Business Organization

BBA Semester II
PROF. S.K. DOGRA, HOD-Mgmt

UNIT-II
BUSINESS ENTERPRISES ENTREPRENEURSHIP

BO- 2

ENTREPRENEURSHIP C O N C E P T A N D N AT U R E
WHO IS AN ENTREPRENEUR? PERSON RESPONSIBLE FOR SETTING UP A BUSINESS OR AN ENTERPRISE. TAKES INITIATIVE, HAS SKILLS FOR INNOVATION AND LOOKS FOR ACHIEVEMENT. AGENT OF CHANGE AND WORK FOR THE GOOD OF PEOPLE.

OPENS UP EMPLOYMENT OPPORTUNITIES, CREATES WEALTH AND BOOSTS OTHER SECTORS.

BO- 3

HIGHLY SELF-MOTIVATED ACHIEVE GOALS.

PERSON,

WHO

TAKE

RISKS

TO

FIRM BELIEVER IN SOCIAL BETTERMENT. VISIONARY HAVING OUTSTANDING LEADERSHIP. DESIRE TO EXCEL, STRONGLY BELIEVES IN R & D. FOUND IN ALL AREAS. PLAY IMPORTANT ROLE IN ECONOMIC GROWTH. AIMS AT HIGH GOALS.

PERSON, WHO IDENTIFIES AN OPPORTUNITY, GATHERS THE NECESSARY RESOURCES, ULTIMATELY RESPONSIBLE FOR THE PERFORMANCE OF THE ORGANIZATION.

BO- 4

WE CAN NOW SAY THAT ENTREPRENEUR IS A PERSON WHO BEARS THE NON-INSURABLE AND RISK, WORKS THE UNDER OF UNCERTAINTY, PRODUCTION,

COMBINES

MANAGES

FACTORS

INNOVATES ON ALL FRONTS ON REGULAR BASIS, FUNCTIONS AS

PROPRIETARY
ASSOCIATED

CAPITALIST
WITH

AND

IS

MOTIVATED

BY

PROFIT.

THREE

ELEMENTS:-

RISKBEARING,

ORGANIZING, INNOVATING.

BO- 5

QUALITIES / TRAITS / CHARACTERISTICS OF AN ENTREPRENEUR STRONG ACHIEVER

SELF-RELIANT & INDEPENDENT DETERMINED AND COMMITTED HUNGRY FOR SUCCESS, OPTIMISTIC SELF CONFIDENCE AND SELF-FAITH SUSTAINED ENTHUSIASM COURAGE & SELF-MOTIVATED ABILITY TO SURVIVE DEFEAT SINGLE-MINDEDNESS WILLING TO ACCEPT RESPONSIBILITY NEVER ENDING ENERGY BOTH THINKER AND DOER CLEAR OBJECTIVE & CREATIVITY ORGANIZATION SKILLS INTELLIGENT AND HAVE TECHNICAL KNOWLEDGE
BO- 6

FUNCTIONS OF AN ENTREPRENEUR
1. INNOVATION: CONCEIVES / IDEAS FOR PRODUCTION OF NEW
PRODUCTS/SERVICES OR IMPROVEMENTS IN THE QUALITY OF PRODUCTION FOR THIS HE CONSIDERS THE ECONOMIC VIABILITY AND TECHNOLOGICAL FEASIBILITY. INTRODUCTION OF DIFFERENT KINDS OF ELECTRONIC GADGETS INNOVATION

INCLUDES INTRODUCTION OF NEW PRODUCTS, CREATION OF

NEW MARKETS, APPLICATION OF NEW PROCESS OF PRODUCTION, DISCOVERING NEW AND BETTER SOURCES OF RAW-MATERIALS, ORGANIZATION. NEW FORM / CULTURE OF INDUSTRIAL

INNOVATION PRODUCES SATISFACTION & PROFITS AS HE WORKS ON INVENTIONS NEW KNOWLEDGE. BO- 7

ASSUMPTION OF RISK OR RISK TAKING

ASSUMES ALL POSSIBLE RISKS OF BUSINESS. ALSO INVOLVES RISKS DUE TO CHANGES IN TASTES/BEHAVIOR OF CONSUMERS, COMPETITION, NEW INVENTIONS AND TECHNIQUES OF PRODUCTION. FOR ALL SUCH RISKS, HE MAY BEAR LOSSES AS HE TAKES UP THE RESPONSIBILITIES.

INVESTS CAPITAL, PAYS INTEREST TO LENDERS, WAGES/

SALARIES, RENT, WORKING CAPITAL EXPENDITURES AND TRIES AND TO AFTER ALL THESE, MAY BE LEFT WITH LITTLE OR NO PROFITS.

BEING

ENTERPRISING,

ASSUMES

RISKS

MANAGE / HANDLE IT BY HIS SKILLS, INNOVATION, JUDGMENT, PLANNING, EXPANSION ETC. BO- 8

BUSINESS DECISIONS AND ORGANIZATION BUILDING

DECIDES NATURE & TYPES OF GOODS/SERVICES TO BE

PRODUCED. CRUCIAL DECISION OF ENTERING A PARTICULAR INDUSTRY, PROSPECTS OF PRODUCTS IN FUTURE AND MOST PROFITABLE METHODS OF PRODUCTION. DECIDES BUSINESS. ORGANIZES TAKES AND MONITORS OF CORE AND VARIOUS DECISIONS DECISION FACTORS HIMSELF MAKING OF BUT WHEN PRODUCTION, MINIMIZE COSTS OF PRODUCTION. MAJORITY DELEGATES AUTHORITY ABOUT CHANGES IN SIZE OF BUSINESS, ITS

LOCATION, NEW BRANCHES, TECHNIQUES, WAYS TO DEVELOP

BUSINESS GROWS AND DECISIONS BECOME COMPLEX. BO- 9

MANAGERIAL FUNCTIONS
ALSO PERFORMS MANAGERIAL FUNCTIONS OF PLANNING, DIRECTING, CONTROLLING, LEADERSHIP ETC. FORMULATES MATERIALS, FUNCTIONS. LARGE ORGANS:- DELEGATED TO PAID MANAGERS. PLANS, ARRANGE FINANCE, PROCURE RAW HRD ARRANGE PRODUCTION FACILITIES,

EARNING PROFITS
AS HE TAKES UP VENTURES, TAKES RISKS FOR EARNING PROFITS. HAVE STRONG MOTIVATION TO EARN PROFITS AND HAVE SUCCESS. FOR THIS EXPLOITS OPPORTUNITIES. BO- 10

LOCATION OF A BUSINESS ENTERPRISE

REFERS TO CHOICE OF A REGION AND SELECTION OF A PARTICULAR SITE FOR SETTING UP A FACTORY/BUSINESS. NO HARD AND FAST RULES FOR LOCATING A PLANT BUT DIFFERENT SITES HAVE THEIR OWN ADVANTAGES.

IMPORTANCE OF LOCATION
HAS GREAT INFLUENCE ON COSTS OF PRODUCTION AND DISTRIBUTION. MANY DIFFICULTIES IN UNFAVOURABLE SITES. SOME LOCATIONS HAVE LOCATIONAL ADVANTAGES. LOCATION SHOULD PROVIDE MAXIMUM EFFICIENCY OF ALL RESOURCES. LONG TERM DECISION CRUCIAL GOOD LOCATIONS LEAD TO ORDERLY GROWTH OF THE FIRM EXPENSION ETC. TENDENCY TOWARDS LOCATION OF A PARTICULAR INDUSTRIES IN CERTAIN REGIONS. ONE SUCH THEORY EXPLAIN THIS TENDECNY: BO- 11

WEBERS THEORY ASSUMPTIONS

1. CENTRES OF CONSUMPTION ARE FIXED 2. COST OF RAW MATERIAL IS SAME AT ALL PLACES EVEN

THOUGH THE DISTRIBUTION OF DEPOSITS OF RAW MATERIALS

IS UNEVEN. 3. THERE ARE FIXED CENTRES OF LABOUR SUPPLY AND THEY HAVE UNLIMITED SUPPLIES OF LABOUR AT CONSTANT COST. 4. TRANSPORT COSTS DEPEND UPON WEIGHT OF MATERIALS AND DISTANCE. IN OTHER WORDS, TRANSPORTATION RATES ARE EQUAL THROUGHOUT THE COUNTRY AND THERE IS AN

ABSOLUTELY EVEN PLANE KIND OF VEHICLE AND TOPOGRAPHY,

LOCAL TAXES DO NOT MATTER.

BO- 12

WEBERS THEORY OF LOCATION

PROPOUNDED BY ALFRED WEBER A GERMAN ECONOMIST IN 1909, TWO KIND OF FACTORS INFLUENCE LOCATION OF PLANT: 1. PRIMARY FACTORS COST OF LAND & BUILDING

COST OF MACHINES & OTHER FIXED ASSETS.

COST OF MATERIAL, POWER & FUEL. COST OF LABOUR. COST OF TRANSPORTATION. INTEREST & DEPRECIATION CHARGES ABOVE FACTORS CAUSE REGIONAL DISTRIBUTION OF INDUSTRIES. BO- 13

 COST OF LAND & BUILDING HAVE AN INSIGNIFICANT INFLUENCE

ON LOCATION AS THEIR PROPORTION TO OTHER INPUTS IS VERY

SMALL. DIFFERENCES IN THE COST OF RAW MATERIALS ARE LARGELY DUE TO VARYING DISTANCE OVER WHICH THEY ARE TO BE CARRIED AND MAY, THEREFORE BE TREATED AS A FORM OF TRANSPORT COST. DEPRECIATION AND INTEREST COSTS ARE INDEPENDENT OF

GEOGRAPHICAL LOCATION AND HAVE NO SIGNIFICANT BEARING

ON INDUSTRIAL LOCATION. THEREFORE, WEBER DEVELOPED HIS THEORY ON TWO REGIONAL FACTORS. a. TRANSPORTATION COSTS b. LABOUR COSTS BO- 14

a. TRANSPORTATION COSTS CARRY RAW MATERIAL TO THE PLANT CARRY FINISHED PRODUCTS TO THE MARKET LOCATE AT A SITE WHERE TOTAL COST OF TRANSPORTATION OF

MATERIALS AND PRODUCTS IS MINIMUM.

TRANSPORT COSTS DETERMINED BY WEIGHT TO BE TRANSPORTED AND THE DISTANCE TO BE COVERED. MATERIALS ARE CLASSIED INTO TWO TYPES 1. UBIQUTOUS MATERIALS AVAILABLE EVERYWHERE LIKE WATER, SAND, CLAY ARE INSIGNIFICANT.

2. LOCALISED MATERIALS CONFINED TO PARTICULAR REGION,

LIKE COAL, IRON-ORE, COTTON ETC. HAVE CONSIDERABLE INFLUCENCE ON INDUSTRIAL LOCAITONS. BO- 15

PURE OR NON-WEIGHT LOSING MATERIALS DO NOT LOSE MUCH OF THEIR WEIGHT IN THE PRICES OF PRODUCTION, COTTON, WOOL. SUCH MATERIAL PULL PLANTS TO THEIR PLACE OF DEPOSIT BECAUSE THE SAME THE FOR COST BOTH OF RAW TRANSPORTATION REMAINS

GROSS OR WEIGHT - LOSING MATERIALS IMPORT A SMALL PART OF THEIR WEIGHT PRODUCT LOCATION PLACES WEIGHT MANY OF OF TIMES TO OF THE FINISHED NEAR AS SUGARCANE. PLANT RAW IS

PRODUCTION MORE

MATERIAL THAN

WEIGHT OF FINISHED PRODUCTS

MATERIALS
PRODUCTS.

AND

FINISHED

BO- 16

b. LABOUR COSTS AVAILABILITY OF CHEAP LABOUR IN ANOTHER PRIMARY FACTOR FOR LOCATION.

A PLANT MAY DEVIATE AND SHIFT TO A NEW PLACE FROM THE

POINT OF LEAST TRANSPORTATION COST WHEN THE SAVINGS IN LABOUR COSTS ARE GREATER THAN THE ADDITIONAL COST OF TRANSPORTATION AT THE NEW CENTRE.

CHEAP LABOUR PROVIDES ECONOMIES OF SCALE. GREATER ECONOMY IN LABOUR IS BENEFICIAL THAN EXTRA TRANSPORTATION COSTS INVALUED.

EXPANSION
COSTS.

