DIFFERENT FORMS OF ORGANISATION SOLE TRADING CONCERN ? Meaning ? Features ? Advantages ? Disadvantages ? Suitability PARTNERSHIP FIRM ? Meaning ? Features ? Merits ? Demerits ? Kind of partnership firm ? Types of partners ? Partnership Deed JOINT HINDU FAMILY BUSINESS ? Meaning ? Features ? Advantages ? Disadvantages JOINT STOCK COMPANY ? Meaning ? Features ? Advantages ? Disadvantages ? Management ? Forms of companies ? Features, Merits and Demerits of types of companies ? Kinds of companies CO-OPERATIVE SOCIETY ? Meaning ? Features ? Merits ? Demerits ? Rights ? Duties ? Powers & functions ? Suitability _______________________________________________ FORMS OF COMMERCIAL ORGANISATION SOLE TRADING CONCERN I. Meaning A Business Organization which is owned and managed by a single person with or without the help of family members is called as sole trader or sole proprietor. The sole trading concern is run on the principle “All is he and he is all in all”. 1. 1 Features 1. One-man Ownership and Control A sole trading concern is owned by an individual. The proprietor is the sole owner and master of the business. He independently manages and controls the business without the interference of any other person. 2. Capital Contribution
In sole tradership, the capital is employed by the owner himself from his personal resources. He may also borrow capital from his friends, relatives and financial institutions. 3. Unlimited Liability The liability of the proprietor for the debts of the business is unlimited. The creditors have the right to recover their dues even from the personal property of the proprietor in case the business assets are not sufficient to pay their debts. 4. Enjoyment of Entire Profit The sole trader is entitled to enjoy all profits of the business. Since he is the only person who invested money, he need not share the profit with anybody else.
At the same time, he himself should bear the entire loss. So it is said that he owns all and risks all. 5. No Separate Legal Entity The sole trader and the business are one and the same. A sole trading concern has no legal entity separate from its owner. The sole trader owns the assets and owes the liabilities of the concern. 6. No Special Legislation Sole tradership is not governed by any special legislation. A partnership firm is governed by the Indian Partnership Act. A joint stock company is governed by the Indian Companies Act and a co-operative society by the Co-operative Societies Act.
But sole trader business is not governed by any Act. 7. Local business Most of the sole trading business confine only to a particular place such as a street, a block or a village. A few sole trading business may cover a large area through a network of a branches. .8. Self Employment A sole trader uses his own labour to conduct the business. He may employ a few paid servant or use the services of his family members for running the business. 9. Small Capital A sole trader business can be commenced with a small amount of capital whereas a partnership firm or a company require large capital. 10. Convinence to customers
He deals in day to day local market and offers sales and services that gives lots of convenience to the customers 1. 2 MERITS 1. Easy Formation Sole proprietorship is the only form of organisation where no legal formalities is required. No agreement is required and registration of the firm is not essential. Anybody willing to start a sole-trading concern can do so immediately and without much legal formalities. 2. Direct Motivation The entire profit of the business goes to the sole trader. Nobody can claim a share in the profit. It motivates him to expand his business activities. 3. Flexibility
It is a highly flexible type of organization. A sole proprietorship concern is generally run on a small scale basis. In case a change in operation is required, it is possible without involving much expenditure. The proprietor can adapt and adjust the activities of the business to the changing trends and market conditions because the sole trader is the sole owner of his business. 4. Quick Decision The sole proprietor is his own boss and need not consult others while making any decision. He exercises exclusive control over the affairs of the business. Therefore, he can take quick decision and implement them without any delay. . Effective Control In this form of organisation, the business can be controlled effectively because business activities are planned and executed by a single man. Since all the decisions relating to purchase and sale are taken by the soletrader, he can effectively control the business if there is any deviation from the original plan. 6. Increase in Sales A sole trader has direct relationship with the customers. Direct contact with the customers will enable the proprietor to know the nature of their tastes, likes and dislikes. It enables him to make necessary changes in the quality and design of his products.
It will boost his sales besides enhancing the reputation of the firm. 7. Inexpensive management The sole trader is the owner, manager and controller of the business. He does not appoint specialists for various functions. He personally supervises various activities and can avoid wastage in the business. In this way managerial expenses are reduced to a large extent. 8. Development of Personality Sole proprietorship facilitates the development of personal qualities like self-reliance, initiative and independent judgment. 9. Equal Distribution of Economic Wealth Sole proprietorship provides an equal opportunity to every one for self development.
It promotes decentralization of business and helps to avoid concentration of economic wealth in a few hands. 10. Easy to change to another trading identity It’s far easier to change your trading identity from that of sole trader to a limited company. I Going the other way, i. e. , limited company to sole trader, can be very, expensive and bureaucratic. 1. 3 Disadvantages 1. Limited capital The resources of a sole proprietor are limited. He depends only on his personal resources and his borrowing capacity. The borrowing capacity depends on his assets and credit worthiness.
It is obvious that financial resources of a single person will be insufficient for business expansion. Limitation of finance is a major handicap for sole-trader business. Therefore, the size of the firm remains small. 2. Limited Managerial Ability The managerial ability of a soletrader is limited because a person may not be an expert in each and every field of business such as purchasing, selling, accounting etc. The sole proprietor may not be able to use the service of experts for want of resources. The limited managerial capacity may hinder the growth of the business. 3. Unlimited Liability
The unlimited liability of a sole proprietor may affect his enthusiasm and restrict introducing novel ideas in business. 4. Hasty Decisions Decisions arrived at, after deep deliberations and discussions are sure to be better than that of a decision taken by one man. It is rightly said two heads are always better than one. The chances of wrong decision-making are quite high in a sole trader business. This is because of the fact that the sole trader takes all decision of the business himself without any assistance. This may lead to wrong decisions. The hasty decisions may result in loss and affect the sole trader. 5.
