue of capital. These need to be
followed; otherwise SEBI does not let the company be listed.

In response to the invitation given in the form of prospectus,

investors decide about taking shares of the company. They
fill in the application form attached to the prospectus and
send the application as directed with the application money.

The Board of Directors consider the applications received

up to the prescribed date. A resolution of allotment of
shares needs to be passed. Letters of allotment are sent and
after payment of the allotment money by the allot tees, the
company proceeds with the formalities relating to obtaining
the ‘Trading certificate’ or the ‘Commencement of business
certificate’.

These formalities are listed below:

Declaration of minimum subscription:

A declaration stating that minimum shares have been
subscribed needs to be sent to the Registrar.

Declaration of directors application money:

A declaration stating that the directors have paid their
application and allotment money as required by the
qualification shares.

Statutory declaration:
A statutory declaration by one of the directors or company
secretary, declaring that the above requirements have been
complied with.

If a company does not get permission to be listed on the

Stock exchange, then the company is liable to pay back to
it’s investors the allotment money and the application
money collected from them. After refunding the money, the
company needs to file a declaration that all investors have
been refunded their money.

The Registrar will examine these documents and if satisfied,

will issue under his seal and signature, the ‘Trading
certificate’, which is also known as ‘Certificate of
commencement of business’. Now the process of
incorporation is complete!!

If the company fails to commence business within a year of

it’s incorporation, the courts may order for the winding up
of the company.

Cooperatives
A simple definition can be stated as, “A co-operative society
is a voluntary association of economically weak persons who
work for achievement of their common economic objectives
on the basis of equality and mutual service.”

Distinctive Features / Characteristics :

It is a voluntary organization

There is no limit to its members.

The management is based on democratic lines of equality.

Its objective is to promote self-help and mutual assistance.

Service has primary importance and self- interest has

secondary importance. Unity of joint action is the basis for
cooperation.

The members come together to fulfill their common

interest.

A co-operative society has to be registered under separate

legislation.

To purchase and supply raw-materials, tools and equipment

to members.

To secure contracts and execute them with the help of

members.

To market the finished goods of members.

To purchase machinery for giving on hire to members.

To borrow funds from members and nonmembers.

To grant loans and advances to members on the security of

raw-materials and finished goods.
To secure materials and social progress of all members.

To safeguard the interest of the poorer sections against

exploitation by the capitalists.

Types of Co-operative Societies :

Producers Co-operative Society.

Consumers Co-operative Society.

Housing Co-operative Society.

Credit Co-operative Society.

Advantages :

• Provide better methods and tools of production to small

manufacturers and craftsmen.

• Help the farmers in farming and marketing their products

efficiently.

Provide financial assistance at moderate rate of interest.

• Opening of super bazaar types of stores gives relief to the

weaker section of the society.

Elimination of middlemen.

Services motive.

Democratic nature.

Sense of co-operation.
Disadvantages :

Lack of Co-ordination.

Chances of undue advantages.

Favoritism.

Limited Capital.

Inefficient Management.

Political influence.

Administration and Management

Administration deals with the activities of higher level/top

level: setting up of objectives and crucial policies of the
organization

Management involves conceiving, initiating and bringing

together the various elements: coordinating, actuating,
integrating the diverse organizational components while
sustaining the viability of the organization towards some
pre-determined goals

In short, it is the act or function of putting into practice the

policies and plans decided upon by the administration
Types of Organisational Structures: their Advantages and
Disadvantages!
All managers must bear that there are two organisations they must
deal with-one formal and the other informal.

The formal organisation in usually delineated by an organisational

chart and job descriptions. The official reporting relationships are
clearly known to every manager.

Alongside the formal organisation exists are informal organisation

which is a set of evolving relationships and patterns of human
interaction within an organisation that are not officially prescribed.

Formal organisational structures are categorised as:

ADVERTISEMENTS:

(i) Line organisational structure.

(ii) Staff or functional authority organisational structure.

(iii) Line and staff organisational structure.

(iv) Committee organisational structure.

(v) Divisional organisational structure.

(vi) Project organisational structure.

(vii) Matrix organisational structure and

(viii) Hybrid organisational structure.

These organisational structures are briefly described in the

following paragraphs:
1. Line Organisational Structure:
A line organisation has only direct, vertical relationships between
different levels in the firm. There are only line departments-
departments directly involved in accomplishing the primary goal of
the organisation. For example, in a typical firm, line departments
include production and marketing. In a line organisation authority
follows the chain of command.

