Sakshi Education
Characteristic features of Business:
Features and evaluation of Sole Proprietorship:
The above mentioned characteristics are common to all business enterprises irrespective of their nature, size and form of ownership.
We go to the market to buy items of our daily needs. In the market we find a variety of shops- some of them small and some of them big. We may find some persons selling vegetables, peanuts, newspapers etc. on the roadside. We may also find cobbler repairing shoes on the footpath. Every day you come across such types of shops in your locality. But have you ever tried to know how these businesses are run? Who are the owners of these businesses? What exactly does an owner do for any business? You may say, the owner invests capital to start the business, takes all decisions relating to business, looks after the day to day functioning of the business and finally, is responsible for the profit or loss. Yes, you are right. The owner does exactly all these things. If you go a bit further, you will find that in some businesses a single individual and in some businesses a group of individuals perform all these activities. In this lesson let us find out more about the business in which a single individual takes all initiatives to start and run the business.
Meaning:
Sole Proprietorship 'Sole' means single and 'proprietorship' means ownership. It means only one person or an individual becomes the owner of the business. Thus, the business in which a single person owns, manages and controls all the activities of the business is known as sole proprietorship form of business. The individual who owns Business Studies 64 and runs the sole proprietorship business is called a ‘sole proprietor’ or ‘sole trader’.
A sole proprietor pools and organizes the resources in a systematic way and controls the activities with the sole objective of earning profit. Is there any such shop near your locality where a single person is the owner? Small shops like vegetable shops, grocery shops, telephone booths, chemist shops, etc. are some of the commonly found sole proprietorship form of business.
Definition:
Sole Proprietorship We can now define sole proprietorship as– A business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.
Characteristic features of Sole Proprietorship Sole Proprietorship form of business have the following characteristics.
i. Single Ownership.
ii. No sharing of Profit and Loss.
iii. One-man’s Capital.
iv. One-man Control.
v. Unlimited Liability.
vi. Less legal formalities.
Now we shall discuss each of the characteristics in details.
i. Single Ownership:
A single individual always owns sole proprietorship form of business. That individual owns all assets and properties of the business. Consequently, he alone bears all the risk of the business. Thus, the business of the sole proprietor comes to an end at the will of the owner or upon his death.
ii. No sharing of Profit and Loss:
The entire profit arising out of sole proprietor- Sole Proprietorship 65 ship business goes to the sole proprietor. If there is any loss it is also to be borne by the sole proprietor alone. Nobody else shares the profit and loss of the business with the sole proprietor.
iii. One man’s Capital:
The capital required by a sole proprietorship form of business is totally arranged by the sole proprietor. He provides it either from his personal resources or by borrowing from friends, relatives, banks or other financial institutions.
iv. One-man Control:
The controlling power in a sole proprietorship business always remains with the owner. The owner or proprietor alone takes all the decisions to run the business. Of course, he is free to consult anybody as per his liking.
v. Unlimited Liability:
The liability of the sole proprietor is unlimited. This implies that, in case of loss the business assets along with the personal properties of the proprietor shall be used to pay the business liabilities.
vi. Less Legal Formalities:
The formation and operation of a sole proprietorship form of business requires almost no legal formalities. It also does not require to be registered. However, for the purpose of the business and depending on the nature of the business, the sole proprietorship has to have a seal. He may be required to obtain a license from the local administration or from the health department of the government, whenever necessary.
Joint Stock Company:
You must have heard about Reliance Industries Limited (RIL), Tata Iron and Steel Company Limited (TISCO), Steel Authority of India Limited (SAIL), Maruthi Udyog Limited (MUL), etc. Have you ever thought who owns them? What is the volume of financial transactions of these companies? If you think about it, you will find that these are quite large in size and their activities are spread all over the country. Thus, it is not possible for this s to be formed as sole proprietorship or partnership form of business. Then, how are they formed and managed? Actually, they are a different form of business and require much more capital and manpower than sole proprietorship and partnership form of business. Let us now learn about this form of business in detail.
Characteristics of Joint Stock Company:
Identify the different types of Joint Stock Company; Discuss the advantages and limitations of Joint Stock Company; Suggest the suitability of Joint Stock Company as a form of Business ; explain the meaning and features of a Multinational Company; and ! Enumerate the advantages and limitations of Multinational Company.
Meaning of Joint Stock Company:
In a partnership firm we know that the number of partners cannot exceed 20. So there is a limit to the contribution of capital. Secondly, even if the partners could contribute a large Business Studies 82 amount of capital, they would hesitate to do so considering the risk involved in business and their unlimited liability. Mainly to take care of these two problems, a company form of business came into existence.
