Module-1

Surana College PG_Centre,

12/14/2008 1
Manavazhaganr@bsnl.in
 • 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
12/14/2008
Surana College PG_Centre,
2
Manavazhaganr@bsnl.in
• Working for a Company
 Activity Prof Recurri National Individual Govt.Re
it ng Gain Gain gu
Stock Market Yes Yes Yes Yes No

Hospital No Yes Yes Yes No

Education No Yes Yes Yes No

Day Trading Yes Yes Yes Yes Yes

Co-Operative No Yes Yes Yes No

Advertisemen Yes Yes No Yes Yes

t

Surana College PG_Centre,

12/14/2008 3
Manavazhaganr@bsnl.in
 • Tests of Business

All Economic
• Profit Motive &
activities
• Recurring Nature of
pursued Activity &
• Enhance National
for the purpose of
Income OR
earning profit • Enhance Individual Gain
&
• Government
Surana College PG_Centre,
12/14/2008 4
Regulations
Manavazhaganr@bsnl.in
 Barriers to business
:
Business = Place -
Industry + Transport
Time -
Warehousing
Commerce +
Risk - Insurance
Trade Publicity-
Advertisement
Surana College PG_Centre,
12/14/2008
Finance -
Manavazhaganr@bsnl.in Bank 5
Coordination of activities of
• Which of the
number of people for the following are
achievement of common Organisations
• Clubs
purpose / Objective • Churches / Temples
through a division of • Hospitals
• Family
labour and function and • Educational Institutions
through a hierarch of • Charity Institutions
• Co-operative Society
authority and • Political Parties
responsibility • Government agencies
• Business Concerns
Common Objective + Division • Community Groups
Surana College PG_Centre,
12/14/2008 6
of labour + Functions +
Manavazhaganr@bsnl.in
 Activity O Divisi Functi Hierarc Authori .Resp
bjec on Of on hy ty
Political tive
Yes .Lab
Yes Yes Yes Yes Yes
Party
Hospital Yes Yes Yes Yes Yes Yes

Education yes Yes Yes Yes Yes yes

Family Yes No No No Yes Yes

Community Yes Yes Yes Yes Yes Yes

Group

Surana College PG_Centre,

12/14/2008 7
Manavazhaganr@bsnl.in
 Economic Activity ( Industry + Commerce +
Trade ) +

Common Objective ( Profit ) +

Division of labour +

Functions +

Hierarchy +

Authority +

Responsibility
Surana College PG_Centre,
12/14/2008 8
Manavazhaganr@bsnl.in
 Economic Activity ( Industry + Commerce +
Trade ) +

Common Objective (Non Profit ) +

Division of labour +

Functions +

Hierarchy +

Authority +

Responsibility
Surana College PG_Centre,
12/14/2008 9
Manavazhaganr@bsnl.in
 Choices about Factors

Division of labour +
Determining the

Functions + forms of

Hierarchy + Organisations
 Nature of Business
Authority +
 Motive
Responsibility  Risk
 Capital
Requirement
Surana College PG_Centre,
12/14/2008
 Scale of operation 10
Manavazhaganr@bsnl.in
 Choices about • Forms of
Organisations
Division of labour +
• Sole
Functions + Proprietorship
Hierarchy + • Partnership
Authority + • Joint stock
Companies
Responsibility • Joint Hindu Undivided
Family
• Co-Operative
12/14/2008
Societies
Surana College PG_Centre,
11
Manavazhaganr@bsnl.in
 Highlights: Suitability
1) Professional jobs like
 Except Bank & accounting, legal and
Insurance health
 High Risk & High profit 2) Small retail stores
 No Registration 3) To satisfy purely local
 Not legal entity needs
 Own Capital
4) To satisfy the tastes
 Own Labour of customers (Beauty
parlours, saloons)
5) Business involving
Surana College PG_Centre,
12/14/2008 frequent changes –
Manavazhaganr@bsnl.in
12
Merits: Demerits:
1) Limited capital
1) Easy formation
2) Limited skill
2) Simple and
flexible 3) Unlimited liability
3) Strong 4) Uncertain future
motivation
5) Limited scope –
4) Personal contact Absence of
economies of large
5) No dispute
scale
6) Self employment
6) No scope for much
7) Less overheads of diversification –
Surana College PG_Centre,
Manavazhaganr@bsnl.in No place of
12/14/2008 13
 Highlights: Criteria followed by
 Governed by Partnership Act Court in deciding
-1932 valid Partnership
Essence of Partnership (sec-
4) Cox V Hickman
1. Arises from Contract 4. Terms of agreement
2. Agree to share Profit 5. Conduct of the
3. Agent-Principal relation parties
- Max. No. of Partners not 6. Mode of doing
mentioned business
- Companies Act :Bank – 10, others- 7. Who controls the
20 property
- Sharing of loss not mentioned 8. Mode of keeping
-Each partner has to contribute / accounts
Knowledge 9. Manner of
Surana College PG_Centre,
12/14/2008
-Firm is dissolved on death of a
Manavazhaganr@bsnl.in distribution of profits
14
 Highlights:
 Partnership Deed
1. Agreement can be verbal ,written or may be inferred
from the conduct of the parties
2. Legally Deed or Written agreement is not required
3. Partnership Deed - Written agreement duly Stamped
and Registered
Contents of Deed:
Name & Description of Partners , Firm ,
Business
Duration of partnership
Contribution of Capital by each
Division of Profit & Loss
Salaries, Interest, Management of Business
Preparation ,Surana
maintenance
College PG_Centre,
& authorised
12/14/2008 15
persons to sign
Manavazhaganr@bsnl.in
 Highlights:
In the absence of
Partnership Deed
Indian Partnership Act -1932
will apply
• Equal share in Profit & Loss
• Each partner can take part in
management of business
• No partner shall be eligible
for remuneration
• No new partner can be
introduced or existing to be
expelled without majority
• All members can inspect ,
take copy of accounts
Surana College PG_Centre,
• 12/14/2008
The firm must indemnify the
Manavazhaganr@bsnl.in
• Consequences
• No suit can be brought by
partner against each other
or against third party
• The partner suing must
appear in the register of
firm maintained at
Registrar of firms
• Can not sue third party to
recover claim more than
Rs.100
• Third part can sue any
partner and firm
16
 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

