PART—L ORGANISATION AND MANAGEMENT 1 Forms of Business Organisatio ‘Introduction. In broad sense, business includes industry commerce and trade. Its main aim is to increase wealth. Industry means a place where matcrials are exizacted or converted into finished or semi-finished products. Trade means a process of buying and selling of commodities, while commerce relates to financial, transportation, insuring and allied activities. The form of ee. be decided by various factorsysuch as: y Size and nature of the business to be started (2) Technical difficulties ; pare Market conditions (i.e. compeitition and scope of the article in the market) ; 4 Captial required to start the business and the means to collect the funds ; (8F Limitations and restrictions put forth by the government (i.e. grant of Ioan, licence, foreign exchange and other such things). Definitions of Business Business may be defined as “an activity, in which different persons exchange something of value whether goods or service for mutual gain.or profit.” __ Itmay also be defined as "an enterprise engaged in production and dis- tribution of goods for sale in market or rendering services for a price.”* Various Types of BusinessOrganisations Several types of business organisation are existing in order to satisfy Various social, economic and human requirement, Following arc the main types of business organistions (A) Private Sector : (1) Individual Ownership or Sole Proprietorship (2) Partnership2 - _ 2 INDUSTRIAL ORGANISATION AND ENGINEERING ECONOMIcy (3) Joint Stock Companies (4) Co-operative Organisation, (B) Public Sector (State Ownership and Control) 1) Deparunental Organisations (2) Public Corporations (or Statutory Companies) (3) Government. Comapnies, (C) Joint Sector : Ownership and control shared by private enterpreneur, state and Publi, PRIVATE SECTOR ORGANISATIONS 1.Private Companies (Individual Ownership) As the name suggests, sucl F business is owned by Gem si an invests eps abourand machines Ho is the oldea sation. In such business owner supplig alltbescaptalyocded torun the organisation. He produces only with the help of his own land, capital and labour, (pane ownss alone enjoy prottsand sifffers the vy --ATETELOFE, he is the supreme authority to | decide into different my u ers concerning to his business and has unlimited ~~ freedom ofsction within tegal jurisdiction : 1 Overall control in sigle hand helps him in dUiekdccision, effitlen ing: In this type of organisation, owner must be anxious obtain valuable advice and guidance fram other sources, : In such organisation owner himself Hence creditor ean collect the mone: Therefore, to have this type of business that is necessary to start but also the zea person, Applications. This form of organisation is most satisfactory in the fol. lowing cases : () In Seratremegpies requiring small capital which can be spared by & the one man (owner), 2) where isle requirea 7 HOT TGS Fea, Because in this system risk ; involved is very high. . . i (3)xgWhere man le. Advantages. Following are the advantages of this form of organisation’. (1) Such individual enterprises can easilf ye To same time owner is fresifrom all legal restr a ae interest, care and efficiency directly effects the profi! 7 in us ase Hence efforts and rewards are directly related, ir ; is résponsible for all the liabilities. 'y even fiyin the personal property. itis not the money alone of the debtor , enthusiasm, courage and faith of the ooFORMS OF BUSINESS ORGANISATION 2 @)_ In this system owner himself is imjtouch.with customers dnd hence can know their likings. (4)Since it is supervised by the proprictor himself, the Overhieads are” Very less and products can be obtained cheaply. ___,(5)_ Most of the business have their monoploy because of certain secrecy in their functioning. In this form of organisation such secret functions are performed by the owner himself and he docs not disclose it to any body else. Therefore, he has the greatest possibility of running business well. In other forms of organisation, there are lite changes of keeping such activities secret for a longer period. © kt oft falbistedom for work and hence such persons who do not want to serve ‘or with any body can get the chance to work independently and can,showtheifivalent, Thus they can enjoy free life. (7) As he has not to consult for any decision to be taken, he can act promptly. If any time he feels some benefit in doing some work, he can act, quickly without any body's advice and can avail the benefit. ‘Disadvantages. This type of organisation has the following disadvan- tages: * (1) Amount of: , therefore, modern factory cannot be run with this system of organisation. (2) Owner cannot be aaaga a ecuas ie aanascpient sales, engineering processes etc. ; b 3) Due to unlimited liability owner cannot take risk Wistar a Big Partnership Organisation - Some of the above mentioned drawbacks of private companies are removed in the partnership organisation upto some extent. p i ip depends upon ‘mutual efice landing, co-operation ‘and adjustment of the members to accommodate and appreciate cach other's view. Each of the Partner should realise that it is his business and he should work hard to earn greater and greater profit. 