OF

BUSINESS

ALSO

INVOLVES

MORE

LABOUR

BO- 17

1. SECONDARY FACTORS THESE FACTORS LEAD TO THE CONCENTRATION OR DISPERSAL OF INDUSTRIES IN AN AREA OR FROM AN AREA. WEBER HAS CATEGORIES THESE FACTORS INTO. a) AGGLOMERATIVE FACTORS : ARE EXTERNAL ECONOMIES LIKE DEVELOPMENT OF AUXILIARY INDUSINDUSTRY, BANKING, INSURANCE, TRANSPORT, WAREHOUSING OTHER FACILITIES

WHICH RESULT FROM THE CONCENTRATION OF INDUSTRIES AT

A PARTICULAR PLACE. b) DEGLOMERATIVE FACTORS : ARE EXTERNAL DIS-ECONOMIES: THEY CAUSE GEOGRAPHICAL DISPERSAL OF INDUSTRIES. RISE IN WAGE-RATES, RENTS, TAXES, COST OF LAND ETC. THAT ARISE DUE TO EXCESSIVE LOCALISATION OF INDUSTRIES. BO- 18

CRITICAL APPRAISAL OR CRITICISM OF WEBERS THEORY

1. THEORY BASED ON UNREALISTIC ASSUMPTIONS: FIXED CENTRES OF CONSUMPTIONS NOT TRUE ARE SCATTERED, THUS THANSPORT COSTS WILL VARY. TRANSPORT RATES UNIFORM THROUGHOUT THE COUNTRY IN

OBJECTIONABLE RATES VARY FROM REGION.

COST OF TRANSPORT ONLY ON THE BASIS OF WEIGHT AND DISTANCE BE OVERLOOKED INFLUENCE OF MODE OF TRANSPORT, TOPOGRAPHY OF REGION AND NATURE OF GOODS. FIXED CENTRES WITH UNLIMITED SUPPLIES OF LABOUR NOT CORRECT. LABOURS MOBILITY HAS INCREASED. BO- 19

2. CRITICISM APPROACH TO LOCATION FACTORS IS ARBITRARY (WITH NO RULES) THEORY DOES NOT TAKE INTO ACCOUNT FACTORS LIKE, CLIMATE, GOVT. POLICY AND PERSONAL LIKINGS WHICH MAY EXERCISE AN IMPORTANT INFLUENCE ON LOCATIONS. PRIMARY AND SECONDARY FACTORS ALSO ARBITRARY. DIFFERENT INDUSTRIES MAY HAVE DIFFERENT SET OF FACTORS

IMPORTANT TO A PARTICULAR INDUSTRY.

DESPITE ITS SHORTCOMING, WEBERS THEORY IS AN IMPORTANT ANALYTICAL TOOL FOR INDUSTRYS LOCATION. ITS ADVISABLE TO IMPROVE IT BY GIVING UP SOME OF ITS UNREALISTIC ASSUMPTIONS RATHER THAN TO DISCARD IT. BO- 20

GOVTS POLICY ON INDUSTRIAL LOCATION

WHY GOVTS POLICY IS NEEDED FOR LOCATION OF INDUSTRIES:
FOR PLANNED & REGULATED LOCATIONS OF INDUSTRIES. TO DEVELOP LOCAL RESOURCES

TO

ENSURE

BALANCED

REGIONAL

DEVELOPMENT

OF

THE

COUNTRY. TO MAKE EFFICIENT USE OF NATIONAL RESOURCES. TO TO ENSURE ACHIEVE EQUITABLE EQUITABLE DISTRIBUTION DISTRIBUTION OF OF EMPLOYMENT INCOME AND OPPORTUNITIES. WEALTH.

TO REMOVE POVERTY AND TO IMPROVE LIVING STANDARDS IN

BACKWARD AREAS. TO SPEED UP INDUSTRIAL DEVELOPMENT. BO- 21

GOVTS POLICY ON LOCATION OF INDUSTRIES IN INDIA. FEATURES ALONGWITH CRITICAL APPRAISAL

1) BALANCED REGIONAL DEVELOPMENT AFTER INDEPENDENCE GOVT. REALISED THIS NEED. NECESSARY FACILITIES INTRODUCED FOR DEVELOPMENT PF BACKWARD AREAS.

INDUSTRIAL

LICENSING

INTRODUCED

FOR

REGULATING

LOCATION OF INDUSTRIES. DEVELOPMENT OF INDUSTRIAL ESTATE AND PUBLIC SECTOR PLANTS IN BACKWARD AREAS. ALL THESE HELPED IN BALANCED REGIONAL DEVELOPMENT OF INDUSTRIES IN ENTIRE COUNTRY.

BO- 22

2) FIVE YEAR PLANS FOCUSSED ON VARIOUS PRIORITIES IN EACH PLAN-SMALL EXPARTISE. 3) PROVIDING BASIC INFRASTRUCTURE AND PUBLIC UTILITY SCALE, BACKWARD AREAS, INCENTIVES,

SERVICES, LIKE WATER, ELECTRICITY, TRANSPORTION ETC. IN BACKWARD AREAS. BIG SUPPORT IS GIVEN TO THE INDUSTRIES

LOCATED IN SUCH AREAS.

4) DEVELOPMENT OF INDUSTRIAL ESTATES IN BACKWARD AREAS. THIS WAS VERY USEFUL AS COMMON SERVICES WERE

PROVIDED TO ALL WHO WANTED TO SET UP INDUSTRIES IN A PARTICULAR PLACE. BO- 23

5) PROVISION OF SOCIAL SERVICES AND AMENITIES SUCH AS EDUCATION, HEALTH, RECREATION, MARKETING FACILITIES ETC. FOR DEVELOPING THE BACKWARD AREAS. ENCOURAGE, MOTIVATE ENTREPRENUERS AS WELL AS THOSE WHO WANT TO WORK IN SUCH PLACES. 6) GRANTING OF INCOME TAX EXEMPTIONS OR SPECIAL TAX REBATES TO NEW INDUSTRIAL UNITS SETUP IN SPECIFIED BACKWARD AREAS. THIS ENCOURAGES NEW UNITS TO BE

SETUP

IN

FAR

FLUNG

AREAS,

FINANCIAL

BENEFIT

TO

ENTREPRENUERS. BO- 24

7) GRANTING OF SUBSIDIES SUPPLY OF RAW MATERIALS AND MACHINERY AT CONCESIONAL PRICES AND TRANSPORT

SUBSIDY IN HILLY AREAS. 8) PUBLIC FINANCIAL INSTITUTION, PROVIDE FINANCE AT LOW RATES OF INTEREST IN ANY OF THE 246 BACKWARD DISTRICTS SPECIFIED BY THE GOVERNMENT. IT IS A VERY BIG HELP TO

ENTERPRISES IN THE BACKGROUND AREAS.

9) LIBERAL ISSUE OF LICENCES ON A PROFESSIONAL BASIS FOR SETTING UP PLANTS IN BACKWARD AREAS SPECIAL TRAINING, MARKETING AND IMPORT FACILITIES ALSO PROVIDED TO SUCH PLANTS. BO- 25

10)CENTRAL

GOVERNMENT

PROVIDES

ASSISTANCE

TO

STATE

GOVERNMENT FOR THE DEVELOPMENT OF INFRASTRUCTURAL FACILITIES IN NO-INDUSTRY DISTRACTS OF THEIR

RESPECTIVE STATES. LEADS TO BALANCED REGIONAL GROWTH OF INDUSTRIES. 11)PREFERENCE GIVEN TO BACKWARD AREAS FOR SETTING UP

PUBLIC SECTOR UNDERTAKINGS. GOVERNMENT SET UP STEEL

PLANTS IN BHILAI, ROURKELA. BHEL IN HARIDWAR RAIL COACH FACTORY IN KAPURTHALA GIVES LARGE SCALE EMPLOYMENT BOOST TO THE OVERALL DEVELOPMENT OF THE PLACE. MANY OTHER INDUSTRIES ALSO GET SETUP. BO- 26

12)ESTABLISHMENT OF INDUSTRIAL ESTATES FOR BUILDING UP BASIC INFRASTRUCTURE AND COMMON SERVICE FACILITIES FOR THE DEVELOPMENT OF INDUSTRIAL UNITS. SPECIFIED PLACES GET DEVELOPED ALSO GET AS AT INDUSTRIAL ONE PLACE PLACE ALL THE

ENTREPRENEURSHIP

AMENITIES ALSO AT SUBSIDISED PRICES.

BO- 27

VARIOUS FORMS OF BUSINESS ORGANISATIONS

SOLE PROPRIETORSHIP PARTNERSHIP FIRM JOINT STOCK COMPANY CO-OPERATIVE SOCIETY JOINT HINDU FAMILY FIRM

BO- 28

SOLE TRADER

OLDEST FORM OWNED, CONTROLLED BY ONE

BEARS ALL RESPONSIBILITIES, RISKS & PROFITS MANAGES HIMSELF, HOWEVER MAY TAKE THE HELP OF FAMILY MEMBERS/RELATIVES/PAID EMPLOYEES

SIMPLEST AND EASIEST FORM NO NEED FOR ANY LEGAL FORMALITIES

BO- 29

FEATURES OF SOLE PROPRIETORSHIP

ONE PERSONS CONTROL SINGLE OWNERSHIP UNLIMITED & UNDIVIDED RISK NO. GOVT. REGULATION / FORMALITY NO SEPARATE ENTITY OF THE FIRM

BO- 30

ADVANTAGES OF SOLE TRADER

EASY AND SIMPLE FORMATIONS NO LEGAL FORMALITIES/APPROVAL/LICENSES REQUIRED, START, CLOSE, EXPAND SOLE TRADING CONCERN ANYTIME. QUICK DECISION MAKING SOLE AUTHORITY TO DECIDE AND NO INTERFERENCE QUICK DECISIONS. DIRECT & EXCLUSIVE CONTROL

FULL DIRECT AUTHORITY TO RUN THE BUSINESS

EXCLUSIVELY ACCOUNTABLE TO HIMSELF BO- 31

MAINTENANCE OF SECRECY: HANDLES BUSINESS SINGLE-HANDEDLY, SO BUSINESS & TRADE SECRETS, REMAIN WITH HIM SELF-MOTIVATION AND DIRECT INCENTIVE FOR WORK:- DIRECT RELATION BETWEEN EFFORTS / REWARDS.

PERSONAL TOUCH WITH CUSTOMERS:ALWAYS POSSIBLE TO DEVELOP CLOSE RELATIONS WITH THE CUSTOMERS, BETTER UNDERSTANDING OF THE CUSTOMERS AND BETTER SATISFACTION PROVIDED, GOODWILL IMPROVES.

BO- 32

ECONOMIES IN MANAGEMENT: AS COMPARED TO OTHER FORMS OF BUSINESS, MAJORITY OF THE ACTIVITIES CONTROLLED BY THE SOLE TRADER HIMSELF. THUS ECONOMIES OF SCALE DO OCCUR IN BUSINESS MINIMUM GOVT. REGULATION/INTERVENTIONS.

SOCIALLY SIGNIFICANT:- MANY INDIVIDUALS START WITH

REASONABLE EASE A SOLE TRADING CONCERN IN MANY SECTORS AND PLACES, GENERATES SELF-EMPLOYMENT, LIVELIHOOD, INITIATIVE, CONFIDENCE LEVELS ETC.

BO- 33

DISADVANTAGES OF SOLE PROP.

LIMITED FINANCIAL RESOURCES LIMITED MANAGERIAL ABILITIES UNLIMITED LIABILITY:- DEBTS OF BUSINESS RELATE ENTIRE PROPERTY.

LIMITED GROWTH:- LACK OF CAPITAL AND MANAGERIAL SKILLS

LEAD TO LIMITED GROWTH. UNCERTAINTY OF CONTINUITY:- IF DIES, THERE IS NO GUARANTEE OF CONTINUITY.

BO- 34

SUITABILITY OF SOLE PROPRIETORSHIP

WHERE CAPITAL REQUIRED IS SMALL, LIMITED. WHERE LIMITED RISK IS INVOLVED. WHERE PERSONAL ATTENTION TO INDIVIDUAL CUSTOMERS TASTES & FASHION REQUIRED BEAUTY PARLORS, TAILORING SHOPS. WHERE DEMAND LOCAL SEASONAL, TEMP-FRUIT SELLERS ETC.

WHERE ACTIVITIES / OPERATIONS SIMPLE DO NOT REQUIRE

SKILLED MANAGEMENT. BO- 35

PARTNERSHIP
LIMITATIONS OF SOLE TRADER AND NEED TO EXPAND THE
BUSINESS LEAD TO THE NEED TO CREATE A PARTNERSHIP FIRM. GROUP OF PERSONS WITH DIFFERENT SKILLS, CAPITAL,

RESOURCES SET UP A COMBINED BUSINESS WITH COMMON OWNERSHIP AND MANAGEMENT. RISKS, RESPONSIBILITIES SHARED

BO- 36

PARTNERSHIP cont
SEC-4 OF INDIAN PARTNERSHIP ACT, 1932- PARTNERSHIP IS 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. INDIVIDUALLY CALLED PARTNERS & JOINTLY A FIRM. TERMS / CONDITIONS CONTAINED IN AN AGREEMENT CALLED

PARTNERSHIP DEED.

BO- 37

DISADVANTAGES OF SOLE PROP.

LIMITED FINANCIAL RESOURCES

LIMITED MANAGERIAL ABILITIES

UNLIMITED LIABILITY:- DEBTS OF BUSINESS RELATE ENTIRE PROPERTY.