Surana College PG_Centre,

12/14/2008 17
Manavazhaganr@bsnl.in
Rights of partners
1) Right to act as an
1) Right to take
agent of the firm
part in business
2) Right to prevent the
2) Right to be
introduction of a new
consulted
partner
3) Right to have
3) Right to retire
access to
accounts 4) Right to continue in
the business.
4) Right to share
profits.
5) Right to interest
Surana College PG_Centre,
12/14/2008
on capital Manavazhaganr@bsnl.in 18
Merits: Demerits:
1) Unity among
1) Easy formation
partners in essential
2) More capital and
2) Not adequate capital
managerial
efficiency. 3) Unlimited liability.
3) Division of 4) Lacks continuity of
labour existence.
4) Discussion of 5) Does not enjoy
business public confidence
problems.
5) Secret
Surana College PG_Centre,
12/14/2008 19
Manavazhaganr@bsnl.in
 Forms of Organisations
Partnership
Suitability:

Accounting, medical and legal

professions

Surana College PG_Centre,

12/14/2008 20
Manavazhaganr@bsnl.in
 Forms of Organisations
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 birth
ancestor including minor, male • However acquire the right
, wife & Unmarried daughters & on death of Father
daughter-in-laws. All of them • Father has absolute right to
are 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 --
holder in Unbroken male • Jain , Sikh , Buddhists
descendent constitute a are covered by under
coparsneary the Hindu Law.
• Senior member is • From 9.9. 2005 – Contd
Surana College PG_Centre,
12/14/2008 21 …
Karta/Manager Manavazhaganr@bsnl.in
Daughters of a
 Forms of Organisations
Hindu Undivided Family / Joint Hindu Family
• Ownership & Control
• Not terminated on death or
• Ownership share fluctuates insolvency of coparcener
with the birth and the
• Risk:
death of its coparseners.
• Karta has unlimited liability
• Legal Status:
• Karta has personal liability
• No separate legal entity
• Others – limited liability
• Registration not required
• Profit sharing:
• Capital:
• Equal share
• Supplied by HUF / Inherited
property • Share of profit fluctuates –
increase by death and
• Management:
decrease by birth
• Karta
• Surplus – under the
• Stability: custody of Karta
• Continue as long as HUF
Surana College PG_Centre,
does not break
12/14/2008
Manavazhaganr@bsnl.in
Contd
22 …
 Forms of Organisations
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
12/14/2008
members. Surana College PG_Centre,
23
Manavazhaganr@bsnl.in
 Forms of Organisations
Hindu Undivided Family
Demerits:
1) Limited financial resources.
2) Limited managerial ability only
karta.
3) No innovative spirit.
4) Frequent conflicts.