ADVERTISEMENTS:

Exhibit 10.3 illustrates a single line organisational structure.

Features:
Has only direct vertical relationships between different levels in the
firm.

Advantages:
1. Tends to simplify and clarify authority, responsibility and
accountability relationships

2. Promotes fast decision making

3. Simple to understand.

Disadvantages:
1. Neglects specialists in planning

2. Overloads key persons.

Some of the advantages of a pure line organisation are:

(i) A line structure tends to simplify and clarify responsibility,
authority and accountability relationships. The levels of responsibility
and authority are likely to be precise and understandable.

(ii) A line structure promotes fast decision making and flexibility.

(iii) Because line organisations are usually small, managements and

employees have greater closeness.

However, there are some disadvantages also. They are:

(i) As the firm grows larger, line organisation becomes more

ineffective.

(ii) Improved speed and flexibility may not offset the lack of
specialized knowledge.

(iii) Managers may have to become experts in too many fields.

(iv) There is a tendency to become overly dependent on the few key

people who an perform numerous jobs.

2. Staff or Functional Authority Organisational

Structure
The jobs or positions in an organisation can be categorized as:

(i) Line position:

a position in the direct chain of command that is responsible for the
achievement of an organisation’s goals and

(ii) Staff position:

A position intended to provide expertise, advice and support for the
line positions.

The line officers or managers have the direct authority (known as line
authority) to be exercised by them to achieve the organisational goals.
The staff officers or managers have staff authority (i.e., authority to
advice the line) over the line. This is also known as functional
authority.

An organisation where staff departments have authority over line

personnel in narrow areas of specialization is known as functional
authority organisation. Exhibit 10.4 illustrates a staff or functional
authority organisational structure.
In the line organisation, the line managers cannot be experts in all the
functions they are required to perform. But in the functional authority
organisation, staff personnel who are specialists in some fields are
given functional authority (The right of staff specialists to issue orders
in their own names in designated areas).

The principle of unity of command is violated when functional

authority exists i.e., a worker or a group of workers may have to
receive instructions or orders from the line supervisor as well as the
staff specialist which may result in confusion and the conflicting
orders from multiple sources may lead to increased ineffectiveness.
Some staff specialists may exert direct authority over the line
personnel, rather than exert advice authority (for example, quality
control inspector may direct the worker as well as advise in matters
related to quality).

While this type of organisational structure overcomes the

disadvantages of a pure line organisaional structure, it has some major
disadvantages:

They are: (i) the potential conflicts resulting from violation of

principle of unity of command and (ii) the tendency to keep authority
centralized at higher levels in the organisation.

3. Line and Staff Organisational Structure:

Most large organisations belong to this type of organisational
structure. These organisations have direct, vertical relationships
between different levels and also specialists responsible for advising
and assisting line managers. Such organisations have both line and
staff departments. Staff departments provide line people with advice
and assistance in specialized areas (for example, quality control
advising production department).

Exhibit 10.5 illustrates the line and staff organisational chart. The line
functions are production and marketing whereas the staff functions
include personnel, quality control, research and development, finance,
accounting etc. The staff authority of functional authority
organisational structure is replaced by staff responsibility so that the
principle of unity of command is not violated.

Three types of specialized staffs can be identified:

(i) Advising,

(ii) Service and

(iii) Control.

Some staffs perform only one of these functions but some may
perform two or all the three functions. The primary advantage is the
use of expertise of staff specialists by the line personnel. The span of
control of line managers can be increased because they are relieved of
many functions which the staff people perform to assist the line.

Some advantages are:

(i) Even through a line and staff structure allows higher flexibility and
specialization it may create conflict between line and staff personnel.

(ii) Line managers may not like staff personnel telling them what to do
and how to do it even though they recognize the specialists’ knowledge
and expertise.

(iii) Some staff people have difficulty adjusting to the role, especially
when line managers are reluctant to accept advice.

(iv) Staff people may resent their lack of authority and this may cause
line and staff conflict.
Features:
1. Line and staff have direct vertical relationship between different
levels.

2. Staff specialists are responsible for advising and assisting line

managers/officers in specialized areas.

3. These types of specialized staff are (a) Advisory, (b) Service, (c)
Control e.g.,

(a) Advisory:
Management information system, Operation Research and
Quantitative Techniques, Industrial Engineering, Planning etc

(b) Service:
Maintenance, Purchase, Stores, Finance, Marketing.