7 Partnership has been defined by the Indian Partnefship Act 1932, As "the relationship betwen persons who have agreed to sfare profit of a business concem carried on by all or any one of them actigég for all". When two and upto twenty persons in case of nonbanking busijless and upto ten in case of banking business enter into a contract to carry gf a business allowed by law, with the object af making profit, a partnership/is said to be formedinpUSTRIAT.ORGANISATION AND ENGINEERING ECONOMics a ynsible for the acts of other partners in oy compliaton ata later stage the constitution of ‘ten in an agreement form. For the best partnership hould not be more than six, the lesser the better. It U1 a good idca and experience of a business Ie, ‘Thus money and knowledge both are Every partner is 1i that business. TO avoit the company may be wr the number of parnets sl i generally happens that persons wi make partnership with moneyed peop! combined to carn profit. - & Advantages. This type of organisation has the following important advangates : (1) Itcan be formed without gue fepalformales 2g without heavy expenditure of organisation and stamp duty. (2) ‘This type of organisation enjoys more freedom and is not subjectto _Stricegovernment.supervision. (3) Due to large number of owners the jcapitalithat can be collectedjisimore'than that in the case of sole trade organisation. (4). Inthis type of organisation persons POSSESSINg different abilitiesand skills are chosen andibrought'togellier, Therefore, the mana, f the firm as a whole would be much.greater than in case of a sole trader. (5) The affairs of firm can casily be kept secret and confidential. Disadvantages. Following are the disadvantages or limitions of the partindership organisation : Es (1) Due to untimited liability @) After the death or retirement of any one partner, the partnership organisation Tay come'to an end. . (3) Itcan raise pany. Its, therefore, unsuitable for mo. seaeindusiies, because they require huge capital and a large number of managerial abilities. (4) Sometimes, due to some misunderstanding, fri ise between the partners, which effect adverscly on the efficiency and expansion of business. (5) All the partners are jointly and severally liable for the acts of the partner, who is placed incharge of mana of one parner may ease abi oss toa ae In conclusion, though partnership firm can reduce the limitations of sole ade organisation 10 some extent, yet it has more or less all the limitations of asole-trade organisation and, therefore, suffers the samé fate, ¥ Types of Partners. Members of this type of organisation may be asso” Ciated in different ways ahd their extent of involvement may be also different although their interest is common. These members i z crs can following ways ; be Classified in the heFORMS OF BUSINESS ORGANISATION Ee | (@) General Partners, Allie partner who arein the partnershipknown as general partners, (b) Active Partners. These are those partners who take eT the management and help in thofonmbinuanror lciee, ‘These are also known as working or managing partners, (©). Sleeping and Sitent Partners, Pariners, who juStlfVESt money and donottakeany partin the management are knownassleeping or silent partners. Such members after contributing their share of capital, wake up only either to share the profits or to liquidate the business. (@_ Nominal Partners. Partners, who d Jake part in the management, but they led their rep Pany’s reputation are known as nominal partners. The nominal partners may, however, associate themselves only after ascertaining the soundness of the business. (©) Secret Partners. ‘Ihnese partners take partinith@ managment secretly * but nowhere their names appear. () Minor Partners. A person who has not attained and associated with the business is known as a minorparter. Such partner can be allowed only with the consent of other mem His liahility is limited to investment only (i.e. limited liability). © Formation of Partnership Partnership can be formed either verbally or by written agreement but to avoid the possibility of misunderstanding and further toubles which can arise ata later stage, it is desirable to enter into a written agreement. This written agreement is known as "Pz "The partnership decd should have the following details : (1) Name of the firm ; (2) Nature of business ; (3) Date of starting partnership ; (4) Duration of partnership ; (5) The money contributed by cach pamter ; (6) The amount which can be withdrawn by cach partner ; (7) Share of profits and losses ; (8) Allotment of managerial functions among the partners ; (9) Salary, if any, allowed to managing partners ; (10) Rate of interest on capital invested, if any ; (11) Maimenance of accounts and other clerical work ; 2 (12) Loans and advances and interest on them by partners, if any + (13) The basis for the introduction of any new partner. .