Surana College PG_Centre,

12/14/2008
Manavazhaganr@bsnl.in
Contd
24 …
 Forms of Organisations
Hindu Undivided Family
Suitable:
 Money lending business
 Retail trade
 Jewellery

Surana College PG_Centre,

12/14/2008 25
Manavazhaganr@bsnl.in
 Forms of Organisations
JOINT STOCK COMPANIES

Highlights
• Need not possess fixed
It is a voluntary association of capital divided into number
persons, formed for the of units
purpose of business
• A share holder is not
• It is an artificial person
entitled to actively take
created 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 transferable
• Power of the company are • Required to comply with
regulated by Memorandum of various statutory
Association
12/14/2008
obligations like Filing of 26
Surana College PG_Centre,
Manavazhaganr@bsnl.in
balance sheet, Maintaining
 Forms of Organisations
JOINT STOCK COMPANIES

• 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 needSurana College •
12/14/2008 Index of members to be 27
PG_Centre,
not be held Manavazhaganr@bsnl.in
 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

Surana College PG_Centre,

12/14/2008 28
Manavazhaganr@bsnl.in
 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

Surana College PG_Centre,

12/14/2008 29
Manavazhaganr@bsnl.in
 JOINT STOCK COMPANIES Registration
Procedure
Three important documents
2) Memorandum of association:
• It describes the proposed company and defines Objective
and powers of the company proposed to be incorporated.
• It has to be registered with Registrar of Companies. It
contains
a) Name clause
b) Situation
c) Objects
d) Liability
e) Capital
– - Company cannot exceed the powers mentioned
and cannot Surana
alterCollege
thePG_Centre,
provisions except Name ,
12/14/2008
Jurisdiction , Object, Capital
Manavazhaganr@bsnl.in
Contd
30 …
 JOINT STOCK COMPANIES Registration
Procedure

 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
Surana College PG_Centre,
12/14/2008
Manavazhaganr@bsnl.in
Contd
31 …
 JOINT STOCK COMPANIES Registration
Procedure
 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
12/14/2008subscribed
Surana College PG_Centre,
Manavazhaganr@bsnl.in
32
 JOINT STOCK COMPANIES Registration
Procedure
Allotment of Shares:
Directors can allot shares under the following conditions:
3.A prospectus or a statement in lieu is submitted to ROC
4.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
Surana College PG_Centre,
12/14/2008 33
3. Directors have duly paid to their shares
Manavazhaganr@bsnl.in
 JOINT STOCK COMPANIES

Merits of Company:
1) Limited liability
2) Business continues.
3) Transfer of shares
4) Huge capital
5) Legal protection and regulation
6) Professional management.
12/14/2008 7) More employment and business.
Surana College PG_Centre,
Manavazhaganr@bsnl.in
34
 JOINT STOCK COMPANIES Registration
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
Surana College PG_Centre,
12/14/2008
Manavazhaganr@bsnl.in
Contd
35 …
 JOINT STOCK COMPANIES

1) Quick changes cannot be made

2) Lacks initiative and enterprise.
3) No secrecy
4) May promote frauds.

Surana College PG_Centre,

12/14/2008 36
Manavazhaganr@bsnl.in
 CO-OPERATIVE FORM OF BUSINESS
ORGANISATION

A voluntary association on the basis

of equality for the promotion of economic
interests of members.

Surana College PG_Centre,

12/14/2008 37
Manavazhaganr@bsnl.in
 CO-OPERATIVE FORM OF BUSINESS
ORGANISATION
Features Equal voting rights
Voluntary association Non profit motive
Open membership & Subscribe Registration is not
to objective compulsory
Membership unlimited Registration under Co-
operative Societies Act -
Capital equally divided among 1912
members
Legal entity
If liability is limited “ Limited “
should be included and Managing committee elected
max. value of share Policy decided in GB to be
Rs.2500/- implemented by
Committee
25% of profit to reserve fund
Exception from Income tax,
10% to Charitable purposes stamp, Registration fees
Unlimited – Profit sharing Govt. It has priority over other 38
Surana College PG_Centre,
12/14/2008
approval Manavazhaganr@bsnl.in
creditors in realising
 CO-OPERATIVE FORM OF BUSINESS
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 &
wholers at cheap price
Surana College PG_Centre,
12/14/2008 39
Manavazhaganr@bsnl.in
 CO-OPERATIVE FORM OF BUSINESS
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.

Surana College PG_Centre,

12/14/2008 40
Manavazhaganr@bsnl.in
 CO-OPERATIVE FORM OF BUSINESS
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
12/14/2008
motive Surana College PG_Centre,
41
Manavazhaganr@bsnl.in
 CO-OPERATIVE FORM OF BUSINESS
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
12/14/2008 societies.Surana College PG_Centre,
Manavazhaganr@bsnl.in
42
 Forms of Business
JOINT SECTOR

Joint sector is a form of

partnership between the private
sector and the government.

Surana College PG_Centre,

12/14/2008 43
Manavazhaganr@bsnl.in
 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 stateSurana
governments
College PG_Centre,
can set up
12/14/2008 44
new enterprises with private sector.
Manavazhaganr@bsnl.in
 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
12/14/2008
managerial
Suranaresources.
College PG_Centre,
45
Manavazhaganr@bsnl.in
 Forms of Business
JOINT SECTOR

Examples of joint sector:

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

Surana College PG_Centre,

12/14/2008 46
Manavazhaganr@bsnl.in