LIMITED GROWTH:- LACK OF CAPITAL AND MANAGERIAL SKILLS LEAD TO LIMITED GROWTH.

UNCERTAINTY OF CONTINUITY:- IF DIES, THERE IS NO GUARANTEE OF CONTINUITY.

BO- 38

SUITABILITY OF SOLE PROPRIETORSHIP

WHERE CAPITAL REQUIRED IS SMALL, LIMITED. WHERE LIMITED RISK IS INVOLVED. WHERE PERSONAL ATTENTION TO INDIVIDUAL CUSTOMERS TASTES & FASHION REQUIRED BEAUTY PARLORS, TAILORING SHOPS. WHERE DEMAND LOCAL SEASONAL, TEMP-FRUIT SELLERS ETC.

WHERE ACTIVITIES / OPERATIONS SIMPLE DO NOT REQUIRE

SKILLED MANAGEMENT. BO- 39

FEATURES OF A PARTNERSHIP FIRM

1. MORE PERSONS REQUIRED:- MINIMUM TWO MAX. 10 PERSONS

FOR BANKING BUSINESS AND 20 FOR NON-BANKING BUSINESS.

SHARING OF PROFITS / LOSSES AS PER AGREEMENT 2. UNLIMITED LIABILITY:- IF THE ASSETS OF THE FIRM FALL SHORT TO MEET FIRMS OBLIGATIONS THE PRIVATE ASSETS OF PARTNERS CAN BE USED. 3. CONTRACTUAL RELATIONSHIP:- ORAL OR WRITTEN AGREEMENT AMONG PARTNERS.

BO- 40

4. LAWFUL BUSINESS:- PARTNER TO CARRY ON LAWFUL BUSINESS & SHARE PROFITS / LOSSES. 5. UTMOST GOOD FAITH AND HONESTY REQUIRED:- PRINCIPAL AGENT RELATIONSHIP:- BUSINESS CARRIED BY ALL OR ANYONE OF THEM ACTING FOR ALL. EACH PARTNER REPRESENTS THE FIRM AND OTHER PARTNERS WHILE PERFORMING BUSINESS. THUS PARTNER IS AN AGENT OF THE FIRM AND ALSO OTHER PARTNERS. 6. RESTRICTIONS ON TRANSFER OF SHARE:- NO PARTNER CAN

TRANSFER HIS SHARE TO AN OUTSIDER WITHOUT THE CONSENT

OF OTHER PARTNERS. BO- 41

PARTNERSHIP DEED
THE AGREEMENT CAN BE ORAL OR WRITTEN.

ADVISABLE

TO

HAVE

WRITTEN

AGREEMENT

TO

AVOID

LITIGATIONS AND MISUNDERSTANDINGS IN FUTURE. AGREEMENT IN WRITTEN FORM CALLED PARTNERSHIP DEED WHICH HAS TO BE SIGNED BY ALL THE PARTNERS, STAMPED & REGISTERED. ANY MODIFICATION ONLY WITH MUTUAL CONSENT OF ALL PARTNERS.

BO- 42

A PARTNERSHIP DEED GENERALLY CONTAINS THE FOLLOWING: NAME OF THE FIRM NATURE OF THE BUSINESS NAMES OF THE PARTNERS

PLACE OF BUSINESS
AMOUNT OF CAPITAL CONTRIBUTED BY EACH PARTNER SALARY / COMMISSION PAYABLE TO EACH PARTNER

BO- 43

RATIO OF PROFIT SHARING

LOANS / ADVANCES FROM PARTNERS & INCENTIVES TO BE PAID. DUTIES, POWERS AND OBLIGATIONS OF PARTNERS.

ARBITRATION IN CASE OF DISPUTES AMONG PARTNERS.

ACCOUNTS SETTLEMENT IN CASE OF DISSOLUTIONS. MAINTENANCE OF ACCOUNTS AND ARRANGEMENT FOR AUDIT.

BO- 44

ADVANTAGES OF PARTNERSHIP
EASY FORMATION - HOWEVER SOME DIFFICULTY IN SELECTION OF PARTNERS.

ENHANCED FINANCIAL RESOURCES.

RISKS DIVIDED FLEXIBILITY:- EASY TO INTRODUCE CHANGES LIKE INTRODUCTION OF A NEW PARTNER, RAISING NEW CAPITAL, EXPANSION OF BUSINESS.

COMBINED ABILITIES & BALANCED JUDGMENT:- BRAINS IDEAS, SKILLS, CAPITAL OF MORE THAN TWO PERSONS POOLED

TOGETHER FOR BETTER MANAGEMENT OF BUSINESS. JOINT

CONSULTATRANS MAY PRODUCE BETTER BUSINESS RESULTS.

BO- 45

ADVANTAGES OF PARTNERSHIP cont..

BUSINESS SECRECY MAINTAINED:- NO LEGAL REQUIREMENT TO PUBLISH AND CIRCULATE ANNUAL ACCOUNTS / FINANCIAL

STATEMENTS.
MUTUAL TRUST AND INTER-DEPENDENCE:EACH PARTNER AN AGENT OF OTHER PARTNERS TEAM SPRIT AND INTER-DEPENDENCE DEVELOPS ALL PARTNERS GET EQUAL RIGHTS & POWERS. EASY DISSOLUTION:- CAN BE DISSOLVED BY THE PARTNERS MERELY BY EXPRESSING TO EACH OTHER THEIR DESIRE TO DO SO. BO- 46

DISADVANTAGES OF PARTNERSHIP:AVAILABILITY OF LIMITED RESOURCES:UNLIMITED LIABILITY: HELD PERSONALLY LIABLE FOR DEBTS OF FIRM. LACK OF PUBLIC CONFIDENCE

ANNUAL ACCOUNTS NOT PUBLISHED & MADE PUBLIC

HARDLY ANY LEGAL CONTROL OVER THESE FIRMS

INSTABILITY:- FIRM DISSOLVED IF ANY PARTNER DIES OR BECOME INSOLVENT. SMALL DISPUTES MAY LEAD TO DISSOLUTION.

BO- 47

NON-TRANSFERABILITY

OF

INTEREST:-

NO

PARTNER

CAN

TRANSFER THE BUSINESS INTEREST, TO AN OUTSIDER WITHOUT THE CONSENT OF ALL OTHER PARTNERS. EVEN THEN IT MAY NOT CAME EASILY. RISK OF IMPLIED AUTHORITY:- ANY PARTNER CAN ACT AS AN AGENT OF THE FIRM OR OTHER PARTNERS. IF NEGLIGENT, ACTS

CARELESSLY, COMMITS A MISTAKE, OTHER PARTNERS BECAME

EQUALLY LIABLE. LACK OF CENTRALIZED AUTHORITY:- LACK OF A SUPREME AND A CENTRALIZED AUTHORITY, AS ALL PARTNERS ENJOY THE POWER OF MANAGEMENT. BO- 48

REGISTRATION OF PARTNERSHIP FIRM

NOT MANDATORY AS PER PARTNERSHIP ACT. BUT DESIRABLE TO HAVE REGISTRATION REGISTRATION PROCESS FIRM APPLIES TO THE REGISTRAR OF FIRMS OF THE STATE GOVT. IN THE PRESCRIBED

APPLICATIONS FORM, SIGNED BY ALL.

BO- 49

FOLLOWING INFORMATION FILLED: NAME OF THE FIRM. LOCATION OF THE BUSINESS PLACE. OTHER PLACES, IF ANY WHERE THE FIRM IS CARRYING ON THE BUSINESS. DATE OF THE COMMENCEMENT OF THE BUSINESS. DATE OF JOINING OF ALL THE PARTNERS.

NAMES AND PERMANENT ADDRESSES OF ALL THE PARTNERS.

DURATION OF THE FIRM, IF APPLICABLE.

WHEN THE REGISTRAR IS SATISFIED WITH ALL THE ABOVE DETAILS, HE REGISTERS THE FIRM BY MAKING AN ENTRY IN THE REGISTER OF FIRMS. BO- 50

DISSOLUTION OF A PARTNERSHIP FIRM

WHEN A PARTNER CEASES TO BE ASSOCIATED BUSINESS, IT IS DISSOLUTION OF PARTNERSHIP. WITH THE

WINDING UP OF THE BUSINESS DISSOLUTION OF FIRM, NEW AGREEMENT AMONG REMAINING PARTNERS THREE WAYS:1. 2. DISSOLUTION BY AGREEMENT:- AS PER P. DEED, COMPULSORY DISSOLUTION AS PER AGREEMENT. DISSOLUTION BY THE COURT:- IF ONE PARTNER BECOMES OF UNSOUND MIND/ ONE PARTNER TRANSFERS HIS SHARE TO THIRD PARTY WITHOUT AUTHORITY. 3. DISSOLUTION DUE TO CONTINGENCY- COMPLETION OF FIRMS VENTURE, EXPIRY OF PARTNERSHIP PERIOD /DEATH OF ANY PARTNER. BO- 51

JOINT STOCK COMPANY

BIGGER FORM OF BUSINESS ORGAN.

MOST OF THE LIMITATIONS OF OTHER FORMS OF BUSINESSES GET REMOVED HERE. MOST APPROPRIATE FOR LARGE SCALE PRODUCTIONS, ECONOMIES OF SCALE, USING ADVANCED TECHNOLOGY AND ARRANGING LARGE CAPITAL.

A COMPANY IS A VOLUNTARY ASSOCIATION OF PERSONS,

RECOGNIZED BY LAW, HAVING A DISTINCTIVE NAME AND A

COMMON SEAL. FORMED TO CARRY ON BUSINESS FOR PROFIT WITH CAPITAL DIVISIBLE INTO TRANSFERABLE SHARES. MEMBERS/ SHAREHOLDERS HAVE LIMITED LIABILITY. ORGAN HAS A CORPORATE STRUCTURE AND A PERPETUAL SUCCESSION, A GOING CONCERN. BO- 52

FEATURES / MERITS OF A COMPANY

SEPARATE LEGAL ENTITY COMPANY HAS A SEPARATE LEGAL ENTITY, INDEPENDENT OF ITS MEMBERS. COMPANY OWNS PROPERTY AND ENTERS INTO CONTRACTS IN ITS OWN NAME CAN SUE AND GET SUED IN ITS OWN NAME.

LIMITED LIABILITY: LIABILITY LIMITED TO THE EXTENT OF OWNERSHIP OF SHARES HELD. IF THE COMPANY HAS TO PAY THE CREDITORS, MEMBERS/ SHAREHOLDERS LIABLE TO THE EXTENT OF SHARES HELD OR UNPAID AMOUNT OF SHARES SUBSCRIPTION. BO- 53

FEATURES / MERITS OF A COMPANY cont..

PREPETUAL SUCCESSION : NOT AFFECTED BY THE DEATH, INSOLVENCY OF A MEMBER OR A DIRECTOR. SERVICES AS LONG AS NOT WOUND UP OLD MEMBERS MAY GO AND NEW MAY COME BUT NO EFFECT ON THE EXISTENCE OF THE COMPANY. ARTIFICIAL LEGAL ENTITY:- AS CREATED BY LAW, DOES NOT COME

INTO

EXISTENCE

THROUGH

NATURAL

BIRTH,

CALLED

ON

ARTIFICIAL ENTITY. BO- 54

FEATURES / MERITS OF A COMPANY cont..

COMMON SEAL:- AS IT IS AN ARTIFICIAL LEGAL ENTITY, IT CAN NOT SIGN FOR ITSELF, SO AS PER LAW, IT NEEDS TO HAVE A COMMON SEAL AS A SUBSTITUTE FOR ITS SIGNATURE. APPROVES ITS DOCUMENTS BY PUTTING THE COMPANYS COMMON SEAL WHICH HAS THE COMPANYS NAME ENGRAVED ON IT, ALONGWITH SIGNATURE OF AT LEAST TWO DIRECTORS OR OTHER AUTHORIZED

OFFICIALS.
TRANSFERABILITY OF SHARES: SHARES OF PUBLIC LTD. CO. TRANSFERABLE EASILY CAN BE SOLD, PURCHASED THROUGH BROKERS AT THE MARKET PRICE SOME RESTRICTIONS IN A PVT. LTD. CO. BO- 55

OWNERSHIP & MANAGEMENT SEPARATED:- A PUBLIC CO. MAY HAVE LARGE NO OF SHAREHOLDERS BUT CAN NOT BE ASKED TO RUN THE CO. AND LOOK AFTER THE AFFAIRS OF THE COMPANY SO THEY CHOOSE SAME REPRESENTATIVES CALLED DIRECTORS, TO RUN THE COMPANY.

BO- 56

INCORPORATED ASSOCIATION OF PERSONS: NO SINGLE INDIVIDUAL CAN MAKE/RUN A COMPANY IS A REGISTERED ASSOCIATION OF PERSONS, REQUIRES AT LEAST SEVEN PERSONS TO START A PUBLIC LIMITED COMPANY AND TWO TO START A PVT. LTD. CO. PROCEDURES TO ADD MORE PERSONS.

