BUSINESS ORGANISATION

DR.K.MOHAMED IMRAN
Assistant Professor of Business Administration
Islamiah College (Autonomous)-Vaniyambadi
 Business organisation

Unit – I Nature of business

All human beings, wherever they may be, require different types of goods and services to satisfy their needs.
Meaning
Business refers to those economic activities, which are connected with the production or purchase and sale
of goods or supply of services with the main object of earning profit. People engaged in business earn income in
the form of profit.
Definition
Business may be defined as an economic activity involving the production and sale of goods and services
undertaken with a motive of earning profit by satisfying human needs in society.
Concept of Business
The term business is derived from the word ‘busy’. Thus, business means being busy. However, in a
specific sense, business refers to any occupation in which people regularly engage in an activity with a view to
earning profit. The activity may consist of production or purchase of goods for sale, or exchange of goods or
supply of services to satisfy the needs of other people. These activities may be broadly classified into two groups
— economic and non-economic. Economic activities are those by which we can earn our livelihood whereas non-
economic activities are those performed out of love, sympathy, sentiments, patriotism, etc.
CHARACTERISTICS OF BUSINESS
1. An economic activity: the object of earning money
2. Production or procurement of goods and services: Thus, every business enterprise either manufactures the
goods it deals in or it acquires them from producers, to be further sold to consumers or users
3. Sale or exchange of goods and services for the satisfaction of human needs: Directly or indirectly, business
involves transfer or exchange of goods and services for value. If goods are produced not for the purpose of sale but
say for internal consumption. Cooking food at home for the family is not business, but cooking food and selling it
to others in a restaurant is business.
4. Dealings in goods and services on a regular basis: Business involves dealings in goods or services on a
regular basis. One single transaction of sale or purchase, therefore, does not constitute business.
5. Profit earning: One of the main purposes of business is to earn income by way of profit.
6. Uncertainty of return: Uncertainty of return refers to the lack of knowledge relating to the amount of money
that the business is going to earn in a given period. Every business invests money (capital) to run its activities with
the objective of earning profit.
7. Elements of risk: Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavourable
or undesirable event
COMPARISON OF BUSINESS, PROFESSION AND EMPLOYMENT
Business: Business refers to those economic activities, which are connected with the production or purchase and
sale of goods or supply of services with the main object of earning profit. People engaged in business earn income
in the form of profit.
Professional: Profession includes those activities, which require special knowledge and skill to be applied by
individuals in their occupation. Such activities are generally subject to guidelines or codes of conduct laid down by
professional bodies. Those engaged in professions are known as professionals.
Employment: Employment refers to the occupation in which people work for others and get remunerated in
return. Those who are employed by others are known as employees.
OBJECTIVES OF BUSINESS
business objectives also need to be aimed at contributing to national goals and aspirations as well as towards
international well-being. Thus, the objectives of business may be classified as
a)Economic Objectives b)Social Objectives c)Human Objectives d)National Objectives e) Global Objective
A) Economic Objectives: Economic objectives of business refer to the objective of earning profit and also other
objectives that are necessary to be pursued to achieve the profit objective, which includes creation of customers,
regular innovations and best possible use of available resources.
a) Profit Earning, b) Creation of customers, c) Regular innovations, d) Best possible use of resources
B) Social Objectives: Social objective are those objectives of business, which are desired to be achieved for the
benefit of the society. Since business operates in a society by utilizing its scarce resources, the society expects
something in return for its welfare. No activity of the business should be aimed at giving any kind of trouble to the
society.
a) Supplying desired goods at reasonable prices b) Fair Remuneration to employees c) Employment Generation d)
Fair returns to investor e) Social welfare f) Payment of Government Dues
C) Human Objectives: Human objectives refer to the objectives aimed at the well-being as well as fulfillment of
expectations of employees as also of people who are disabled, handicapped and deprived of proper education and
training. The human objectives of business may thus include economic well-being of the employees, social and
psychological satisfaction of employees and development of human resource.
i)Labour welfare ii) Developing human resource iii) Participative management iv)Labour management
cooperation
D) National Objectives: Being an important part of the country, every business must have the objective of
fulfilling national goals and aspirations. The goal of the country may be to provide employment opportunity to its
citizen, earn revenue for its exchequer, become self-sufficient in production of goods and services, promote social
justice, etc. Business activities should be conducted keeping these goals of the country in mind, which may be
called national objectives of business.
i) Optimum utilisation of resources ii) Optimum utilisation of resources, iii) Development of small scale Industries
iv) Development of backward areas
E) Global Objectives: There was a very rigid policy for import and export of goods and services. But, now-a-days
due to liberal economic and export-import policy, restrictions on foreign investments have been largely abolished
and duties on imported goods have been substantially reduced. This change has brought about increase in
competition in the market. Today because of globalisation the entire world has become a big market
CLASSIFICATION OF BUSINESS ACTIVITIES

1. Industry: Industry refers to economic activities, which are connected with conversion of resources into useful
goods. The term industry is used for activities in which mechanical appliances and technical skills are involved.
These include activities relating to producing or processing of goods as well as breeding and raising of animals.
Industries may be divided into three broad categories namely primary, secondary and tertiary.
(i)Primary industries: These include all those activities, which are connected with the extraction and production
of natural resources and reproduction and development of living organisms, plants etc.
(a) Extractive industries: These industries extract or draw out products from natural sources. Extractive
industries supply some basic raw materials that are mostly products of the soil. Products of these industries are
usually transformed into many other useful goods by manufacturing industries
(b) Genetic industries: These industries remain engaged in breeding plants and animals for their use in further
reproduction. For the breeding of plants, the seeds and nursery companies are typical examples of genetic
industries.
(ii)Secondary industries: These are concerned with using the materials, which have already been extracted at the
primary stage. These industries process such materials to produce goods for final consumption or for further
processing by other industrial units.
(A)Manufacturing industries: These industries are engaged in producing goods through processing of raw
materials and thus creating form utilities. They turn out diverse finished products that we consume, through the
conversion of raw materials or partly finished materials in their manufacturing operations.
(B)Construction industries; These industries are involved in the construction of buildings, dams, bridges, roads
as well as tunnels and canals. Engineering and architectural skills are an important part in construction industries.
(iii) Tertiary industries: These industries provide service facilities. As business activities these may be
considered part of commerce because as auxiliaries to trade they assist trade. Included in this category are
transport, banking, insurance, warehousing, communication, packaging and advertising.
 2. COMMERCE: The process of buying and selling and all those activities which facilitate trade, such as storing,
grading, packaging, financing, insuring, transporting are called commerce. The principle function of commerce is
to remove the hindrances of person, place, time, exchange and knowledge, in connection with distribution of
commodities until they reach the consumers. Commerce includes two types of acti-vities, viz., (i) trade and (ii)
auxiliarie
(i)Trade: Trade is the fundamental state of business activity and involves the sale and purchase of goods and
services. It is to facilitate the transfer of goods from the seller to the buyer that all the above mentioned activities
are undertaken.
Trade may be classified into two broad categories — internal and external. Internal or home trade is concerned
with the buying and selling of goods and services within the geographical boundaries of a country. This may
further be divided into wholesale and retail trade. When goods are purchased and sold in bulk, it is known as
wholesale trade. When goods are purchased and sold in comparatively smaller quantities, it is referred to as retail
trade. External or foreign trade consists of the exchange of goods and services between persons or organisations
operating in two or more countries. If goods are purchased from another country, it is called import trade. If they
are sold to other countries, it is known as export trade. When goods are imported for export to other countries, it is
known as entrepot trade.
(ii) Auxiliaries to Trade: Activities which are meant for assisting trade are known as auxiliaries to trade. These
activities are generally, referred to as services because these are in the nature of facilitating the activities relating to
industry and trade. Transport, banking, insurance, warehousing, and advertising are regarded as auxiliaries to
trade,
Unit – II