(c) Control:
Quality control, Cost control, Auditing etc. Advantages’

(i) Use of expertise of staff specialists.

(ii) Span of control can be increased

(iii) Relieves line authorities of routine and specialized decisions.

(iv) No need for all round executives.

Disadvantages:
(i) Conflict between line and staff may still arise.
(ii) Staff officers may resent their lack of authority.

(iii) Co-ordination between line and staff may become difficult.

Committee Organisational Structure Features:

(a) Formed for managing certain problems/situations

(b) Are temporary decisions.

Advantages:
1. Committee decisions are better than individual decisions

2. Better interaction between committee members leads to better co-

ordination of activities

3. Committee members can be motivated to participate in group

decision making.

4. Group discussion may lead to creative thinking.

Disadvantages:
1. Committees may delay decisions, consume more time and hence
more expensive.

2. Group action may lead to compromise and indecision.

3. ‘Buck passing’ may result.

4. Divisional Organisational Structure:

In this type of structure, the organisation can have different basis on
which departments are formed. They are:
(i) Function,

(ii) Product,

(iii) Geographic territory,

(iv) Project and

(iv) Combination approach.

Exhibit 10.6 illustrates organisational structures formed based on the

above basis of departmentation.
5. Project Organisational Structure:
The line, line and staff and functional authority organisational
structures facilitate establishment and distribution of authority for
vertical coordination and control rather than horizontal relationships.
In some projects (complex activity consisting of a number of
interdependent and independent activities) work process may flow
horizontally, diagonally, upwards and downwards. The direction of
work flow depends on the distribution of talents and abilities in the
organisation and the need to apply them to the problem that exists.
The cope up with such situations, project organisations and matrix
organisations have emerged.

A project organisation is a temporary organisation designed to achieve

specific results by using teams of specialists from different functional
areas in the organisation. The project team focuses all its energies,
resources and results on the assigned project. Once the project has
been completed, the team members from various cross functional
departments may go back to their previous positions or may be
assigned to a new project. Some of the examples of projects are:
research and development projects, product development,
construction of a new plant, housing complex, shopping complex,
bridge etc.

Exhibit 10.7 illustrates a project organisational structure.

Feature:
Temporary organisation designed to achieve specific results by using
teams of specialists from different functional areas in the organisation.

Importance of Project Organisational Structure:

Project organisational structure is most valuable when:

(i) Work is defined by a specific goal and target date for completion.

(ii) Work is unique and unfamiliar to the organisation.

(iii) Work is complex having independent activities and specialized

skills are necessary for accomplishment.

(iv) Work is critical in terms of possible gains or losses.

(v) Work is not repetitive in nature.

Characteristics of project organisation:
1. Personnel are assigned to a project from the existing permanent
organisation and are under the direction and control of the project
manager.

2. The project manager specifies what effort is needed and when work
will be performed whereas the concerned department manager
executes the work using his resources.

3. The project manager gets the needed support from production,

quality control, engineering etc. for completion of the project.

4. The authority over the project team members is shared by project

manager and the respective functional managers in the permanent
organisation.

5. The services of the specialists (project team members) are

temporarily loaned to the project manager till the completion of the
project.

6. There may be conflict between the project manager and the

departmental manager on the issue of exercising authority over team
members.

7. Since authority relationships are overlapping with possibilities of

conflicts, informal relationships between project manager and
departmental managers (functional managers) become more
important than formal prescription of authority.
8. Full and free communication is essential among those working on
the project.

6. Matrix Organisational Structure:

It is a permanent organisation designed to achieve specific results by
using teams of specialists from different functional areas in the
organisation. The matrix organisation is illustrated in Exhibit 10.8.

Feature:
Superimposes a horizontal set of divisions and reporting relationships
onto a hierarchical functional structure

Advantages:
1. Decentralised decision making.

2. Strong product/project co-ordination.

3. Improved environmental monitoring.

4. Fast response to change.

5. Flexible use of resources.

6. Efficient use of support systems.

Disadvantages:
1. High administration cost.

2. Potential confusion over authority and responsibility.

3. High prospects of conflict.

4. Overemphasis on group decision making.

5. Excessive focus on internal relations.

This type of organisation is often used when the firm has to be highly
responsive to a rapidly changing external environment.