BO- 57

AVAILABILITY OF LARGE FINANCIAL RESOURCES SHARES, DEBENTURES, BONDS, LOANS, ETC. PROFESSIONAL MANAGEMENT :- EMPLOYEES PROFESSIONAL MGRS AS HAS LARGE FINANCIAL RESOURCES, PERPETUAL SUCCESSION AND GROWTH PATH CONSIDERABLE SCOPE FOR GROWTH AND EXPANSION:- DUE TO LARGE FINANCIAL MANAGEMENT, TECHNICAL RESOURCE

VERY GOOD SCOPE FOR GROWTH.

BO- 58

PUBLIC CONFIDENCE:- PEOPLE / SHAREHOLDERS HAVE LOT OF FAITH, TRUST IN A PUBLIC LTD. CO. BASED ON ITS PERFORMANCE, SALES, QUALITY, AUDITED ACCOUNTS AND

SINCE

REGULATED

BY

COMPANIES

ACT.,

GET

LISTED,

TRADING DONE LIQUIDITY AVAILABLE.

BO- 59

CO-OPERATIVE SOCIETY
PROFIT MOTIVE SUBSTITUTED WITH SERVICE MOTIVE. AN ASSOCIATION OF PERSONS, USUALLY OF LIMITED MEANS, WHO HAVE VOLUNTARILY JOINED TOGETHER TO ACHIEVE A COMMON ECONOMIC END. ASSOCIATE TOGETHER TO PROMOTE COMMON INTEREST GENERALLY FORMED AND REGISTERED UNDER THE CO-

OPERATIVE SOCIETIES ACT 1912.

BO- 60

CO-OPERATIVE SOCIETY cont..

FORM OF BUSINESS ORGANIZATIONS CAN BE APPLIED TO EVERY TYPE OF ECONOMIC ACTIVITY. MEMBERS SUPPLY THE CAPITAL BY BUYING THE SHARES OF THE SOCIETY. EACH SHAREHOLDER HAS ONE VOTE IN THE MANAGEMENT OF THE BUSINESS, IRRESPECTIVE OF THE NUMBER OF SHARES

HELD.

BO- 61

FEATURES OF A CO-OPERATIVE SOCIETY

VOLUNTARY ASSOCIATION.
DEMOCRATIC STYLE OF MANAGEMENT. EQUAL VOTING RIGHTS. SERVICE MOTIVE LIMITED RETURNS OF CAPITAL:- LIMITED RATE OF INTEREST PRESENTING MAX 10% IS GIVEN AS CAPITAL INVESTED.

BO- 62

FEATURES OF A CO-OPERATIVE SOCIETY cont..

STATE CONTROL:- WORKING GOVERNED BY THE CO-OPERATIVE SOCIETIES ACT OF 1912 OR THE STATE CO-OPERATIVE ACT OF THE

STATE
SOCIETY TO BE REGISTERED UNDER THESE ACTS AND RULES, REGULATIONS FOLLOWED ACCOUNTS TO BE AUDITED AND A COPY TO BE SUBMITTED TO THE REGISTRAR. SEPARATE LEGAL ENTITY: - AS IT HAS TO BE REGISTERED CAN OWN PROPERTY, ENTER INTO CONTRACTS SUE AND BE SUED IN ITS OWN NAME. BO- 63

EQUITABLE

DISTRIBUTIONS

OF

SURPLUS:-

EQUITABLE

DISTRIBUTIONS OF SURPLUS TO ITS MEMBERS, IRRESPECTIVE OF THE CAPITAL CONTRIBUTIONS. AS PER CO-OPERATIVE SOCIETY ACT. 25% OF ITS PROFITS, AFTER MEETING ITS TRADING EXPENSES AND PAYING A FIXED RATE OF INTEREST ON CAPITAL NOT EXCEEDING 10% TO BE

TRANSFERRED TO GENERAL RESERVE.

ALSO, PORTION OF THE PROFIT NOT EXCEEDING 10% TO BE UTILIZED FOR THE GENERAL WELFARE OF THE LOCALITY WHERE THE SOCIETY IS FUNCTIONING. REMAINING DISTRIBUTED TO MEMBERS, COLLECTIVELY. BO- 64

SUITABILITY:- FOR SMALL AND MEDIUM BUSINESS LIKE RETAIL STORES, BUILDING SOCIETIES, ETC. FEW CASES OF

LARGE AMUL KAIRA DIST. CO-OPERATIVE SOCIETY.

BO- 65

JOINT HINDU FAMILY FIRM

ALSO CALLED HINDU UNDIVIDED FAMILY. FOUND ONLY IN INDIA AND GOVERNED BY THE PROVISIONS OF

HINDU LAW.
FAMILY CONSISTING OF GRAND PARENTS, PARENTS AND SONS CARRY ON BUSINESS. HUF DEFINED AS A FORM OF BUSINESS ORGAN IN WHICH ALL THE MALE MEMBERS OF A HUF CARRY ON BUSINESS UNDER THE MANAGEMENT AND CONTROL OF THE HEAD OF THE FAMILY CALLED KARTA

THIS BUSINESS DISAPPEARING DUE TO DECLINE OF THE JOINT

FAMILY SYSTEM.

BO- 66

FEATURES OF HUF
MEMBERSHIP FOR MALE CHILD BY BIRTH. MINORS CAN BECOME FULL-FLEDGED MEMBERS RESTRICTIONS ON FEMALE MEMBERSHIP (CAN NOT JOIN) NO LIMIT ON MEMBERS MINIMUM TWO

NO NEED OF REGISTRATION AS PER HINDU LAW.

MANAGEMENT BY KARTA SENIOR MOST MEMBER. LIABILITY OF KARTA IS UNLIMITED. PERPETUALITY DEATH OF A MEMBER OR KARTA IS NO MATTER RIGHTS / DUTIES GOVERNED BY HINDU SUCESSION ACT 1956. FLUCTUATING SHARE DUE TO BIRTH OR DEATH OF A MALE

MEMBER.
RIGHT TO ACCOUNTS MEMBERS CAN ASK DETAILS OF A/CS FROM KARTA WHEN LEAVING OR DISINTEGRATION OF FAMILY. BO- 67

2. CHOICE OF FORM OF OWNERSHIP COULD BE SOLE PROPRIETORSHIP, P.SHIP OR A JOINT STOCK COMPANY CHOICE OF FORM WILL DETERMINE THE AUTHORITY OF THE ENTREPRENEUR SIZE OF BUSINESS ALSO WILL DETERMINE THE FORM OF

ORGAN.
COMPANY FORM MORE SUITABLE FOR LARGE BUSINESS SOLE TRADER / P.SHIP FOR SMALL / MEDIUM CAPITAL REQUIREMENTS, MANAGERIAL SKILLS, COVERAGE WILL ALSO DECIDE THE FORM BO- 68

TYPES OF COMPANIES
ON THE BASIS OF MODE OF INCORPORATION:
1. CHARTERED COMPANY SET UP IN COUNTRIES HAVING MONARCHY KING OR QUEEN.

ESTABLISHED BY THE ROYAL CHARTER OR UNDER A SPECIAL

ORDER GRANTED BY A KING OR QUEEN. EG. EAST INDIA CO. 2. STATUTORY COMPANY ESTABLISHED UNDER A SPECIAL ACT PAUSED BY PARLIAMENT OR STATE ASSEMBLY. THE ACT DEFINES THE OBJECTS AND THE POWERS.

NOT REQUIRED TO HAVE MEMORANDUM OF ASSOCIATION AND

NOT REQUIRED TO WRITE LIMITED WITH ITS NAME. ENJOY ANTONOMOUS STATES. EG. LIC, UTI BO- 69

3. REGISTERED OR INCORPORATED COMPANY A COMPANY REGISTERED UNDER THE COMPANIES ACT.

MOST COMMON IS PRACTICE

FOLLOW THE PROCEDURE OF THE COMPANIES ACT. E.G. GODREJ & BOYCE MFG. LTD., RELIANCE INDUSTRIES LTD.

BO- 70

TYPES OF COMPANIES CONT

ON THE BASIS OF OWNERSHIP OR MEMBERSHIP: 1. PRIVATE COMPANY HAS A MINIMUM PAID UP CAPITAL OF RS. 1 LAC OR AS PRESCRIBED. LIMIT THE NUMBER OF MEMBERS TO 50. RESTRICTS THE RIGHT OF ITS MEMBER TO TRANSFER SHARES.

RESTRICTS ISSUE OF SHARES/DEBTORS TO PUBLIC.

PROHIBITS ANY INVITATION OF DEPOSITS FROM PERSONS OTHER THAN MEMBERS. MINIMUM MEMBERS TWO ENJOYS SPECIAL PRIVILEGES/EXEMPTIONS UNDER THE COMPANIES ATC. BO- 71

2. PUBLIC COMPANY
HAS A MINIMUM PAID CAPITAL OF RS. 5 LAC OR SUCH HIGHER PAID UP CAPITAL AS MAY BE PRESCRIBED. MINIMUM SEVEN PERSONS. CAN ISSUE SHARES/DEBENTURES TO PUBLIC. COMPLY BY SPECIAL PROVISION OF THE COMPANIES ACT. E.G. INFOSYS, ITC

3. GOVERNMENT COMPANY
51% OR MORE OF THE PAID UP CAPITAL HELD BY CENTRAL OR STATE GOVERNMENTS. MAY BE PARTLY OR WHOLLY OWENED BY THE GOVERNMENT. EG. HMT, STC, MMTC

BO- 72

ON THE BASIS OF INTER-COMPANY RELATIONSHIP: 1. HOLDING COMPANY

TYPES OF COMPANIES CONT

CONTROLS THE MANAGEMENT OF AND/OR MORE THAN 50% SHARES OR VOTING RIGHTS IN ANOTHER COMPANY.

SUCH A COMPANY CAN HAVE ANY NUMBER OF SUBSIDIARIES.

EG. GIC IS HOLDING CO. FOR FOUR PSU Insurance companies. 2. SUBSIDIARY COMPANY - A company in which another co. (Holding co.) HOLDS MORE THAN 50% OF THE SHARE CAPITAL OR MORE THAN HALF OF ITS VOTING RIGHTS. CONTROL THE MAJORITY COMPOSITION OF BOARD OF DIRECTORS WITH THE SOLE PURPOSE OF CONTROLLING THE

MANAGEMENT.
IS SUBSIDIARY OF ANOTHER SUBSIDIARY COMPANY. Eg. Oriental insurance company BO- 73

TYPES OF COMPANIES CONT

ON THE BASIS OF THE NATIONALITY: 1. NATIONAL OR DOMESTIC COMPANY OPERATORS CONFINED TO THE BOUNDARIES OF THE COUNTRY IN WHICH IT IS REGISTERED. 2. MULTINATIONAL COMPANY

CARRIES ON BUSINESS IN TWO OR MORE COUNTRIES.

AREA OF OPERATIONS EXTENDS BEYOND THE COUNTRY OF ITS INCORPORATION. SUCH COMPANIES MAY HAVE SOME RESTRICTIONS IN OTHER COUNTRIES. EG. LG, HYUNDAI, SANYO.

BO- 74

CHOICE OF FORM OF BUSINESS ORGANISATION

EVERY FORM HAS OWN MERITS AND DEMERITS. PROBLEM OF CHOOSING THE RIGHT FORM FACED AT LAUNCH OF NEW BUSINESS OR EXPANSION. CRUCIAL DECISION TO CHOOSE, AS IT WILL AFFECT DIVISION OF PROFITS, THE EXTENT OF LIABILITY OF FINANCE, TAX BURDEN AND DEGREE OF CONTROL. FACTORS AFFECTING THE CHOICE OF A FORM OF BUSINESS ORGANISATION. TWO SITUATIONS: 1. INITIAL CHOICE OF OWNERSHIP FORM. 2. CARRYING OUT A PROGRAMME OF EXPANSION AND GROWTH. BO- 75

INITIAL CHOICE OF OWNERSHIP FORM FACTORS ARE

1. NATURE OF BUSINESS: BUSINESS PROVIDING DIRECT SERVICES LIKE SMALL RETAILERS, TAILERS, RESTARY AND PROFESSIONAL SERVICES LIKE DOCTORS, LAWYERS SUCCESS DEPENDS UPON PERSONAL ATTENDANCE TO CUSTOMERS AND PERSONAL KNOWLEDGE OF THE OWNER GENERALLY ARE SOLE TRADING OR PARTNERSHIP CONCERNS. MANUFACTURING / PRODUCTION BUSINESS ARE MORE AS PRIVATE OR PUBLIC COMPANIES. 2. SIZE AND AREA OF OPERATIONS LARGE SCALE ENTERPRISES (PRIVATE / PUBLIC COMPANIES) HAVING NATIONAL / INTERNATIONAL MARKETS AS THEY REQUIRE LARGE FINANCIAL AND MANAGEMENT RESOURCES. SMALL/MEDIUM ENTERPRISES SERVE LIMITED MARKET AND NEED SMALL CAPITAL SET UP MORE AS SOLE TRADING FIRM. BO- 76

3. DEGREE OF CONTROL DESIRED:

IF DIRECT CONTROL DESIRED SOLE OWNERSHIP. IS A COMPANY, OWNERSHIP AND MANAGEMENT GET SEPARATED. IF THE OWNER DOES NOT WANT DIRECT PERSONAL CONTROL AND ALSO WANTS LARGE SCALE OPERATIONS. IT IS DESIRABLE TO GO IN FOR THE COMPANY.