Size of Firm and Scale of Operations

Size of firm refers to the scale of operations of business enterprise. The size of the organisation determines the
amount of capital to be invested, number or employees to be employed, extent of land required, quantity of raw
materials required etc. Size of the firm is one of the important initial decisions that need to be taken by the
entrepreneur. Every entrepreneur is interested in earning maximum revenue and profits by utilizing available
resources. Deciding the optimum size would help an entrepreneur to achieve his objectives
Concept of Size:The term ‘size’ refers to scale of production, output or operations. Generally the size of a
business enterprise is assessed in terms of (a) plant (b) firm and (c) industry.
• Plant: Plant refers to any establishment engaged in the production of goods or provision of services. It is the
aggregate of physical facilities created. It includes the buildings, machinery and the workers engaged in the
production of goods or providing of services. The establishment may be a factory, mine, workshop, retail
shop, office etc.
• Firm: It refers to the enterprise which owns controls and manages the plant and also undertakes the
marketing of goods and services. The firm may be in the form of proprietary firm, partnership, company or
cooperative enterprise.
• Industry: Industry refers to the aggregation of firms which use the same raw materials or produce the same
product such as car industry, plant industry, paper industry, software industry etc
Though size of unit is used in all the above three contexts, in actual practice, size of the unit is used only in terms
of firm level.
MEASURES OF SIZE
The business units are of different sizes such as: 1)Large scale units 2)Medium scale units and 3)Small scale
units
In order to determine the size, quantitative measurement of the firm is necessary, which in turn requires some
standard or yardstick. But selection of a suitable standard is not an easy task. There are various standards with
which the size of a firm can be measured. But no such standard is precise of definite. All standards are only
approximate and each one is having its own limitation.
STANDARDS FOR MEASURING THE SIZE :the measures that are generally used in measuring the size of
the business unit can be discussed under tow heads viz:
1. Input measures and
2. Output measures
1. Input measures: Input measures are those measures, which are based on the value or volume of the various
factors of production employed. They are:
(a) Capital Investment/ Networth: Capital investment is one of the standards used to measure the size of
the units. Networth refers to the aggregate of its paid up capital and free reserves.
 (b) Number of Employees: Scale of the firm can be measured by the number of employees working in the
organization.
(c) Power Consumed: Number of units of power consumed can also be used as a measure to judge the
scale of operations. Generally, larger firms consume more power when compared to smaller firms. But
this measure can be used for comparison between firms which equal efficiency in terms of power
consumption.
(d) Plant Capacity: Plant is any establishment that produces goods or services. It may be small or large
depending on the infrastructure (buildings, machinery etc.)
(e) Amount of Materials Used: The amount of raw materials may be good measure where different
concerns are engaged in the production of similar products.
2. Output Measures: The following are the important output measures
(a) Volume of output: The quantity of units produced can also be used as a measure to judge the size of
an organisation..
(b) Value of output: In case of industries which produce a variety of products the value of output can be
used to measure the size of operations. For eg: in the FMCG industry, HLL is the number one company
in terms of value output. A firm with a higher value of output would be considered to be of large size
when compared to a firm with a lower value of output.
Main Factors Responsible for Determining the Size of the Firm
There are various economic as well as non-economic factors that influence the size of a business unit. The
relative importance of the factor varies with the products manufactured, industry in which the firm operates etc.
size is primarily determined by the goals and objectives of the organisation and influences the efficiency of
operations. The six main factors responsible for determining the size of the firm are as follows:
The size of an average firm varies from country to country. We have, on the one hand, giant concerns in the
United States and Germany and tiny businesses in small Indian towns. Why is it so? There are a number of factors
which determine the size of a business unit in a country.
The following are the main factors responsible:
1. Entrepreneurial Skill: The most important factor of comes is the skill, initiative and resourcefulness of the
entrepreneur. Everything depends on his judgment and ability. An entrepreneur of outstanding ability will be able
to procure as much finance as he may need, hire the requisite labor force and build up a huge business. But an
entrepreneur of moderate ability will run business on a moderate scale and a man of limited entrepreneurial skill
will be content with a small business.
2. Managerial Ability: For running the routine part of the business, managers are appointed. If a firm is lucky
enough to have a manager of great ability, the size of the firm will grow to considerable dimensions. On the other
hand, a mediocre manager will have a small-sized firm to manage.
3. Availability of Finance: It is finance which oils the wheels of business machine. If ample funds are available, it
will help the entrepreneur to make his business grow to a big size. This requires a proper development, of the
banking system so that savings of the community can be effectively mobilized and utilized in the development of
trade and industry.
4. Availability of Labour: Another factor on which the size of the firm depends is the availability of labour of
requisite skill. After all, what can the entrepreneur even with large capital do, if the labour to man the business is
not available? What is required is efficient and skilled labour.
5. Nature of Business: Much also depends on the nature of business. If the business obeys the law of increasing
Returns, it will grow to a big size, otherwise, in the case of diminishing returns it will remain stunted, and in the
case of constant returns it will remain stagnant.
6. Extent of the Market: The size of the firm also depends on the extent of the market. If the commodity in which
the firm deals or which it-manufactures has a wide market, naturally the business will assume a large scale. But if
the demand for the commodity is fitful or limited, the size of the firm will continue to be small. These are some of
the factors on which the size of an average firm in a country depends.
7. Nature of demand If the demand for the product is high and expected to grow further in the future, the size of
the firm would increase. In case demand for a product is showing d declining trend, the size of the firm would not
be increased.
8. Economic Environment Economic environment plays a significant role in influencing the value of the firm. In
case the economy is in a boom condition, the purchasing power in increasing, the entrepreneurs would be induced
to increase the scale of operations. Whereas in case the economy is passing through recession of depression, the
size of operation would remain small.
9. Government Policy The government has reserve certain items for manufacture by the small scale industry.
Therefore the size of such firms would be small in order to enjoy protection and government privilege.
10. Estimates of future If an industry is expected to perform well in the future, then entrepreneurs would be ready
to set up large sized business to meet future demand. For eg; with the increase in employment and purchasing
power the demand for automobiles, housing, consumer durables are expected to increase. Therefore business units
engaged in these businesses are encouraged to increase their size.
Factors influencing optimum size of a Business unit
The following are the factors that influence the optimum size of a firm:
1. Technical forces
2. Managerial forces
3. Financial forces
4. Marketing forces
5. Forces of risk and fluctuations
1. Technical forces influence size of a firm
Technical forces which influence the optimum size of firm are degree of specialization (division of labour),
mechanization and integration of work processes.
In the case of division of labor, a job is split into small functions and each function is assigned to a specific
workman. When a workman performs a specific operation over a long period of time, the skill of the workman,
speed of performance, quality of work etc improve.
2. Managerial forces influence size of business units
Managing an organization today is a complex task. The services of qualified, experienced, professionals
are required to run the organization in an efficient manner. Therefore businesses which desire to maximize their
sales and profitability need to appoint a competent management team. To appoint such personnel, high amounts of
remuneration and benefits have to be paid. Only large organizations would be able to offer such high remuneration
levels. The expert managers using their ability and skills can ensure the growth of the business in various spheres.
But there is a limit to which expert management can grow the organization.
3. Financial forces influence size of a business unit
Investors have more confidence in large and established firms. They prefer to invest their money in large
firms because of the possibility of earning high returns. Investors generally do not prefer to invest in new or small
firms because they feel that such investment is risky and the possibility of earning high returns is also less.
Therefore large firms are able to raise required financial resources easily. Banks also come forward to lend loans at
cheaper rates of interest and therefore cost of funds is also less for large firms.
4. Marketing forces influence size of business
A large firm can enjoy economies of buying and selling. Since it buys raw materials in bulk quantities it
can enjoy the benefits of quantity discounts. It can employ experts for purchase. They would be able to source
quality raw materials at cheaper prices. Similarly experts can be employed for marketing their products. In case a
large firm has multiple products the sales force can market the entire range of products.
5. Forces of risks and fluctuations influence size of business
Business enterprises face risks from different sources. Risks may arise due to the following reasons:
▪ changes in customers preferences (textiles to ready-made, typewriters to computers etc.)
▪ changes in fashions (jeans to cotton casuals etc.)
▪ increased competition (in all industries)
▪ changes in government policies (reservation to De-reservation in SSI’s, ban on lottery sales in Tamil Nadu,
from protection to local industry to liberalization, globalization and privatization etc.)
▪ fluctuations in currency rates (1$ = Rs.30 in 1980’s to 1$ = 68 in 2016)
▪ difficulty in getting production inputs (power shortages in many states etc)
▪ loss of key employees.
▪ development in technology (pagers to mobile phones, floppies to CD’s)
▪ theft, pilferage and embezzlement of organizations resources natural calamities (earthquakes, tsunami,
floods, etc).
Advantages or Merits of Small Scale Industries
1. Potential for large employment
2. Requirement of less capital
3. Contribution to industrial output
4. Contribution to exports.
5. Earning foreign exchange
6. Equitable distribution.
7. Use of domestic resources
8. Opportunities for entrepreneurship
 9. Cost efficiency
10. Reducing migration
11. Suitable for non-standardized products
Demerits or Disadvantages of Small Scale Industries
1. Lack economies of scale:
2. Low wages
3. Lack of modernization
4. Inefficiency.
5. Overcrowding.
6. Sickness
7. Less innovation capacity
8. Low competitiveness
9. Low capacity utilization.
10. Lack of pollution.
MSME – Micro, Small and Medium Enterprises:MSME stands for micro, small and medium enterprises. It
plays an important role for economic development of our country. The major advantage of the sector is its
employment potential at low capital cost. The labor intensity of the MSME sector is much higher than that of the
large enterprises. It satisfies the demand of local customer.
Industry coming under MSME
• Food Processing (kfc product, berger,pasta)
• Agricultural Inputs (Seeds, fertilizer)
• Chemicals & Pharmaceuticals (medicines)
• Engineering; Electricals, Electronics
• Electro-medical equipment
• Textiles and Garments
• Meat products
• Sports goods
• Plastics products
• Computer Software, etc.

MICRO, SMALL & MEDIUM ENTERPRISES DEVELOPMENT (MSMED) ACT,2006

• The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, on
June 16, 2006 .
• In India, the enterprises have been classified broadly into two categories
1.Manufacturing 2. services.
• Both categories have been further classified into micro, small and medium enterprises based on their investment in
plant and machinery or on equipment.

