Business

Note

Things to Remember

Videos

Exercises

Quiz

Introduction

Business is the most important activity for a human

being. It is the means of livelihood. Almost all the people engage themselves in making, buying,
selling and distributing goods and services for generating income. Almost every business
involves risk and uncertainty. The successful business operation in the economy reflects the
prosperity of the nation. It provides larger employment opportunities and utilizes available
resources economically. It brings comfort and satisfaction for the people and ensures peace,
prosperity and progress of the country. It helps in earning foreign currency and strength foreign
relation. The development of the business increases the prestige of the people and nation.
Meaning and Definition
The term 'business' refers to all the economic activities carried by people and organizations for
generating incomes. It is concerned with producing and distributing goods and services for
earning a profit. It is a regular process of exchanging goods and services which involve risk and
uncertainty. It is the mutual effort of industry and commerce. In fact, business is an economic
activity aimed at fulfilling the needs and wants of customers through the supply of goods and
services for their satisfaction.
The following are the main definitions of business:

"Business may be defined as a human activity directed towards producing or acquiring wealth
through buying and selling of goods."- L.H. Haney
"Business may be defined as an activity in which different persons exchange something of value,
whether goods or services for mutual gain or profit." - Peterson and Plowman
"All the activities included in the production and sale of goods and services may be classified as
a business activity." - W.F. Spiegel
Characteristics of Business
The following are the characteristics of Business:
1. Economic activity
Business is an economic activity which involves in exchange of goods and services for
money. It does not include non- economic activities which are not directed for generating
income.
2. Production and distribution
Business involves in production and exchange of goods and services. The production and
distribution of goods and services are carried for the satisfaction of the customers.
3. Profit motive
Profit is the essence of a business. The activities relating to the production of goods and
services are carried on with the aim of earning profit.
4. Risk and Uncertainty
Every business activity involves risk and uncertainty to some extent. The risk of loss is
ever- present in every business activity and hence there is no certainty that the business
activity always results into profit.
5. Regular transactions
Every business performs its transactions on a regular basis. It makes production and
distribution of goods and services to the society continuously.
Importance of Business
Business equally contributes to the individuals, society, and nation as a whole. The business is
important due to following reasons:
1. Means of livelihood
Business is the source of livelihood of many people. Every person lives in society by
generating incomes through the production and distribution of goods and services.

2. Increases the living standard

Business increases earning of a person and a family. It increases purchasing power and
develops life standard of a family, which makes life full of comfort and happiness.
3. Utilizes resources
Business utilizes natural, human, physical and financial resources for the production and
distribution of goods and services. The proper utilization of these resources helps to
generate large employment opportunities and uplift economic development of the
country.
4. Generates the employment opportunity
Business is the means of overcoming unemployment problem of the society. Due to the
establishment and operation of a number of industrial and trading units, a large number of
people get employment opportunities.
5. Enhances international relationship
Business is the strong basis for maintaining and developing an international relationship.
Business dealings between the people of two countries bring them into close contact
which enhances the better relationship in government and public level.
6. Earns foreign currency
Business is the main source of earning foreign currencies. Manufacturing industry,
tourism industry and other services business export their products and services to the
foreign markets and earn foreign currencies for the nation.
7. Maintains peace and prosperity
Business increases earning the capacity of the people and makes their life comfort and
happy. As a result, it maintains economic stability and prosperity in the society.

Types of Business

Note

Things to Remember

Exercises

Quiz

Different business activities are carried on by the people generating incomes. On the basis of the
nature of these business activities, the business can be classified as follows:
Industry

Industry refers to the act of producing raw materials and finished goods. It is the process of
converting raw materials into finished goods. It is the activity relating to extraction,
reproduction, manufacturing and construction of products. On the basis of production, an
industry can be classified as follows:
1. Primary industry: The Primary industry is concerned with extracting raw materials from the
soil or beneath the surface of the earth and reproducing certain species of plants and animals. The
final products of primary industry are used as raw materials by secondary industry. The primary
industry can be divided as follows:
1. Extractive industry: The Extractive industry is concerned with taking out products from
beneath the surface of the earth, soil, water and air. Mining, agriculture, fishing, and
lumbering are some of the examples of the extractive industry.
2. Genetic industry: The Genetic industry is concerned with reproducing or multiplication of
different species of plants and animals. Bee- keeping, poultry farming, cattle- breeding,
nurseries and animal husbandry are some of the examples of manufacturing industry.
2. Secondary industry: The Secondary industry is concerned with converting raw materials into
finished goods and constructing different assets. The final products of secondary industry can be
directly consumed by final customers. The secondary industry can be divided as follows:
1. Manufacturing industry: Manufacturing industry is concerned with converting raw
materials into final products. The sugar industry, cement factory, soap industry, are the
some of the examples of manufacturing industry.
2. Construction industry: Construction industry is concerned with conducting a construction
work at a particular site. Construction of buildings, roads, bridges, canals and dams are
some of the examples of the construction industry.
Commerce
Commerce refers to the act of buying, selling and distributing of goods and services. It is the
process of connecting the producer of goods with their final consumers. It is the activity related
to buying, insurance, transportation, warehousing and communication. It can be divided into two
classes as follows:
Trade
Trade is concerned with buying and selling of goods. It is the process of exchanging goods with
money for mutual benefits of the buyer and seller. It is the act of transferring the ownership of
goods from the seller to the buyer. It can be classified as follows:
1. Home trade

Home trade is the act of buying and selling goods within the boundary of the country. It can be
classified as following:

Wholesale trade: The act of buying goods in a larger quantity and selling them in a
smaller quantity to a number of retailers is called wholesale trade. It is the connecting
link between producer and retailer. The person who involves in wholesale trade is called
wholesaler who acts as a middleman between producer and retailer.