Characteristics of Joint Stock Company:
You are now familiar with the concept of company as a form of business organization. Let us now study its characteristics.
Legal formation:
No single individual or a group of individuals can start a business and call it a joint stock company. 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.
Artificial person:
Just like an individual, who takes birth, grows, enters into relationships and dies, a joint stock company takes birth, grows.
Relationships and dies:
However, it is called an artificial person as its birth, existence and death are regulated by law and it does not possess physical attributes like that of a normal person.
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. The shareholders are not the owners of the property owned by the company. Also, the shareholders cannot be held responsible for the acts of the company.
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 organization working on behalf of the company.
Partnership:
Business partners often start businesses together with little planning and few ground rules. Sooner or later, they discover the hard way that what’s left unsaid or unplanned often leads to unmet expectations, anger and frustration. Partners can clash over countless things, including conflicting work ethics and financial goals, roles in the business and leadership styles. What follows is a primer on how to avoid that and set up — and sustain — a business partnership.
First, ask yourself: Do I really need a business partner to build a successful company? Taking on business partners should be reserved for when a partnership is critical to success — say, when the prospective partner has financial resources, connections or vital skills you lack. You may be better off hiring the other person as an employee or an independent contractor.
Communication is important at every stage of a partnership, and especially so at the outset. A common mistake business partners make is jumping into business before really getting to know each other. You must be able to connect to feel comfortable expressing your opinions, ideas and expectations.
If you haven’t worked together previously, test the partnership out by tackling a small project together that showcases each other’s skills and requires cooperation. This is also a way to learn about each other’s personality and core values. Ideally partners’ professional skills should complement one another, but not overlap too much.
For example, you may be detail oriented and your partner may be a big-picture thinker. Or you may be an expert in marketing and sales, while your partner prefers to stay in the backdrop poring over financials.
To gauge how well you might work together, have a chat with each other’s colleagues and family members. Key questions to answer include:
Other points to consider:
Potential partners may want to consider taking a two- or three-day retreat together to go over their individual expectations for the business and partnership, one by one, and compare notes. It can help the conversation to have the partners guess each other’s expectations before revealing them to each other.
Be especially careful when partnering with close friends or family members. Like many marriages, business partnerships can end in bitter divorce. Consider whether you’re willing to risk hurting your relationship if the partnership falls apart.
Approach a partnership with close friends or family as you might with strangers: Thoughtfully plan and prepare for every aspect of it in advance so there’s no question about how difficult situations will be handled.
A note about partnering with a spouse: Working together puts an added strain on a relationship, and couples can quickly discover there is a little too much togetherness. Those who succeed often have learned to set boundaries keep the business from dominating every aspect of their lives. For example, they may have agreed to leave the office at 5 p.m. and put all conversation about work on hold until after the kids are in bed.
Once the decision is made to start a business together, you should create a partnership agreement with help from a lawyer and an accountant. Take this step no matter who your partner is. People with strong personal connections may feel certain that their supposedly unbreakable bond will help them overcome any obstacles along the way. Big mistake… get a written agreement.
Every agreement should address three crucial areas: compensation, exit clauses, and roles and responsibilities. Include who owns what percentage of the business, who is investing what, where the money is coming from, and how and when partners will be paid.
Typically partners set up equal ownership and each contributes 50% of the initial investment. But terms can vary greatly. For instance, one partner might contribute more money if the other partner can bring in expertise or business contacts. As the business grows and changes, adjust compensation accordingly. For example, partners may agree to work initially without compensation, and to get paid after a certain revenue target is reached. In addition, if the business partnership brings on more people or if a particular partner is putting in more or less time, building some flexibility into the contract can let you adjust payments.
The agreement should also cover how you plan to exit the business. Include clauses that spell out cases in which one partner is obliged to buy out the other’s interest — for instance, if one wants to quit the business. For instance, it can state that the other partner must buy him or her out for a renegotiated percentage of the business’s value. If neither partner wants to continue the business, partners can also liquidate and divide all assets. It’s also a good idea to settle on in advance how to assess the total value of the business upon dissolution. The agreement should specify who appraises the business and the methodology to use.
Outline your expectations for how you’ll operate your business. Clearly delineate the roles and responsibilities of the partners based on their skills and desires. This will eliminate turf wars and clearly show employees to whom they should report.
Establish routines for daily communication. For example, agree to talk twice a day at designated times and to re-evaluate their goals on a regular basis. At least once a quarter, sit down and discuss how you envision the future of the business and what steps to take in getting there.