Lack of Specialisation The sole trader has to undertake all the work relating to business himself such as buying, selling, accounting, financing, advertising etc. He is a jack of all trades but master of none. It would be difficult to avail the services of experts in his business because of small resources. So, the benefits of division of labour cannot be reaped and specailisation cannot be achieved in this type of business. 6. Uneconomic Size Because of limited capital and skill, the sole traders have to work on a small scale basis. Thus he is deprived of economies of large scale operation. 7. Lack of Consultation
He has no one else to consult before taking any important decisions except his family members. This may result in heavy loss if his decisions go wrong. 8. Uncertainty The life of the sole trader business is uncertain and unstable. The life of business depends upon the changes in taste and preferences of customers and changes in fashion, and technology. If soletrader fails to cope up with the latest development he will land in trouble. 9. Unlimited liablity. This liability is unlimited and should your business fail you could end up losing your personal assets such as your home, car, furniture etc. 10.
Credibility . While some businesses are suited to that of sole trader and customers like the idea of doing business with a person as opposed to a company, others do not. The travel business is one business where people need to be convinced that when they are paying their deposit and final holiday payments their money is being paid to a company and not an individual. 1. 4 Role in development of society 1. Solution to unemployment problem Sole trader business organisation gives large employment opportunities to the less educated and uneducated persons and helps to reduce the unemployment problem in the society. . Provides Investment Avenues Sole trader organisation provides a chance for small investors who has small amount of capital to utilize their savings in the productive line. 3. Provision of goods at low price Goods are sold by sole traders at a price lesser than the maximum retail price ( MRP ) mentioned on the packages of the goods. This is possible due to inexpensive management. 4. Helps small producers Most of the goods sold by sole traders are procured locally from local producers. Thus small local producers are benefited by the sole traders. 5.
Philanthrophic Activities Sole traders form small trading organisation among themselves and undertake a number of social welfare activities such as conducting eye camps, maintaining parks, provision of barricades on the roads, supplying furniture’s to schools etc. 6. Equal Distribution of Income and Wealth Equal distribution of inco. me and wealth is ensured as there are more entry of sole proprietors in trading activities. 7. Helpful to consumers The sole traders supply the goods to the consumers at their door steps. So the time and energy of the consumers are saved. 1. ONE-MAN CONTROL IS THE BEST IN THE WORLD William R. Basset has said that one-man control is the best in the world only when the business is small indeed, to allow one actually to know and supervise everything in the business. 2. PARTNERSHIP FIRM 2. 1Meaning Partnership is a relationship between two or more individuals agreed to have sharing the profit & losses together carried on by all or one acting for all. The minimum number is two and the maximum number is 10 in banking and 20 in the case of non banking business. Partnership should not carry on any unlawful or illegal business.
Partners may share profit or loss in an agreed proportion. If there is no agreement, partners share profit or loss equally. Features: Agreement (written or oral): A partnership is an outcome of an agreement, which is the base of the partnership business. Agreement is known as a partnership deed, which includes the terms, conditions, rights and duties of the partners. Plural membership: An agreement can be made by more than one person. A partnership firm can be formed with minimum 2 member and maximum 10 members for banking and 20for non banking and general business.
Sharing of profit and losses: The object of partnership firm is to earn profit and share it. The sharing ratio is agreed by partners. If there is no agreement, the sharing will be equal. Even through the definition shows about the profit sharing, it is implied that one who is sharing profit must also share profit too. However, if a partner is admitted in the business only for profit, then he has no obligation of the sharing of losses. Lawful business: The main purpose of a partnership is to do business, which must be lawful. Any association formed without the profit making is not a partnership.
Hence, the existence of the business is must. Joint ownership and management: As per the provisions of the partnership act, every partner has rights to take the part in the management of the business. For convenience, However, the rights of management may be assigned to a particular partner. Unlimited liability: The partners are all jointly as well as severally liable for the debts of the firm. The liability of every partner is unlimited. If the assets of the business are found insufficient to pay of the debts and liabilities, the personal property is taken to discharge the business liability.
No legal status: Partner and the firm are one and the same. The firm does not have separate legal existence. No transfer of shares: The partner cannot transfer of their shares or interests in the firm to any other person without the consent of all other partners. Mutual trust and confidence: Partnership is based on Mutual trust and confidence. Every partner must work in the interest of the firm. He should not make any secrete profits and must disclose all material facts to the other partner. Agency principal relationship: The partners enjoy double relationship in the firm.
