bus orgn unit iv
TRANSCRIPT
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Sole Proprietorship
Sole Proprietor is an individual who ownsand manages a business with own or
borrowed capital, bears all the risksalone, enjoys all profits and suffers allthe losses.
He takes all business decisions, uses his
own skill and intelligence, is free tohire employees, and is in personaltouch with the business routine.
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Sole Proprietorship contd..Features
Sole
ownership
Own/Borrowed
capital
Solemanagement
No profit
sharing
No risk sharing
No legal
formalities
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Sole Proprietorship contd..Merits
Ease of
formation
Quick
Decisions &
Actions
Personal
Touch
Maintains
SecrecyIncentive for
hard work
Flexibility
Lowers Cost
Social
significance
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Sole Proprietorship contd..Demerits
Limited
Capital
Limited
ability &
skillUnlimited
liability
No legal
entity
Small scale
production
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Joint Hindu Family Business
Joint Hindu Family is a unique non-corporate, groupownership form of business organizationprevailing only in India.
Is owned and operated by the co-parceners of JointHindu Family under the management and controlof the Karta.
The senior most member of the Hindu Family is
called Karta. Other members of the family arecalled Co-parceners.
It comes into existence by the operation of HinduLaw i.e. Hindu Succession Act, 1956.
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Joint Hindu Family Business contd..
Characteristics of JHF business:
Formation by the operation of Hindu law
Fluctuating membership Management and control
No separate legal status
Liability of the Karta
Sharing Of profits and losses Continuous life
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Joint Hindu Family Business contd..
Merits of JHF business:
Simplicity of formation
Quick decisions
Centralized management
Business secrecy
Continuity and stability
Least government control Flexibility
Division of labour
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Joint Hindu Family Business contd..
DEMERITS
Limited
managerial
ability
Lack of
stability/
continuity
Limited
capital
Unlimited
liability
No rights toco-parceners
Lack of
motivation
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Joint Hindu Family Business contd..
Joint Hindu Family business is generally found insmall trading, manufacturing and serviceconcerns.
This business is gradually declining in India becauseof;
industrialization,
urbanization,individualistic attitude, and
gradual breaking of the joint family system itself.
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PartnershipAccording to the Indian Partnership Act, 1932;
partnership is the relation between two or morepersons who have agreed to share profits of a
business, carried on by all or any of them actingfor all.
Features: (i) oral or written agreement (ii) minimumof 2 members and maximum of 10 in case ofbanking business and 20 in case of general business(iii) sharing of profits and losses (iv) agencyrelationship (v) unlimited liability (vi) notransferability of interest/share (vii) no legalstatus (viii) pooling of resources
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Partnership contd..Kinds of Partnership
Kinds of Partners
Partnership at
willPartnership for
specific period
Partnership for a
specific purpose
Active
partnerSleeping
partnerNominal
partner
Minor
partner
Holding out
partner
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Partnership contd.. Partnership Deed: Partnership agreement
containing terms and conditions relating to
partnership and the regulations governing itsinternal management.
Such agreement may be oral or in writing. An
agreement in writing takes the form of a deed; is
duly stamped sealed and registered in the Courtof Law. The deed can act as a legal evidence to
settle disputes and differences.
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Partnership contd..The deed contains the following clauses;
Name of the partnership
Nature and duration of business
Capital contribution
Distribution of profits
Management Rights
Accounting system
Provision in case of death, insolvency,retirement
Drawings and remuneration of partners
Provision for Arbitration
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Partnership contd..
Registration: Registration of partnership is
optional. Any firm which wishes to register
must submit a statement (duly dated andsigned by all the partners) to the Registrar
of Firms with the relevant registration
fee. The Registrar enrolls the name of thefirm in the Register of firms. The register
is open for inspection to the public.
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Partnership contd..Effects of Non-registration:
The firm or its partners cannot take legal actionagainst third parties.
The rights of third parties or outsiders areunaffected by non-registration.
An unregistered firm cannot demand a setoff ofdebt against its credit.
A partner cannot sue the firm or other partnersas long as unregistered.
The unregistered firm cannot take any of itspartners to the Court of Law.
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Partnership contd..Merits
Pooling
of
capital
Greater
managerial
skill
Easy
formation
Simple
dissolutionBusiness
secrecy
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Partnership contd..Demerits
LimitedCapital
Lacks legal
status
Unlimited
liability
Shares not
transferable
No publicconfidence
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Co-operative OrganisationCo-operation is a form of business organisation
wherein persons voluntarily associate together ashuman beings on the basis of equality, for the
promotion of economic interests of themselves.The guiding principle of co-operation is joiningtogether of people for mutual help.