Retail trade: The act of buying goods from the wholesaler in a large quantity and selling
them in a smaller quantity of final consumers for their personal use is called retail trade.
It is the connecting link between the wholesaler and final consumers. The person who
involves in retail trade is known as a retailer who acts as a middleman between the
wholesaler and the final consumers.

2. Foreign trade
Foreign trade is the act of buying and selling goods outside the boundary of the country. It is
carried on between the citizens of two or more countries. The payment of goods in foreign trade
is made in foreign currencies. It can be classified as follows:

Import trade: The act of buying goods from a foreign country is called import trade. The
person who involves in import trade is known as an importer.

Export trade: The act of selling goods to a foreign country is known as the export trade.
The person who involves in export trade is known as an exporter.

Entrepot trade: The act of buying goods from foreign countries and selling them to
another foreign country is called Entrepot trade.

Aids to trade
In the process of distributing goods to different markets, the seller has to face a number of
problems. These problems are related to finance, insurance, transportation, warehousing, and
communication. To remove such problems and facilitate for distribution of goods and services,
certain organization are established. This organization do not involve in production and
distribution of goods but facilitate the distribution of goods and services, certain organizations
are established. These organizations does not involve in production and distribution of goods and
services. These organizations assists or support in the process of buying and selling to make the
distribution effective. Hence, aid to trade refers to the facilities provided by different
organizations to remove the problems of distributions. Banking, insurance, transportation,
communication, etc. are the examples of aid to trade which facilitate the effective distribution of
goods and services.

Introduction of Business Organization

Note

Things to Remember

Videos

Exercises

Quiz

Introduction
The human society requires different types of economic activities. Such economic activities are
performed to fulfill the needs and wants of individuals and families as well as to uplift their
living standards. The nature and volume of the economic activities largely depend on the
economic prosperity of the society. These economic activities should be performed in an
organized way and efficient manner for the optimum utilization of scarce resources. In order to
make optimum utilization of available resources, an appropriate form of business organization
with available resources should be selected. The development of the forms of business
organization is connected with the development of industry and commerce.
Meaning and definition
The term 'business' refers to all the economic activities, which are carried on by individuals and
organizations for generating incomes. It is concerned with the production and distribution of
goods and services for earning the profit. It is centered on the service and satisfaction of the
customers by fulfilling their needs and wants. It involves risk and uncertainty and committed to
fulfilling its responsibilities.The term 'organization' refers to the act of bringing necessary
resources for the production and distribution of goods and services and utilizing them in the best
possible manner for achieving the definite objectives. The production and distribution of goods
and services require a number of resources like men, materials, money, machine, and
management. The organization is a means for bringing cooperation among these resources for
continuous production and distribution of goods and services for fulfilling needs and wants of the

customers.The term 'business organization' is composed of two terms as 'business' and

'organization'. Hence, the term business organization refers to the act of bringing resources and
utilizing them in the best possible manner for the production and distribution of goods and
services in order to earn profit through the service and satisfaction of the customers. It is
concerned with the proper management of available resources for achieving the specified
objectives of the business. The resources can be managed either by an individual or by the
government. The following are some of the main definitions of business organization:
"Business organization is the act of bringing into effective cooperation the available resources for
production and distribution of goods with a view to earn the profit. " - Dr. A.N. Agarwala
"Business organization is a concern, company or enterprise which buys and sells, is owned by
one group or group of persons and is managed under a specific set of operating policies." Wheeler
Form of Business organization
Business can be established in various forms. It can be established and managed by an
individual, group, government and other parties. so, on the basis of ownership and management,
business organizations can be classified into the following forms:
1. Sole trading Concern
2. Partnership Organisation
3. Joint Stock Company
4. Public Enterprises
5. Co-operative Society
6. Multinational Company

Sole Trading Concern

Note

Things to Remember

Videos

Exercises

Quiz

Meaning and definition

Sole trading is the oldest and simplest form of business organization. It is a business
organization, in which an individual contributes the whole amount of capital, manages the
business himself or herself, bears all the risks alone, enjoys all the profits and suffers all the loss.
He alone plays a role of manager, owner, controller, decision maker, and risk bearer. He uses his
own skills, intelligence, knowledge and capability for successful operation and management of
the enterprise. He is free to hire and fire his employees and looks after the daily activities of the
business. The following are some of the main definitions of a sole trading concern:
"A person who establishes and manages a business for his own account and risk is known as a
sole proprietorship business." - A.N. Agarwala
"A sole proprietorship is a business with whose ownership and management are vested in one
person. The individual assumes all risk of losses and failure of the enterprise and receive all
profits from its successful operation." -Peterson and Plowman
Characteristics
Following are the main characteristics of a sole trading concern:
1. Sole investment
The owner contributes the whole amount of capital in his business. He invests the entire
capital either from his private property or by borrowing from the relatives, friends and
financial institutions.
2. Sole management
The owner manages whole activities of the business. He makes plans for his business,
implements them and controls the daily activities for the attainment of the organizational
goal. He is the supreme judge of the business in which nobody interferes his decisions.
3. No profit sharing
The owner enjoys the whole amount of profit and bears the whole amount of losses of the
business. The owner alone bears the entire risk of the business.