Every partner acts as an owner (principal) as well as an agent of the, other partner while dealing with the third parties. 2. 3 Advantages 1. Easy formation Formation process of the partnership firm is very easy and does not require much expense to incur for. It can be simply formed by an agreement among the partners and the absence of legal formalities government regulations is the biggest advantage 2. Flexibility Partnership is elastic form of organization. This is mainly because its activities are almost free from legal restrictions and formalities. Alterations are very easy in it. 3. Division of labour
Due to combination of several persons advantage of division of labour can be possible. in partnership partners possessing different degrees of managerial and technical talents comes together . Therefore duties can be allotted among the partners according to their talents. 4. Avoidance hasty decisions Due to unlimited liability partners do not take hasty decisions they think twice before undertaking risk 5. Business secrecy Partnership firms are not under legal obligations to publish their business affairs and accounts. When the affairs require secrecy, partnership is a suitable form of the organisation. . Direct Effort – Award relationship Partners know that the profit of the business belongs to them only. Therefore they take keen interest in the conduct of business. 7. Protection of Minority Interest In a partnership firm all business is carried out with the decided opinion of all the partners. Every partner is given a right to interfere in the management. A dissatisfied partner may even withdraw and dissolve the firm by following suitable procedure as per the provision in the Indian Partnership Act of 1932 to protect the interest of minority in the partnership firm. 8. Better Managerial Ability
As two or more persons handles the business more persons managerial skills comes together, which is advantageous to the partnership firm. People having various kinds of skills, talent and ability join hands which results in proper management of business. 9. Creditworthiness Unlimited liability of all partners enhances the Creditworthiness of the firm. Unlimited liability is the best security for raising loans and advances from the market. Easy access to personal property of the partners for the debts of the firm enhances the creditworthiness of the firm. 10. Less Government Interference
This organisation is a personnel organisation like a sole trading concern. As a result of this it is not subject to strict Government Regulation and various laws like Joint Stock Company. 2. 4 Disadvantages 1. Unlimited Liability The partners in the firm liability is unlimited. This means in case of business failure, partners have to pay off their dues by selling their business assets and personal assets if needed. 2. Lack of Stability The partnership firms are not stable in character. It can come to an end death or lunacy of a partner or notice given by an individual partners, Hence it can be dissolved by an individual partner. . Complexity in Admission of Partner Service and growth of the firm may be affected when there is absence of clear provision in the partnership deed, it means it may be difficult for tem to admit a new individual as a partner. 4. Limited Numbers of Partners In partnership firm, the number maximum number is 20 in general business and maximum is 10 in banking business. No one can exceed the limit. 5. Non Transferability of interest. The interest of partners is not freely transferable, consent of all members is necessary. This creates inconvenience and results in closure of the firm. 6.
Absence of Public Confidence Affairs of the firm are secrets among the partners only. They do not publish their books of account. More over their activities are not subject to strict government control . Due to these factors there is absence of public confidence. 7. Limit of Expansion Because of limited capital and limited managerial skills as compared to the joint stock company, partnership firm has limited scope to expand. 8. Absence of Separate Legal Existence Partnership lacks separate and independent existence apart from their partners. The firms and the Partners can not be separated from each other. 9.
Absence of Centralised Authority All the partners are required to take interest equally . Each partners equality of status and there is no centralized authority, which can hold different persons together. 10. Absence of Delegation of Power In partnership firm no partner is allowed to delegate the powers to any outside person. A partner cannot allow outsider to act on his behalf. Delegation of authority is the dynamics of modern management and it confers many advantage on the organisation . However this benefit is not available to a partnership firm. 2. 5 TYPES OF PARTERSHIP FIRM: Limited partnership firm :
This kind of partnership firm is allowed in Europe and U S A In England, it can be formed under the limited partnership act 1907. In India, limited, partnership is not allowed. Under this partnership, the liability of this kind of partner is unlimited. Features of the limited partnership:- a) There are two types of partner; GENERAL and SPECIAL . The general partner is one whose liability is unlimited. While the special partner is one whose liability is limited. b) At least one partner’s liability must be unlimited. Partnership where all partners’ liability are limited is not permitted. c) The general partner looks after business management.
Special partner is only advice. d) Special partner cannot manage the business as per the provisions of the act. e) Death, lunacy and insolvency of the special partners do not dissolve the firm. f) Registration of these types of firm is compulsory. g) A special partner cannot withdraw in share of the capital during the lifetime of the firm. h) Special partners can inspect books of accounts of the firm. Unlimited or General partnership: The second type of partnership firm is general or unlimited firm. This kind of firm is allowed in India all partnership in India are general and unlimited.
All partnership are equal. Under this partnership, the liability of the all partners are unlimited . All partners have equal, joint & several liability of all partners is unlimited. all partners can take part in business management. All the partners are responsible for profit and losses and also depts. Of the business. This type of partnership can be classified into three categories: a) Partnership for particular venture: It is also known as a particular partnership. It is formed for the particular venture or project. This partnership comes to an end when the project is completed. ) Partnership for particular period: This partnership is formed for a specific period only. After completion of the period, the partnership is terminated. c) Partnership at will: This is a general partnership, which does not have any limitation of time and venture. It can be ended only at the wish and will and will of any of the partner. the partner who wishes to dissolve the firm have to serve a 14 days notice upon the other partners. after this, the firm ceases to exist. the duration and life of the firm depends on the mutual trust, confidence and will of the partners. 2. 6 TYPES OF PARTNERS 1.
Active partner: The partners who actively participate in the day-to-day operations of the business are known as active partners. 2. Dormant partner: Those partners who do not participate in the day-to-day activities of the partnership firm are known as dormant or “sleeping partners”. They only contribute capital and share the profits or bear the losses. 3. Nominal partner: These partners “only” allow the firm to use their “name” as a partner. They “do not” have any real interest in the business of the firm. They do not invest any capital, or share profits or take part in the business of the firm. . Minor partner: In special cases a minor can be admitted as partner with certain conditions. A minor can only share the profit of the business. In case of loss his liability is limited to the extent of his capital contribution for the business. 5. Partner in Profit: As per the provision of partnership act 1932, each partner has right to share the profit & looses of the business. But the person can be admitted on a specific agreement and understanding that he will share only profit and not the losses incurred by the firm. 6. Partner by Estoppels:
He is in fact not a partner, and not associates with partnership firm. But he creates a false impression by behaving with outsiders as he is a partner. His liability is unlimited towards outsiders. Practically, he is not a partner, therefore, his contribution to capital, participation in management, sharing of profit are out of the Question. 7. Partner by Holding out: He is neither the partner nor does behave like a partner, but he does not deny himself the position of partner. The third party assums him to be a partner and he does not deny it. Therefore, he will be liable to the third party.