Each for all and all for each is the motto of co-
operation. Co-operative spirit is the heart of aco-operative society. It always prefers servicemotive to profit and emphasises on self-help andself-reliance.
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Co-operative Organisation contd..Features:
Spirit of co-operation
Unity
Common Interest
Economic democracy and democratic management
Open membership
Moral emphasis
Fair return on Capital
Cash sale
Corporate Status
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Co-operative Organisation contd..
Types of co-operatives
Credit co-operation: Rural credit co-operatives(having unlimited liability) were formed to solvethe problem of agricultural finance, while urbanco-operatives (having limited liability) helpartisans and labour population in towns.
The co-operative movement is replacing themoneylenders as a primary source of credit forrural masses.
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Co-operative Organisation contd..Consumers Co-operation: It mainly caters to the
needs of labourers, students, and lower middle-
class population. They acted as agencies to
distribute rationed food and other articles for
daily use.
Producers Co-operation: It was formed forpurchasing raw-material, tools and equipment
for members. It grants loans and advances tomembers against security of goods. They also
arrange for training of members.
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Co-operative Organisation contd..Merits:
Suitable for entrepreneurs having limited means.
It fits with the government ideology of
democracy and secularism. They can ensure reduction of monopoly and
concentration of wealth & power.
Limited liability, separate legal status,
democratic management & easy to form. Best service organisations for promoting public
welfare.
Government gives financial and managerial aid.
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Co-operative Organisation contd..Demerits:
Co-operative spirit may be missing.
Does not possess capital raising power. Not possible to avail specialised management.
Excessive state participation kills the voluntary
character.
Business secrecy cannot be maintained. Members have internal quarrels and rivalry
thereby affecting autonomy of management.
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CompanyA company is an artificial person created by law,
having perpetual succession and a common seal.The entire capital of the company is divided into
equal units called shares.Features:
(i) Compulsory Incorporation (ii) Artificial person(iii) Common seal (iv) Perpetual/continuous life
(v) Expert management (vi) Lower tax liability(vii) Wide distribution of loss (viii) Enterprisingmanagement (ix) Limited liability (x) Transfer ofownership (xi) Large membership
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Types of Companies
TypesofCompanies
Private company Public companyDeemedpublic
company
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Types of Companies contd.. Private Company: "private company" means a
company which, by its articles
(a) restricts the right to transfer its shares, if any;
(b)limits the number of its members to fifty notincluding
(i) persons who are in the employment ofthe company, and
(ii) persons who, have been formerly in theemployment of the company; and
(c) prohibits any invitation to the public tosubscribe for any shares in, or debentures of, thecompany.
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Types of Companies contd..Private company Features:
Membership: Min. is 2; max. is 50
Restriction on transfer of shares
Prohibition on public issue of capital Should have min. of 2 directors
Public is not allowed to inspect accounts
Directors can borrow from the company
The quorum for meetings is 2 members Directors need not retire by rotation
No restriction on remuneration to directors
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Types of Companies contd..
Public Company: "public company" means acompany which is not a private company.
Features:
Membership: min. is 7; max. is unlimitedApproaches the public for capital
Shares are freely transferable
Must have atleast three directors
Legal restrictions on remuneration of directorsDirectors retire by rotation
Directors cant borrow without Govt. approval
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Types of Companies
Deemed Companies: A private company is deemedto be a public company in the following situations:
When 25 percent or more of the private companys
paid-up capital is held by one or more publiccompany.
The private company holds 25 percent or more ofthe paid-up share capital of a public company.
The private company accepts or renews depositsfrom the public.
The private companys average annual turnoverexceeds Rs. 250 million during a period of 3consecutive financial years.
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Sectoral Organisations
Sectors
Private Sector Public Sector
Joint Hindu
Family
Partnership
Sole
Proprietorship
Co-operativesStatutory
Company
DepartmentalundertakingGovernment
Company
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Sectoral Organisations contd..
Departmental Undertaking: they are managed by
Government departments entrusted to Ministers.