4. AMOUNT OF CAPITAL REQUIRED

ENTERPRISES NEEDING HEAVY INVESTMENT SHOULD BE SETUP AS COMPANIES. WHEN THE FUNDS REQUIRED INITIALLY ARE SMALL AND EXPANSION IS NOT DESIRED, SOLE PROPRIETORSHIP/PRIVATE FIRM BETTER CHOICE. BO- 77

5. DEGREE OF RISK INVOLVED: VOLUME OF RISK AND WILLINGNESS TO BEAR IT IMPORTANT CONSIDERATION.

AN ENTERPRISING INDIVIDUAL NOT AFRAID OF UNLIMITED

LIABILITY MAY GO IN FOR SOLE PROPERIETORSHIP. MAXIMUM DIFFUSION OF RISK IS A COMPANY. 6. DIVISION OF SURPLUS SOLE TRADER ALL PROFITS BUT ALSO ALL RISKS. IF A PERSON READY TO BEAR UNLIMITED PERSONAL LIABILITY

AND DESIRES MAXIMUM. SHARE OF PROFITS, PRORIETORSHIP /

PRIVATE FIRM PROFITABLE TO THE COMPANY.

BO- 78

7. DURATION OF BUSINESS TEMPORARY/SEASONAL VENTURE. MORE AS SOLE OWNER/PROPRIETORSHIP AS EASY TO FORM AND DISSOLVE. VENTURES OF A PERMANENT NATURE BETTER AS COMPANIES OR CO-OPERATIVES AS THEY ENJOY PERPETUAL SUCCESSIONS. 8. GOVT. REGULATIONS AND CONTROL SOMETIMES, THIS FACTOR BECOMES IMPORTANT AS SOLE OWNERSHIP/ PROPRIETORSHIP LITTLE REGULATIONS WHEREAS SEVERE REGULATIONS FOR COMPANIES AND COOPERATIVE. 9. MANAGERIAL REQUIREMENTS SMALL BUSINESS WING SIMPLE PROCESSES CAN BE WELL MANAGED BY SOLE TRADING/PROPRIETORSHIP. LARGE ENTERPRISES NEED PROFESSIONAL MANAGEMENT AND THUS COMPANIES FORM MORE SUITABLE. BO- 79

CHANGES IN THE FORM OF OWNERSHIP DUE TO EXPANSION

DUE TO EXPANSION OVER A PERIOD OF TIME, THE FIRM MAY FIND IT DIFFICULT AND UNECONOMICAL TO OPERATE IN THE EXISTING FORM. THE OWNERS WOULD LIKE TO CHOOSE THE NEWFORM WHICH WILL HELP THEM IN TACKLING THE PROBLEM OF EXPANSION

AND GROWTH IN THE BEST POSSIBLE MANNER.

BO- 80

 VARIOUS ALTERNATIVES AVAILABLE TO A BUSINESS FIRM ARE:

EXISTING SOLE PROPRIETOR PARTNERSHIP PVT. CO.

IMMEDIATE ALTERNATIVES MANAGER V/S. PARTNER MORE PARTNERS / PVT. CO. PVT. CO. V/S PUBLIC CO.

BO- 81

PROMOTIN OF A COMPANY STAGES IN FORMATION

THE PROCESS OF CREATING A BUSINESS IS PROMOTION, AND

PROMOTORS DO IT.
APPLIES PREDAMINANTLY TO A CO. AS INVOLVES SEVERAL

LEGAL AND A PROCEDURAL FORMALITIES. A PROMOTER OF A COMPANY DISCOVERS THE BUSINESS

OPPORTUNITY, ASSEMBLE THE REQUIRED RESOURCES, GETS THE ENTERPRISE REGISTERED AND SETS IT AS A GOING CONCERN.

BO- 82

 ULTIMATE SUCCESS OF A BUSINESS ENTERPRISE DEPENDS UPON THE PROMOTORS SKILLS AND COMPETENCIES. A SUCCESSFUL PROMOTOR IS A CREATER OF WEALTH AND IS NOT A COMMON MAN.

BO- 83

MEANING OF PROMOTION
THOSE ACTIVITIES WHICH ARE UNDERTAKEN TO BRING A BUSINESS ENTERPRISE INTO EXISTANCE.

PROCESS OF EXPLORATION, INVESTIGATION, PLANNING AND

ORGANISING OF THE NECESSARY RESOURCES WITH THE

OBJECTIVE OF SETTING UP A NEW BUSINESS. PROCESS OF PROMOTION BEGINS WITH THE CONCEPTION OF AN IDEA FROM WHICH THE BUSINESS IS TO BE EVOLVED AND ENDS WITH THE TRANSLATION OF THE IDEA INTO A BUSINESS AS A GOING CONCERN.

BO- 84

STAGES OF PROMOTION
1. DISCOVERY OF BUSINESS IDEA CONCEPTION OF A BUSINESS IDEA. IDEA MAY BE STARTING A NEW BUSINESS OR TAKING OVER AN

EXISTING UNIT.
PRELIMINARY ANALYSIS MADE TO ENSURE THAT THE IDEA DESERVES THE TIME AND COST OF DETAILED INVESTIGATIONS. IDEA MUST BE CONCRETE & WORKABLE.

BO- 85

2. INVESTIGATION & VERIFICATION THROUGH VIABILITY. DETAILED INVESTIGATIONS FOR MARKET DEMAND, INVESTIGATION FOR TECHNICAL/COMMERCIAL

AVAILABILITY AND COSTS OF RAW MATERIALS, MACHINERY AND OTHER FACTORS OF PRODUCTION, DEGREE OF

COMPETITION, PROBABLE PROFITS. INVESTIGATORS LEAD TO MAKING A PROJECT REPORT, AFTER DUE VERIFICATION.

PROJECT REPORT HELPFUL IN JUDGING THE RETURN ON

INVESTMENTS AND PROCURING LICENCES AND FINANCES FROM THE GOVERNMENT. BO- 86

3. ASSEMBLING CONVINCED ABOUT THE FEASIBILITY AND PROFITABILITY OF THE PROPOSITION, STEPS TAKEN TO GIVE A PRACTICAL SHAPE. MAKING ARRANGEMENTS FOR PURCHASE OF RAW-MATERIAL,

BUILDING, MACHINARY, TOOLS, CAPITAL ETC.

DECISION TAKEN FOR SIZE, LOCATION, LAYOUT ETC. MANPOWER ALSO ARRANGED.

BO- 87

4. ASSEMBLING FINANCIAL PLANS PREPARED. AMOUNT OF CAPITAL ITS STRUCTURE TIME AND METHODS FOR COLLECTION.

PROSPECTUS ISSUED TO PUBLIC OR THE MEMBERS TO SEEK

FINANCE. AGREEMENTS MADE WITH THE UNDERWRITERS, STOCK BROKEN, STOCK EXCHANGE AUTHORITIES. PROCESS OF PROMOTION COMES TO AN END WITH THE ACTUAL MARKETING OF SECURITIES SHARE DEBENTURES, LOANS ETC.

5. OBTAINING OF INDUSTRIAL LICENSING AND PERMITS FROM

GOVT./PARTNERS

BO- 88

DOCUMENTS USED IN COMPANY FORMATION DOCUMENTATION

MEMORANDUM OF ASSOCIATION (MOA)

IT IS THE MOST IMPORTANT DOCUMENT OF A COMPANY, AS IT SERVES AS THE CONSTITUTION OF A COMPANY. LAYS DOWN THE OBJECTS AND POWERS OF THE COMPANY AND DEFINES ITS RELATIONS WITH THE OUTSIDE PUBLIC.

BO- 89

 PURPOSE

OF

MEMORANDUM

IS

TO

ENABLE

THE

SHAREHOLDERS, CREDITORS AND OTHERS WHO DEAL WITH THE COMPANY TO KNOW ITS PERMITTED RANGE OF ACTIVITIES. SHOULD BE PRINTED, DIVIDED INTO PARAGRAPHS,

NUMBERED

CONSECUTIVELY,

SIGNED

BY

EACH

SUBSCRIBER AND DULY ATTESTED BY A WITNESS. PUBLIC DOCUMENT, COPIES TO BE SUPPLIED UPON

REQUEST ON PAYMENT OF NOMINAL CHARGE.

BO- 90

CONTENTS OF THE MEMORANDUM

1. NAME CLAUSE:
o CONTAINS NAME OF THE COMPANY NOT IDENTICAL WITH ANY NAME ALREADY GIVEN. o NAME NOT RESEMBLING, NOT CONVEYING ANY

CONNECTION WITH ANY GOVT. DEPARTMENT.

BO- 91

2. THE SITUATION (DOMICILE CLAUSE):

o SPECIFIES THE NAME OF THE STATE IN WHICH THE

REGISTERED OFFICE IS TO BE SITUATED. o THIS DETERMINES THE DOMICILE OF THE COMPANY I.E. PLACE OF ITS REGISTRATION AND THE LEGAL

JURISDICTION. EXACT ADDRESS GIVEN.

BO- 92

3. THE OBJECTS CLAUSE:

o DEFINES POWERS OF THE COMPANY AND THE SCOPE OF

ACTIVITIES. o COMPANY NOT AUTHORISED TO DO ANY BUSINESS OUTSIDE THE SCOPE OF THE OBJECTS CLAUSE.

OBJECTS OF THE COMPANY SHOULD BE LEGAL.

BO- 93

o SHAREHOLDERS AND CREDITORS FROM THIS CLAUSE CAN FIND OUT THE PURPOSE FOR WHICH THEIR MONEY IS TO BE UTILISED. o OBJECTS CLAUSE CAN BE MODIFIED WITH THE

APPROVAL OF THE COMPANY LAW BOARD AFTER LEGAL

FORMALITIES. o TO BE STATED CLEARLY AND PRECISELY.

BO- 94

4. THE LIABILITY CLAUSE:

o CLAUSE STATES-LIABILITY OF MEMBERS LIMITED TO

THE AMOUNT, IF ANY, UNPAID ON THE SHARES HELD BY THEM. o MEMORANDUM MAY PROVIDE FOR THE UNLIMITED

LIABILITY OF THE DIRECTORS.

BO- 95

5. THE CAPITAL CLAUSE:

o STATES THE TOTAL AMOUNT OF SHARE CAPITAL WITH

WHICH A COMPANY TO BE REGISTERED. o DIVISION OF CAPITAL INTO SHARES OF FIXED

DENOMINATION AND THE NUMBER AND TYPES OF SHARE TO BE MENTIONED.

BO- 96

6. THE SUBSCRIPTION OR ASSOCIATION CLAUSE: o NAMES AND ADDRESSES OF SUBSCRIBERS (ORIGINAL MEMBERS) TO THE MEMORANDUM.

o MAKE DECLARATION UNDER THEIR SIGNATURES DULY

ATTESTED BY A WITNESS THAT THEY DESIRE TO BE FORMED INTO A COMPANY AND AGREE TO TAKE

QUALIFICATIONS SHARES, IF ANY. o MUST BE AT LEAST SEVEN SIGNATORIES IN CASE OF PUBLIC COMPANY AND TWO IN CASE OF A PRIVATE COMPANY.
BO- 97

ARTICLES OF ASSOCIATION (AOA)

BYE-LAWS OR RULES AND REGULATIONS THAT GOVERN

THE MANAGEMENT OF ITS INTERNAL AFFAIRS.

DEFINE THE RIGHTS OF THE MEMBERS OF THE COMPANY. DEFINE THE RIGHTS, POWERS AND DUTIES OF THE MANAGEMENT AND THE MANNER IN WHICH CHANGES IN THE INTERNAL REGULATIONS MAY BE MADE FROM TIME TO TIME.

BO- 98

 MUST

BE

PRINTED,

DIVIDED

INTO

PARAGRAPHS,

NUMBERED

CONSECUTIVELY,

SIGNED

BY

EACH

SIGNATORY TO THE MOA IN THE PRESENCE OF AT LEAST ONE WITNESS. TO BE FILED ALONGWITH THE MOA AT THE TIME OF REGISTRATION.

BO- 99

CONTENTS OF ARTICLES
GENERALLY CONTAINS THE RULES AND REGULATIONS

REGARDING FOLLOWING MATTERS: 1. 2. 3. 4. 5. ADOPTION OF PRELIMINARY CONTRACTS. NUMBER AND VALUE OF SHARES. ALLOTMENT OF SHARES. CALLS ON SHARES. LIEN ON SHARES.