In every other way, he is similar in status estoppels. 8. Sub partner: He is been one who has been allowed to share profit of the particular partner. Such a partner is not admitted by the firm. His agreement is with the particular partner. 9. Special partner: He is whose whose liability is limited. This kind of partner is not admitted as per the Indian partnership act. He cannot take an active part in the management of the business. 10. Quasi partner: A Quasi partner is one who is retired from the firm but he has retained his capital in the business or in the firm.
He is liable for the depths of the firm. He has no rights to share the profits of the nor to managed the business. 2. 7 PARTNERSHIP DEED NAME & ADDRESS OF PARTNERSHIP FIRM NATURE & DURATION OF PARTNERSHIP CONTRIBUTION OF CAPITAL BY EACH PARTNER PROFIT SHARING RATIO OF EACH PARTNER RULES REGARDING ADMISSION & RETIREMENT PROCEDURE OF DISSOLUTION ARBITRATION CLAUSE WITHDRAWALS OR DRAWINGS OF PARTNERS LOANS FROM PARTNERS & INTEREST PAYABLE SALARY & COMMISSION PAYABLE TO PARTNERS INTEREST ON CAPITAL GOODWILL VALUATION & TREATMENT EQUITIES, POWERS & OBLIGATIONS 3. Joint Hindu Family: 3. Meaning India is unique in the system of Joint Hindu Families. A Joint Hindu Family comprises of father, mother, sons, daughters, grandsons and granddaughters. They hold the property jointly. They do the business under the control of the head of the family. These families have been engaged in occupations like agriculture ,handicrafts, small industries etc. These business units are known as Joint Hindu family business. This system is found only in India. The system of Joint Hindu family came into existence by the operation of Hindu law. There will not be any agreement among members.
The firm is owned by the members of the family who have inherited their ancestral property. Their membership is conferred upon the members by virtue of their birth in the family. The head of the family is known as ‘KARTA’. The members are called coparceners. It is regulated by the provisions of Hindu Law. According to Hindu Law, a Hindu can inherit the property from three generations. In other words, a son, a grand son, a great grand son become joint owners for the property by birth in the family. The law provides rights to women for their living and marriages in the joint family. 3. 2 Features 1.
Organization Existence: A joint Hindu family business exists due to the operation of Hindu law and not out of contract. The rights and liabilities of co-parceners are determined by the general rules applicable in the Hindu law. 2. Membership: A person born in the family gets an automatic membership of the business and legality is not affected by the minority of the member. There is no limit to the maximum number of members in this type of organization. 3. Registration of Organization: It is not necessary to get the business registered 4. Management: The business is managed and controlled by the head or the ‘Karta’.
He has the power to obtain loans against the family property etc. The Co-parceners do not have the power to raise loans or enter into contracts. 5. Unlimited Liability: ‘Karta ‘ has unlimited liability and the co-parceners have limited liability to the extent of their individual investment in the family business. 6. Membership limit There is no maximum limit to membership in this type of business. The membership depends upon the birth rate and death rate in the family. 7. Personal devotion It is assumed that karta will take full interest in the business and will not misappropriate the funds. 8. Domination
It is dominated by male members & the female members hardly participate. 9. Continuty This form is not dissolved due to the death of the co-parceners or karta. Hence has stable life. 10. Joint Ownership The business is jointly owned by all members called as co-parceners. Co-parceners are inherited by generation to generation. 3. 3 Advantages 1. Long Life: The business of Joint Hindu family is not dissolved due to death, insanity of a member or even a karta. Therefore , it enjoys a satble life which is one of the the important requisites for the development of any business. 2. Limited Liability:
The liability of all coparceners except that of karta is limited. Karta’s liability is unlimited which encourages families to conduct their business as a joint Hindu family business instead of sole trading or partnership firm where the liability of sole trader or all partner in partnership is unlimited. 3. Flexibility: The business is solely managed by karta. Therefore, he can take quick decisions to exploit business opportunities. Flexibility is an essential feature in the modern business since one has to adjust one’s business according to changing market conditions, policies, fashions, habits etc. . Protection of the Disabled: In a hindu joint family business every family member is a member by birth. Therefore, old and disabled members can be well-looked after. They do not have to remain at mercy of others, they earn business profits as their right. 5. No Formation Procedure: There is no need of formation of business as a joint stock stock company. It takes the share of a joint hindu family business in the course of time. 6. No Registration: There is no need of registration of joint Hindu family business as in a partnership, co-operative societies or companies. 7.
Benefits of Large Scale: There can be many members to look after the business under the guidance of karta. They can take up any business on a large scale and reap the profits of large operations. 8. Motivation: As the progress of the business is directly associated with the progress of the entire joint undivided family, all members put in their best to develop the business. 9. Better Credit Standings It increases competitive strength of the business. It enjoys goodwill and reputation in the market. As a result of this it gets better terms from financers and suppliers. 10.
Spirit of understanding Since it is family business, there is a great deal of understanding and unity between the co-parceners. There is also good deal of understanding between karta and co-parceners. This results into smoothness in the conduct of the business. 3. 4 Disadvantages 1. Unequal Work and Rewards: The unequal proportion of reward and work is the main feature of this business. A karta puts in more efforts than a member. Therefore, he is entitled to get a share in the profits of business. 2. Instability: The continuity and stability of the business depends upon the co-operation of oparceners. If coparceners dissociate themselves, the karta cannot continue to run the business as a Hindu Undivided Family. 3. Unlimited Liability: Due to unlimited liability of karta he cannot take bold decisions, which is needed sometimes for the expansion of business. 4. Limited Sources: Joint hindu family business cannot raise more finance because their resources are limited. This may be an obstacle in their development. 5. Limited Managerial Ability: The business is managed by karta alone. If he is not qualified and capable enough, the business may suffer. . Limited Growth In this business because of limited capital and limited managerial skills it is not possible to expand the business. Conservative approach by Karta and other co-parceners also limits the growth of the business 7. Domination by male members Male co-parceners and karta generally dominate his family business. Female members do not have any voice either in the management or conduct of the business 8. Risk of implied authority All the powers of the management are given to the karta. He has all the rights to enter into contract with the third party.