4. Limited operation
The resources of the sole trading concern are limited. Due to the limited resources, it
cannot produce goods in a large scale. Its business activities are restricted to limited
geographical areas.
5. Independence
The sole trading concern is an independent organization. The owner of the business is
free to make all sorts of decisions as per his judgment. He is the supreme judge for all the
matters relating to the business. Such independence of the owner enables to make quick
decisions necessary for exploiting business opportunities.
6. Unlimited liability
The liability of the owner is not limited to his investment. If the business suffers from
losses and its properties are insufficient to meet its debts, the owner has to sell his private
property to clear his business debts. The owner bears entire risks of the business.
Advantages
The following are the main advantages of a sole trading concern:
1. Easy to start and dissolve
A sole trading concern can be established and dissolved easily. There are limited and
simple legal formalities to start and close the business. The owner can start his business
after getting it registered and close the business at his will by giving written information
to the concerned authorities or office of Government of Nepal.
2. Quick decision
The sole trader is the supreme judge of the business and makes all types of decisions
immediately. He is free to make decisions in matters relating to the objectives, capital,
price, product and employees as per the situation. Quick decisions are very important to
grab business opportunities.
3. Secrecy
A sole trading can maintain the secrecy of the business completely. The owner of the
business is not required to share the secrets of the business. The business is not required
to publish financial statements like profit and loss account and balance sheet. Secrecy is a
strong tool to meet and beat the competitors in the market which ultimately leads the
business to achieve its goal.
4. Incentive
A sole trader enjoys the whole amount of profit of the business alone. It can motivate him
directly to work hard and to manage the activities of the business efficiently. He always
tries to maximize profit with his best efforts. There is a direct relationship between efforts
and rewards.

5. Personal relation
A sole trader plays the role of an owner as well as a manager. He can easily maintain and
develop personal and business relations with all concerned parties like customers,
suppliers, employees and government. Such sound personal and business relation helps
for increasing the goodwill of the business. Such personal relation is the key for the
success of the business of the business.
6. Economy
The owner himself act as the manager as well as employees, which helps to keep the
office and administrative expenses at the minimum. It is an economical form of business
organization.
Disadvantages:
The following are the main disadvantages of a sole trading concern:
1. Limited capital
The capital of a sole trading concern is limited due to the investment of savings and
borrowings of the owner. Such limited capital is insufficient for large-scale production
and distribution of goods and services.
2. Loss in absence
A sole trading concern may suffer due to the absence of the owner. Due to the personal
and business matters, the owner may remain absent frequently. The representative and
employees may not take care of the customers seriously. They may not carry out the daily
activities of the business honestly, consequently, it results in loss to the business.
3. Unlimited liability
The liability of a sole trader is not limited up to his invested capital. The owner must pay
the liability of the business even by selling his private properties if the assets of the
business is not enough.
4. Limited managerial skills
A sole trading concern is managed by the single owner who may not have adequate
managerial skills and technical abilities. A combination of capital, managerial skills and
technical ability may not be found in one person. Further, due to limited resources, it
cannot appoint the professional managers. Hence, the management of a sole trading
concern may be ineffective.
5. Absence of separate legal status
A sole trading concern has no legal status. It has no corporate life. The business and the
owner are inseparable from one another due to which the life of the business is not
permanent. The life of the business is directly connected with the life of the businessman.
The death or lunacy or insolvency or disability of the owner leads the business to an end.

Uncertain life
The life of a sole trading concern is not permanent due to the lack of separate legal status.
The life of the business is closely connected with the life of the owner. The business can
terminate at anytime due to death, lunacy, insolvency of the owner. The termination of the
business brings negative impact in the society. Due to the uncertain life the business
loNote

Things to Remember

Videos

Exercises

Quiz

Meaning and Definition

As long as the sole trading concern remains small in size, the owner does not face growing
pressure for its capital and management. When it becomes large in size or when it requires to be
expanded, the owner faces strong pressure for the larger amount of capital, expert management,
and technical skills. The owner may not have this entire requirement himself. Hence, he requires
associating with another person or persons to meet their requirements in order to operate the firm
competitively. Such requirements give birth to the partnership organization.Partnership
organization has been developed to overcome the major limitation of a sole trading concern.
When the business grows, the capital, managerial and technical skills of the owner in a sole
trading concern are too limited to fulfill the growing needs of the business.
The partnership is an agreement between two or more than two persons for carrying on a lawful
business for earning the profit. It is a form of business in which two or more than two persons
make an agreement to contribute capital, manage the business and share the profit or loss. It is
the business carried on by two or more than two persons for their mutual benefits.
The following are the main definitions of a partnership organization:
"Partnership means any business registered in the books of Government of Nepal, which is
carried on by some persons under one or name for sharing the profits and with the agreement of

participation in the transactions by all partners or a single partner acting for all." - Nepal
Partnership Act, 2020
"A partnership is the relation between persons who agree to carry on a lawful business in
common with a view to private gain."- L.H. Haney
Characteristics
The following are the main characteristics of a partnership organization:
1. Agreement: An agreement is a basis for forming a partnership. An agreement is made in
a written form signed by all the partners to carry on a business for earning and sharing the
profit or loss. Such agreement contains all the matters relating to business necessary for
its smooth operation. It includes the matters relating to capital, profit sharing ratio, duties
and responsibilities of the partners, accounting system, etc.
2. Joint ownership: A partnership has two or more than two owners. It is established with
the joint investment of all the partners. The amount of capital of the partners may differ
from one another depending upon the agreement.
3. The role of principal and agent: A partnership is managed by all the partners or anyone
of them acting for all. Each partner can play, simultaneously, the role of a principal as
well as an agent of the firm. Hence, every partner plays the role of principal for outside
and an agent for other partners.
4. Unlimited liability: Every partner has unlimited liability. A partner is jointly as well as
individually liable to pay all the debts of the business even by selling his private
properties if the assets of the business are insufficient to meet all its debts.
5. Joint ownership: A partnership has two or more than two owners. It is established with
the joint investment of all partners. The amount of capital of the partners may differ from
the one another depending upon the agreement.
6. Joint management: A partnership is generally managed by all the partners jointly.
However, a particular partner can also be entrusted with the responsibility of managing
the daily activities on behalf of other partners. The partners divide the duties and
responsibilities as per the partnership agreement for the smooth share the profit equally.
7. Restriction in transferring interest: The interest of a partner in a partnership is
nontransferable. No partner is permitted to sell or transfer his interest or share to an
outsider without the consent of all the partners. Hence, there is a restriction in transferring
the interest of a partner freely.
Types of Partnership:

1. Unlimited Partnership: An unlimited partnership is also known as a general partnership.

It is that type of partnership in which the liability of all the partners is unlimited. If the
firm's properties are not sufficient to meet all its debts, the partners are liable,
individually and jointly, to pay all the debts out of their private properties. Hence, the
liability of a partner is not limited to his invested amount in the partnership. The liability
of each partner is not definite or predictable. In a general partnership, all the partners
have an equal right to participate. A partner for an uncertain period is also called as a
partnership at will it is that type of partnership firm in which the time duration of the firm
is not specified. A partnership for a certain period is also known as a particular
partnership it is that type of partnership firm, which is established for a particular period
of time. It can also be established for performing and completing a particular venture or
job.
2. Limited Partnership: A limited partnership is that type of partnership in which there are
one or more partners having limited liability. The liability of the limited partners is
limited to their invested capital in the partnership. The liability of the firm cannot be met
out of their private properties. A limited partner is like a passive partner who cannot
actively participate in the management and day to day activities of the firm. The death,
insolvency, lunacy, disability or imprisonment of such partner does not affect the
activities and life of the firm. He has no right to make decisions and close the firm. In a
limited partnership, there must be at least one unlimited partner who controls the whole
activities of the firm. A general partner is also known as an unlimited partner. He is the
most common type of partner whose liability is unlimited. Such a partner is liable to clear
the debts of the firm even by selling his private property in case the firm's property is
insufficient. He plays an active role in the decision-making process.A limited partner is
one whose liability is limited up to the invested amount of the capital in the business. The
private property of such a partner cannot be used to pay the debts of the firm. At least the
firm must have one unlimited partner. An active partner is one who actively participates
in the management and daily operation of the firm. He is also known as a working partner
who actively takes part in all the matters of the business. He makes all the decisions
actively on behalf of all the other partners.A passive partner is one who does not take an
active part in the management and daily operation of the firm. He is also known as a
sleeping or dormant partner. Such partner contributes the capital, shares the profit or loss,
bears the liabilities, but does not look after the activities of the business actively.An
incoming partner is one who is newly admitted to an existing firm. Such a partner brings
his shares of capital and agrees to share the profit or loss of the firm after his admission.
He cannot be made responsible for the activities and liabilities of the firm before the
admission.
Advantages
The following are the advantages of a partnership organization:
1. Easy to start and dissolve: A partnership organization is easy to dissolve and establish a
sole trading concern. Only a written agreement is necessary for getting the partnership
registered. A written application and partnership agreement should be a field in the

concerned office for dissolving the firm. Due to the limited legal procedures, the
partnership can be started and dissolved with least time and cost.
2. Scattered risk: A partnership organization is less risky than a sole trading concern. The
risk of loss in the firm is scattered among the partners. If the firm suffers from a loss,
each partner has to bear a nominal share of the loss.
3. Larger capital: The capital of a partnership firm is larger than the capital of a sole
trading concern. All the partners contribute capital as per their agreement. Due to the
contribution of all the partners, the firm accumulates a larger amount of a capital. Such
larger amount of capital helps for large-scale production and distribution of goods and
services.
4. Better management: A partnership is a combination of partners with varying managerial
skill and technical skills. Due to such combination of managerial and technical skills, its
management is better than the management of a sole trading concern. The partners divide
and perform work as per their ability and experience. All the important decisions are
made after making discussion and getting the consent of all the partners. Such collective
participation in the management helps to know and correct the mistakes committed by
any partner.
5. Secrecy: A partnership organization is not required to publish financial statements like
profit and loss account and balance sheet. The partners do not leak out the weakness of
the firm and other business secrets. Such secrecy maintains the competitive strength of
the firm. It also supports to maintain the goodwill of the firm.
6. Flexibility: A partnership organization has the benefit of flexibility like a sole trading
concern. The objective, size and capital can be changed easily with the consent of all the
partners. Such flexibility helps to exploit business opportunities and to avoid possible
loss.
7. Incentive: In a partnership organization, there is a direct relationship between efforts and
rewards. The greater the profit of the firm, the greater the share of partners. Hence, all
partners are always encouraged to work hard for maximizing the profit of the firm.
Disadvantages
The following are the disadvantages of a partnership organization:
1. Chances of conflict: In a partnership organization, there is always a chance of
misunderstanding among the partners. Such misunderstanding arises in matters relating to
decisions, incomes, expenses, accounts, credit- transactions, withdrawal, rights, duties,
responsibilities, etc. such conflict may lead to the organization to the end.
2. Uncertain life: A partnership organization is not a permanent organization. Due to
frequent misunderstanding among the partners, death, insolvency, lunacy and

imprisonment of any partner or partners, the partnership organization may come to the
end. Such uncertain life brings negative impact in the society.
3. Unlimited liability: In a partnership organization, the liability of all the partners is
unlimited. The liability of each partner towards the debts of the firm is not limited to his
invested capital. All the partners, individually and jointly, are responsible for clearing the
debts of the firm even by selling their private property.
4. The absence of legal status: A partnership organization has no separate legal status. The
life of a partnership is connected with the life of the partners. Due to the lack of corporate
status, its life is uncertain and the liability of the partners is unlimited.
5. Delay in decisions: In a partnership organization, decisions cannot be made quickly as in
sole trading concern. In order to arrive at a decision, consent of all the partners must be
obtained. Due to the different views and options on a subject, the decision cannot be often
be made in time. Such delay in making decisions hampers in exploiting business
opportunities.
6. Lack of public confidence: A partnership organization does not publish its information,
accounts and financial statements. The outsiders do not know what is going on in the
partnership. Due to frequent misunderstanding, lack of separate legal existence and
uncertain life, the public has no faith on partnership firm.