6. TRANSFER OF AND TRASMISSION OF SHARES.

7. FORFEITURE OF SHARES. BO100

8. 9.

ALTERATION OF SHARE CAPITAL SHARE CERTIFICATES AND SHARE WARRANTS

10. CONVERSATION OF SHARES 11. MEETING 12. VOTING RIGHTS, PROXIES AND POLLS. 13. APPOINTMENT, REMUNERATION OF DIRECTORS

14. BORROWINGS POWERS

15. DIVIDEND AND RESERVES 16. ACCOUNTS AND AUDIT 17. WINDING UP

BO101

PROSPECTUS
DOCUMENTS ISSUED BY A COMPANY TO INVITE THE PUBLIC TO SUBSCRIBE TO ITS SHARES. PURPOSE TO ACQUAINT THE INVESTORS ABOUT THE COMPANY AND INDUCE THEM TO INVEST.

BO102

 THE COMPANY LAW REGULATES THE ISSUE AND CONTENTS OF PROSPECTUS TO PROTECT THE INTEREST OF THE

INVESTORS. MEANS ANY PROSPECTUS, NOTICE, CIRCULAR,

ADVERTISEMENT OR OTHER DOCUMENT INVITING OFFERS

FROM THE PUBLIC FOR SUBSCRIPTION OR PURCHASE OF ANY SHARES OR DEBENTURES.

BO103

CONTENTS MUST STATE THE MATTERS SPECIFIED IN SCHEDULE II GIVEN AT THE END OF THE COMPANIES ACT. 1. COMPANIES NAME AND ADDRESS OF REGISTERED

OFFICE.
2. MAIN OBJECTS OF THE COMPANY 3. NUMBER AND CLASSES OF SHARES

BO104

4. NAMES, ADDRESSES, OCCU. OF DIRECTORS, M.D. 5. QUALIFICATION SHARES OF DIRECTORS, IF ANY.

6. MIN. SUBSCRIPTION TO BE RAISED BY SHARES.

7. TIME OF OPENING AND CLOSING OF ISSUE. 8. AMOUNT PAYABLE ON APPLICATION AND ALLOTMENT 9. RIGHTS, PRIVILEGES AND RESTRICTION TO SHARES. 10. TIME AND PLACE WHERE PREVIOUS B/S, P/L A/C CAN BE INSPECTED.

BO105

UNIT-III SMALL BUSINESS,

GOVERNMENT &
BUSINESS INTERFACE

BO106

GROWTH & DEVELOPMENT OF SMALL SCALE INDUSTRIES

DEFINITION OF SMALL ENTERPRISE

SMALL SCALE IS USED TO DESCRIBE INDUSTRIAL

UNITS REFERRING TO THE SCALE OF INVESTMENT IN

PLANT & MACHINERY. SMALL ENTERPRISES EXIST IN EVERY COUNTRY OF THE WORLD BUT MORE IN DEVELOPING COUNTRY, LIKE INDIA.

BO107

 SMALL SCALE INDUSTRIES TEND TO BE LABOUR

INTENSIVE OR CAPITAL SAVING.

PROVIDE BETTER OPPORTUNITIES FOR GENERATING EMPLOYMENT, BETTER UTILIZATION OF LOCAL

RESOURCES, WIDER DISPERSAL OF INDUSTRIES & FOR EQUITABLE DISTRIBUTION OF NATIONAL INCOME

BO108

DEFINITION OF SMALL ENTERPRISE

WHAT IS SMALL ENTERPRISE DEPENDS ON THE CHARACTER OF ECONOMIC ACTIVITY. DIFFERENT COUNTRIES DEFINE SMALL BUSINESS IN

DIFFERENT WAYS.

BO109

TWO STANDARDS HAVE BEEN USED TO DEFINE SMALL BUSINESS: SIZE OF BUSINESS:- VERY OFTEN, SMALL FIRMS THAT HAVE NOT GROWN BEYOND A CERTAIN SIZE ARE TERMED AS SMALL. THE CRITERIA USED TO MEASURE THE SIZE OF SMALL ENTERPRISES INCLUDE: THE NUMBER OF PERSONS EMPLOYED.

AMOUNT OF CAPITAL INVESTED

THE VALUE OF ANNUAL SALES TURNOVER.
BO-110

USA ANY PLANT EMPLOYING LESS THAN 200 WORKERS IS TERMED SMALL. INDIA FIXED INVESTMENT IS THE BASIS OF

DEFINING SMALL BUSINESS.

BO-111

QUALITATIVE CRITERIA:- COMPLEXITY AND QUALITY OF MATERIAL ALSO CRITERIA FOR DEFINING SMALL ENTERPRISE, LIKE: OWNERSHIP IN THE HANDS OF ONE INDIVIDUAL OR A SMALL GROUP OF INDIVIDUALS. MANAGEMENT IS INDEPENDENT & PERSONALIZED. AREA OF OPERATION IS MAINLY LOCAL THOUGH THE GOODS MIGHT BE EXPORTED. TECHNOLOGY EMPLOYED IS LABOUR INTENSIVE. BUSINESS ENTERPRISE IS RELATIVELY SMALL IN COMPARISON WITH THE LARGEST UNITS IN THE FIELD IN WHICH IT OPERATES.
BO-112

DEFINITION OF SMALL BUSINESS IN INDIA

o INDUSTRIES REGULATION AND DEVELOPMENT ACT (IRDA) 1951, DEFINED A SMALL SCALE UNIT AS ONE THAT EMPLOYED NOT MORE THAN 50 PERSONS WHEN USING POWER AND 100 WHEN NOT USING POWER AND WITH A CAPITAL INVESTMENT NOT EXCEEDING RS. 5 LACS. o IN 1960, ALL INDUSTRIAL OF NOT UNITS WITH RS. CAPITAL 5 LACS INVESTMENT MORE THAN

IRRESPECTIVE

OF

THE

NUMBER

OF

PERSONS

EMPLOYED, WAS TERMED AS SMALL BUSINESS.

BO-113

o o

IN 1966 NOT MORE THAN RS. 7.5 LACS. IN 1975 NOT MORE THAN RS. 10 LACS.

o
o o

IN 1980 NOT MORE THAN RS. 25 LACS.

IN 1990 NOT MORE THAN RS. 60 LACS. ON THE RECOMMENDATION OF ABID HUSSAIN

COMMITTEE, GOVT. OF INDIA ONCE AGAIN REVISED THE DEFINITION OF SMALL SCALE INDUSTRY, IF THE PLANT AND MACHINERY IS UPTO RS. 1. CRORE

BO-114

CAN

OFFER

PERSONALIZED

SERVICES

TO

THEIR

CUSTOMERS. o THE NO. OF PERSONS EMPLOYED CANNOT EXCEED 50, USING POWER OR 100 WITHOUT POWER. o GREATER MOTIVATION POSSIBLE AS OWNER CAN

MAINTAIN
EMPLOYEES o ENJOY

PERSONAL
EFFICIENCY GOVT.

RAPPORT

WITH

THE

SPECIAL

SUPPORT

FOR

MORE

EMPLOYMENT AND DIVERSIFICATION OF INDUSTRIES.

BO-115

SCOPE OF SMALL SCALE INDUSTRIES IN EMERGING SCENARIO

WIDE SCOPE FOR SMALL SCALE BUSINESS IN VARIOUS

SECTORS.
SCOPE OF SMALL BUSINESSES CAN BE UNDERSTOOD BY THEIR OPERATION IN VARIOUS AREAS OF ECO. ACTIVITY:1. MANUFACTURING:- ENGAGED IN ASSEMBLING AND PROCESSING PRODUCTS.
BO-116

VARIOUS

TYPES

OF

PRODUCTS,

SOME

PRODUCE SMALL PARTS, SOME MAKE & SUPPLY FINISHED

THEY

MANUFACTURE

ELECTRONIC LAB

COMPONENTS, EQUIPMENTS,

OPTICAL

INSTRUMENTS,

EATABLES, FURNITURE, CONSTRUCTION EQUIPMENT,

MAT-WEAVING, BASKET-MAKING, STATIONERY ITEMS, TOYS, COSMETICS, SOAPS, HOSIERY, SPORTS GOODS, BICYCLES, FOOT WEAR, AND HANDICRAFTS. o SOME MAKE USEFUL COMPONENTS FOR LARGE

BUSINESS.

BO-117

2. WHOLESALE TRADE:- SMALL BUSINESS CARRIED ON FOR DISTRIBUTION OF CONSUMER AND INDUSTRIAL GOODS. THESE WHOLESALE SMALL BUSINESS CHANNELS FOR DISTRIBUTION ARE VERY ECONOMICAL FOR

MANUFACTURERS AND RETAILERS. THEY PROVIDE LOT

OF SERVICES FROM THEIR FIRMS.

o SMALL FIRMS CARRY WHOLESALE TRADE IN

TEXTILES,

TOILETRY-PREPARATIONS,

BAKERY

PRODUCTS, FRUITS & VEGETABLES ETC.

BO-118

3. RETAIL TRADE:- RETAILING DOMINATED BY SMALL SCALE FIRMS. SMALL RETAIL STORES FOUND IN EVERY AREA OF BUSINESS. WHOLESALERS AND SELL THEM TO CONSUMERS,

MAINTAINING VARIETY.

DEAL IN DAILY USE ARTICLES; TAKE CARE OF VARIED

CONSUMER NEEDS AND PROVIDE CONSUMER NEEDS AND PROVIDE CONVENIENT SHOPPING TO

CONSUMERS
BO-119

4. SERVICES:- NO. OF SERVICES ARE INCREASING DAY BY DAY IN EVERY AREA OF BUSINESS. o SMALL NATURE. o DOCTORS, ATTORNEYS, PROPERTY DEALERS, CIS TAX CONSULTANTS, FINANCIAL ADVISORS, RESTAURANTS, REPAIR SHOPS, BEAUTY PARLOURS, GYMS, FAST FOOD OUTLETS OPERATE AS SMALL SCALE FIRMS. o CAN PROVIDE PERSONAL ATTENTION AND CARE. SCALE BUSINESS VERY SUITABLE FOR PROVIDING SERVICES OF A LOCAL AND PERSONAL

BO120

5.

FRANCHISING

AND

AGENCY

BUSINESS:-

SMALL

BUSINESS VERY SUITABLE FOR THOSE WHO WANT TO

TAKE FRANCHISING WITHOUT MAKING MUCH

INVESTMENTS. THEY FOLLOW METHODS, POLICY OF FRANCHISOR. MANY FOREIGN COS. ALSO INTERESTED TO TIE WITH SMALL FIRMS.

BO121

SMALL BUSINESS
ROLE OF SMALL BUSINESS SMALL BUSINESS ACHIEVE MANY GOALS:1. EMPLOYMENT: USE LABOUR INTENSIVE TECHNIQUES TO PROVIDE

MORE EMPLOYMENT.
IN INDIA, SMALL / TINY UNITS EMPLOY PEOPLE NEXT TO AGRICULTURE.

CREATE MORE EMPLOYMENT IN SCATTERED AREAS

MORE THAN LARGE SCALE UNITS.

BO122

BALANCED REGIONAL DEVELOPMENT: PROMOTE DECENTRALIZED DEVELOPMENT. HELP REMOVING REGIONAL DISPARITIES. LEADS TO INDUSTRIALIZATION IN RURAL AND

BACKWARD AREAS.
CHECK MIGRATION FROM RURAL AREAS AND THEIR LIVING STANDARDS IMPROVE THERE.

BO123

OPTIMIZATION OF CAPITAL:-

REQUIRE LESS CAPITAL PER UNIT OF OUTPUT AND

THUS GREATER OUTPUT CAN BE OBTAINED WITH SMALL INVESTMENT. DUE TO SHORTER GESTATION PERIOD, QUICK

RETURNS CAN BE OBTAINED.

BO124

MOBILIZATION OF LOCAL RESOURCES:-

FACILITATE
LOCAL

MOBILIZATION
AND

AND
SKILLS

UTILIZATION
WHICH

OF

RESOURCES

MIGHT

OTHERWISE REMAIN UNUTILIZED. PROMOTE A NEW CADRE OF SMALL ENTREPRENEURS, SELF EMPLOYED AND ENCOURAGE LOCAL TALENT.

BO125

FOREIGN EXCHANGE EARNINGS: DO NOT REQUIRE AND IMPORTS EQUIPMENT, OF SOPHISTICATED REDUCING

MACHINERY

THUS

PRESSURE ON FOREIGN EXCHANGE.

ALSO EARN VALUABLE FOREIGN EXCHANGE THROUGH

EXPORT OF THEIR PRODUCTS, 35% OF INDIAS TOTAL EXPORTS NOW.

BO126

PROMOTE MORE EQUITABLE DISTRIBUTION OF NATIONAL INCOME AND WEALTH: HELP IN REDUCING CONCENTRATION OF ECONOMIC POWER IN FEW HANDS. BENEFITS OF SMALL SCALE BUSINESS SPREAD OVER WIDER POPULATION. STANDARD OF LIVING OF RURAL PEOPLE IMPROVES.