Eg; Railways, Post and Telegraph, etc
Features:
(a) Managed by Government (b) The minister has
direct control on the enterprise (c) Financed
entirely by the Government (d) Subject to strictgovernmental controls (e) Enterprise cannot be
sued without government consent (f) The
management is in charge of employees.
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Sectoral Organisations contd..
Departmental Undertaking - Merits:
Government has full control over affairs
It acts as a tool for implementing social and
economic objectives of State Helps the government to earn revenue
Public grievances can be removed immediately
Secrecy can be maintained
Departmental Undertaking - Demerits: Lacks flexibility and initiative
Shortage of competent, qualified and experiencedpersonnel for professional management
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Sectoral Organisations contd..
Departmental Undertaking Demerits contd.:
Subject to undue scrutiny, criticism byParliament
Turns out to be a state monopoly Losses and inefficiency not taken seriously
Absence of stability and continuity of policies
Political rather than economic issues givenimportance
Excessive centralisation in finance andmanagerial control
Lack of autonomy and presence of red-tapism
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Sectoral Organisations contd..
Government Company: they are usually State
owned private limited companies which permit
flexibility and autonomy for successful operation.
Features:
(i) The entire capital or atleast 51% of capital is
owned by the Central and/or State Government (ii)
All/ majority of the directors are nominated by the
Government (iii) The concerned ministry exercisescontrol over operations (iv) It is a separate entity
having legal status (v) It is free from the budget,
audit laws.
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Sectoral Organisations contd..
Government Company Merits:
It has the rare combination of flexibility, autonomy
and State control.
They can be run in a businesslike manner just like
private enterprises.
It is easy to form with minimum legal formalities
Is suitable for foreign collaboration in skill/capital.
Government Company Demerits:
It can avoid constitutional responsibilities of State
enterprises
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Sectoral Organisations contd..
Government Company Demerits contd.:
Separate legal status exists only in theory. Inreality, all functions are reserved for theGovernment
Since it is free from Government audit andcontrols, critics consider it as fraud
Salaried and nominated directors cannot takepersonal interest in management
Official domination reduces incentive forefficiency.
This form of organisation is suitable for taking overexisting enterprises in emergency and to start newbusiness and run it as public enterprise.
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Sectoral Organisations contd..
Statutory Company:
These are companies incorporated under the
Special Act of Parliament. Almost all public
utility concerns like railways, electricity,
water works, etc are incorporated by Special
Acts of Parliament. In India, the Reserve Bank
of India, State Bank of India, etc. are instances
of Statutory companies.
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Changing Role of Public Sector
Governments of developing countries need to gobeyond offering a passive open door regimefor FDI to one that positively enhances required
human resource skills for the absorption of FDI.In that regard, Governments, through the public
sector, need to create a conducive policyenvironment that enables FDI to contributetowards enhancing the international
competitiveness of the host country on the basisof a dynamic development of comparativeadvantage.
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Changing Role of Public Sector
The most obvious manifestation of this change inthinking has been the widespread deregulation andliberalization of markets, the privatization of
State-owned enterprises that is open to foreignparticipation and deeper integration of markets.
Just as country attitudes have changed in favour ofmarket-oriented and private-led economies, aparallel shift in thinking has been evolving that
recognizes that the cost of giving up domesticownership and management control in somesectors is outweighed by the benefits from FDI.
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Changing Role of Public Sector contd..
The key issue about the role of the Government is notwhether it should intervene but the kind ofintervention. Some macroeconomic and investment-
friendly policies are necessary, although notsufficient in todays world of increasingcompetitiveness in attracting investment.
The crucial role for the host Government is to createconditions as well as be proactive. The challenge for
the Government is achieving the right balance interms of a win-win situation for the citizens. At theheart of these endeavours is improving thecompetitiveness of a countrys economy.
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Changing Role of Public Sector contd..
The challenge for developing countries in this newcompetitive context is to tap FDI to promoteeconomic development in terms of their ownendowments and development objectives.
Comparative advantage is not a static concept butis dynamic in nature.
The Governments role in this fast-changingtechnological and competitive environment is notmerely one of a passive open door but onewhere it is proactive. A conducive economic andpolitical environment, transparent governmentpolicies and business ethics remain paramount tosustaining investor confidence.
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MultinationalCompanies
Multinational corporation (MNC) or transnationalcorporation (TNC) is a corporation or enterprise thatmanages production or delivers services in morethan one countries.
Features ofMNCs
Multiple currency
problem
Legal, institutional
and economicconstraints
Internal control
problem