Joint Stock Company

Note

Things to Remember

Videos

Exercises

Quiz

Meaning and Definition:

The joint stock company has come into existence over the limitations of sole trading and
partnership firms. The major limitations of sole trading and partnership are limited capital and
unlimited liability. Such limitations are the main obstacles for large-scale production and
distribution of goods and services. A joint stock company is a voluntary association of persons
for establishing a business under the company act, 2053. It is a distinct legal person created by
law. Its capital is divided into a large number of parts with equal value. Each part is called share.
The company collects capital by selling the shares to individuals and organizations.
The following are the meaning of Joint Stock Company:
"A company is an artificial person created by law having a separate entity with a perpetual
succession and a common seal." - L.H. Haney
"A joint stock company is an incorporated association which is an artificial person created by law
having a common seal and perpetual succession." -Sherlekar
Characteristics
The following are the main characteristics of a joint stock company
1. Separate legal existence: A company is an artificial person created by law. Like a real
person, it can buy or sell the property in its own name and enter into business contracts. It
can sue and can be used. It is distinct from its members and enjoys an independent legal
existence.
2. Transferable shares: A company collects its capital by selling shares. The shares are
freely transferable. A shareholder can convert his shares into cash easily either by selling
or transferring without the consent of other members or the board of directors.
3. Limited liability: The liability of shareholders is limited to the face value of the shares
held by them. The private properties of the shareholders cannot be claimed to clear the
debts of the company. If the property of the company is not sufficient to pay its debts, the
creditors suffer themselves.

4. Perpetual succession: A company has a permanent life. Due to separate legal existence,
the life of a company is not affected by the death, insolvency, lunacy, disability or
imprisonment of the shareholders. Hence, it is said that "members may come, members
may go, but the company goes on for ever."
5. Common Seal: Despite being an artificial person, a company cannot sign like a natural
person. It uses a common seal as its official signature. It affixes the common seal on all
official documents for their validity.
6. Democratic management: A joint stock company is a democratic organization. All the
decisions are taken in annual general meeting and board meeting on the basis of the
majority. The board is elected and dismissed according to the interest of a majority of
shareholders.
Advantages
The following are the main advantages of a joint stock company:
1. Huge capital: A joint stock company can raise a huge amount of capital by selling
shares. Due to the unlimited membership, limited liability of the shareholders and
transferable share, it can easily collect much more capital than a sole trading concern or
partnership organization. Its capital is enough for the production and distribution of
goods and services in a large scale.
2. Effective management: In a joint stock company, there is a separation between
ownership and management which ensures effective planning, implementation and
control of the activities of the company. The shareholders elect experienced and capable
directors for all the overall management of the company. The board appoints professional
managers for the effective management of production, finance and accounting activities
of the company.
3. Limited liability: In a joint stock company, the liability of the shareholders is limited to
the face value of the shares held by them. The private properties of the shareholders
cannot be claimed to clear the debts of the company. If the properties of the company are
not sufficient to clear its debts, the creditors suffer themselves.
4. Public faith: A joint stock company is a corporate organization. Its activities are
transparent. It publishes its financial statements in the newspaper for the knowledge of
concerned parties. The people have much faith in its activities, position, and long-term
existence.
5. Perpetual succession: The life of a joint stock company is permanent. Being a distinct
legal entity, its life is not connected with the life of the shareholders. The death,
insolvency, lunacy, disability or imprisonment of the shareholders does not affect the life
of the company.

Disadvantages:
1. Neglect of a majority: In a joint stock company, all the major decisions are made by the
shareholders holding a majority of shares. Hence, the voice of a minority of shareholders
is neglected by the company.
2. Inflexibility: A joint stock company is a less flexible organization than a sole trading
concern and partnership firm. It cannot change its objectives, capital, decisions and major
activities easily. To bring changes on such matters, it has to change the clauses of the
memorandum and articles of association.
3. Lack of secrecy: A joint stock company cannot maintain business secrets like a sole
trading concern and a partnership organization. The company is managed by a large
number of directors and managers due to which business secrets are leaked out easily. It
publishes financial statements regularly. As a result, its weakness is known by its
competitors and other concerned parties.
4. Delay in decision: In a joint stock company, there is a considerable delay in the decisionmaking process. Important decisions can only be made in the meetings of the board of
directors or shareholders. Such meetings are held only after certain intervals. Such delay
in decisions does not help to grab business opportunities and to avoid losses.
5. Chances of frauds: In a joint stock company, there is a great chance of frauds by the
directors and managers. Frauds are committed by showing false payments, omitting to
record incomes, presenting the profit and position of the country wrongly. Such frauds
are committed for the personal benefits of the directors and managers at the cost of the
company and shareholders.