BO127

FEEDER TO LARGE INDUSTRIES:-

MANUFACTURE
PARTS, SECTOR.

VARIOUS

COMPONENTS,

SPARE

TOOLS REQUIRED BY THE LARGE SCALE

ALSO DISTRIBUTE THE GOODS MADE BY LARGE SCALE FIRMS.

BO128

SOCIAL ADVANTAGES: OFFER OPPORTUNITY FOR AN INDEPENDENT WAY OF LIFE TO PEOPLE WITH SMALL MEANS. HELP TO RAISE PER CAPITA INCOME AND STANDARD OF LIVING. WIDELY DIFFUSED OWNERSHIP IN PERMITS THE WIDER OF PARTICIPATION OF PEOPLE PROCESS

ECONOMIC DEVELOPMENT. PROMOTES ENTREPRENEURSHIP BY PROVIDING AN EXCELLENT OPPORTUNITY TO YOUNG MEN AND WOMEN WITH LIMITED MONEY TO START THEIR OWN BUSINESS VENTURES.
BO129

NEED & RATIONALE OF SMALL BUSINESS

o
o

DEVELOPMENT OF ENTREPRENEURSHIP.
INTRODUCTION OF NEW PRODUCTS.

BETTER TO START AT A SMALL SCALE.

LIMITED DEMAND FOR LOCAL PRODUCTS. FLEXIBILITY IN OPERATIONS FOR MAKING CHANGES IN PRODUCTS ETC. PERSONALIZED SERVICES AUTO / TV REPAIRS, INTERIOR DECORATIONS ETC. RELATIONS WITH EMPLOYEES SUPPORT TO LARGE ENTERPRISES
BO130

THE DEFINITION OF SMALL SCALE INDUSTRY

IN INDIA, THE SMALL SCALE INDUSTRY HAS BEEN DEFINED IN THREE WAYS THE CONVENTIONAL DEFINITION INCLUDES COTTAGE AND HANDICRAFT INDUSTRIES WHICH EMPLOY

TRADITIONAL LABOR INTENSIVE METHODS TO PRODUCE

TRADITIONAL PRODUCTS.

BO131

OPERATIONAL INCLUDES ALL

DEFINITION THOSE

FOR

POLICY

PURPOSES HAVING AN

UNDER-TAKINGS

INVESTMENT IN FIXED ASSETS

PLANT & MACHINERY

WHETHER HELD ON OWNERSHIP TERMS OR BY LEASE OR

HIRE PURCHASE, NOT EXCEEDING RS. 1 CRORE

ANCILLARY AND TINY UNITS ALSO COME UNDER THE

UMBRELLA OF SMALL SCALE INDUSTRIES. A TINY UNIT WHERE INVESTMENT UPTO RS. 5 LACS. AN ANCILLARY UNIT WHOSE INVESTMENT IS NOT MORE THAN RS. 75 LACS.

BO132

 AND IS ENGAGED IN:-

o THE

MANUFACTURE

OF

PARTS,

TOOLING,

INTERMEDIATE PARTS. o THE RENDERING OF SERVICES OF SUPPLYING 1/3 PER CENT OF THEIR TOTAL SERVICE OR PRODUCTION TO OTHER UNITS PRODUCTION OF OTHER ARTICLES.

BO133

 THIRD DEFINITION OF SMALL SCALE INDUSTRIES RELATE TO NATIONAL INCOME ACCOUNTING INCLUDES ALL PROCESSING AND MANUFACTURING MAINTENANCE ACTIVITIES SERVICES

INCLUDING

REPAIR

AND

UNDERTAKEN BY BOTH HOUSE HOLD AND NON HOUSE

HOLD SMALL SCALE UNITS, NOT REGD, UNDER

FACTORIES ACT.

BO134

ACCORDINGLY

SMALL

SCALE

INDUSTRY

IS

PRESENTLY DEFINED:-

AS A UNIT ENGAGED IN MANUFACTURING SERVICING,

REPAIRING, GOODS PROCESSING AN AND PRESERVATION IN PLANT OF & HAVING INVESTMENT

MACHINERY AT AN ORIGINAL COST NOT EXCEEDING

RS. 1. CROTE. AN ANCILLARY UNIT IS DEFINED AS A UNIT HAVING INVESTMENT IN FIXED ASSETS IN PLANT AND MACHINERY NOT EXCEEDING RS. 75 LACS AND.

BO135

ENGAGED IN MANUFACTURE OF PARTS, COMPONENTS, SUB ASSEMBLIES, TOOLING OR INTERMEDIARIES OR

RENDERING OF SERVICES AND SUPPLYING 50% OF THEIR

PROD. OF ARTICLES PROVIDED THAT NO SUCH UNDERTAKING SHALL BE SUBSIDIARY OR OWNED OR CONTROLLED, BY ANY OTHER UNDERTAKING. GOVT. OF INDIA ANNOUNCED A NEW POLICY FOR TINY SECTOR AND KEPT THE INVESTMENT LIMIT OF RS. 5 LACS, IRRESPECTIVE OF LOCATION THE UNIT.

BO136

CLASSIFICATION OF SMALL SCALE INDUSTRIES

Traditional Khadi Power Looms Village Industries Export Oriented Small Scale Without Power Modern With power

Handlooms
Ancillaries Coir Industries Tiny Enterprises Sericulture Silk worm breeding Cottage Artisans Small Scale Services and business enterprises

BO137

GOVERNMENT & BUSINESS INTERFACE

GOVT BUSINESS INTERFACE IMPLIES INTERACTION AND INTER
DEPENDENCE BETWEEN BUSINESS AND THE GOVT. INTERACTION DEPENDS UPON THE ROLE WHICH GOVT. PLAYS IN THE ECONOMIC ACTIVITIES OF A COUNTRY. GOVT. INTERFACE THROUGH-

o REGULATORY ROLE-RULES & REGULATIONS

o PROMOTIONAL ROLE-SUBSIDIES, INFRASTRUCTURE o ENTREPRENEURAL ROLE - CREATE PUBLIC SECTOR UNITS. o PLANNING ROLETO OPTIMISE THE USE OF SCARCE

RESOURCES AND SET PRIORITIES. BO138

RATIONALE FOR GOVT. ROLE IN BUSINESS

GOVT. PARTICIPATES IN BUSINESS BY CREATING PUBLIC

ENTERPRISES.
ECONOMIC ORGANISATIONS OWNED & CONTROL BY GOVT. CALLED INDIVIDUALLY PUBLIC UNDERTAKINGS, COLLECTIVELY PUBLIC SECTOR. FOLLOWING ARE THE GROUNDS FOR JUSTIFYING

ESTABLISHMENT OF PUBLIC ENTERPRISES:-

BO139

 FOLLOWING

ARE

THE

GROUNDS

FOR

JUSTIFYING

ESTABLISHMENT OF PUBLIC ENTERPRISES:1. PLANNED DEVELOPMENT: o NEED FOR PLANNED DEVELOPMENT LEADS TO THE STATE TO PARTICIPATE ACTIVELY IN THE ESTABLISHMENT AND

OPERATION OF PUBLIC ENTERPRISES. o TARGET OF PLANNED PRIORITIES MET.

BO140

2. INDUSTRIAL INFRASTRUCTURE o RAPID INDUSTRIALISATION IN A COUNTRY REQUIRE KEY AND BASIC INDUSTRIES LIKE COAL, IRON, POWER, CEMENT,

FERTILISERS ETC. o SUCH HEAVY INDUSTRIES REQUIRE HUGE INVESTMENT AND INVOLVE HEAVY RISK. STATE DOES IT TO CREATE THE

NECESSARY INFRASTRUCTURE. o SUCH INDUSTRIES PROMOTE MORE AND MORE INDUSTRIES IN

MANY

SECTORS,

THUS

INCREASING

THE

PACE

OF

INDUSTRIALISATION. BO141

3. MORE EMPLOYMENT o PUBLIC ENTERPRISES CREATE EXTENSIVE EMPLYMENT

OPPORTUNITIES. 4. CREATION OF SURPLUS FOR ECONOMIC GROWTH o BY CREATING PUBLIC ENTERPRISES IN CERTAIN SECTORS GOVT.

CAN EARN HUGE PROFITS AND CAN BE USED FOR SOCIAL &
ECONOMIC OBLISATION. o GOLD MINES, COAL FIELDS, ONGC, POWER, BANKS, RAILWAYS CREATE PROFITS FOR THE GOVT.

BO142

5. NATIONAL SELF RELIANCE o PROMOTE SELF-SUFFICIENCY IN STRATEGIC SECTORS ALSO HELPS IN PROMOTING EXPORTS. o ECONOMY BECOMES SELF-RELIANT IN MANY SECTORS AND LEADS TO IMPORT SUBSTITUTION, STREGTHENING THE

BALANCE OF PAYMENT.

6. BALANCED REGIONAL DEVELOPMENT

o PVT. ENTERPRISES SETUP PURELY ON ECONOMIC

CONSIDERATION. o PUBLIC ENTERPRISES ALSO IN BACKWARD AREAS REDUCE REGIONAL DISPARITIES. BO143

7. MODEL EMPLOYER o ONLY THROUGH PUBLIC ENTERPRISES, GOVT. CAN SET THE PACE FOR BETTER EMPLOYMENT OPPORTUNITIES/PRACTICES AND FULFILL THE CONSTITUTIONAL OBLIGATION TOWARDS LABOUR.

o IN

INDIA,

MANY

GOVT.

PUBLIC

SECTOR

UNITS

PROVIDE

WELFARE FACILITIES LIKE HOUSING, MEDICAL, EDUCATIONAL, SUBSIDISED FOOD ETC. o GIVEN BETTER DEAL TO WORKERS.

BO144

8. SOCIALISTIC PATTERNS OF SOCIETY o IN OUR SOCIALISTIC SOCIETY, CONCENTRATION OF ECONOMIC POWER IN FEW HANDS AVOIDED. o PUBLIC OWNERSHIP AND CONTROL OF LARGE SCALE BUSINESS IMPORTANT MEANS OF EQUITABLE DISTRIBUTION OF NATIONAL INCOME. o DIFFUSION OF ECONOMIC POWER IN THE COUNTRY. ABOVE POINTS PROVE THAT PUBLIC ENTERPRISES HELP TO

ACHIEVE THE TWIN OBJECTIVES OF ECONOMIC GROWTH AND

SOCIAL JUSTICE. BO145

FORMS OF GOVT. IN BUSINESS

1. DEPARTMENTAL UNDERTAKINGS o PUBLIC ENTERPRISESA MAJOR SUBDIVISION OF A

DEPARTMENT OF A GOVT. o ORGANISED, FINANCED AND CONTROLLED AS A GOVT. DEPTT. o SELF-CONTAINED, UNDER THE OVERALL CONTROL OF

DEPARTMENTAL HEAD & THE MINISTER CONCERNED.

o OWN MGT. BUT ULTIMATE CONTROL WITH MINISTRY. EG. P&T IS A DEPARTMENT IN MIN. OF COMMUNICATION, RAIL COACH FACTORY- MIN. OF RAILWAYS. ALL INDIA RADIO, DD UNDER MIN. OF INFO. & BROAD. ETC. BO146

2. GOVT. COMPANY o COMPANY IN WHICH 51% OR MORE OF THE TOTAL PAID-UP CAPITAL HELD BY THE CENTRAL/STATE GOVERNMENT. o REGISTERED UNDER THE COMPANIES ACT 1956, EITHER AS A WHOLLY-OWNED CO. (PVT. CO.) OR A PUBLIC CO. IN WHICH THE CAPITAL IS HELD JOINTLY BY THE GOVT. AND THE PRIVATE PARTIES. o A GOVT. CO. IN WHICH BOTH THE GOVT. & THE PVT. CONCERNED

INDIVIDUALS ARE SHAREHOLDERS-CALLED A MIXED-OWNERSHIP

CO. EG. HMT, STC, HAL BO147

3. PUBLIC OR STATUTORY CORPORATION o AUTONOMOUS CORPORATE BODY SETUP UNDER A SPECIAL ACT OF PARLIAMENT OR THE STATE LEGISLATURE. o ACT DEFINES OBJECTIVES, POWERS AND FUNCTIONS. o A PUBLIC CORP. SEEKS TO COMBINE THE FLEXIBILITY OF

PRIVATE

ENTERPRISES

WITH

PUBLIC

OWNERSHIP

&

ACCOUNTABILITY. o WHOLLY OWNED BY CENTRAL OR STATE GOVT. EG. LIC, IFCI, ONGC, INDIAN OIL

BO148

4. CONTROL BOARDS o IN INDIA, A NEW FORM OF ORGANISATION CALLED CONTROL BOARD EVOLVED TO MANAGE CERTAIN PUBLIC ENTERPRISES. o COMPOITE BOARD WITH SETUP THE BY THE CENTRAL TO GOVT. IN AND

ASSOCIATION

STATE

GOVT.