Definition of MSMEs in India

(As Per Micro, Small & Medium Enterprises Development (MSMED) Act, 2006)
Manufacturing Enterprises – Investment in Plant & Machinery
Description INR USD($)
Micro Enterprises upto Rs. 25Lakh upto $ 62,500
above Rs. 25 Lakh & upto Rs. 5 above $ 62,500 & upto $ 1.25
Small Enterprises
Crore million
above Rs. 5 Crore & upto Rs. 10 above $ 1.25 million & upto $ 2.5
Medium Enterprises
Crore million

Service Enterprises – Investment in Equipments

Description INR USD($)
Micro Enterprises upto Rs. 10Lakh upto $ 25,000
 above Rs. 10 Lakh & upto Rs. 2 above $ 25,000 & upto $ 0.5
Small Enterprises
Crore million
above Rs. 2 Crore & upto Rs. 5 above $ 0.5 million & upto $ 1.5
Medium Enterprises
Crore million

Major Players In spite of their limitations, the SMEs have made a significant contribution towards technological
development and exports. They are established in almost all-major sectors in the Indian industry such as: Food
Processing, Textiles and Garments, Agricultural Inputs, Leather and leather goods, Chemicals & Pharmaceuticals,
Bio-engineering, Engineering, Electricals, Sports goods, Electronics, Plastics products, Electro-medical
equipment, Computer Software, etc.
Key Challenges Faced by the MSME Sector Lack of availability of adequate and timely credit
• High cost of credit• Collateral requirements
• Limited access to equity capital
• Procurement of raw material at a competitive cost
• Problems of storage, designing, packaging and product display
• Lack of access to global markets
• Inadequate infrastructure facilities, including power, water, roads, etc
• Low technology levels and lack of access to modern technology
• Lack of skilled manpower for manufacturing, services, marketing, etc
• Multiplicity of labour laws and complicated procedures associated with compliance of such laws. Despite the
various challenges it has been facing, the MSME sector has shown admirable innovativeness, adaptability and
resilience to survive the recent economic downturn and recession.
Small and Medium Enterprises (SMEs) contribute to economic development in various ways such as creating
employment opportunities for rural and urban population, providing goods & services at affordable costs by
offering innovative solutions and sustainable development to the economy as a whole. SMEs in India face a
number of problems - absence of adequate and timely banking finance, non-availability of suitable technology,
ineffective marketing due to limited resources and non availability of skilled manpower.
Registration enables an MSME to take advantage of the following schemes offered by the central
government:
· Priority sector lending – Small and medium enterprises get loans at rates lesser than the market rates,
especially those in agriculture and located in rural areas.
· Credit Linked Capital Subsidy Scheme – This scheme helps MSMEs achieve technological up gradation
(in case of production of government-approved products/sub-products). Under this scheme, a capital subsidy of 15
per cent or Rs. 15 lakh (whichever is lower) is offered on investment in plant & machinery approved by the
government. The maximum limit for such investment has been capped at Rs. 1 crore.
· Credit Guarantee Fund Trust For Micro and Small Enterprises (CGTMSE) – Under this scheme, banks
offer finance of up to Rs. 100 lakh to MSMEs without any collateral security and/or third-party guarantee. Each
bank has separate targets for financing of MSMEs under this scheme.
· Procurement of raw materials and marketing activities –The National Small Industries Corporation
(NSIC) helps MSMEs procure raw material for production, through arrangements with wholesale manufacturers.
The NSIC also provides MSMEs assistance in bill discounting, exports, and promotional activities, as well as
financial help for making payments to raw material suppliers.
· Excise Exemption Scheme – MSMEs producing government-approved products/services can avail of
exemption from paying excise duty under this act, or pay such duty at a concessional rate.
· Reservation - The central government reserves certain products to be exclusively manufactured by MSMEs.
Apart from these schemes, there are certain facilities and incentives made available to MSMEs by their
 Unit – III

FORMS OF BUSINESS ORGANIZATION .