Public Enterprises and their types:
You have learnt about various forms of business organizations, which primarily relate to private enterprises. Traditionally, business activities were left mainly to individual and private organizations, and the government was taking care of only the essential services such as railways, electricity supply, postal services etc.
OBJECTIVES:
After studying this lesson, you will be able to:
Public Enterprises are operated in various forms. Earlier departmental organizations were preferred but as the privatizations policy emerged during 1980s and laissez-faire policy got fame, debate remains in top to find which form is suitable. These days, importance of public enterprises and suitableness of Public Enterprises are categorized depending upon economical, social and political condition of the state. Departmental organizations may be supposed to be better one has to produce arms and ammunitions for the country.
Public Enterprises are categorized on various bases.
Functionally, public enterprises are categorized as:
But more consciously, Public Enterprises are categorized on the basis of Structure. Structurally, types of Public Enterprises are as follows:-
In the following part, each type of public enterprises is explained.
Departmental Organization (PE):
This is the oldest form of managing public enterprises. Such organizations are established as a part of public organizations providing goods and services to its citizens. Public servants are the employees of the enterprises and they are deputed as a part of their job transfer. They may not have specific skill and professionalism but they work for a specific time period. Line ministerial Chain of command is also the chain of command of the organization. Ultimate accountability remains upon the Political but administrative authority carry out the day-to-day function of the organization.
Advantages:
Disadvantages:
Public or Statutory Corporation:
Public or statutory corporation is an autonomous legal entity established by the Act of the legislature. The public corporations got fame in the post war Britain; the public corporations were the chosen instrument for the management of nationalized industries. Public corporations are established by the specific law, has autonomy regarding almost all functions such as human resource management, financial management and so on. There is flexibility in functioning and has public control over it.
Management of public sector enterprises in India Defining public corporation, Ernest Davis says “A corporate body created by public authority with defined functions and financially independent. It is administered by a board appointed by public authority to which it is answerable.” Similarly, Herbert Maris son says “public corporations.
Characteristics
Advantages
Disadvantages
Principles of Public Corporations
3. Government Company
Government Company is a legal entity established under ordinary company act of the country. Majority of the ownership of Government Company remains with the government. This is the one of the most used form of Public Enterprises. Defining Government Company Professor A.M. Hanson says, “State Company is an enterprise established under the ordinary company law of the land /country, concerned in which the government has a controlling interest through its ownership of all or some of the share”.
Characteristics
Advantages
Disadvantages
Changing Business Environment in Post-liberalization scenario:
Introduction
The rapid scientific technological advancements are reshaping the world. Developments in information and communication technology have revolutionized every activity, be it scientific or business and commerce or individual and personal. For business and commerce, they have facilitated improvements in productivity and bottom-line of the business and commerce besides opportunities for better customer service. The productivity improvements come out of the increased speed, accuracy and ability to handle big volumes that technology offers. For the financial sector and banking, the developments in information technology have spelt very special benefits.
In today’s globally competitive market, knowledge constantly makes itself obsolete with the result that today’s advanced knowledge is tomorrow’s ignorance. One has to be on the learning curve and continuously move up. All the knowledge workers have to leverage intellectual capital for growth—creative destruction—keep on innovating— otherwise someone else will be at the top of the pecking order. Companies function in a world of exponentially shortening product and service life cycles where customer preferences and technologies change in a discontinuous and non-linear fashion and business paradigms and rules become obsolete. The future winners will be those business organizations who escape from the gravitational pull of the past on the fuel of innovation.
In the opinion of some experts the twenty first century competition is characterized by at least three fundamental paradigms shifts, viz. -
(a) Ability of organizations and individuals to network globally and seamlessly;
(b) Ability to communicate, transmit, store and retrieve large amounts to information including voice, data, video; and
(c) Mobility of capital to feed good projects around the world.
With the battle for market share and mind-share deepening, companies are increasingly resorting to non-traditional resources (like knowledge) and innovative means (like quick response) to create sustainable competitive advantage.
Why Corporate Governance?
From the beginning corporate governance has acquired connotation of policing the thieves. Major reason for ‘confrontationist’ undertone is that managers remain unconvinced that corporate governance is a powerful tool for transparent, prudent and participative management that could be fair to all stakeholders and still enhance value of an enterprise as well as reward them commensurate with performance. Consequently, several managers observe corporate governance because it would be difficult to openly object accountability to shareholders, who have risked their capital and responsibility to other stakeholders, whose livelihood depends upon prudent management.
Environment is bringing the best out of managers as a class. Corporate governance has become a contentious issue because while empowering boards and shareholders to deal with incompetent and corrupt managers is a relatively easy matter, dealing with brutal violation of spirit of corporate governance by ‘excellent managers, who have created great shareholder value, is one the biggest challenges.
