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FINANCIAL

MANAGEMENT
4150502
TOPICS COVERED

• MEANING & DEFINITION OF BUSINESS

• CHARACTERISTICS OF BUSINESS

• FORMS OF FORMATION OF BUSINESS ACTIVITIES


MEANING OF BUSINESS

• The word “business” includes all human activities


towards producing or acquiring wealth.

• Business is the sale, exchange or transfer of goods


and services with profit motive.

• Industry, trade, banking, transport, insurance,


warehousing, etc. are integral parts of modern
business.
DEFINITION OF BUSINESS

•“Business may be defined as an


activity in which different persons
exchange something of value whether
goods or services for mutual gain or
profit.”
- L.H. Haney
DEFINITION OF BUSINESS

•Business involves production and exchange

of goods.

•Its main aim is to earn profit.

•It must satisfy human wants.


• An economic activity
• Production of goods & services
• Sale of goods & services
• Dealings on regular basis
• Profit earning
• Uncertainty of return
• Elements of risk
FORMS AND

FORMATION OF

BUSINESS

ENTERPRISE
WHAT IS BUSINESS
ORGANIZATION ?

•The term Business organization refers to


how a business is structured.

•It refers to a commercial or industrial


enterprise and the people who constitute it.
TYPES OF BUSINESS
ORGANIZATIONS

•Sole Proprietorship
•Partnership
•Co-operative society
•Private Company
•Public Enterprise
•Non-profit organization
•Hindu undivided family (HUF)
CHOOSING A FORM OF
BUSINESS ORGANISATION

•Nature of business
•Scale of operations
•Size of the market area
•Degree of control by the owner
•Amount of capital required
•Risks and liabilities involved
•Tax liability
SOLE PROPRIETORSHIP

•Ownership and management of a


business in control of one individual.
•Owned by one single person
•Owner is the manager
•Owner is the only source of capital
•Owner keeps all the profits
•Easy to form
ADVANTAGES OF SOLE
PROPRIETORSHIP

•Easy formation
•Better control
•Subject to fewer regulations
•Not subject to corporate income
tax
•Ownership of all profits
DISADVANTAGES OF SOLE
PROPRIETORSHIP

•Owner has unlimited liability


•Difficult to raise capital
•Business had a limited life
•Difficult to do business beyond a
certain size
JOINT HINDU FAMILY BUSINESS
• Comes into existence as per the Hindu inheritance
act of india
• This form of business is found only in India
• All the members of HUF own the business jointly.
• Managed by the head
of the family “Karta”
• All the members
Are called
“Co-parceners”
JOINT HINDU FAMILY BUSINESS

• Outsider cannot become its member.


• Karta has unlimited liability; whereas other
members have limited liability.
• The share of each member keeps on fluctuating.
• Business continues to
exist till the death of
any member or karta.
ADVANTAGES OF HUF

•Co-parcener had assured share in profits


•Continues existence of business
•Decision making quick as the power are
with karta
•No corporate tax
•People use it for tax benefits these days
DISADVANTAGES OF HUF

•Absolute power in the hands of


Karta
•Instability
•Limited resources can be raised
•Scope of conflict
PARTNERSHIP

•Minimum 2 partners and maximum 20


partners
•Relation between partners is created in the
form of contract
•Written contract is called
“Partnership Deed”
•The firm means partners,
the partners means
firm
PARTNERSHIP

•Profit is divided in the agreed ratio


•No partner can sell/transfer his interest in
the firm without the consent of partners
ADVANTAGES OF PARTNERSHIP

• Easy formation
• Larger resources
• Sharing of risk
• Better management & flexibility of Operation
• No corporate income tax
• Subject to fewer regulations as compared to
companies
DISADVANTAGES OF PARTNERSHIP

•Unlimited liability
•Limited life
•Difficult to raise capital
•Chances of dispute
JOINT STOCK COMPANY
JOINT STOCK COMPANY

• A joint sector enterprise is one which is owned,


managed and controlled jointly by the private
entrepreneurs and the government.
CHARACTERISTICS OF JOINT
SECTOR ENTERPRISES
• Joint Ownership
• Joint Management
• Joint Franchising
• Socio-Economic Objectives
• Joint Accountability
ADVANTAGES OF JOINT STOCK
COMPANY
• Limited liability of shareholders
• Can easily raise capital
• Have unlimited life
• Ease of transfer of ownership
DISADVANTAGES OF JOINT
STOCK COMPANY
• Formation is not easy
• Excessive government regulation
• Subject to corporate tax and dividend tax
• Delay in policy decisions
• Control by group
CO-OPERATIVE SOCIETY

• A voluntary association of people or business to


achieve an economic goal with a social perspective
• Minimum 10 and maximum unlimited members
CO-OPERATIVE SOCIETY
The International Labour Organisation

(ILO) has defined co-operative organisation as “an association of

persons usually of limited means who have voluntarily joined together

to achieve a common end, through the formation of a democratically

controlled business organisation, making equitable contribution to the

capital required, and accepting a fair share of the risk and the benefits

of the undertaking.”
CHARACTERISTICS OF CO-
OPERATIVES

•Voluntary association
•Equal voting rights
•Democratic Management
•Service motive
•Distribution of profits or surpluses
•Cash trading
•Trade control
CHARACTERISTICS OF CO-
OPERATIVES
• Market price without discriminating
• Political and religious neutrality
• Honest trading
• Principle of trading
ADVANTAGES OF CO-OPERATIVE

•Easy formation
•Limited liability
•Stability
•Democratic management
•State assistance
DISADVANTAGES OF CO-OPERATIVES

•Possibility of conflicts
•Long decision making process
•Not enough capital
PRIVATE COMPANY

•Closely held by few people


•Minimum 2 and maximum 200
shareholders
•Stocks not traded on stock exchanges
•Private equity cannot be raised
•Less regulations compared to Public
Companies
PUBLIC COMPANY

•Stocks are held by large number of


people
•Minimum 7 and maximum unlimited
shareholders
•Can be listed on stock exchange
•Have to follow many laws with regards
to board and AGM
NON-PROFIT ORGANIZATION

•“To pursue a common not-for-profit


goal”
•Social cause
•Surplus revenues to further achieve its
purpose or mission
•Income tax exemption
ADVANTAGES OF NON PROFIT
ORGANIZATION

•Ability to experiment freely


•Flexibility
•Good rapport with people
•Ability to communicate at all levels
•Recruit experts and highly motivated staff
•Less restrictions from government
DISADVANTAGES OF NON
PROFIT ORGANIZATION

•Lack of funds
•Lack of dedicated leadership
•Inadequate trained personnel
•Misuse of funds
•Monopolization of leadership
•Lack of public participation

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