He binds all the co-parceners by his actions and therefore co-parceners face risk of judgment taken by karta. 9. No principal Agent relationship The co-parceners and karta does not have principal agent relationship. The co-parceners always feel unwanted and they are always unsecured. 10. Difficulty in Profit Distribution In Joint hindu family business, distribution of profit becomes a problem. Every co-parceners feel that profit has resulted due to his hard work. And hence every one wants higher share in profit. Even the distribution of assets of karta creates a problem after his death.
MITAKSHARA SCHOOL: The Mitakshara School exists throughout India except in the State of Bengal and Assam. The Yagna Valkya Smriti was commented on by Vigneshwara under the title Mitakshara. The followers of Mitakshara are grouped together under the Mitakshara School. Mitakshara school is based on the code of yagnavalkya commented by vigneshwara. Inheritance is based on the principle or propinquity i. e. The nearest in blood relationship will get the property. The school is followed throughout India except Bengal state. Sapinda relationship is of blood. The right to hindu joint family property is by birth.
So, a son immediately after birth gets a right to the property. The system of devolution of property is by survivorship. The share of co-parcener in the joint family property isnot definite or ascertainable, as their shares are fluctuating with births and deaths of the co-parceners. The co-parcener has no absolute right to transfer his share in the joint family property, as his share is not definite or ascertainable. A women could never become a co-parcener. The widow of a deceased co-parcener cannot enforce partition of her husband’s share against his brothers.
There are four Sub-Schools under the Mitakshara School: i. Dravida School : (Madras school) It exists in South India. In the case of adoption by a widow it has a peculiar custom that the consent of the sapindas was necessary for a valid adoption. (‘Sapindas’ – blood relation) ii. MAHARASHTRA SCHOOL: (BOMBAY SCHOOL) It exists in Bombay (Mumbai) , From the above four bases, there are two more bases. They are Vyavakara, Mayukha and Nimaya Sindhu. The Bombay school has got an entire work of religious and Civil laws. iii. BANARAS SCHOOL : It exists in Orissa and Bihar. This is a modified Mitakshara School. v. MITHILA SCHOOL : It exists in Uttar Pradesh near the Jamuna river areas. Apart from the above schools, there are four more schools which are now existent today. They are Vyavakara, Mayukha Nimaya and Sindhu Schools. DAYABHAGA SCHOOL: It exists in Bengal and Assam only. The Yagna Valkya smriti is commented on by Jimootavagana under the title Dayabhaga. It has no sub-school. it differs from Mistakshara School in many respects. Dayabhaga School is based on the code of yagnavalkya commented by Jimutuvahana, Inheritance is based on the principle of spiritual benefit. It arises by pinda offering i. . rice ball offering to deceased ancestors. This school is followed in Bengal state only. Sapinda relation is by pinda offerings. The right to Hindu joint family property is not by birth but only on the death of the father. The system of devolution of property is by inheritance. The legal heirs (sons) have definite shares after the death of the father. Each brother has ownership over a definite fraction of the joint family property and so can transfer his share. The widow has a right to succeed to husband’s share and enforce partition if there are no male descendants.
On the death of the husband the widow becomes a co-parcener with other brothers of the husband. She can enforce partition of her share. 4. Joint Stock Company: 4. 1 Meaning The companies in India are governed by the Indian Companies Act, 1956. The Act defines a company as an artificial person created by law, having a separate legal entity, with perpetual succession and a common seal. A company is an association of many persons. The capital of the company is divided into small units called a share. Any one who holds or buys a share in a company is called a shareholder. Shareholders are the members of the company.
A company is called a joint stock company as the capital is contributed by a large number of investors. A company is considered as a person by law. It can enter into contract in its own name. It must have a common seal as it cannot sign documents. A company has continuous perpetual existence. The liability of a share holder is limited. Shares can be freely transferred from one person to another. Examples Reliance Industries Limited (RIL), Tata Iron and Steel Company Limited (TISCO), Steel Authority of India Limited (SAIL), Maruti Udyog Limited (MUL), etc. 4. 2 FEATURES 1. Legal formation A joint stock company comes into existence only when it has been registered after completion of all formalities required by the Indian Companies Act, 1956. 2. Artificial person A joint stock also takes birth, grows, enters into relationships and dies, like an individual. However, it is called an artificial person as its birth, existence and death are regulated by law. 3. Separate legal entity Being an artificial person, a joint stock company has its own separate existence independent of its members. It means that a joint stock company can own property, enter into contracts and conduct any lawful business in its own name.
It can sue and can be sued by others in the court of law. 4. Common seal A joint stock company has a seal, which is used while dealing with others or entering into contracts with outsiders. It is called a common seal as it can be used by any officer at any level of the organisation working on behalf of the company. Any document, on which the company’s seal is put and is duly signed by any official of the company, become binding on the company. For example, a purchase manager may enter into a contract for buying raw materials from a supplier. Once the contract paper is sealed and signed by the purchase manager, it becomes valid. . Perpetual existence A joint stock company continues to exist as long as it fulfils the requirements of law. It is not affected by the death, lunacy, insolvency or retirement of any of its members. 6. Limited liability In a joint stock company, the liability of a member is limited to the extent of the value of shares held by him. While repaying debts, for example, if a person owns 1000 shares of Rs. 10 each, then he is liable only upto Rs 10,000 towards payment of debts. That is, even if there is liquidation of the company, the personal property of the shareholder can not be attached and he will lose only his shares worth Rs. 0,000. 7. Democratic management Joint stock companies have democratic management and control. That is even though the shareholders are owners of the company, all of them cannot participate in the management of the company. 8. Mobilization of resources A joint stock company collects savings of a larger number of investors for profitable investment, this leads to industrial growth and more production and bring about rapid industrial and economic development. 9. Huge Capital A Joint stock company collects huge capital for the business by issuing shares and other securities like debentures and bonds. Shares are transferable.