Types of Company in Nepal

Note

Things to Remember

Videos

Exercises

Quiz

Statutory Company
A company which is established under a special act passed by the parliament is known as a
statutory company. The scope, objectives, power, rights and functions are defined by the act
under which it is established. All the activities of the company are governed by the act. Such
company is established by the government for promoting a special sector of the economy which
is of national importance. It is also known as a public enterprise.
Limited Company

A company which is established in Nepal under 'Nepal

Company act, 2053' is known as a limited company. It is also known as a registered company. It
is incorporated and operated under the provision of the company act. In a limited company, the
liability of the shareholders is limited to the face value of the shares held by them. The private
properties of the shareholders cannot be claimed by the creditors of the company to recover their
debts. A limited company can be classified into two types:
1. Public limited company: A public limited company is one which requires at least 7
members for its incorporation. There is no limitation for the maximum number of
shareholders. It can invite people by issuing a prospectus to subscribe to its shares. Its
shares are freely transferable. It requires at least three directors for the management of the
company. It has to hold statutory meeting. It has to obtain a certificate of commencement
of business to start its business.
2. Private limited company: A private limited company is one which can be established by
a single member. Its maximum number is limited to 50. It cannot invite people by issuing
a prospectus to subscribe its shares. It restricts the rights of its members to transfer its
shares. It does not require to hold statutory meeting.

Differences between Public and Private Limited Companies

Bases of difference Public company
It required at least 7 members for its
The number of
incorporation, but its maximum number is
shareholders
unlimited.
Transfer of share It does not restrict the transfer of its share.

Private company
It can be established by a single
member and its maximum
number is limited to 50.
It restricts the transfer of its share.
It can not issue a prospectus for
It issues a prospectus for inviting people to
Prospectus
inviting people to subscribe to its
subscribe to its share.
share.
It required the certificate of incorporation
Commencement of
It required only the certificate of
and the certificate of commencement of
business
incorporation to start its business.
business to start its business.
Use of words
It uses Ltd.
It uses Pvt Ltd.
It requires publish its annual financial
It doesn't require to publish it's
Publication
statement.
annual financial statement.
It does not require statutory
Statutory meeting It requires statutory meeting.
meeting.

Public Enterprises

Note

Things to Remember

Videos

Exercises

Quiz

Example of Public Enterprises in Nepal

Public enterprise is a business organization established by the government holding more than
50% of the total share with the aim of producing and distributing goods and services at a

reasonable price to the public. Public enterprises are established by the government contributing
total or majority capital. The government invests at least 51 percent of the total amount of paid
up capital. It is managed by the government nominating board of directors or representatives. It
is an industrial or commercial undertaking, which involves in the production and distribution of
goods and services in order to meet its expenses. It maintains its accounts independently. It is a
distinct legal entity having a corporate status. It has a perpetual life with limited liabilities. It uses
a common seal as its official signature. It is established for the public service and welfare, sound
industrial and commercial base and upliftment of economy of the country.
The following are some of the main definitions of a public enterprise:
"Public enterprises are established, controlled and operated by the government to produce and
supply goods and services to the society."- A.N. Agrawal
"State-owned enterprises are finally autonomous and legally distinct entities wholly or partly
owned by central or sub- national governments." - World Bank Report- 1998"
"Public enterprises are established, control and operated by the government to produce and
supply goods and services to the society." - A.N Hansen
The following are the main characteristics of a public enterprise:
1. State ownership: A public enterprise is owned by the government. The government
holds total or least 51 percent shares of the enterprises. In most of the enterprises in
Nepal, the government has full ownership.
2. State government: A public enterprise is managed by the government. The government
manages the public enterprises by the nominating board of directors and chief executives.
3. Service motive: The primary aim of the public enterprises is to render service to the
society. It works for the public service and welfare of the society. It produces and
distributes qualitative goods and services at reasonable price.
4. Public accountability: A public enterprise is accountable to the general people. It is
responsible for its performance and achievement towards the government, parliament,
and general people. The performance of the public enterprise is evaluated by the
committees of the parliament and the state legislature.
5. Perpetual succession: A public enterprise has a permanent life. Being a separate legal
entity, its life is not affected due to changes in the government and management.
6. Separate legal entity: A public enterprise is a distinct legal entity. It has a corporate
status with a common seal. It can be sued and used against the unfair trade practices. It
performs all business transaction in its own name.
Objectives:

1. To help the economic development of the country in planned manner by establishing

different industrial and commercial enterprises.
2. To provide the qualitative goods and services of daily necessities at a reasonable price.
3. To control monopoly and unfair trade practices in the supply of goods and services.
4. To provide import substitution and to save foreign currencies.
5. To increase the revenue of the government by paying taxes.
Need and Importance
1. It increases the rate of economic growth.
2. It develops the infrastructure like electricity, communication, banking, transportation etc.
3. It provides qualitative goods and services of daily necessity at a reasonable price.
4. It maintains balanced economic development.
5. It creates greater employment opportunities in the society.
6. It increases the revenue of government by contributing tax.
7. It helps to earn foreign currencies by exporting goods and services and increase the
foreign exchange reserve.

Privatization of Public Enterprises

Note

Things to Remember

Exercises

Quiz

Privatization is the process of transferring the ownership and control from public to private
sector. It is the movement towards market economy for achieving greater productivity, efficiency
and competitiveness.
Public enterprises came into existence with the aim of producing and distributing products and
services of daily necessities at a reasonable price. During various planning periods, more than
five dozens public enterprises were established to uplift the economy and different sectors of the
nation. Most of the public enterprises become unable to operate their activities successfully as
per their objective. These enterprises were adversely affected due to corruption, overstaffing,
favoritism and hiring the non-professional employees. All of the reason lack of self-supporting
and self-dependent to the enterprises. So, the government felt the need of reformation of these
enterprises which lead to the privatization.Privatization is an approach to stabilizing and
developing the national economy by strengthening the participation of private sector in nation
building. It is the process of reducing the financial burden of the government transferring the
ownership to the private sector. It aims to give the opportunity to the consumer to choose goods
and services, according to their taste and requirements in terms of quality and price in open
markets.
The policy of privatization in Nepal was specified for the first time in the sixth plan (2037 - 42).
Such policy has been incorporated in all the subsequent development plans. The Nepal
government followed the policy of privatization and economic liberalization to involve the
private sector in the activities of different economic sectors. In according to plan the privatization
program effectively, the government has regulated a privatization cell at the ministry of finance
in 1989. Till now, 24 public enterprises have been privatized like Harisidhhi brick & shoe
factory, Nepal film industry, Biratnagar jute mills, Raghupati jute mill, Hetauda textile industry,
Butwal power company, Bhaktapur brick factory, Balaju textile industry, Bansbari leather & shoe
factory etc.

