FUNDAMENTALS OF BUSINESS AND ORGANIZATION

I BBA RKM VIVEKANANDA COLLEGE (Evening)

Contents
Introduction to business & organization Classification of Industries & Trade Sole proprietorship Partnership Joint stock company : Public & Private Co-operative Society Trade association & Chamber of commerce

INTRODUCTION
Economic activity Profession Employment Business Industry : Extractive , Genetic , Manufacturing , construction industry

Commerce : Trade & aids of trade Internal trade : Whole sale & Retail External : Export , Import , Re export Aids of trade : Transportation Warehousing Insurance Advertising Banking

Features of Business
Dealing with goods and services Production and /or exchange Continuity and regularity in dealings Profit motive Elements of Risk

Requisites for starting a business

Ease of formation Scope of raising capital Extent of liability Flexibility of operations Stability and continuity Extent of government control and regulations Business secrecy Tax burden Effective management

Forms of business organization

Non corporate forms of organizations: SOLE TRADER ORGANISATION PARTNERSHIP ORGANISATION Corporate forms of organizations JOINT STOCK COMPANY COOPERATIVE ORGANISATION

SOLE TRADER ORGANISATION

One man ownership No separation of ownership and management No separate entity All profits to proprietor Individual risk Unlimited liability Less legal Formalities

Very limited capital Ownership transfer at will Business stability depends upon owner life Business secrecy No state regulations No special income tax No auditing of accounts is required Winding up at will

Partnership form of organization

The Indian partnership act 1932 defines partnership as the the relation between persons who have agreed to share profits of business carried on by all or any of them acting for all

BASED ON THE EXTENT OF PARTICIPATION

BASED ON SHARING PROFITS

PARTNERS
LIMITED PARTNER Known as special partners and liability is limited to the extent of capital contributed by him.

BASED ON LIABILITY

BASED ON NATURE OF BEHAVIOUR

ACTIVE PARTNER Also known as working partner.

NOMINAL PARTNER A person who just lends his name to the partnership . No investment and participation. PARTNER IN PROFITS A partner who shares the profits of the business without being liable for losses.

PARTNER BY ESTOPPEL Fashion as to give an impression that he is one of the partner.

SLEEPING PARTNER Dormant partner and invest his capital and does not participate in management.

GENERAL PARTNER Known as unlimited partner , his liability is unlimited and entitled to participate in the management of the business.

PARTNER BY HOLDING OUT Representing other person as a partner though he is not the one and does not contradict it.

Partnership Deed
A agreement of both written or oral Generally it is written agreement duly stamped and registered 1. Name of the firm 2. Nature of business to be carried out 3. Names of the partners 4. The town and the place where business will be carried on

5.The amount of capital to be contributed by each partner 6.The profit and loss sharing ratio of each partner 7. Loans and advances by partners and the interest payable on them 8. The amount of drawings by each partner and the rate of interest allowed thereon 9. The rate of interest on capital 10. Duties , powers and obligations of partners 11. Remuneration , if any , payable to the active partner. 12. Maintenance of accounts and arrangements for audit.

13. Settlement in the case of dissolution of partnership 14. The methods of evaluation of goodwill on admission or death or retirement of a partner 15. The method of revaluation of assets and liabilities on admission or death or retirement of a partner 16. Arrangements in case a partner becomes insolvent REGISTRATION OF FIRM

JOINT HINDU FAMILY FIRM

Governed by Hindu law and by two schools of thought Mitakshara : Applicable to whole of india except Bengal and Assam. (inheritance) Coparceners and Karta Dayabhaga : It is applicable in Bengal and Assam ( inherit after father death)

Features
Business is managed by the senior member of the family called Karta. Other members do not have the right to participate in the management of the firm. Other members cannot question the authority of karta. Karta has the power to barrow funds . The liability of karta is unlimited , for others liable to the extent to their share in their business.