In the context of fast changing corporate and socio-economic landscapes, fast paced technology and emergence of multilateral trading system, the following factors underscore the need for good corporate governance:
(i) Globalization, privatization, deregulation, causing revolution of rising expectations;
(ii) Advancements in Information Technology and E-Commerce.
(iii) Strategic alliances, mergers and acquisitions.
(iv) Intellectual Property Rights.
(v) Social responsibility, social audit and societal concerns.
(vi) Business and professional ethics.
(vii) Sustainable development.
(viii) Energy audit, environmental up gradation.
(ix) Need for excellence to cope up with fierce international competition.
(x) Need to strike a balance between compliance with rules and company’s need to perform, so that company’s performance is not stifled by over regulation.
- Creation of utilities:
Business makes goods more useful to satisfy human wants. It adds time, place, form and possession utilities to various types of goods. In the words of Roger, "a business exists to create and deliver value satisfaction to customers at a profit".
Business enables people to satisfy their wants more effectively and economically. It carries goods from place of surplus to the place of scarcity (place utility). It makes goods available for use in future through storage (time utility).
- Dealings in goods and services:
Every business enterprise produces and/or buys goods and services for selling them to others. Goods may be consumer goods or producer goods.
Consumer goods are meant for direct use by the ultimate consumers, e.g., bread, tea, shoes, etc. Producer goods are used for the production of consumer or capital goods like raw materials, machinery, etc. Services like transport, warehousing, banking, insurance, etc. may be considered as intangible and invisible goods.
Services facilitate buying and selling of goods by overcoming various hindrances in trade.
- Continuity in dealings:
Dealings in goods and services become business only if undertaken on a regular basis. According to Peterson and Plowman, "a single isolated transaction of purchase and sale will not constitute business recurring or repeated transaction of purchase and sale alone mean business."
For instance, if a person sells his old scooter or car it is not business though the seller gets money in exchange. But if he opens a shop and sells scooters or cars regularly, it will become business. Therefore, regularity of dealings is an essential feature of business.
- Sale, transfer or exchange:
All business activities involve transfer or exchange of goods and services for some consideration. The consideration called price is usually expressed in terms of money. Business delivers goods and services to those who need them and are able and willing to pay for them.
For example, if a person cooks and serves food to his family, it is not business. But when he cooks food and sells it to others for a price, it becomes business. According to Peter Drucker "any that fulfills itself through marketing a product or service is a business".
- Profit motive:
The primary aim of business is to earn profits. Profits are essential for the survival as well as growth of business. Profits must, however, be earned through legal and fair means. Business should never exploit society to make money.
- Element of risk:
Profit is the reward for assuming risk. Risk implies the uncertainty of profit or the possibility of loss. Risk is a part and parcel of business. Business enterprises function in uncertain and uncontrollable environment.
Changes in customers' tastes and fashions, demand, competition, Government policies, etc. create risk. Food, fire, earthquake, strike by employees, theft, etc. also cause loss. A businessman can reduce risks through correct forecasting and insurance. But all risks cannot be eliminated.
- Economic activity:
Business is primarily an economic activity as it involves production and distribution of goods and services for earning money. However, business is also a social institution because it helps to improve the living standards of people through effective utilization of scarce resources of the society.
Only economic activities are included in business. Non-economic activities do not form a part of business.
- Art as well as science:
Business is an art because it requires personal skills and experience. It is also a science because it is based on certain principles and laws.
Features and evaluation of Sole Proprietorship:
The above mentioned characteristics are common to all business enterprises irrespective of their nature, size and form of ownership.
We go to the market to buy items of our daily needs. In the market we find a variety of shops- some of them small and some of them big. We may find some persons selling vegetables, peanuts, newspapers etc. on the roadside. We may also find cobbler repairing shoes on the footpath. Every day you come across such types of shops in your locality. But have you ever tried to know how these businesses are run? Who are the owners of these businesses? What exactly does an owner do for any business? You may say, the owner invests capital to start the business, takes all decisions relating to business, looks after the day to day functioning of the business and finally, is responsible for the profit or loss. Yes, you are right. The owner does exactly all these things. If you go a bit further, you will find that in some businesses a single individual and in some businesses a group of individuals perform all these activities. In this lesson let us find out more about the business in which a single individual takes all initiatives to start and run the business.
- Objective After studying this lesson, you will be able to:! Explain the meaning of sole proprietorship form of business;! List the characteristics of sole proprietorship;! Describe the advantage and disadvantage of sole proprietorship; and! Suggest the suitability of sole proprietorship form of business.