In starting a business in India, choosing the right forms of business organization is important. Each
type of organization has its own merits and demerits. The right choice of the forms of business
organization is very crucial because it determines the power, control, risk and responsibility of the
entrepreneur as well as the division of profits and losses. Being a long term commitment, the choice of the
form of business should be made after considerable thought and deliberation. Although you can change
your ownership type at any time, you should decide carefully, experts agree, because the form of business
you choose will affect the way you file paperwork, face personal liability, pay taxes and, if necessary, file
for bankruptcy protection.
IDEAL FORMS OF BUSINESS ORGANIZATION
In choosing the right forms of business organization for your enterprise, you must consider the
characteristics of an ideal form of organization. These are as follows:
▪ The formation process should be easy and simple. The formation should not
involve many legal formalities and it should not be time-consuming.
▪ The form of organization should facilitate the raising of the required amount of capital at a reasonable
cost. If the enterprise requires a large amount of capital, the preconditions for attracting capital from the
public area) safety of investment b) fair return on investment and c) transferability of the holding.
▪A business enterprise may be organized on the basis of either limited
or unlimited liability. From the point of view of risk, limited liability is preferable.
▪ The responsibility for management must be in the hands of the owners of the firm. The day-to-day
operation and management operations should take care of properly.
▪ Stability is essential for any business concern. Uninterrupted existence enables the entrepreneur to
formulate long‐term plans for the development of the business concern.
HOW TO CHOOSE THE RIGHT FORMS OF BUSINESS ORGANIZATION
According to the desired parameters, choosing the right forms of business organization is most crucial in starting
any business. The choice of the form of business is governed by several interrelated and interdependent factors
such as:
• Nature of the Business: This is one of the most important factors you should consider in choosing forms
of business organization. Businesses providing direct services like tailors, restaurants and professional services
like doctors, lawyers are generally organized as proprietary concerns. While businesses requiring pooling of
skills and funds like accounting firms are better organized as partnerships. Manufacturing organizations of large
size are more commonly set up as private and public companies.
• Scale of Operation: Large scale enterprises catering to national and international markets can be
organized more successfully as private or public companies. Small and medium scale firms are generally set up
as partnerships and proprietorship.
• Degree of Control: An individual who desires direct control of business prefers proprietorship because a
company involves separation of ownership and management.
• Capital Requirement: Capital investment plays a major role in choosing the right forms of business
organization. However, a partnership company may be converted into a company when it grows beyond the
capacity and resources of a few persons.
The volume of risks and liabilities as well as the willingness of the owners to bear it is also an important
consideration in choosing the right business entity.
DIFFERENT FORMS OF BUSINESS ORGANIZATION
Different Forms of Business Organisations found in India are 1. Sole Proprietorship 2. Partnership Firm
3. Joint Stock Company, 4. Limited Liability Partnership 5. One-person Company and
SOLE PROPRIETORSHIP: The term ‘sole’ means single and ‘proprietorship’ means ‘ownership’. So, only one
person is the owner of the business organization. This is a specific type of business unit where one person is solely
responsible for providing the capital and bearing the risk of the enterprise, and for the management of the business.
The owner himself/herself manages the business as per his/her own skill and intelligence. There is no separation of
ownership and management as is the case with company form of business organization.
Feature of sole proprietorship
(i) Individual Initiative: One person is the owner in a sole proprietary form of organisation.
 (ii) Risk Bearing: The proprietor is the sole beneficiary of profits in this form organisation. If there is a loss
he alone has to bear it. Thus the risks of business are borne by the proprietor himself.
(iii) Management and control: Management and control of this type of organisation is the responsibility of
the sole proprietor. He may, however, employ a manager or other people for the purpose.
(iv) Minimum government regulations: The government does not interfere with the working of the sole
proprietorship organisation. However, they have to comply with the general laws and rules laid down by
government.
(v) Secrecy: All important decision taken by the owner himself. He keeps all the business secrets only to
himself.
Merits of Sole Proprietorship:
A sole proprietary organisation has the following advantages:
• Easy formation: A sole proprietorship business is easy to form where no legal formality involved in
setting up this type of organization. It is not governed by any specific law. It is simply required that the
business activity should be lawful and should comply with the rules and regulations laid down by local
authorities.
• Better Control: In sole proprietary organisation, all the decisions relating to business operations are taken
by one person, which makes functioning of business simple and easy. The sole proprietor can also bring
about changes in the size and nature of activity. This gives better control to business.
• Sole beneficiary of profits: The sole proprietor is the only person to whom the profits belong. There is a
direct relation between effort and reward. This motivates him to work hard and bear the risks of business.
• Benefits of small-scale operations: The sole proprietorship is generally organized for small-scale
business. This helps the proprietor’s family members to be employed in business. At the same time such a
business is also entitled to certain concessions from the government. For example, small industrial
organisations can get electricity and water supply at concessional rates on a priority basis.
• Inexpensive Management: The sole proprietor does not appoint any specialists for various functions. He
personally supervises various activities and can avoid wastage in the business.
Limitations of Sole Proprietorship: A sole proprietor generally suffers from the following limitations:
• Limitation of management skills: A sole proprietor may not be able to manage the business efficiently
as he is not likely to have necessary skills regarding all aspects of the business. This poses difficulties in
the growth of business also.
• Limitation of Resources: The sole proprietor of a business is generally at a disadvantage in raising
sufficient capital. His own capital may be limited and his personal assets may also be insufficient for
raising loans against their security. This reduces the scope of business growth.
• Unlimited liability: The sole proprietor is personally liable for all business obligations. For payment of
business debts, his personal property can also be used if the business assets are insufficient.
• Lack of continuity: A sole proprietary organisation suffers from lack of continuity. If the proprietor is ill
this may cause temporary closure of business. And if he dies the business may be permanently closed.
From the above account of the merits and limitations it becomes clear that it is only personal services like
repair work, tailoring etc. small factories, retail shops and professional activities which can be set up as
sole proprietary organisations. In India, this form of organisation is quite popular and accounts for the
largest number of business units.
JOINT HINDU UNDIVIDEND FAMILY: Joint Hindu family business is a specific form of business
organisation found only in India. It is one of the oldest forms of business organisation in the country. It refers to a
form of organisation wherein the business is owned and carried on by the members of the Hindu Undivided
Family (HUF). It is governed by the Hindu La w. The basis of membership in the business is birth in a
particular family and three successive generations can be members in the business. The business is controlled by
the head of the family who is the eldest member and is called karta. All members have equal ownership right
over the property of an ancestor and they are known as co-parceners There are two systems which govern
membership in the family business, viz., Dayabhaga and Mitakashara systems. Dayabhaga system prevails in
West Bengal and allows both the male and female members of the family to be co-parceners. Mitakashara
system, on the other hand, prevails all over India except West Bengal and allows only the male members to be
co-parceners in the business
PARTNERSHIP FIRM: Partnership is a form of business organisation which was born due to the defects of the
sole trading firm. The two great drawbacks of sole proprietorship namely, limited capital and limited managerial
skill have been overcome by the formation of a partnership firm.
Partnership is a combination of two or more persons, some having capital, others having skill and experience to
conduct any lawful business, forming a business firm and sharing the profits of such a business. Hence the persons
who form the partnership are called 'partners' individually and a 'Firm' collectively. The name in which their
business carries on is called the 'firm's name'..
Definition:Section 4 of the Indian Partnership Act of 1932 defines a Partnership as "The relation between
persons who have agreed to share the profits of a business carried on by all or any of them acting for all".
Important Characteristics of a Partnership Firm
1. Existence of an agreement: Partnership is the outcome of an agreement between two or more persons to carry
on business. This agreement may be oral or in writing. The Partnership Act, 1932 (Section 5) clearly states that
"the relation of partnership arises from contract and not from status."
2. Existence of business: Partnership is formed to carry on a business. As stated earlier, the Partnership Act,
1932 [Section 2 (6)] states that a "Business" includes every trade, occupation, and profession. Business, of course,
must be lawful.
3. Sharing of profits: The purpose of partnership should be to earn profits and to share it. In the absence of any
agreement, the partner should share profits (and losses as well) in equal proportions. Here it is pertinent to quote
the Act (Section 6) which talks of the 'mode of determining existence of partnership'. It says that sharing of profits
is as essential condition, but not a conclusive proof, of the existence of partnership between partners.
4. Agency relationship: The partnership business may be carried on by all or any of them acting for all. Thus,
the law of partnership is a branch of the law of Agency. To the outside public, each partner is a principal, while to
the other partners he is an agent. It must, however, be noted that a partner must function within the limits of