This helps to conduct business on a large scale. 10. Large membership The maximum no. of members in private limited company is 50 where as in public limited company is unlimited therefore large scale business is possible due to large membership. 4. 3 Advantages 1 . Large financial resources: A joint stock company is able to collect a large amount of capital through small contributions from a large number of people. In public limited company shares can be offered to the general public to raise capital. They can also accept deposits from the public and issue debentures to raise funds. 2. Limited Liability:
In case of a company, the liability of its members is limited to the extent of the value of shares held by them. Private property of members cannot be attached for debts of the company. This advantage attracts many people to invest their savings in the company and it encourages the owners to take more risk. 3. Professional management: Management of a company is vested in the hands of directors, who are elected democratically by the members or shareholders. These directors as a group known as Board of Directors ( or simply Board) manage the affairs of the company and are accountable to all the members.
So members elect capable persons having sound financial, legal and business knowledge to the board so that they can manage the company efficiently. 4. Large-scale production: Due to the availability of large financial resources and technical expertise it is possible for the companies to have large-scale production. It enables the company to produce more efficiently and at lower cost. 5. Contribution to society: A joint stock company offers employment to a large number of people. It facilitates promotion of various ancillary industries, trade and auxiliaries to trade.
Sometimes it also donates money towards education, health and community services. 6. Research and Development: Only in company form of business it is possible to invest a lot of money on research and development for improved processes of production, new design, better quality products, etc. It also takes care of training and development of its employees. 7. Huge Capital: A company collects huge capital in the form of share, debentures, bonds. It helps for wide expansion of the business due to huge capital and capital raising capacity. 8. Public Confidence
The Public gains confidence in such companies due to govt. control and huge capital is invested in it and as they have to public their financial position every year this creates public confidence. 9. Social benefits Due to such companies, industrial growth is accelerated, they not only promote but also create employment opportunities. They also promote Internal trade which leads to overall development of the country. 10. Tax benefit The tax burdens on companies are low as compared to individual income tax. Various tax incentives are also offered to companies for their growth.
This facilitates the growth of the corporate sector. 4. 4 Limitations 1. Lengthy formation process: The formation or registration of joint stock company involves a complicated procedure. A number of legal documents and formalities have to be completed before a company can start its business. It requires the services of specialists such as Chartered Accountants, Company Secretaries, etc. Therefore, cost of formation of a company is very high. 2. Excessive government control: Joint stock companies are regulated by government through Companies Act and other economic legislations.
Particularly, public limited companies are required to adhere to various legal formalities as provided in the Companies Act and other legislations. Non-compliance with these invites heavy penalty. This affects the smooth functioning of the companies. 3. Delay in policy decisions: Generally policy decisions are taken at the Board meetings of the company. Further the company has to fulfill certain procedural formalities. These procedures are time consuming and therefore, may delay action on the decisions. 4. Concentration of economic power and wealth in few hands:
A joint stock company is a large-scale business organisation having huge resources. This gives a lot of economic and other power to the persons who manage the company. Any misuse of such power creates unhealthy conditions in the society, e. g. , having monopoly over a particular business or industry or product; exploitation of workers, consumers and investors. 5. Evils of unionism The employees of the joint stock companies normally form their unions, which frequently fight with the management. This results into bad employer – employee relation, strike, lockouts and other social evils. . Lack of personal interest As the owners and managers are different there is lack of personal interest in such organizations as there is no effort-reward relationship and the shareholders are interested only in the dividend thus there is no devotion and involvement which leads to lack of personal interest. 7. Lack of secrecy As a company is not an personal firm there are many shareholders therefore there is no secrecy as every information and the books of accounts have to be published regularly, due to which there is no business secrecy. 8.
Exploitation of shareholders & consumers Companies are usually controlled by influencing persons, they use their positions to make profit at any cost the directors make profit and exploit the shareholders as there is concentration of economic power the exploit their customers is a lot of ways i. e. by providing inferior quality of goods, less quantity of goods etc. 9. Political corruption Joint stock companies make huge profits and use it for political purposes. They use corrupt practices for their expansion; they undermine the social and moral values for their personal profits. 0. Scope of Fraudulent Management As managerial powers lies with Board of Directors, they can cheat or mislead the shareholders. Misappropriation of funds and windows dressing of accounts are common practices in joint stock companies nowadays. 4. 5 MANAGEMENT [pic] 4. 6 Forms of Companies The formations, liability, management and ownership of all companies differ from each other. Types of companies a] on the basis of their ownership Private Limited, Public Limited and Government companies B]on the basis of their nationality. Indian and Foreign, Private Limited Company
These companies can be formed by at least two individuals having minimum paid–up capital of not less than Rupees one lakh. As per the Companies Act, 1956 the total membership of these companies cannot exceed 50. The shares allotted to its members are also not freely transferable between them. These companies are not allowed to raise money from the public through open invitation. They are required to use “Private Limited” after their names. The examples of such companies are Combined Marketing Services Private Limited, Indian Publishers and Distributors Private Limited, Oricom Systems Private Limited, etc.