Privatization of public enterprises is getting strong support from a business professional,

government, general people, world bank and donors in the context of its goal of economic
development and reduction of poverty. The majority privatized enterprises have been facing a
serious problem in investment, production, income generation, employment, security and
management. The privatized enterprises are lacking qualitative products due to inefficient
production methods, inefficient manpower, and poor technology. Majority privatized enterprises
are suffering from losses in their operation further these enterprises are facing a serious problem
of security, corporate culture, and professional management.

Co-operative Organization

Note

Things to Remember

Videos

Exercises

Quiz

Introduction of Co-Operative Organization

A co- operative organization is the form of organization which is established by the people of
weaker society to uplift their social and economic condition. It is formed with the idea of living
together and working together. It is a voluntary association of people who join together for
carrying on a business with the principles of equality and mutual help. It is a democratic
organization which is operated for the service of its members. It works with the motto of each
shall work for all and all for each. A cooperative organization prefers services instead of profit
maximization, joint actions instead of cut- throat competition, self help and self reliance instead
of undue and unwanted dependence, development of morality of members instead of emphasis
on earning money. Co-operative started in Nepal in 2010 B.S. The co-operative department was
established that year with a view to developing cooperative through people's participation and
mobilization. While this department was attempting to closely study the activities carried out in
the cooperative sector in different parts of the world, the people of Nepal had to face the
devastation of floods in 2011 B.S. The following are the main definitions of a co- operate
organization:
"A co- operate is a form of organization, where persons, irrespective of caste, caste and religion,
voluntary associate together, as human beings, on the basis of equality for the promotion of their
common economic interests. - Sherlekar
"A co- operative is an association of the weak who gather for a common economic need and try
to lift themselves from a weakness into strength through business organization." -Talmaki

" A co-operative is an organization wherein person voluntarily associate together as human

beings on the basis of equality for the promotion of the economic interest of themselves." -Prof.
E.H Calvert
Characteristics:
The following are the main characteristics of a co- operative organization are:
1. Open membership: In a co- operative, membership is open to all adults without any
distinction of caste, color or creed, and religion. A person can join the society by
contributing a small amount in the shares of the co- operative.
2. Democratic management: A co- operative organization is democratic. It is managed by
a management committee or a board of directors. The members of the management
committee or board of directors are elected in annual general meeting by the members on
the principles of one- member one- vote.
3. Limited liability: In a co- operative organization, the liability of the members is limited
up to their invested amount. The members are not required to clear the debts of the cooperative out of their private properties.
4. Service motive: In a co- operative organization, service is the primary objective. It works
for providing services to its members instead of maximizing profit. It provides qualitative
goods and services to its members at a minimum cost.
5. Separate legal existence: A co- operative organization, has a co-operate status which is
established under the Co- operative Act, 2048. It performs all transactions and makes
contracts in its own name. Due to its separate legal status, it has a permanent life.
6. Cash transactions: In a co- operative organization, cash, and carry is the basic system. It
sells goods and services to its members and outsiders on a cash basis only. Due to the
cash transaction system, it performs its business successfully even with a limited capital.
Types of Co- operate Organizations:
1. Consumers co- operative: A consumers' co- operative is established for selling
consumer goods to its members and outsider. It buys qualitative goods in bulk from a
producer or wholesaler and sells them to its members at a reasonable price. Its objective
is to avoid the cost and profit of the middleman by establishing a direct link with the
producers.
2. Producer's co- operative: A producers' co- operative is established by small-scale
procedures for supplying raw materials, tools, equipment and other items of production to
its members. It buys qualitative raw materials, tools, equipment and other items of
production in large quantity and sells them to its producer members at a reasonable price.

3. Multipurpose co- operative: A multipurpose co- operative is established by the people

of a lower income class who require different services in the field of finance, production,
marketing, housing, health, and education. Such co- operative performs various functions
are not limited to a specific area, it is known as a multi-purpose co- operative.
4. Marketing co- operative: A marketing co- operative is established by farmers and smallscale producers for selling their products at a fair price. It stores agriculture products in
its go- down and provides a loan to the farmers against the deposit of their products.
Marketing Co-operatives also provide the facilities of transportation, warehousing,
processing and packing to its members.
5. Miscellaneous co- operatives: Besides the co- operative mentioned above, other types of
co- operatives can also established for performing different functions for the service of
their members. Co- operative farming, co- operative poultry farming, dairy co- operatives
and retailer's co- operatives are some examples of miscellaneous co- operatives.

