Business Ion

BUSINESS PERSPECTIVE
&
BUSINESS ORGANISATION
Business
• Which of the following are
• Tests of Business Business
• Investing in Stock Market
• Profit Motive &
• Hospital
• Recurring Nature of • Educational Institutions
Activities & • Daily Trading in Stock
Market
• Enhance National
• Charity Institutions
Income OR • Co-operative Society
• Enhance Individual Gain • Religious Institutions
• Cogeneration of Power in
& Sugar Industry
• Government • Advertisement
• Working in a Company
Regulations
01/02/11 • Working for a Company
nareshsukhani@gmail.com 2
Business
Govt.Reg Individual National Recurrin Profit Activity
u Gain Gain g
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
01/02/11 nareshsukhani@gmail.com 3
Business
• Tests of Business
• All Economic •
activities • Profit Motive &

• Recurring Nature of
pursued
Activity &
• for the purpose of • Enhance National
Income OR
earning profit
• Enhance Individual Gain
•
&
•
•
• Government
01/02/11
•
Regulations
Scope of Business
• • Barriers to business
•
:
• Business = • Place -
Industry +
Transport
•Time - Warehousing
Commerce
•Risk - Insurance
+
•Publicity-
• Trade Advertisement
•
•Finance - Bank
•
•Possession - Trade 5
01/02/11 nareshsukhani@gmail.com
Organisations
• Coordination of activities
of number of people for • Which of the
following are
the achievement of Organisations
common purpose / • Clubs
• Churches / Temples
Objective through a • Hospitals
division of labour and • Family
• Educational Institutions
function and through a • Charity Institutions
hierarch of authority and • Co-operative Society
• Political Parties
responsibility • Government agencies
• Common Objective + • Business Concerns
• Community Groups
Division of labour +
01/02/11 •
Functions + Hierarchy +
Organisations
Resp. AuthorityHierarch Function Divisio Obje Activity
y n Of ctive
Yes Yes Yes Yes Yes
Lab. 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
Business Organisations
• Economic Activity ( Industry + Commerce +
Trade ) +
• Common Objective ( Profit ) +
• Division of labour +
• Functions +
• Hierarchy +
• Authority +
• Responsibility
•
Non-Business Organisations
• Economic Activity ( Industry + Commerce +
Trade ) +
• Common Objective (Non Profit ) +
• Functions +
• Hierarchy +
• Authority +
• Responsibility
•
Forms of Organisations
• Factors
• Choices about
Determining the
forms of
• Functions +
Organisations
Hierarchy +
•
Ø Nature of Business
Authority +
•
Ø Motive
•Responsibility Ø Risk
•
Ø Capital
•
Requirement
Ø Scale of operation
• Choices about • Forms of
Organisations
• Sole
• Functions + Proprietorship
• Hierarchy + • Partnership
• Authority + • Joint stock
Companies
• Responsibility • Joint Hindu Undivided
• Family
•
• Co-Operative
Societies
• PSEs’
Sole Proprietor
• Highlights: • Suitability
•
1)Professional jobs
like accounting,
Ø Except Bank & legal and health
Insurance
2)Small retail stores
Ø High Risk & High profit
3)To satisfy purely
Ø No Registration
local needs
Ø Not legal entity
4)To satisfy the tastes
Ø Own Capital of customers
Ø Own Labour (Beauty parlours,
• saloons)
• 5)Business involving
• frequent
01/02/11 nareshsukhani@gmail.com changes – share12
Sole Proprietor
Merits:
•
• Demerits:
1)Easy formation 1)Limited capital
2)Simple and 2)Limited skill
flexible 3)Unlimited liability
3)Strong 4)Uncertain future
motivation 5)Limited scope –
4)Personal Absence of
contact economies of
5)No dispute large scale
6)Self 6)No scope for much
employmen of
t diversification –
No place of
01/02/11 7)Less nareshsukhani@gmail.com economies of13
• Partnership
Highlights:
Ø Governed by Partnership Act
• Criteria followed by
-1932 Court in deciding
valid Partnership
• Essence of Partnership
•
(sec-4)
•Cox V Hickman
• 1. Arises from Contract
1. Terms of agreement
• 2. Agree to share Profit
2. Conduct of the
•
3. Agent-Principal relation
parties
•- Max. No. of Partners not
5. Mode of doing
mentioned
business
•- Companies Act :Bank – 10, others-
7. Who controls the
20
property
- Sharing of loss not mentioned
9. Mode of keeping
•-Each partner has to contribute /
accounts
Knowledge
11.Manner of
•-Firm is dissolved on death of a
01/02/11 nareshsukhani@gmail.com
distribution of 14
partner profits
Partnership
•Highlights:
Ø 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
01/02/11 persons to sign
• Highlights:Partnership
•In the absence of
Partnership Deed • Consequences
•Indian Partnership Act • No suit can be brought by
-1932 will apply partner against each
• Equal share in Profit & Loss other or against third
party
• Each partner can take part in
management of business • The partner suing must
appear in the register of
• No partner shall be eligible
firm maintained at
for remuneration
Registrar of firms
• No new partner can be
• Can not sue third party to
introduced or existing to
recover claim more than
be expelled without
Rs.100
majority
• Third part can sue any
• All members can inspect ,
partner and firm
take copy of accounts
The firm must indemnify
• 01/02/11 the
partner who incurred
Partnership
• 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
•
Ø
Ø
Partnership
•
Rights of partners
•
1) Right to take 6) Right to act as an