authority conferred on him.
5. Membership: The minimum number of persons required to constitute a partnership is two. The Act, however,
does not mention the upper limit. For this recourse has to be taken to the Companies Act, 1956 [Section 11 (1) &
(2)]. It states that the maximum number of persons is ten, in case of a banking business and twenty, in case of any
other business.
6. Nature of liability: The nature of liability of partners is the same as in case of sole proprietorship. The
liability of partners is both individual and collective. The creditors have a right to recover the firm's debts from the
private property of one or all partners, where firm's assets are insufficient.
7. Fusion of ownership and controlling the eyes of law, the identity of partners is not different from the identity
of partnership firm. As such, the right of management and control vests with the owners (i.e., partners).
8. Non-transferability of interest: No partner can assign or transfer his partnership share to any other person so
as to make him a partner in the business without the consent of all other partners.
9. Registration of firm: Registration of a partnership firm is not compulsory under the Act. The only document
or even an oral agreement among partners required is the 'partnership deed' to bring the partnership into existence.
ADVANTAGES AND DISADVANTAGES OF A PARTNERSHIP FIRM
ADVANTAGES
1. Easy formation: Formation of partnership is easy. Even the registration of a firm is optional; hence no legal
formalities are required.
2. Better Capital: As the partnership is formed by two or more persons, capital contribution is higher and there
are greater managerial abilities.
3. Greater specialisation: The principle of division of labour can be applied to a greater extent in a firm, which
results in greater specialization.
4. Secrecy: The statement of accounts of the firm need not be published and this ensures secrecy.
5. Credit-worthiness: As the liability of the partner is unlimited, severally and jointly, careful management of
business is ensured and this increases the credit-worthiness of the firm which in turn enables to obtain credit from
third parties easily.
6. Flexibility: Partnership business is flexible, as suitable changes can be easily introduced whenever necessary.
7. Minimum legal restriction: It is not subject to excessive legal restrictions; therefore it enjoys freedom in
administration.
8. Sharing of risks: Risk does not fall on one individual's shoulder in this type; it is shared by all the partners.
9. Sound decision: As the decisions are taken by two or more persons collectively, it is likely to be more
balanced.
10. Risk and reward: As each partner is interested in profits, he tries to do his best to get more reward and this
increases efficiency.
11. Protection to partners' interests: As every partner has a right to express his opinion, everybody's interests
are protected.
12. Simple dissolution: It can be easily dissolved. Any partner can give 14 days' notice to other partners and
dissolve the firm with the consent of other partners.
DISADVANTAGES:
 1. Lack of co-operation: As there are more than two persons in the business, unity among them becomes utmost
essential. If unity is not secured, disputes arise and disturb the smooth working of the business.
2. Limited capital: As there is limitation on the total number of partners, the capital that can be raised becomes
limited.
3. Lack of public confidence: There is no Governmental supervision over the affairs of the business of a
partnership and publishing accounts is also not necessary. Hence, public may not have full confidence in them.
4. Unlimited liability: The liability of the partners is unlimited, jointly .and severally. This discourages many
people from becoming the partners of the firm
5. Non transferability of interest: A partner cannot transfer his interest to a third party without consent of other
partners. This blocks the money invested by a person and it may discourage many investors from becoming
partners of the firm.
6. Lack of faith: Utmost good faith is the essence of partnership. If a partner acts dishonestly, it may land all
others in trouble, because he is an agent of the firm.
7. Lack of stability: Partnership lacks continuity of existence, as the death, insolvency or insanity of a partner
leads to its dissolution.
8. Limited organizing sources: The radical changes in the methods of production and distribution in modern
business leads to large scale business operations. This may not be adapted by partnership due to limited capital and
managerial resources.
Different types of partners in a Partnership Firm:
There are various types of partners in a partnership firm. They are as follows:
1. Active Partner: Partner who takes an active part in the management of the business is called active partner.
He may also be called 'actual' or 'ostensible' partner. He is an agent of the other partners in the ordinary course
of business of the firm and considered a full fledged partner in the real sense of the term.
2. Sleeping or Dormant Partner: A sleeping or dormant partner is one who does not take any active part in the
management of the business. He contributes capital and shares the profits which are usually less than that of
the active partners. He is liable for all the de of the firm but his relationship with the firm is not disclosed to
the general public.
3. Nominal Partner: A partner who simply lends his name to the firm is called nominal partner. He neither
contributes any capital nor shares in the profits or take part the management of the business. But he is liable to
third parties like other partners. A nominal partner must be distinguished from the sleeping partner. While the
nominal partner is known to the outsiders and does not share in the profits, the sleeping partner shares in the
profit a his relationship is kept secret.
4. Partner in Profits: A partner who shares in the profits only without being liable of the losses is known as
partner in profits. He does not take part in the management of the business but he is liable to third parties for
all the debts of the firm.
5. Sub-partner: When a stranger share the profits derived from the firm by a partner he is regarded as a sub-
partner. A sub-partner is in no way connected with the firm or he not a partner of the firm. He is simply a
partners' partner. Therefore, he has no rights again the firm nor he is liable for the debts of the firm. He only
shares profits from a partner.
6. Partner by Estoppels or Holding out: When a partner is not a partner but represent to the outside world that
he is a partner in a firm, he is stopped or prevented from denying the truth. He is considered as a partner in the
eyes of law. Similarly, if a person is declared i be a partner by a partner of a firm and such person remained
silent without denying it, he also considered a partner by holding out. Thus, such persons are liable to
outsiders i partners on the principle of estoppels or holding out because on faith of their representation action
outsiders have granted credit to the firm.
7. Minor Partner: Partnership arises from contract and a minor is not competent to enter into contract.
Therefore, strictly speaking, a minor cannot be a full-fledged partner. But with the consent of all the partners
he can be admitted into partnership for benefits only. He is not personally liable to third parties for the debts
of the firm, on attaining majority, if he continues as a partner, his liability will become unlimited with effect
from the date of hi original admission into the firm
Essential contents of a Partnership Deed
Partnership is formed by an agreement. The agreement nay be verbal or in writing or may be inferred from the
conduct of the partners. To avoid future disputes and differences between the partners it is desirable to have a
written agreement. The written agreement between or among the partners is known as “Partnership
Deed” otherwise known as 'Articles of Partnership'. It must be signed by all partners and stamped in accordance
with the Indian Stamp Act. A partnership deed generally contains the following important particulars:
Contents
i. Names and addresses of the firm and each partner
ii. Nature of business to be carried on and the locally where business is to set up
iii. Duration of partnership, whether for a fixed period/job of not
iv. Capital contribution by the each partner
v. Profit sharing ratio among the partners
vi. Interest on capital, if any to be paid to partners
vii. Drawings and interest on drawings, whether permissible or not
viii. Loans and advances by partners to the firm
ix. Whether or not to pay salary or commission to partners How and who will manage the business
x. Methods of keeping account who and how to audit the accounts. Maintaining bank accounts
xi. The mode of admission and retirement of partners
xii. How to value the goodwill on admission, retirement and death of a partner
xiii. Method of settlement of accounts on retirement and death of a partner
xiv. Provision for arbitration in case of disputes
xv. The methods of dissolution of partnership firm
xvi. Settlement of accounts in case of dissolution of the firm
Rights and Duties of Partners: The Partnership Deed contains the mutual rights, duties and obligations of the
partners, in certain cases, the Partnership Act also makes a mandatory provision as regards to the rights and
obligations of partners. When there is no Deed or the Deed is silent on any point, :ne rights and obligations as
provided in the Partnership Act shall apply.
Rights of a Partner:
The rights of a partner are as follows:
i. Right of the partner to take part in the day-to-day management of the firm.
ii. Right to be consulted and heard while taking any decision regarding the business.
iii. Right of access to books of accounts and call for the copy of the same.
iv. Right to share the profits equally or as agreed upon by the partners.
v. Right to get interest on capital contributed by the partners to the firm.
vi. Right to avail interest on advances paid by the partners for business purpose.
vii. Right to be indemnified in respect of payment made or liabilities incurred or for protecting the firm from
losses.
viii. Right to the use of partnership property exclusively for partnership business only not himself.
ix. Right as agent of the firm and implied authority to bind the firm for any act done in carrying the business.
x. Right to prevent admission of new partners/expulsion of existing partners.
xi. Right to continue unless and otherwise he himself cease to become partner.
xii. Right to retire with the consent of other partners and according to the terms-and conditions of deed.
xiii. Right of outgoing partner/legal heirs of deceased partner.
Duties of a Partner: The duties of a partner are as follows:
i. To carry on the business to the greatest common advantage: Every partner is bound to carry on the
business of the firm to the greatest common advantage. In other words, the partner must use his knowledge and
skill in the conduct of business to secure maximum benefits for the firm.
ii. To be just and faithful to each other:Every partner must be just and faithful to other partners of the firm.
Every partner must observe utmost good faith and fairness towards other partners in business activity.
iii. To render true accounts: Every partner must render true and proper accounts I his co-partners. Each and