Co- Operative Organization in Nepal and Its

Importance

Note

Things to Remember

Videos

Exercises

Quiz

Co- Operative Organization in Nepal

Co- operative started in Nepal in 2010 B.S. The cooperative Department was established that
year with a view to developing cooperatives through people participation and mobilization.
While this Department was attempting to study the activities carried out in the cooperative sector
in different parts of the world, the people of Nepal had to face the devastation of floods in 2011
B.S. The devastating floods that occurred all over the country- in the Terai, the inner Terai and

the Hills caused huge destruction of people and property. People were compelled to leave their
homes in search of safer places. The newly established Cooperative Department had played a key
role to help people face the adversely with courage and patience.
Different primitive forms of cooperatives such as Dharma Bhakari, prama, and Guthi have been
known to be since in operation since antiquity. Right at the beginning of planned development in
Nepal 2013 B.S. Cooperative loan committees were formed by an executive order to provide the
loan to farmers as a part of the multipurpose projects implemented to develop the Rapti Valley. In
2017, the cooperative development fund was set up. In 2016, the cooperative organization act
and in 2018 B.S. the cooperative organization regulations were promulgated. In 2018, Sajha
Publications, Sajha Travels, Sajha Health Service were formed under the Central Cooperative
Sajha Organization.According to the king's Address of Baishakh 1, 2031, which envisioned the
implementation of effective cooperative programs throughout the country in the form of a
campaign, such programs were started in 27 districts in the Baishakh of that year. After the
restoration of democracy, Sajha Organization Act 2041 was dissolved and Cooperative Act 2048
and Cooperative Regulations 2048 were passed by the parliament. These two laws are still in
effect.
Importance of Cooperatives in Nepal
Nepal is an agriculture based economy. Most of the people are farmers who live in the rural
areas. The income level of the country is very low. They are not getting the basic facilities of life
like education, health, finance, housing facilities, electricity, telephone, water supply and other
basic goods and services. In such a context, cooperative can be the best economic means to uplift
the economic standards of the people of the lower income class living in rural and urban areas.
The followings are the importance of cooperative in Nepal:
1. They provide financial assistance to the farmers for buying improved seeds, chemical
fertilizers and agricultural tools and equipment at a low-interest rate in order to increase
agricultural output.
2. They provide financial assistance to the people of rural areas for poultry farming,
bookkeeping, fisheries, horticulture, animal husbandry and promoting cottage and small
scale industries.
3. They provide the facilities of warehousing, transportation, processing, grading, packing,
financing, and marketing the products of their members.
4. They develop a feeling of mutual help, co-operation, democracy, unity, brotherhood and
equality which ultimately brings peace and prosperity in the society.
5. They protect their members from the exploitation of capitalist organizations, money
leaders and middlemen which ultimately helps for the betterment of the living standards
of people.

Multinational Company

Note

Things to Remember

Exercises

Quiz

A multinational company is a large business organization which is established in one country as

the parent company and which performs its manufacturing, trading and service business in other
countries its subsidiaries or branches. The terms 'multinational' is created of two words, "multi"
and "national". The word multi refer to many and the world national refers to the country. Hence,
the terms of the multinational company refer to that business organization which operates its
business activities in many countries. It is a large scale business organization, which carries on
its production and distribution of goods and services at least in two or more than two countries. It
is incorporated in one country as the parent company and carries its business in different
countries through its branches or subsidiaries. It involves in mass scale production and
distribution of a standard and specific line of product and services by using sophisticated
technology. Coca-Cola Company, Pepsi, Unilever, Panasonic Corporation, Asian Paint, Nepal
Lever Ltd, Standard Chartered Bank, Nepal Arab Bank, Surya Tobacco Co. Pvt. Ltd, Hotel
Holiday Inn, Kwality Ice cream etc. are the example of a multinational company.
"A multinational corporation owns and manages a business in two or more countries." -Jacoby
"A multinational company is any firm which performs its main operation either manufacturing or
the provision of service, in at least two countries." -Brook and Remmers
From the given definition, it is clear that multinational company is established in one country and
operates its business in two or more countries through branches or subsidiaries for the production
and distribution of quality goods and services for earning a profit.
Characteristics Of Multinational Company

1. Large scale business: The capital of a multinational company is very large, its assets and
sales are also quite large. The turnover of some multinational company is much more
than the annual budget of many developing countries.
2. Global operation: Multinational company operates its production and distribution
activities in two or more countries. The Parent company manufactures and sells its
products and services through its subsidiaries or branches established in different
countries. Hence, it performs its business in the global market.
3. Productive organization: Multinational company is a productive organization, which is
involved in the production and distribution of standard goods and services at international
level.
4. Advanced technology: Multinational company used advanced and sophisticated
technology for the production and distribution of goods and services at competitive
prices.
5. Mass production and distribution: Multinational company produces and distributes
goods and services in a large scale. In order to produce and distribute goods and services
in mass scale, multinational companies invest huge capital, hire expert manpower, use
advanced technology and implement aggressive promotional strategies.
6. Monopolistic market: A Multinational company produces high-quality products by
using advanced technology and expert personnel, Its marketing strategies and distribution
channel are very effective. hence, it occupies a competitive position and creates a
monopolistic market.
Advantages:
1. A multinational company transfers a huge amount of capital, advanced technology, and
professional management to a developing country like Nepal through its branch or
subsidiary.
2. Through the multinational company people of developing country get the opportunity of
consuming standard products at affordable prices.
3. A multinational company offers excellent pay scale and career opportunities to managers,
technical and clerical staff.
4. A multinational company makes a large volume of sales in national and international
markets, which enables it to generate a huge amount of revenues.
5. A multinational company earns foreign currencies by exporting its products in the
international markets.

6. A multinational company maintains and develops good international relation among the
countries.
Disadvantages:
1. A multinational company invites its capital in the most profitable sectors and developed
regions disregarding the national interest, priorities, and goals.
2. Due to huge financial resources, advanced technology, professional management,
aggressive promotion and standard product, it creates monopoly market.
3. A multinational company promotes and sells the product in conformity with its value,
custom, culture, and practice. It makes the people addict to consume such products.
Ultimately, it spoils the cultural heritage of local people.
4. In multinational company order to maximize profit, it tends to give low prices for
materials and labor. Further, it is also responsible for the rapid depletion of natural
resources.
5. A multinational company produces goods at a lower cost by using local resources and
manpower. But, it charges higher prices for its products to the consumer.
6. A multinational company increases the dependence of the developing countries for the
production and distribution of goods and services on foreigners.