part in agent of the
business firm
2) Right to be 7) Right to prevent the
consulted introduction of a
new partner
3) Right to have
access to 8) Right to retire
accounts 9) Right to continue in
4) Right to share the business.
profits.
5) Right to interest
on capital
Partnership
Merits:
•
• Demerits:
1)Easy formation 1)Unity among
partners in
2)More capital essential
and
managerial 2)Not adequate
efficiency. capital
3)Division of 3)Unlimited liability.
labour 4)Lacks continuity of
4)Discussion of existence.
business 5)Does not enjoy
problems. public
5)Secret confidence
01/02/11
6)No strict nareshsukhani@gmail.com 19
government
Partnership
Suitability:
•
• Accounting, medical and legal

professions
Hindu Undivided Family / Joint Hindu Family
• Mitakshara Hindu Law • Dayabhaga Hindu Law
• Except Bengal , Assam • Bengal , Assam
• It consists of all males lineally • Son does not acquire
descended from common ancestral property by
ancestor including minor, birth
male , wife & Unmarried • However acquire the right
daughters & daughter-in- on death of Father
laws. All of them are • Father has absolute right to
members of HUF. dispose the property
• All male members acquire according to his desire
ownership to property by
birth- Co-Parceners/Co- • ----------------------------
Owners --
• Three generations next to the • Jain , Sikh , Buddhists
holder in Unbroken male are covered by under
descendent constitute a the Hindu Law.
coparsneary
01/02/11 • From 9.9. 2005 – Contd
nareshsukhani@gmail.com 21 …
• Senior member is
Hindu Undivided Family / Joint Hindu Family
• Ownership & Control
• Not terminated on death or
• Ownership share fluctuates insolvency of
with the birth and the coparcener
death of its coparseners.
• Risk:
• Legal Status:
• Karta has unlimited liability
• No separate legal entity
• Karta has personal liability
• Registration not required
• Others – limited liability
• Capital:
• Profit sharing:
• Supplied by HUF / Inherited
• Equal share
property
• Share of profit fluctuates –
• Management:
increase by death and
• Karta decrease by birth
• Stability: • Surplus – under the
• Continue as long as HUF custody of Karta
01/02/11
does not break nareshsukhani@gmail.com Contd
22 …
•
Hindu 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
01/02/11
members.
Demerits:
•
1)Limited financial resources.

2)Limited managerial ability only
karta.
3)No innovative spirit.
4)Frequent conflicts.
01/02/11 nareshsukhani@gmail.com Contd

24 …
Suitable:
•
üMoney lending business

üRetail trade
üJewellery
•
JOINT STOCK COMPANIES
• Highlights
• Need not possess fixed
• It is a voluntary association of capital divided into
persons, formed for the
number of units
purpose of business
• A share holder is not
• It is an artificial person created
entitled to actively take
by law.
part in Management
• Perpetual succession
• Management is vested
(continuous existence)
with a team
• Limited liability.
• A share holder can work as
• Transferability of shares. an employee
• Separation of ownership from • Shares of Public limited
management. companies are
• Power of the company are transferable
regulated by Memorandum • Required to comply with
of Association various statutory
• 01/02/11
The obligations like Filing of26
rights and duties ofnareshsukhani@gmail.com
• Private Limited • Public Limited