every entry in the books must be supported by vouchers and di explanations if demanded by other partners.
iv. To provide full information: Every partner must provide full information of £ activities affecting the firm to
the other co-partners. No information should be concealed, kept secret.
v. To attend diligently to his duties: Every partner is bound to attend diligently to duties in the conduct of the
business of the firm.
vi. To work without remuneration: A partner is not entitled to receive any kind remuneration for taking part in
the conduct of the business. But in practice, the working partners are generally paid remuneration as per
agreement, so also commission in some case.
vii. To indemnify for loss caused by fraud or wilful neglect: If any loss is caused to the firm because of a
partner's willful neglect in the conduct of the business or fraud commit by him against a third party then such
partner must indemnify the firm for the loss.
viii. To hold and use partnership property exclusively for the firm: The partners must hold and use the
partnership property exclusively for the purpose of business of the firm not for their personal benefit.
 ix. To account for personal profits: If a partner derives any personal profit from partnership transactions or
from the use of the property of the firm or business connection the firm or the firm's name, he must account for
such profit and pay it to the firm.
x. Not to carry on any competing business: A partner must not carry on competing business to that of the firm.
If he carries on and earns any profit then he must account for the profit made and pay it to the firm.
LIMITED LIABILITY OF PARTNERSHIP
In limited partnership, the liability of at least one partner is unlimited whereas the rest may have limited liability.
Such a partnership does not get terminated with the death, lunacy or insolvency of the limited partners. The
limited partners do not enjoy the right of management and their acts do not bind the firm or the other partners.
Registration of such partnership is compulsory.
Advantages of LLP
Separate legal entity: An LLP is a separate legal entity. This means that it has assets in its own name and can sue
and be sued. Furthermore, one partner is not responsible or liable for another partner’s misconduct or negligence.
No owner/manager distinction: An LLP has partners, who own and manage the business. This is different from a
private limited company, whose directors may be different from shareholders. For this reason, VCs do not invest
in the LLP structure.
Flexible agreement: The partners are free to draft the agreement as they please, with regard to their rights and
duties.
Limited liability: The liability of the partners is limited to the extent of his/her contribution to the LLP. Unless
fraud has been detected, the personal assets of the partner are protected from any liability of the LLP.
Fewer compliance requirements: An LLP is much easier and cheaper to run than a private limited company as
there are just three compliances per year. On the other hand, a private limited company has a lot of compliances to
fulfil and conduct an audit of its books.
Easy to wind-up: Not only is it easy to start, it’s also easier to wind-up an LLP, as compared to a private limited
company. While it still takes two to three months to complete this process, it can take over a year to close a private
limited company.
Disadvantages of LLP
Inability to raise VC funding: VCs would be unwilling to invest in an LLP structure. This is because all
‘shareholders’ in an LLP must be partners, which have certain responsibilities toward the entity. No VC wants any
of these responsibilities, and would, therefore, only invest in a private limited company.
Rights of partners: An LLP can be structured in such a way that one partner has more rights than another. So it
isn’t a one vote per share system. So, some lesser partners may feel compromised if higher shareholders choose to
move the business in a direction that affects their interests.
Greater penalties: An LLP’s compliances are minimal, but if you don’t complete them, you could end up paying
more in fines than you would with a private limited company. These fines can escalate to Rs. 5 lakh for a single
year.
CO-OPERATIVE SOCIETY : A cooperative society from the business is a different from of business enterprise
in this from the main motive is not earning profit but the main motive of cooperative organization is mutual help.
The cooperative society is a voluntary association of persons, who join together with the motive of welfare of the
members need to protect their economic interests in the face of possible exploitation at the hands of middlemen
obsessed with the desire to earn greater profits.
Advantages of cooperative society
1. Voluntary membership, 2. Legal status, 3. Limited liability, 4. Separate legal entity, 5. Distribution of surplus
Limitation of cooperative society
1. Limited resources, 2. Inefficiency in management, 3. Lack of secrecy, 4. Government control, 5. Differences of
opinion
JOINT STOCK COMPANY : the company from the a organisation is considered to be most suitable
organisation business activities on a large scale. It has advantage of with adequate capital it can employee trained
and experiences manager to run the business activities efficiency.
The term “company” refers to a body corporate. In other words, it is a body incorporated in accordance with the
provisions of a specified Act. It is viewed to be a person created by law – a jurisidical person. Its legal entity is
distinct from its members and independent of even its promoters who give birth to it.
Definition In the words of Lord Justice Lindley, “ By a company we mean, “an association of many persons who
contribute money or money’s worth to a common stock and employ it in some trade or business and also share the
profit and loss, as the case may be, arising there from.
Feature of joint sock company
1. Separate legal entity It enjoys a separate personality of its own, different from the members composing it. This
enables a company to enter into valid contracts with others including its members and deal with the property in
any way it likes. It can sue others in its own name and be sued in its own name by others including its members.
2. Perpetual Succession- Continuity of Life “Members may come and go but the company can go on forever”
(Lord Gower). This is because company’s existence does not depend upon the existence of even promoters who
were instrumental in its formation. Neither change in the membership of the company nor the death of its members
has any impact on the continuity of its life.
3. Common Seal: Though the separate personality of the company is legally recognised, it needs human agency to
act. Obviously it cannot sign. Any contract entered into by a company, to be valid, must bear the official seal of
the company.
4. Limited Liability: The liability of the members of a company is generally limited to the value of shares. When
once the full value of the shares is paid up, there is no more liability for the shareholders. The feature of limited
liability attracts a large number of investors to subscribe to the shares of the company.
5. Easy Transferability of Shares: In the case of public limited companies, their fully paid shares can be
transferred to others without any difficulty. However, in the case of private limited companies, the right to transfer
the shares is subject to certain restrictions
Advantage of joint stock company
1. Large amount of capital 2. Limited liability 3. Continuity/ stability 4. Efficient management 5. Growth and
expansion 6. Esay transfer of share 7. Public confidence 8. Social reputability
Disadvantage of Joint Stock Company
1. Lack of motivation 2. Delay in decision- making 3. Excessive government control 4. Conflict of shareholder 6.
Oligarchy management 7. Social evil
ONE PERSON COMPANY
The companies’ act 2013 has introduction a concept of one Person Company in consonance with legal the global
trends. As per section 2 (62) the term one person company means a company which has only one person as
member.
If there is only one promoter/founder, One Person Company (OPC) is the best way to start a company. OPC
is one of the significant milestones of the Companies Act, 2013, introduced to encourage self-employment with a
backbone of India's legal system. OPC requires one member (member refers to someone who subscribes to
Memorandum/has their name in the Register of members/holds shares of the company with their name in the
records of depository) and one nominee, who becomes the member of the company.
PUBLIC UTILITIES : the term public utility refer to an organization engaged in the supply of such essential
goods and services that are absolutely indispensable for the community eg supply of water, electricity etc., any
interruption in their supply is sure to throw the normal life of the community out gear.
Feature of public utility
1. provision of indispensable services 2. Nature of demand 3. Nan transferability of demand 4. Heavy fixed cost 5.
Special franchise 6. Natural monopoly
PUBLIC ENTERPRISES: Public enterprise is an undertaken owned and controlled by local or state or central
government, for the welfare of the public. Either whole or most of the investment is provided by the government.
The public enterprise means state ownership and operate of industrial agricultural financial and commercial
undertaken .
OBJECTIVE OF PUBLIC ENTERPRISE
1. all round industrialization 2. Basic industrial 3.heavey investment 4.necessities 5.priority sectors 6. Balance
economic growth 7. Exploitation of natural resources 8. Employment
PUBLIC PRIVATE PARTNERSHIP A Co-operative venture between the public and the private sectors, built
on the expertise of each, through the appropriation of resources, risks and returns jointly is known as ppp. The
main thrust of the ppp arrangement is the sharing of risks jointly by the public and private sectors.
MULTINATIONAL COMPANIES : The term “multinational” consists of two different words, ‘multi’ and
‘national.’ The prefix ‘multi’ means ‘many’, while the word ‘national’ refers to nations or countries. Therefore, a
multinational company may be defined as a company that operates in several countries. Such a company has
factories, branches and in more than one country. According to the United Nations Commission on Multinational
Corporations, a multinational corporation is a corporation which operates, in addition to the country in which it is
incorporated, in one or more other countries. A multinational corporation is also known as a transnational
corporation, namely, ‘Global giant’, or ‘World enterprise’ or ‘international enterprise’. All forms of business
organisation that transcend political frontiers may be called as multinational firms. In simple words, a
multinational company is a company carrying on business in two or more countries. According to Neil H.Jocoby
“A multinational corporation owns and manages business in two or more countries.
FEATURE OF MULTINATIONAL COMPANY
1. Huge assets and larger turnover 2. Lager market share in global market 3.unity of control 4.mighty economic
power 4.higher order skill and competence of manpower 5.heavey investment in research and development 6.foucs
on quality improvement 7.innovative products 8. Brand building