Public Limited Company A minimum of seven members are required to form a public limited company. It must have minimum paid–up capital of Rs 5 lakhs. There is no restriction on maximum number of members. The shares allotted to the members are freely transferable. These companies can raise funds from general public through open invitations by selling its shares or accepting fixed deposits. These companies are required to write either ‘public limited’ or ‘limited’ after their names. Examples of such companies are Hyundai Motors India Limited, Steel Authority of India Limited, Jhandu Pharmaceuticals Limited etc. Basis |Private Limited Company |Public Limited Company | |Membership |Minimum – 02 |Minimum – 07 | | |Maximum – 50 |Maximum – no restriction | |Identification |Use a suffix “Private Limited” |Use a suffix “Limited” after its | | |after its name |name |Transferability of |Restricted |Free | |shares | | | |Capital required |Not less than Rs. 1 lakh |Not less than Rs. 5 lakh | |Raising of funds |Can not give open invitation to the |Can raise as much money as | | |public to subscribe the shares |required from public |
Government Company In these companies the Government (either state or central government or both) holds a majority share capital i. e. , not less than 51%. However, companies having less than 51% share holding by the government can also be called Government companies provided control and management lies with the government. Examples of government companies are: Mahanagar Telephone Nigam Limited, Bharat Heavy Electricals Limited. Indian Company A company having business operations in India and registered under the Indian Companies Act, 1956 is called Indian Company.
An Indian company may be formed as a public limited, private limited or government company. Foreign Company A foreign company is a company formed and registered outside India having business operations In India Multinational Companies A multinational company is operated in more than one country simultaneously. 2. It is generally very large in size. 3. Its purpose is to reduce transport costs and to make use of raw materials, labour, capital and market of foreign countries. There are 500 to 700 MNCs operating in the world today, half of them are U.
S multinationals and the rest are based outside United States. Features (i) International Operations: Multinational Companies generally have production, marketing and other facilities in several countries. (ii) Large size: The volume of sales, the profits earned, and also the value of assets held by a multinational companies are generally very large. (iii) Centralised Control: The branches and subsidiary units of an MNC operating in different countries are controlled from the headquarters of the company in the home country, which lay down broad policies to be pursued. 4. Forms of Joint Stock Companies A]Private Organization The companies which are owned managed and controlled by private individuals are known as private organization. for Eg. : RIL(Reliance India Limited), M&M(Mahindra &Mahindra) etc. Features:- Owned and managed by private individuals Private Organizations are owned, managed and controlled by private individuals.
No state participation- Private organizations are more or less free from strict government control. They have freedom to formulate the required business policies and implement them. Independent Management- The owners manage their enterprises themselves or through elected representatives.
There is on the internal management by the government. Object to earn profits- The main goal/aim of private organizations is to earn maximum possible profit. B] Public Organization:- The organizations which are owned, managed and controlled by the central or the state government or both or any local authority.
Features:- Government ownership, management and control- Public sector organizations are owned, managed and controlled by central or state governments or any local authority. Service Motive- The primary objective of the public enterprises is not maximizing profits but to provide service to the society.
Public Financing- Public enterprises use public/government funds for their day-to-day operations. As a result they are accountable to the parliament. Public accountability- Since the public organizations are owned and managed by the government and they use public funds hence they are accountable to the public as well as to the parliament for the proper use of funds.
Satisfactions of basic needs- Generally public enterprises are formed to satisfy the basic needs of the people such as water, electricity etc. Importance:- Defence requirement- Public sector organizations are important for the fulfillment of the requirements of the defence of the country. Development of basic and capital goods industries – Public sector organizations help in the development of the basic and capital goods industries.
Capital formation- The public sector makes significant contribution to the capital formation of the country by mobilizing the savings of the people through public organizations like IDBI, ICICI etc. Infrastructure- To speed up the process of industrialization, infrastructural facilities like roads, railways, ports, electricity etc. become necessary.
Private entrepreneurs do not enter into these areas. Thus the government has to take initiative and enter into these areas to ensure proper infrastructural development. Avoid National wastage- When private units become sick and have to close down their operations many people lose their jobs, physical resources like land, buildings, machinery etc. they remain idle and finance gets locked.
To prevent this wastage of national resources sometimes the government takes over these units and carries on their operations. Regional Development- Public enterprises set up their units in the economically backward areas and attempt to create infrastructure and employment opportunities in these areas which are neglected by the private sector. Thus, they help in removal of regional disparities in the economic development which is harmful for the nation.
Employment opportunities- Large public sector organizations like IOCL(Indian Oil Corporation), Indian Railways etc. provide employment opportunities to lakhs of people. Revenue to the government- Public sector undertakings earn revenue for the government which is utilized by the government for development of infrastructure and public welfare services.
Public Welfare-With public welfare being the first priority, even if some of the public sector organizations are incurring losses, they are not discontinued in the interest of the public. Types:- Departmental Undertakings- Departmental undertakings are the oldest form of public Enterprises. These are run by the government departments. The concerned minister is the head of each department whose ministry guides and controls the activities of the department eg. : Railways, Post and Telegraph etc.
Merits/Advantages of Departmental Undertakings- Easy Formation- These undertakings can be formed easily. They are started by the government as per the requirements. They need not be registered under any authority. No legal formalities are required to be fulfilled . Public Accountability- These departmental undertakings function under the government control. Thus they are accountable to the public as well as to the government regarding the proper use of funds.
Maximum Business Secrecy- These departmental undertakings can maintain maximum business secrecy which can be very essential in areas like defence. Contribution to the government- The revenues earned by these departmental undertakings are deposited with the government treasury. National Importance- The activities of national importance are taken up by them eg. supply of electricity, water supply etc. Thus they help in achieving the social economic objectives set by the government. Proper utilization of resources- Due to strict procedures, rules and regulations’ of the government the risk of misuse of resources is minimize De-merits/Disadvantages- Lack of Flexibility-The policies once formed by the government are not changed depending on tastes & preferences, likes & dislikes of the people which is very important for a business organization.