• Min. 2 to Max.50 Members • Min. 7 to Max. limited by no. of
• Min 2 Directors shares
• Name Suffix – Private • Min 3 Directors
Limited • Name Suffix - Limited
• On incorporation can • On incorporation should apply
commence business for CCB
• Need not issue Prospectus • Shares to be issued to public
– Private placement • Shares can be transferred
• Shares cannot be issued to • Meeting compulsory
public • Remuneration 11% of net
• Shares cannot be profit
transferred • Mini. 3 persons for meeting
• Statutory meeting need • Index of members to be
01/02/11not be held nareshsukhani@gmail.com 27
maintained.
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
01/02/11
•
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

•
Procedure
• 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
01/02/11 and cannot alter the provisions except Name
nareshsukhani@gmail.com Contd,…
30
Jurisdiction , Object, Capital
Procedure
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

31 …
Procedure
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 subscribed
- Mini. Subscription, Premium on share, Underwriters, particulars
Procedure
•
Allotment of Shares:
• Directors can allot shares under the following conditions:
1. A prospectus or a statement in lieu is submitted to ROC
3. At least 5 % of the share value is received and deposited in a
scheduled bank and
5. Minimum no. of shares are subscribed.
• Obtaining Certificate of Commencement:

• When minimum subscription is raised, either the Director or
Secretary has to declare to ROC that :
• 1. Shares have been allotted not less than the “ Minimum
Subscription “
• 2. The prospectus or statement in lieu thereof had been filed
• 3. Directors
01/02/11
have duly paidnareshsukhani@gmail.com
to their shares 33
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
Procedure
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
35 …
5)Quick changes cannot be

made
6)Lacks initiative and
enterprise.
7)No secrecy
8)May promote frauds.
CO-OPERATIVE FORM OF BUSINESS
ORGANISATION
A voluntary association on the basis of

equality for the promotion of economic
interests of members.
ORGANISATION
• Features • Equal voting rights
• Voluntary association • Non profit motive
•Open membership & Subscribe •Registration is not
to objective compulsory
•Registration under Co-
•Membership unlimited
•Capital
operative Societies Act -
equally divided among 1912
members
•Legal entity
•If liability is limited “ Limited “
•Managing committee elected
should be included and
•Policy decided in GB to be
max. value of share
Rs.2500/- implemented by
•25% of profit to reserve fund
Committee
•Exception from Income tax,
•10% to Charitable purposes
stamp, Registration fees
•Unlimited – Profit sharing Govt. •It has priority over other
approval
01/02/11 creditors in realising dues
ORGANISATION
• 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:
• To buy goods from traders &
wholersat cheap price
•
ORGANISATION
• 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
by government auditors
free of cost.
•
ORGANISATION
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
motive
ORGANISATION
•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 of many co-
operative societies.
01/02/11 6) Excessive state interference.
Forms of Business
JOINT SECTOR
Joint sector is a form of partnership

between the private sector and the
government.
Forms of Business
JOINT SECTOR
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
01/02/11
new nareshsukhani@gmail.com
enterprises with private 44
Forms of Business
JOINT SECTOR
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
• Examples of joint sector:

•Cochin Refineries
•Madras Refineries
•Madras Fertilizers.
•Gujarat state Fertilizer company.

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BUSINESS PERSPECTIVE

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

activities • Profit Motive &

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

• With Registrar of Firms by paying fees and

• Name of the firm & Nature of Business

1) Right to take 6) Right to act as an

• Accounting, medical and legal

1)Limited financial resources.

01/02/11 nareshsukhani@gmail.com Contd

üMoney lending business

• Private Limited • Public Limited

• Approval of the Name of the Company by ROC

• Prepare Memorandum of Association

• Prepare Articles of Association

• Certificate of Incorporation by ROC

•Private Ltd: Min 2 director, 2 share holder

• Private Ltd: Can start business immediately

• Public Limited :1 ) If does not opt for IPO

• ROC will issue certificate of commencement of

• : 2 ) If opts for IPO

• Go for Public issue – Allot Share - Obtain CCB

• Three important documents

01/02/11 nareshsukhani@gmail.com Contd

• Obtaining Certificate of Commencement:

5)Quick changes cannot be

A voluntary association on the basis of

Joint sector is a form of partnership

1) Existing private enterprises can be

1) Social control over industries

• Examples of joint sector:

•Gujarat state Fertilizer company.

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