UNIT – IV
EMERGING OPPORTUNITIES IN BUSINESS

FRANCHISING : franchising may be defined as a contractual licence (right) granted by one person (franchiser)
to another (franchisee) which:
• permits the franchisee to carry on a particular business using the franchiser’s business know-how under the
franchiser’s brand as an independent business
• enables the franchiser to exercise control over the manner in which the franchisee carries on the franchised
business
• requires the franchiser to provide the franchisee with ongoing support in carrying on the franchised
business
The salient features of franchising are as follows:

1. The franchiser allows the franchisee to use his trade mark under a licence.
2. The franchise agreement requires the franchisee to follow franchiser’s policies regarding mode of operation of
business.
3. The franchiser provides marketing support and technology to the franchisee to carry on business in the manner
specified in the franchise agreement. Thus, a franchiser virtually sets up the business for the franchisee.
4. The franchiser may also arrange for the training of personnel working in the franchisee organisation.
5. The franchisee pays to the franchiser a sum of money (called royalty) for using his business know-how and
trade mark.
6. The right to use the business know-how and trade mark of the franchiser is for a limited period of time defined
in the franchise agreement. However, the franchise agreement may be renewed from time to time.
Benefits of Franchising
(I) To the Franchiser

1. The franchise can expand his distribution system in the least possible time.
2. The franchiser is able to expand the business with little extra capital as the franchisee provides the capital for
the outlet.
3. The franchiser gets important feedback about the popularity of the product and specific needs and preferences
of the local customers from the franchisees.
4. Franchising enables the franchiser to increase his goodwill and reputation by expanding his network.
5. The Franchiser gains wider acceptance of his brand name through the franchisees.
(II) To the Franchisee

1. The business is based on a proven idea. The franchisee can check out how successful other franchisees are
before committing himself.
2. The franchisee can use the brand name of the franchiser to attract customers and increase his sales.
3. The franchisee can get assistance from the franchiser in training his staff, promotion of the product, designing
store layout etc.
4. There are greater chances of success of the franchisee because the brand of the franchiser is well known.
5. The franchise ensures a high degree of quality control. This enables the franchisee to satisfy his customers by
offering quality products.
6. The franchisee enjoys exclusive rights in his territory. The franchiser won’t sell any franchises in the same
region.
Disadvantages of Franchising
(I) To the Franchiser
1. The franchiser’s brand name and reputation may get tarnished if the franchisee is not able to maintain
standards of quality and service.
2. The franchiser has to provide initial financial assistance and support in the form of staff training, advertising
etc.
3. There are ongoing costs of supporting the franchisee and national advertising.
(II) To the Franchisee
1. The franchisee does not enjoy complete freedom in his business. The franchise agreement generally contains
restrictions on how the franchisee would run the business.
2. Payment of royalty on a regular basis is to be made to the franchiser.
3. The franchisee cannot sell his business without taking approval from the franchiser.
BUSINESS PROCESS OUTSOURCING : Business process outsourcing, or BPO, is a business practice in
which one organization hires another company to perform a task (i.e., process) that the hiring organization requires
for its own business to successfully operate. BPO has its roots in the manufacturing industry, with manufacturers
hiring other companies to handle specific processes, such as parts of their supply chains that were unrelated to the
core competencies required to make their end products.
Benefits of BPO: Organizations engage in business process outsourcing because they expect to benefit from the
arrangement.
The benefits typically cited by proponents of BPO include:
• Financial benefits: Organizations often find that an outsourced provider can perform a business process at
lower costs, or they often find that by contracting with an outsourced provider they can save money as a result
of the relationship in other ways, such as in tax savings.
• Flexibility: BPO contracts can allow organizations greater flexibility to adjust how it completes the outsourced
business process, allowing them to better react to changing market dynamics.
• Competitive advantage: BPO allows organizations to outsource those processes that aren't core to their
businesses or missions, thereby allowing organizations to focus more of its resources on the operations that
distinguish them in the marketplace.
Higher quality and better performance: Because the core business of BPO providers is performing the specific
processes they're hired to do, they are, in theory, able to focus on providing those processes at the highest levels,
often with greater accuracy, efficiency and speed.
E – COMMERCE E-Commerce: E-Commerce or Electronics Commerce is a methodology of modern business
which addresses the need of business organizations, vendors and customers to reduce cost and improve the quality
of goods and services while increasing the speed of delivery. E-commerce refers to paperless exchange of business
information using following ways.
Electronic Data Exchange (EDI)
Electronic Mail (e-mail)
Electronic Bulletin Boards
Electronic Fund Transfer (EFT)
E-Commerce, or electronic commerce, is the buying and selling of goods or services via electronic systems such
as the internet or other computer networks. The E-Commerce process draws on various technologies and systems
such as: electronic funds transferring, internet marketing, online transaction processing, and inventory
management systems. The dot-com burst has led to a huge increase in the amount of transactions that are done
through online selling.
FEATURES
E-Commerce provides following features
Non-Cash Payment − E-Commerce enables use of credit cards, debit cards, smart cards, electronic fund transfer
via bank's website and other modes of electronics payment.
24x7 Service availability − E-commerce automates business of enterprises and services provided by them to
customers are available anytime, anywhere. Here 24x7 refers to 24 hours of each seven days of a week.
Advertising / Marketing − E-commerce increases the reach of advertising of products and services of businesses.
It helps in better marketing management of products / services.
Improved Sales − Using E-Commerce, orders for the products can be generated anytime, anywhere without any
human intervention. By this way, dependencies to buy a product reduce at large and sales increases.
Support − E-Commerce provides various ways to provide pre sales and post sales assistance to provide better
services to customers.
Inventory Management − Using E-Commerce, inventory management of products becomes automated. Reports
get generated instantly when required. Product inventory management becomes very efficient and easy to
maintain.
Communication improvement − E-Commerce provides ways for faster, efficient, reliable communication with
customers and partners.
E-COMMERCE – ADVANTAGES
E-Commerce advantages can be broadly classified in three major categories:
Advantages to Organizations
Advantages to Consumers
Advantages to Society
Advantages to Organizations: Using E-Commerce, organization can expand their market to national and international
markets with minimum capital investment. An organization can easily locate more customers, best suppliers and
suitable business partners across the globe.
• E-Commerce helps organization to reduce the cost to create process, distribute, retrieve and manage the
paper based information by digitizing the information.
• E-commerce improves the brand image of the company.
• E-commerce helps organization to provide better customer services.
• E-Commerce helps to simplify the business processes and make them faster and efficient.
• E-Commerce reduces paper work a lot.
• E-Commerce increased the productivity of the organization. It supports "pull" type supply management. In
"pull" type supply management, a business process starts when a request comes from a customer and it
uses just-in-time manufacturing way.
Advantages to Customers
• 24x7 supports Customer can do transactions for the product or enquiry about any product/services provided
by a company anytime, anywhere from any location. Here 24x7 refers to 24 hours of each seven days of a
week.
• E-Commerce application provides user more options and quicker delivery of products.
• E-Commerce application provides user more options to compare and select the cheaper and better option.
• A customer can put review comments about a product and can see what others are buying or see the review
comments of other customers before making a final buy.
• E-Commerce provides option of virtual auctions.
• Readily available information. A customer can see the relevant detailed information within seconds rather
than waiting for days or weeks.
• E-Commerce increases competition among the organizations and as result organizations provides
substantial discounts to customers.
Advantages to Society
• Customers need not to travel to shop a product thus less traffic on road and low air pollution.
• E-Commerce helps reducing cost of products so less affluent people can also afford the products.
• E-Commerce has enabled access to services and products to rural areas as well which are otherwise not
available to them.
• E-Commerce helps government to deliver public services like health care, education, social services at
reduced cost and in improved way.
E-Commerce - Disadvantages
E-Commerce disadvantages can be broadly classified in two major categories:
1. Technical disadvantages 2. Non-Technical disadvantages
Technical Disadvantages
• There can be lack of system security, reliability or standards owing to poor implementation of e-
Commerce.
• Software development industry is still evolving and keeps changing rapidly.
• In many countries, network bandwidth might cause an issue as there is insufficient telecommunication
bandwidth available.
• Special types of web server or other software might be required by the vendor setting the e-commerce
environment apart from network servers.
• Sometimes, it becomes difficult to integrate E-Commerce software or website with the existing application
or databases.
• There could be software/hardware compatibility issue as some E-Commerce software may be incompatible
with some operating system or any other component.
Non-Technical Disadvantages
 • Initial cost: The cost of creating / building E-Commerce application in-house may be very high. There
could be delay in launching the E-Commerce application due to mistakes, lack of experience.
• User resistance: User may not trust the site being unknown faceless seller. Such mistrust makes it difficult
to make user switch from physical stores to online/virtual stores.
• Security/ Privacy: Difficult to ensure security or privacy on online transactions.
• Lack of touch or feel of products during online shopping.
• E-Commerce applications are still evolving and changing rapidly.
• Internet access is still not cheaper and is inconvenient to use for many potential customers like one living
in remote villages.
E-Commerce - Business Models
E-Commerce or Electronics Commerce business models can generally categorized in following categories.
Business - to - Business (B2B)
Business - to - Consumer (B2C)
Consumer - to - Consumer (C2C)
Consumer - to - Business (C2B)
Business - to - Government (B2G)
Government - to - Business (G2B)
Government - to - Citizen (G2C)
Business - to - Business (B2B)
Website following B2B business model sells its product to an intermediate buyer who then sells the product to the
final customer. As an example, a wholesaler places an order from a company's website and after receiving the
consignment, sells the end product to final customer who comes to buy the product at wholesaler's retail outlet.
Business - to – Consumer (B2C)
Website following B2C business model sells its product directly to a customer. A customer can view products
shown on the website of business organization. The customer can choose a product and order the same. Website
will send a notification to the business organization via email and organization will dispatch the product/goods to
the customer.
Consumer - to - Consumer (C2C)
Website following C2C business model helps consumer to sell their assets like residential property, cars,
motorcycles etc. or rent a room by publishing their information on the website. Website may or may not charge the
consumer for its services. Another consumer may opt to buy the product of the first customer by viewing the
post/advertisement on the website.
Consumer - to - Business (C2B)
In this model, a consumer approaches website showing multiple business organizations for a particular service.
Consumer places an estimate of amount he/she wants to spend for a particular service. For example, comparison of
interest rates of personal loan/ car loan provided by various banks via website. Business organization who fulfills
the consumer's requirement within specified budget approaches the customer and provides its services.
Business - to - Government (B2G)
B2G model is a variant of B2B model. Such websites are used by government to trade and exchange information
with various business organizations. Such websites are accredited by the government and provide a medium to
businesses to submit application forms to the government.
Government - to - Business (G2B)
Government uses B2G model website to approach business organizations. Such websites support auctions, tenders
and application submission functionalities.
Government - to - Citizen (G2C)
Government uses G2C model website to approach citizen in general. Such websites support auctions of vehicles,
machinery or any other material. Such website also provides services like registration for birth, marriage or death
certificates. Main objectives of G2C website are to reduce average time for fulfilling people requests for various
government services.
M – COMMERCE: Definition: M-Commerce also called as Mobile Commerce involves the online
transactions through the wireless handheld devices such as mobile phone, laptop, palmtop, tablet, or any other
personal digital assistant. It does not require the user to sit at the computer that is plugged in and perform the
commercial transactions. Through M-Commerce, people can perform several functions such as pay bills, buy and
sell goods and services, access emails, book movie tickets, make railway reservations, order books, read and watch
the news, etc.
Advantage of M – Commerce
• Through M-commerce, the companies can be in regular touch with the users through the Push
Notifications. Any discount, scheme, pay back benefits can be communicated to the customers through a
message to their mobile phones.
• M-Commerce enables local business to grow by tracking the location of the potential customer and sharing
the information on their mobile phones.
• With the help of M-commerce, the users can pay their mobile bills, electricity bills, without standing in the
long queues.
• M-commerce enables the customers to book movie tickets, railway tickets, air tickets, and event tickets
thereby saving a lot of time.
E.g. Book My Show, IRCTC mobile applications offers the online reservation services.
• Through M-Commerce, customers can easily access the complete information about the product or service
provider before availing its services.
• M-Commerce helps the marketer to have a wider reach of potential customers than he can have by visiting
all personally.
Disadvantage of M- commerce
• The Screen of mobile phones is generally small as compared to the computer screen and, therefore, the
display of cellular gadgets may not influence the user to make the purchase.
• M-Commerce software is costly as compared to the E-commerce, many retailers may not go for it, and
hence the mobile users may have fewer options.
• Poor connectivity also hampers the M-commerce to flourish. Sometimes the data is too slow to access the
websites through mobile applications.
• M-commerce, being the latest technology is struggling with its applications in terms of its graphics and
the content that result in more reliance on the E-commerce applications.
• Information shared through the wireless medium have higher chances of getting hacked. Therefore, people
use more of E-commerce applications to perform the money transactions.
PROCESS OF SETTING UP A BUSINESS ENTERPRISE
The major steps involved in the process of setting up a new business enterprise include the following.
1. Identification of business opportunity
2. Generation of business idea
3. Feasibility study
4. Preparation of business plan
5. Launching the enterprise
1. Identification of business opportunity: Business opportunity refers to a business idea which can be converted
to a profitable business. The world of business offers a number of business opportunities, but not many people can
identify them. An entrepreneur should be able to identify such business ideas which can be converted to profitable
business ventures
2. Generation of business idea: This stage requires generation of an idea that can be converted into a business.
The idea should be able to yield a reasonable return on investment
3. Feasibility study: Feasibility study is a detailed study done by an entrepreneur to ensure that the project is
viable
1. Technical Aspect:
2. Commercial Aspect
3. Financial Aspect
4. Socio-economic Aspect
4. Preparation of business plan: Business plan is an important document prepared by the entrepreneur that
describes various elements involved in starting a new enterprise. It is often an integration of functional plans such
as marketing, finance, production, personnel etc.
5. Launching the enterprise: After preparing the business plan, the entrepreneur assembles the necessary
resources to launch the enterprise. He collects the required funds and acquires land and buildings, plant and
machinery, furniture and fixtures, raw materials, employees etc. Once this is achieved, it is necessary to ensure
that the project is implemented properly and it has smooth and uninterrupted operation
GENERATION OF BUSINESS IDEA
This stage requires generation of an idea that can be converted into a business. The idea should be able to yield a
reasonable return on investment i.e. it should be worthwhile for implementation. A business idea may be
discovered from the following sources.
1. Observing Markets: The promoter should study the market to find out the demand and supply position for
various products. He should then estimate the future demand after taking into account the anticipated changes in
income levels, fashions etc. market surveys can also reveal competition and price trends. From the data collected
through market surveys, the promoter should try to identify those products and industries where demand exists and
supply needs to be increased.
2. Prospective Consumers: Contacts with prospective consumers can give an idea of the features that should be
built into the product/service. It is also important to collect data on customer needs and preferences before
choosing the product to be manufactured. A market test of the prototype product can be conducted before
launching the product in the market.
3. Study of Project Profiles: Various publications of public and government agencies on various projects and
industries is an important source of business ideas. Such project profiles describe in detail the prevailing market
situation and the technical and financial requirements of different projects. A careful analysis of such details can
bring out the most promising projects which can then be taken up for further evaluation.
4. Developments in Other Nations: An entrepreneur can discover good business ideas by keeping good
knowledge about developments in advanced nations of the world. Underdeveloped and developing countries prove
to be a good market for those products which are the ‘in things’ in developed nations. An entrepreneur can also
visit foreign markets to explore the possibility of a foreign collaboration and to discover other types of business
ideas.
5. Trade Fairs and Exhibitions: A visit to national and international trade fairs and exhibitions can provide
information about various products. It is also a good place to explore possibilities of collaboration and dealership
and gives a fair idea of the existing competition in the market.
While selecting the business idea, the following points need to be considered.