EXECUTE

CONTROL THE RIVER VALLEY PROJECTS. o PRESENTLY 14 CONTROL BOARDS WORKING- BHAKRA NANGAL, COIR, TEA ETC.

o CONTROL

BOARD

ENSURES

UNIFORMITY

OF

ACTION

AND

UNITARY CONTROL OVER A PARTICULAR PROJECT. BO149

o ENJOY

AUTONOMY

OF

DAY-TO-DAY

OPERATIONS,

BUT

IN

PRACTICE, SUCH BOARDS ARE STAFFED WITH BUREAUCRATS & POLITICIANS. o BOARD ENTRUSTED WITH THE OVERALL RESPONSIBILITY FOR

THE MANAGEMENT OF THE PROJECT.

o DECISIONS USUALLY TAKEN THROUGH THE CIRCULATIONS AND BOARD MEM. TAKE LITTLE INTEREST.

BO150

UNIT-IV

MULTINATIONALS

BO151

MULTINATIONALS (MNCs) CONCEPT

A MULTINATIONAL COMPANY IS A COMPANY THAT OPERATES IN SEVERAL COUNTRIES. COMPANY HAS FACTORIES, BRANCHES OR OFFICES IN MORE THAN ONE COUNTRY. IT IS ALSO CALLED

TRANSNATIONAL CORPORATIONS.
GLOBAL GIANT WORLD ENTERPRISE INTERNATIONAL ENTERPRISES

BO152

AS PER UNITED NATIONS A TRANSNATIONAL CORPORATION IS THE CORPORATION THAT OPERATES, IN ADDITION TO THE COUNTRY IN WHICH IT IS INCORPORATED, IN ONE OR MORE OTHER COUNTRIES. THE HEADQUARTERS OF A MNC LOCATED IN ONE COUNTRY (HOME COUNTRY) AND IN ADDITION IT CARRIES ON BUSINESS IN OTHER COUNTRIES (HOST COUNTRIES). EXAMPLE: MICROSOFT, COCA-COLA, SONY, LG, SAMSUNG ETC.

CONTROLS PRODUCTION & MARKETING FACILITIES IN MORE

THAN ONE COUNTRY. BO153

CHARACTERSTICS OF MNC
1. GIANT SIZE: ASSETS, SALES, PROFITS ARE LARGE. 2. CENTRALISED CONTROL: HQRS IN THE HOME COUNTRY FROM WHERE CONTROL OVER

ALL BRANCHES, SUBSIDIARIES EXCERCISED.

PARENT CORP. PROVIDES POLICY FRAMEWORK AND

GUIDELINES.

BO154

3. INTERNATIONAL OPERATIONS: PRODUCTION/MARKETING AND OTHER FACILITIES IN SEVERAL COUNTRIES. OPERATES THROUGH A NETWORK OF SUBSIDIARIES, BRANCHES AND AFFILIATES IN HOST COUNTRIES. OWNS & CONTROLS ASSETS IN FOREIGN COUNTRIES.

BO155

4. SOPHISTICATED TECHNOLOGIES: FOR PROVIDING WORLD CLASS PRODUCTS EVERYWHERE, MNCs GENERALLY USES ADVANCED TECHNOLOGY.

5. PROFESSIONAL MANAGEMENT: EMPLOY PROFESSIONALLY TRAINED MANAGERS TO HANDLE ADVANCED TECHNOLOGY, HUGE FUNDS, INTERNATIONAL

BUSINESS OPERATIONS DIVERSE MANPOWER.

BO156

6. INTERNATIONAL MARKETS: DUE TO VAST RESOURCES AND SUPERIOR MARKETING SKILLS, MNC HAS VAST ACCESS TO INTERNATIONAL MARKETS.

ABLE TO SELL WHATEVER PRODUCTS PRODUCED IN DIFFERENT

COUNTRIES.

BO157

ROLE OF MNCs
TAKE CARE OF COMMON NEEDS OF THE CUSTOMERS SPREAD ALL OVER THE WORLD BY PROVIDING QUALITY PRODUCTS. PLAY BOTH POSITIVE AND NEGATIVE ROLES. AS A POSITIVE FORCE, THEY ARE A DYNAMIC FORCE FOR WIDER

DISTRIBUTION OF CAPITAL, TECHNOLOGY, EMPLOYMENT.

AS A NEGATIVE FORCE, CAN BE MONESTERS BEYOND THE CONTROL OF NATIONAL GOVERNMENTS AND SOMETIMES

WORKING AGAINST PUBLIC INTERESTS.

BO158

BENEFITS TO HOST COUNTRY

1. AVAILABILITY OF FOREIGN CAPITAL: MOST DEVELOPING COUNTRIES SUFFER FROM SHORTAGE OF

CAPITAL.
MNCs BRING MUCH NEEDED CAPITAL. MAKE FDI LEADING TO ECONOMIC DEVELOPMENT.

BO159

2. ADVANCED TECHNOLOGY: MANY NATIONS LACK RESOURCES FOR R&D. MNCs TRANSFER ADVANCED/UPDATED TECHNOLOGY TO SUCH COUNTIES. BRING IN NEW INVENTORIES AND INNOVATIONS. MAKE AVAILABLE BETTER PRODUCTS.

BO160

3. EMPLOYMENT GENERATION: CREATE LARGE SCALE EMPLOYMENT OPPORTUNITIES IN HOST COUNTRIES BY BRINGING IN HUGE INSTRUMENTS. OFFER EXCELLENT PAY SCALES AND CAREER OPPORTUNITIES TO MANAGERS, TECHNICAL, CLERICAL STAFF.

4. FOREIGN EXCHANGE: HELPS HOST COUNTIRES TO INCREASE EXPORTS AND ALSO REDUCE THEIR IMPORTS.

BO161

5. HEALTHY COMPETITION: INCREASE COMPETITION, BREAK DOMESTIC MONOPOLY. COMPEL DOMESTIC COMPANIES TO IMPROVE EFFICIENCY OR

WITHDRAWN FROM THE MARKET.

MANY INDIAN COMPANIES HAVE ACQUIRED ISO-9000.

BO162

6. MANAGERIAL REVOLUTIONS: HELPS TO PROFESSIONALISE MANAGEMENT IN HOST

COUNTRIES. EMPLOY MODERN MANAGEMENT TECHNQUES AND TRAINED MANAGERS. CONCEPTS BUSINESS LIKE CORPORATE PLANING, AND RESTRUCTURING, RE-ENGINEERING

PROCESS

OUTSOURCING.

EVOLVED BY MNCs (ALSO BPO).

BO163

7. GROWTH OF DOMESTIC FIRMS: STIMULATE GROWTH OF LOCAL ENVIRONMENT AND

AVAILABILITY UNITS.

8. IMPROVED STANDARD OF LIVING:

SUPERIOR PRODUCTS AND SERVICES HELP TO IMPROVE LIVING STANDARDS IN HOST COUNTRIES.

BO164

9. WORLD ECONOMY: HELP TO INTEGRATE NATIONAL ECONOMICS INTO A WORLD ECONOMY.

ECOURAGE INTERNATIONAL BROTHERHOOD AND CULTURAL

EXCHANGE THROUGH INTERNATIONAL BUSINESS.

BO165

BENEFITS OF MNCs TO THE HOME COUNTRY

1. THE HOME COUNTRY CAN EARN HUGE REVENUES BY WAY OF LICENSING FEE, ROYALTY, DIVIDEND ETC.

2. CAN PROCURE CHEAPER RAW MATERIAL AND LABOUR FROM

OTHER COUNTRIES. 3. WIDEN Its MARKET BY EXPORTING COMPONENTS AND FINISHED PRODUCTS. 4. UTILISE THE TALENT AVAILABLE IN OTHER COUNTRIES. 5. CAN GENERATE EMPLOYMENT FOR Its NATIONALS IN FOEIGN COUNTRIES.

BO166

FOREIGN TRANSNATIONAL CORPORATIONS

1. LARGE SIZED
BUT

COMPANIES
HAVING

INCORPORATED
PRODUCTION

IN

FOREIGN

COUNTRY

AND

MARKETING

FACILITIES IN INDIA. 2. VERY LARGE IN SIZE, SOPHISTICATED TECHNOLOGY AND LARGE FINANCIAL RESOURCES.

3. OPERATE IN INDIA THROUGH THEIR SUBSIDIARIES BRANCHES

AND AFFILIATES. 4. MANY HAVE COLLOBORATION AGREEMENT WITH INDIAN

COMPANIES PROVIDE CAPITAL, TECHNOLOGIES AND BRAND NAMES. EG. CADBURY, GILETTE, PHILIPS, UNILEVER BO167

INDIAN TRANSNATIONAL CORPORATIONS

1. A COMPANY INCORPORATED IN INDIA AND HAVING

SUBSIDIARY/AFFILIATE IN A FOREIGN COUNTRY. 2. BIRLAS, TATAS, ARVIND MILLS, UB GROUP, ITC HAVE JOINT VENTURES ABROAD OR HAVE SUBSIDIARIES. 3. INDIAN TRANSNATIONAL CORPORATIONS OPERATE ABROAD MAINLY IN TEXTILES, ENGINEERING, BANKING PUBLISHING

ETC.

BO168

INDIAN TRANSNATIONAL CORPORATIONS CHARACTERISTICS

1. SMALLER IN SIZE AS COMPARED TO FOREIGN. 2. GENERALLY LOCATED IN FEW DEVELOPING COUNTRIES LIKE NIGERIA, THAILAND, INDONESIA. 3. ADOPTED TECHNOLOGY WHICH THEY IMPORTED EARLIER.

4. ONLY FEW BIG BUSINESS HOUSES OWN THESE.

5. MAJORITY OF THEM OPERATE ON JOINT VENTURE. 6. HIGH MORTALITY RATE. MANY HAVE FAILED DUE TO UNCLEAR OBJECTIVES, INCOMPLETE PROJECT PROPOSALS, POOR UNDERSTANDING OF FOREIGN MARKETS.

BO169

INTERNATIONAL BUSINESS RISKS

BUSINESS HAS INHERENT RISKS. IT IS THE POSSIBILITY OF LOSS DUE TO SOME UNCERTAIN FUTURE OCCURANCE. INTERNATIONAL BUSINESS RISKS IN THE POSSIBILITY OF LOSS CAUSED BY SOME UNFAVOURABLE OR UNDESIRABLE EVENT IN INTRNATIONAL BUSINESS OPERATIONS.

PROFITS AND GROWTH ARE HIGH IN INTERNATIONAL BUSINESS

BUT SO ARE THE RISKS TOO. CHANGES IN INTERNATIONAL ENVIRONMENT AND DIFFERENCES IN THE ECONOMIC SYSTEMS, CULTURES OF DIFFERENT COUNTRIES ARE MAIN CAUSES OF INTERNATIONAL BUSINESS RISKS.

BO170

TYPE OF INTERNATIONAL BUSINESS RISKS

1. POLITICAL RISKS: UCERTAIN POLITICAL EVENTS AND ACTIVITIES LEAD TO

POLITICAL RISKS. THE GOVT. OF A HOST COUNTRY MAY NATIONALISE, TAKE OVER

THE ASSETS OF FOREIGN FIRMS.

WAR BETWEEN TWO COUNTRIES OR POLITICAL UPHEAVALS MAY CAUSE INTERNATIONAL RISKS. EG. BREAKUP OF RUSSIA

CREATED RISKS FOR INDIAN FIRMS.

BO171

2. MARKET RISKS: SEVERE COMPETITION IN INTERNATIONAL BUSINESS AND ALSO MARKET CONDITION CHANGE FREQUENTLY.

SOME FIRMS MAY FIND IT VERY DIFFICULT TO COMPETE IN

INTERNATIONAL MARKETS. 3. EXCHANGE RISKS: EVERY COUNTRY HAS Its OWN CURRENCY. CURRENCIES GET EXCHANGED AT SOME RATES.

EXCHANGE RATES KEEPS ON CHANGING CAUSING RISKS OF

LOSS TO PARTICIPANTS. BO172

4. CREDIT RISKS: CREDIT IS PART OF BUSINESS. BUYERS/SELLERS IN INTERNATIONAL BUSINESS ARE OFTEN UNKNOWN TO EACH OTHER VERY DIFFICULTY TO ASCERTAIN THE CREDIT WORTHINESS OF THE FOREIGN BUYERS.

BO173

5. TRANSPORT RISKS:
DUE TO LARGE DISTANCES BETWEEN COUNTRIES, GOODS DESPATCHED BY SHIPS OR AIRWAYS. SEA AND AIR TRANSPORT ARE EXPOSED TO MANY ADDITIONAL RISKS. 6. CULTURAL RISKS: DIFFERENT COUNTRIES HAVE DIFFICULTIES. BUSINESS FIRMS FACE ADDITIONAL RISKS DUE TO DIFFERENT LANGUAGES, CUSTOMS, RELIGIOUS FEELINGS, TASTES, LIFE STYLES ETC.

BO174