| INDUSTRIAL ORGANISATION AND ENGINEER; 3. Joint Stock Company financial and heavJIbiFGeRIOP risk olved in ‘PREVIOUS Toms of oryakennes has on i Jed to the formar ING ECONOMcs tion Of joint st . These have limited liability, ‘- In this system mber of lis voluntary association of individual or Profit, having a capital divided into wansferable shares of different values, ‘The capital is Taised by selling od Persons Who Purchase the shares are called 4 body known - The board. of director ‘al and technical decisions is responsible for’ and efficient work Silty d cl -ompany beyond the cause Sp Of this advantage all sections Sf People are encouraged to contribute for the 2° Sompany. These shares are transfercble ‘There are two main Q (@) Private Limited (©) Public Limitea 'yPes of joint stock companies : Company, Company. ited company necd NOt make the Prospectus, accounts and other particulars open to the public. The Inembers only are entitled to receive a copy of the balance sheet, and auditors’ report. The government alo ds rotipterfere in the working of the company, In this system persons who want advantage of limited liability and atthe same time to keep the business as private as possible, can Subscribe. led Company. It is one whose mer inimum number required 10 fore Such ies can advertise 10 offer its Share.to general public th ug a roe These imited companies arc subjected to greater id and su This control is necessary to protect 4 interest of the shareholders and the members of the public. Shanes ; $ arne cabs in pay OF fa Without requiting any prior approval, The fl! of the company are managed by anFORMS OF BUSINESS ORGANISATION 7 tors’, The number of members in the board of dircctors is limited to seven, + Liquidation, Itbecomes difficultto run the company ifiability Becomes m AS apd whcn crediturs press fur payments of luan cle. AL ane has to be dissolved or wind up. This is konw as liq uidation. . - Liquidation may be os or Volliniary Ar uncer the éiipervision at) Burt. If the resources do Dolgbermi. tte, Rayment then the assets of the fom Faapbxeioxbe sold and amount is paid to the creditors in pro- portio unt is left after payments then itis distributed among the shareholders. Amalgamation, An Amalgamation is ajoini Tr usually results in more efficient operation becauase uf cul sales, administrative, and marketing economics etc, Clearly both parties in a proposed amalgamation will have some existing assets and liabilities which could be set out in a balance sheet or statement of affairs at the date of amalgamation. The existing condition may or may not beacceptable to the proposed partner. Usually some adjustments will be made to onc or both of the balave slivets to take account of objections raised by the other party. Raising Fianance for Joint Stock Comapnies. Money is necessary to start and to keep the business running. It meet expansidn, : m mT - The required capital is supplied by individuals, Societies and associations. Funds can also be taken from banks, finance ebauations elceeinuthe-form of Joan, Following are the sources from where Yoney can be taken for an cnterprisc : a) /A portigh[Ofithelimoney required for enterprise is collect for wr of SHATES? Q) Issue of Debentures. Wheu company desires 10 raise the required finance through loans instead of sale of shares, then debent issued. In this way it is advantageous because seperti for own- ership and he i only. Debentures may be issued eithr for ini : or for development and extension, (3) “boan.advances trom banks. (4) State loans from Industrial Corporations, State Finance Corporation or througtr Industrial Nevelapment Corporation, . + Advantages, ‘Over the ages. Following are the advantages of the joint stock company Previous two forms of business organisation : ()) The abi being limita, shareholder bear no risk and, there- fore, more ani more persons are. 1 ncouraged to invest capital. ‘lus more amount of capital can be collected to run modem industries. ]an INDUSTRIAL. ORGANISATION AND ENGINEERING pi ‘CONOMIey (2) Recause s, the iSivideg ‘Therefore, even an Average person can Contribute Capital without mue hes, itation, (4) It can bear the ‘800d managing agents, manager and other managers etc. Thus admi inistation is better, (3) Joint st lock companies are not affected irement of the shareholders. (8) thas great potentiattes for expansion, Disadvantages, Following are the main disadvantages of the joint sto company : . ro) Snithe part ofthe salaried managers becaus there is no: tween eflort and income for themeandsthis leads tq inefficiency and waste, Q) Thi isati S sufficient scope to the directors and Other mefnbers of the management for tk their personal profits. Because tiey have intimate knowledge of t Position of the company, therefor, they can purchase ingly. (3) In this form of bussiness there are hundreds of investors from dif I parts of the country whi invest their savings but v. a ly meetings or exerci: fer unlimited scope for cautious and deceive the innocent share-hol Chit ders, help to protect the int eS CO-Operative sacicti¢: ‘Onsumers, small and independent producer and of the workers while fight Members supply the capital, mai ung against the monopolists and capitalist nage the business and share all its Profits am in agri alarge extent, In econimi Se: have been developed in agriculture toa Fad toe tos tae SE of carning profits but to benefit the numbet noe = re .