In matrix structures, there are functional managers and product (or

project or business group) managers. Functional manager are in
charge of specialized resources such as production, quality control,
inventories, scheduling and marketing. Product or business group
managers are incharge of one or more products and are authorized to
prepare product strategies or business group strategies and call on the
various functional managers for the necessary resources.

The problem with this structure is the negative effects of dual

authority similar to that of project organisation. The functional
managers may lose some of their authority because product managers
are given the budgets to purchase internal resources. In a matrix
organisation, the product or business group managers and functional
managers have somewhat equal power. There is possibility of conflict
and frustration but the opportunity for prompt and efficient
accomplishment is quite high.

7. Hybrid Organisational Structure:

Exhibit 10.9 (a) illustrates the hybrid organisational structure.
Exhibit 10.9 (b) illustrates a combination structure

Advantages:
1. Alignment of corporate and divisional goals.

2. Functional expertise and efficiency.

3. Adaptability and flexibility in divisions.

Disadvantages:
1. Conflicts between corporate departments and units.

2. Excessive administration overhead.

3. Slow response to exceptional situations.

Uses:
Used in organisations that face considerable environmental
uncertainty that can be met through a divisional structure and that
also required functional expertise or efficiency

This type of structure is used by multinational companies operating in

the global environment, for example, International Business Machines
USA. This kind of structure depends on factors such as degree of
international orientation and commitment. Multinational
corporations may have their corporate offices in the country of origin
and their international divisions established in various countries
reporting to the CEO or president at the headquarters. The
international divisions or foreign subsidiaries may be grouped into
regions such as North America, Asia, Europe etc. and again each
region may be subdivided into countries within each region.

While the focus is on international geographic structures, companies

may also choose functional or process or product departmentation in
addition to geographic pattern while at the head quarter’s the
departmentation may be based on function.
The Informal Organisation:
An informal organisation is the set of evolving relationships and
patterns of human interaction within an organisation which are not
officially presented. Alongside the formal organisation, an informal
organisation structure exists which consists of informal relationships
created not by officially designated managers but by organisational
members at every level. Since managers cannot avoid these informal
relationships, they must be trained to cope with it

The informal organisation has the following characteristics

(i) Its members are joined together to satisfy their personal needs
(needs for affiliation, friendship etc.)

(ii) It is continuously changing:

The informal organisation is dynamic.

(iii) It involves members from various organisational levels.

(iv) It is affected by relationship outside the firm.

(v) It has a pecking order: certain people are assigned greater

importance than others by the informal group.

Even though an informal organisational structure does not have its

own formal organisational chart, it has its own chain of command:

Benefits of Informal Organisation:

(i) Assists in accomplishing the work faster.
(ii) Helps to remove weakness in the formal structure.

(iii) Lengthens the effective span of control.

(iv) Compensation for violations of formal organisational principles.

(v) Provides an additional channel of communication.

(vi) Provides emotional support for employees.

(vii) Encourages better management.

Disadvantages of informal organisation:

(i) May work against the purpose of formal organisation.

(ii) Reduces the degree of predictability and control.

(iii) Reduces the number of practical alternatives.

(iv) Increases the time required to complete activities.

Kinds of Entrepreneur

1. Innovating Entrepreneurs:
Innovating entrepreneurs are one who introduce new goods,
inaugurate new method of production, discover new market and
reorganise the enterprise. It is important to note that such
entrepreneurs can work only when a certain level of development is
already achieved, and people look forward to change and
improvement.
2. Imitative Entrepreneurs:
These are characterised by readiness to adopt successful innovations
inaugurated by innovating entrepreneurs. Imitative entrepreneurs do
not innovate the changes themselves, they only imitate techniques and
technology innovated by others. Such types of entrepreneurs are
particularly suitable for the underdeveloped regions for bringing a
mushroom drive of imitation of new combinations of factors of
production already available in developed regions.

3. Fabian Entrepreneurs:
Fabian entrepreneurs are characterised by very great caution and
skepticism in experimenting any change in their enterprises. They
imitate only when it becomes perfectly clear that failure to do so would
result in a loss of the relative position in the enterprise.

4. Drone Entrepreneurs:
These are characterised by a refusal to adopt opportunities to make
changes in production formulae even at the cost of severely reduced
returns relative to other like producers. Such entrepreneurs may even
suffer from losses but they are not ready to make changes in their
existing production methods.