Inefficiency-Due to lack of motivation and low salaries, employees do not work efficiently which may result into losses. The subsidies from the government also encourage inefficiency. Losses-Due to inefficient staff and profit making not given much importance, some departmental undertakings keep incurring losses year after year. Slow Decisions- In departmental undertakings decision-making is a slow process. It is mainly due to red tapism. The decisions are taken by bureaucracy which is not accustomed to quick decision making.
Lack of competition- Lack of competition makes them incompetent. Their monopolistic tendencies results into exploitation of customers. Political Interference-Since these departments are run by the government the ruling political party may run it for its own benefit rather than for public benefit. Statutory Companies- Statutory companies is another form of public organization. It is an autonomous organization established by passing a special act or statute of the central or state legislature. Statutory Companies are specially created business organizations.
They are established by special acts known as statutes. Merits/Advantages of Statutory Companies:- Operational Autonomy- Statutory corporations enjoy freedom of operations they can frame their policies, set their goals and can decide way to achieve these goals. Flexibility- Statutory corporations enjoy managerial flexibility. These corporations are free to take decisions regarding production, marketing, personnel, finance, accounting procedures etc.
They can change the decisions or modify them whenever necessary. No Government Interference- The government does not interfere with the working of the statutory corporations. They are not dependent on government departments for decisions or any other matter . Professional Staff- The statutory corporations are free to employ the staff as per their requirements.
They can employee competent and professional staff by offering it attractive terms and conditions. Large scale Economies- Since public Corporations work on a very large scale, it is possible for them to enjoy large scale economies. De-merits/Disadvantages:- Difficult Formation- A statutory corporation is formed by a special statute enacted by the parliament or legislature, hence its formation is elaborate and time consuming.
Mis-use of power- These corporations enjoy financial freedom. But it is likely to be misused by them. Their funds may be used for purposes which may not be meaningful and the money may be wasted. Creates Monopoly- Statutory companies are formed by passing a special act or statute in the parliament and are hence only owned by government no private organization can form these kind of organization.
Suitability- It is suitable for undertaking projects on a large scale. They are unsuitable for conducting business on a small scale. Therefore their areas of operation are restricted. Government Companies- A Government Company is one in which atleast 51% of its paid up capital is held by the Central Government or State Government. Eg. :Steel Authority of India(SAIL),Hindustan Machine Tools(HMT),Rural Electrification Corp. (REC) etc. A government company is registered under Indian Companies Act,1956. Merits/Advantages of Government Companies:-
Easy Formation- It is easy to form a government company by getting it registered under the Companies Act,1956. No special Act is necessary to bring it into existence. Independent business policies- The government companies have a right those formulate their independent policies which are suitable for them. Expertise- The directors possessing expertise in their fields are appointed on the Board so as to run the business very efficiently.
Additional Financial Resources- Apart from government funds, the aaditional capital is raised through private sources. There is foreign participation in capital at times. The funds can also be raised through raising loans from financial institution or issue of debentures. Professional Management- The government companies can appoint professional managers to manage their business. Thus they can efficient management. De-merits/Disadvantages:-
Undue government interference- Though on paper, a government company has freedom of operation, but in reality there is a lot of interference by the government in the appointment of directors and other personnel, investment decision, choosing technology, pricing policy, borrowing decisions etc. Frequent transfer of employees- Government employees are transferred frequently from one organization to another and from one city to another. This comes in the way of smooth function of government companies.
No Continuity of policies- There may not be continuity in the policies of the government companies as the management of these companies keeps on changing. This affects the working of the company adversely. Slow decision making process-Many times these companies depend upon the government for important policy decisions. This hampers decision-making process and makes it slow. 4. 8 Kinds of companies ( A ) On the basis on Incorporation: Chartered Company: A chartered company is a company which is establishes or incorporated as per the special charted or order issued by the king or emperor i. . head of the state. Such companies were only popular only in olden days. The bank of England is an example of chattered company. At present such companies are not established. Statutory Company: A statutory company is a company which is established by a special act or statute made by parliament or legislature. The Life Insurance Corporation of India or reserve Bank of India are its examples. Registered Companies: A registered company is duly established under the existing Indian Companies act. All private sector companies are registered under the Indian Companies act. Foreign Company:
A foreign company is a company, which is registered in a foreign country and conducts business in India by opening a branch or office or agency. ( B ) On the basis by guarantee: Company limited by shares: It is a company in which the liability of shareholders is equal to the value of shares produced. This means the liability of the members is limited to the no. of shares owned. Company limited my Guarantee: It’s a company in which the liability of the shareholders is more. It is equal to the value of the shares purchased plus the guarantee amount, which the members agree to pay in case the company winds up.
Such company is usually formed in case of non-trading purposes. Unlimited Company: In unlimited company, the liability of members is unlimited. Its like a partnership firm. ( C ) On the basis of Ownership: Private company: A private company is usually small company with minimum 2 members and the maximum no. is 50. Such a company does not invite people to purchase shares. This means the prospectus is not issued to general public. In addition, the transfer of shares is not freely allowed. Public Limited Company: A company, which is not private limited, is called as public limited company.
The minimum membership of a public limited company is 7 and there is no limit to the maximum no. of members. Such a company issues a prospectus for the sale of shares. Moreover, right to transfer share is freely given. Public companies are suitable for large business activities. Government company: A government company is one which is owned and managed by government (central, state or both jointly). In a government company, 51% or more share capital is contributed by the government. However it is registered under the Indian Companies act, 1956. H. M. T is one of its examples. Holding Company:
A holding company is one which holds a large majority of shares of some other companies or company. A holding company controls the operation of one or more companies by purchasing majority of equity shares of such other companies. Subsidiary Company: A subsidiary company is just the opposite, of a holding company. Its is controlled by some other company called holding company. In brief, a holdin