 If the karta has misappropriated the funds of the business , he has to compensate the other coparceners to the extent of their shares in the joint property. The death of any member of the family does not dissolve the business or the family. Through mutual agreement the joint Hindu family firm can be dissolved.

COMPANY FORM OF ORGANISATION

A joint stock company is an association of persons registered under companies act for carrying on some business. A company is a incorporated association Artificial person since created by law Separate legal entity Common seal Persistence existence

Separation of ownership and management Number of members : 7&no limit ; 2&50max Limited liability Transferability of shares : public limited company enjoys a statutory right to sell Regidity of scope of business is limited: object clause A company is governed by the companies act follows various provisions.

Classification of Companies
Based on mode of incorporation Based on the type of liability Based on category of shareholders Based on the jurisdiction of functioning National company

Statutory company

Unlimited company

Private Ltd company

Registered company

Company limited by Public Ltd company Guarantee

Multinational company

Chartered Company Company limited by Government shares company

 Registered company : A company which is incorporated through registration with the registrar of companies under the companies act 1956. Also called incorporated company Chartered company : A company which is incorporated under a special royal charter granted by the monarch. Regulated by the provisions of the chartered

 Unlimited companies : Company in which the liability of the members unlimited . At the time of winding up shareholders are liable to clear their debts from their own pocket Company limited by guarantee : Members are guarantee for the debts of the company up to a certain limit in addition to the shares held by them. They dont focus on profit.

 Companies limited by shares : In this case the liability of the members is limited to the amount of shares held by them. Private limited company : Restricts the right to transfer its shares Limits the number of its members to fifty Prohibits any invitation to public to subscribe for any shares of the company

 Public limited company : The right of the shareholder to transfer his shares is not restricted The minimum number of shareholders is 7 but there is no limit to the maximum number of members. It can invite public to subscribe for its shares and debentures.

 Government company : Company which not less than 51 per cent of the paid up share capital is held by the central/state or both National company : Boundaries of the country Multinational company : Transnational company , operations extended beyond boundaries.

Merits
Raise large capital Limited liability Stability of existence Economics of scale Scope of expansion Public confidence Transferability of shares Tax benefits , Risk diffused , Professional management.

COOPERATIVE FORM OF ORGANISATION

The Indian cooperation societies act 1912 , section 4 defined it as a society which has as its objectives the promotions of economic interests of its members in accordance with cooperative principles.

MAIN FEATURES
SERVICE IN PLACE OF PROFIT MUTUAL HELP IN PLACE OF COMPETITION SELF-HELP IN PLACE OF DEPENDENCE MORAL SOLIDARITY IN PLACE OF UNETHICAL BUSINESS PRACTICES VOLUNTARY ASSOCIATION AUTONOMY AND STABILITY

 DEMOCRATIC MANAGEMENT one member one vote. CAPITAL : share capital , government loans GOVERNMENT CONTROL : Cooperative societies act 1919 State Cooperative societies act. SERVICE MOTIVE LIMITED RETURN OF CAPITAL DISTRIBUTION OF SURPLUS : bonus

CLASSIFICATION OF COOPERATIVES
CONSUMER COOPERATIVES PRODUCERS COOPERATIVES MARKETING COOPERATIVES HOUSING COOPERATIVES CREDIT COOPERATIVES FARMING COOPERATIVES

MERITS
Easy formation Limited liability Social services State assistance Open membership Supply of goods at cheaper rates

CRITERIA FOR CHOICE OF ORGANIZATION

AT THE TIME OF STARTING A BUSINESS

CRITERIA AT THE TIME OF EXPANSION

AT THE TIME OF STARTING

Nature of business Volume of business Area of operation Desire for control Capital requirements Extent of risk and liability Government regulations

Criteria at the time of expansion

Need for larger financial resources Need for internal reorganization and control Need for specialized services like communication , accounting , marketing etc. Increase in governmental controls and regulations Increase in the problem of control and coordination.