1. There must be sufficient demand for the proposed product or service.

2. The idea should require such capital, technical knowhow, raw material and other inputs which the entrepreneur
can arrange for.
3. The idea must ensure a reasonable return on investment.
Unit – V
BUSINESS COMBINATION
Business combination: Business combinations are combinations formed by two or more business units, with a
view to achieving certain common objective (especially elimination of competition); such combinations ranging
from loosest combination through associations to fastest combinations through complete consolidations.
L.H. Haney defines a combination as follows:
“To combine is simply to become one of the parts of a whole; and a combination is merely a union of persons, to
make a whole or group for the prosecution of some common purposes.”
Causes of Business Combinations:
Some of the outstanding causes leading to the formation of business combinations are described below:
1. Wasteful Competition: Competition, which is said to be the ‘salt of trade’, by going too far, becomes a
very powerful instrument for the inception and growth of business combinations. In fact, competition,
according to Haney, is the major driving force, leading to the emergence of combinations, in industry.
2. Economies of Large-Scale Organization: Organisation of production on a large scale brings a large
number of well-known advantages in its wake – like technical economies, managerial economies, financial
economies, marketing economies and economies vis-a-vis greater resistance to risks and fluctuations in
economic activities. Economies of large scale operations, thus become, a powerful force causing increased
race for combinations.
3. Desire for Monopoly Power: Monopoly, a natural outcome of combination, leads to the control of market
and generally means larger profits for business concerns. The desire to secure monopolistic position
certainly prompts producers to join together less than one banner.
4. Business Cycles: Trade cycles, the alternate periods of boom and depression, lead to business
combinations. Boom period i.e. prosperity period leading to an unusual growth of firms to reap rich harvest
of profits results in intense competition; and becomes a ground for forming combinations.
5. Depression, the times of economic crisis-with many firms having to only option to close down-prompts
business units to combine to ensure their survival.
6. Joint Stock Companies: The corporate form of business organization is a facilitating force leading to
emergence of business combinations. In joint stock companies, control and management of various
corporate enterprises can be concentrated, in a ‘small group of powerful persons through acquiring a
controlling amount of shares of different companies.
 7. Influence of Tariffs: Tariffs have been referred to as “the mother of all trusts”. (A trust is a form of
business combinations). Tariffs do not directly result in combinations; they prepare the necessary ground
for it. In fact, imposition of tariffs restricts foreign competition; but increases competition among domestic
producers. Home producers resort to combinations, to protect their survival.
8. Cult of the Colossal (or Respect for Bigness: In the present-day-world, business units of bigger size are
more respected than units of small size. Those who believe in the philosophy of power and ambition,
compel small units to combine; and are instrumental in forming powerful business combinations, in a craze
for achieving bigness.
9. Individual Organizing Ability: The scarcity of organizing talent has also induced the formation of
combinations, in the business world. Many-a-times, therefore, combinations are formed due to the
ambition of individuals who are gifted with organizing ability. The number of business units is far larger
than the skilled business magnates; and many units have to combine to take advantage of the organising
ability of these business brains.
Types of Combinations in Business
1. Horizontal Combinations,
2. Vertical Combinations,
3. Circular Combinations,
4. Lateral Combinations, and
5. Diagonal Combinations.
1. Horizontal Combination: Horizontal combination refers to the combination of the firms producing the same or
similar type of products, engaged in the same or similar process of production. Combination of two or more jute
mills, textile mills, and factories is examples for this type of combination. It is also known as parallel combination.
Associated Cement Company in India constitutes a beautiful example of this type of combination.
Merits of the Horizontal Combination
1. Eradication of wasteful competition among the various units of the same industry.
2. Larger and effective control over the market.
3. Avoidance of the risks of undue price fluctuations in the market.
4. Reduction in the cost of production by securing external economies.
5. Control and adjustment of output to maintain strong and favorable prices for the products.
6. Realization of all the economies of collective operation.
Demerits of the Horizontal Combination
1. Such combination may give rise to monopolistic tendencies, which always work against the welfare of the
community.
2. By deliberately curtailing the output, such units in the combination may indulge in restrictive practices and
create an unhealthy atmosphere.
3. Management of too big combinations is really a difficult task. Hence, economies of large-scale production shall
be offset by the dis-economies of it.
4. It may sometimes result in over capitalization.
2. Vertical Combination: Vertical combination or integration implies the combination of different firms engaged in
different processes for manufacturing a given product. Prof. Robinson defines it as A more comprehensive
definition was formulated by Haney. In his words, In short, vertical combination is the linking up of all the stages
of production right from the raw material to the finished product.
2. Vertical Combination: Vertical combination or integration implies the combination of different firms engaged
in different processes for manufacturing a given product. Prof. Robinson defines it as A more comprehensive
definition was formulated by Haney. In his words, In short, vertical combination is the linking up of all the stages
of production right from the raw material to the finished product.
Merits of Vertical Combination
1. Vertical combination ensures full control over the raw materials. Hence, production can be carried on without
any interruption.
2. It ensures economies in handling, storing, transporting, packing etc.
3. It eliminates middleman’s profits. Consequently the cost of production decreases.
4. It also facilitates continuous utilization of plant.
5. Opportunities for developing by-products are more.
6 It also assures full control over the market because such combination adds further strength to compete with other
units
Demerits of Vertical Combination
1. Co-ordination and control of large combinations is really a difficult task. The gains arising out of such
combinations may even offset the cost of co-ordination of dissimilar units.
2. A slight dislocation or breakdown of one unit shall lead to a complete dislocation of all other units of the
combine.
3. Large integrated units tend to become inelastic. It is very difficult to adjust to the changes in the trends of
production and marketing.
4. This type of combination shall not yield good results if the sizes of different units vary.
5. The risk involved in marketing the final product is not eliminated altogether.
6. The economies of large-scale production cannot be achieved under this type of combination unless all the units
forming the combination are fairly large in their size.
3. Circular Combination: When the industrial units producing different varieties of articles combine together to
make use of the same distribution outlets, that combination is known as circular combination. This type of
combination is also known as mixed combination.
The firms entering into mixed combination are quite dissimilar and non-competitors. None of the features of other
types of combination are found in this type. The important object of this combination is to secure the benefits of
administrative integration.
4. Lateral Combination: Lateral combination refers to the combination of different units producing different
products but allied in some way. Examples of allied goods are radio, fans, heaters and other electrical goods.
Hence, this type of combination is also known as allied combination.
Advantages and Disadvantages Of Business Combination
The main objective of business combination is to eliminate cut-throat Competition and secure the advantages of
large scale production. Following are the advantages of business combination.
• Competition between and among the companies will be eliminated.
Amount of capital can be increased by combining business.
• Establishment and management cost can be reduced.
• Benefits of large scale production can be secured.
• Operating cost can be reduced by avoiding duplication.
• Research and development facilities are increased.
• Monopoly in the market can be achieved.
• Bulk purchase of materials at reduced price is possible.
• Stability of the price of goods is maintained.
Following are the disadvantages of business combination
• Business combination brings monopoly in the market, which may be harmful for the society.
• The identity of the old company finishes.
• Goodwill of the old companies decrease.
• Management of the company becomes difficult.
• Business combination may result in over-capitalization.
Trade Associations: A trade association comes into being when business units engaged in a particular trade or
industry or in closely related trades come together for the promotion of their economic and business interests. Such
an association is organized on a non-profit basis and its meetings are used largely for a discussion of matters
affecting the common interests of members such as problems of raw- materials, labour, tax-laws etc.
Features of Trade associations
1. Voluntary association: It is a voluntary association of member units. Members are free to exit at any time.
2. Non-profit motive: Trade associations are non-profit earning associations. They are not promoted with a
commercial motive.
3. Name: The associations are generally named after the nature of the trade or industry conducted by its members.
4. Identity: Members continue to retain their individual identity
5. Independence: Members units can remain completely independent. There is no interference by the association
on the business affairs of its members.
6. Objective: The objective of trade associations is to promote the business interests of the members, exchange
views, serve as a platform for discussions and to represent the interests of its members
Advantages
1) Valuable Facts and Figures: Trade collect valuable facts and figures about the economic
conditions which prove very helpful for trade community to frame its future policies.
2) Technical Guidance: The association provide technical guidance to its members in the following
ways:
• To improve methods of production.
• To increase in sale.
• To reduce unnecessary expenditures.
• To increase the speed of work.
• To cut down expenses regarding production and sale
3) Trade Unity: Trade associations help in gathering all the members on one platform. This unity
proves to be very helpful for common interests of members and in achieving economies of
scale.
4) Price Stability: Trade associations help in making agreements about prices. These agreements
result in price stability. In this ways, these associations save the industrialists from economic
destruction.
5) Elimination of Misunderstandings: These trade association's cause to increase in production by
eliminating misunderstanding between owner and labourers.
6) Inspection of Exports: These associations make important rules and regulations about export. They
inspect exportable goods and make necessary arrangements to find new market for these goods.
7) Analysis of Complaints: Trade associations analyze the complaints of foreign importers and
national exporters. Thus, they try to compensate according to the agreements
Disadvantages
1) Undue Pressure: Sometimes trade associations become so powerful that they interfere in the
implementation of government policies. This interference may lead to the loss of consumers.
2) Monopoly: Control over production among member institutions or avoidance of competition or
act of fixation of prices cause monopoly, which proves very dangerous for the economy.
3) Selfishness: It has been observed that some materialists, taking into consideration their own
personal interests join trade associations. When a limit is fixed for production in difficult time
then prices get high. In this situation, these materialists produce more goods against the rules of
association to earn high profit.
4) Unnecessary Restrictions: Trade associations control over production policy to stabilize prices.
Due to this control, those member institutions suffer loss, which do business on large scale and
have latest and heavy machinery.
Functions of trade associations:
1. To provide market information to members with regard to customer preferences, expectations, market
opportunities etc.
2. Providing information relating to emerging business opportunities.
3. Rendering advice on technical matters and legal issues.
4. To secure co-operation and co-ordination among members.
5. To serve as a forum where members can settle their disputes.
6. Ensuring that members do not indulge in unfair trade practices.
7. Providing references with regard to the reputation and credit worthiness of members.
8. Undertaking advertisements to promote the industry.
9. To prescribe code of ethics with a view to promote ethical behavior.
10. To represent members grievances to the government and seek redressal.
11. Conduct seminars or workshops on new legislation, the budget, international business developments etc.,
12. To conduct market research and provide information to member.
13. To send representatives to serve on various committees and boards set up by the government.
TRADE UNION ; Trade union is a voluntary organisation of workers formed to protect and promote their
interests through collective action. It may be formed on plant basis, industry basis, firm basis, regional basis or
national basis. Different writers and thinkers have defined the trade union differently.
A trade union means an association of workers in one or more occupation— an association carried on
mainly, for the purpose of protecting and advancing the members’ economic interests in connection with their
daily work’. (G.D.H. Gole)
 Characteristics of Trade Unions

1. Association of employees: A trade union is essentially an association of employees belonging to a particular

class of employment, profession, trade or industry. For example, there are unions for teachers, doctors, film,
artistes, weavers, mine workers and so on.
2. Voluntary Association: An employee joins the trade union out of his free will. A person cannot be compelled
to join a union.
3. Permanent Body: A trade union is usually a permanent body. Members may come and go but the trade union
remains.
4. Common Interest: The member of a trade union have certain matters of common interest-job security, better
pay and working conditions and so on, which bring them together.
5. Collective Action: Even when an individual employee has any grievance over certain management decisions,
the matter is sorted out by the intervention of the trade union Employees are able to initiate collective action to
solve any problem concerning any particular employee or all the employees.
6. Rapport with the Management: The trade union seeks to improve relations between the employees and
employers. The officials of the trade union hold talks with the members of the management concerning the
problems of the employees in order to find an amicable solution. It is thus possible for the employees to have
better rapport with the management.
CHAMBER OF COMMERCE
Chambers of Commerce are formed for the purpose of protecting and promoting the interests of business and
the business community. The membership comprises of those connected with business such as merchants, bankers,
brokers, industrialists, professionals and financiers. They are basically voluntary associations
Chambers of Commerce do not restrict their operations only to a particular trade or industry. They promote the
business interests of varied businesses in a particular region, country or on a global level
Objectives of Chamber of Commerce
1. To further business interest of the covered area(s)
2. To promote commercial activities in a community, country or town
3. To influence the policy of the Government relating to commercial activities in an area.
4. To liaise and relate with other chambers of commerce in relation to their business interest.
5. To collect statistics and promote interchange of information between members
Functions of Chamber of Commerce
1. To promote trade, commerce and industry.
2. To relevant advice to the government.
3. To collect and preserve data.
4. To arrange forums for exchanging views.
5. They Issue certificate of origin to exporters.
6. They arrange seminar, symposium and trade fair.
7. They train members, research and publish journals.
8. To promote home and foreign trade:
9. To educate members on Government legislations
10. They act as watchdogs in the administration of Government laws.
DIFFERENCE BETWEEN TRADE ASSOCIATION AND CHAMBER OF COMMERCE

TRADE ASSOCIATION CHAMBER OF COMMERCE

Member concerns belong to the same trade or industry Member are not confined to a particular trade but they
belong to a particular
Its aim is to protection the interest of particular industry Its aims is to safeguard the general interest of all the
or trade trader in a specified locality
Member are competitor Members may or may not be competitor
This is a horizontal types of combination It comes under circular combination
It does not arrange for settlement of trade dispute It undertakes to arrange for settlements of disputes