Meaning:
Sole Proprietorship 'Sole' means single and 'proprietorship' means ownership. It means only one person or an individual becomes the owner of the business. Thus, the business in which a single person owns, manages and controls all the activities of the business is known as sole proprietorship form of business. The individual who owns Business Studies 64 and runs the sole proprietorship business is called a ‘sole proprietor’ or ‘sole trader’.
A sole proprietor pools and organizes the resources in a systematic way and controls the activities with the sole objective of earning profit. Is there any such shop near your locality where a single person is the owner? Small shops like vegetable shops, grocery shops, telephone booths, chemist shops, etc. are some of the commonly found sole proprietorship form of business.
Definition:
Sole Proprietorship We can now define sole proprietorship as– A business enterprise exclusively owned, managed and controlled by a single person with all authority, responsibility and risk.
Characteristic features of Sole Proprietorship Sole Proprietorship form of business have the following characteristics.
i. Single Ownership.
ii. No sharing of Profit and Loss.
iii. One-man’s Capital.
iv. One-man Control.
v. Unlimited Liability.
vi. Less legal formalities.
Now we shall discuss each of the characteristics in details.
i. Single Ownership:
A single individual always owns sole proprietorship form of business. That individual owns all assets and properties of the business. Consequently, he alone bears all the risk of the business. Thus, the business of the sole proprietor comes to an end at the will of the owner or upon his death.
ii. No sharing of Profit and Loss:
The entire profit arising out of sole proprietor- Sole Proprietorship 65 ship business goes to the sole proprietor. If there is any loss it is also to be borne by the sole proprietor alone. Nobody else shares the profit and loss of the business with the sole proprietor.
iii. One man’s Capital:
The capital required by a sole proprietorship form of business is totally arranged by the sole proprietor. He provides it either from his personal resources or by borrowing from friends, relatives, banks or other financial institutions.
iv. One-man Control:
The controlling power in a sole proprietorship business always remains with the owner. The owner or proprietor alone takes all the decisions to run the business. Of course, he is free to consult anybody as per his liking.
v. Unlimited Liability:
The liability of the sole proprietor is unlimited. This implies that, in case of loss the business assets along with the personal properties of the proprietor shall be used to pay the business liabilities.
vi. Less Legal Formalities:
The formation and operation of a sole proprietorship form of business requires almost no legal formalities. It also does not require to be registered. However, for the purpose of the business and depending on the nature of the business, the sole proprietorship has to have a seal. He may be required to obtain a license from the local administration or from the health department of the government, whenever necessary.
Joint Stock Company:
You must have heard about Reliance Industries Limited (RIL), Tata Iron and Steel Company Limited (TISCO), Steel Authority of India Limited (SAIL), Maruthi Udyog Limited (MUL), etc. Have you ever thought who owns them? What is the volume of financial transactions of these companies? If you think about it, you will find that these are quite large in size and their activities are spread all over the country. Thus, it is not possible for this s to be formed as sole proprietorship or partnership form of business. Then, how are they formed and managed? Actually, they are a different form of business and require much more capital and manpower than sole proprietorship and partnership form of business. Let us now learn about this form of business in detail.
Characteristics of Joint Stock Company:
Identify the different types of Joint Stock Company; Discuss the advantages and limitations of Joint Stock Company; Suggest the suitability of Joint Stock Company as a form of Business ; explain the meaning and features of a Multinational Company; and ! Enumerate the advantages and limitations of Multinational Company.
Meaning of Joint Stock Company:
In a partnership firm we know that the number of partners cannot exceed 20. So there is a limit to the contribution of capital. Secondly, even if the partners could contribute a large Business Studies 82 amount of capital, they would hesitate to do so considering the risk involved in business and their unlimited liability. Mainly to take care of these two problems, a company form of business came into existence.
Characteristics of Joint Stock Company:
You are now familiar with the concept of company as a form of business organization. Let us now study its characteristics.
Legal formation:
No single individual or a group of individuals can start a business and call it a joint stock company. 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.
Artificial person:
Just like an individual, who takes birth, grows, enters into relationships and dies, a joint stock company takes birth, grows.
Relationships and dies:
However, it is called an artificial person as its birth, existence and death are regulated by law and it does not possess physical attributes like that of a normal person.
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. The shareholders are not the owners of the property owned by the company. Also, the shareholders cannot be held responsible for the acts of the company.
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 organization working on behalf of the company.
Partnership:
Business partners often start businesses together with little planning and few ground rules. Sooner or later, they discover the hard way that what’s left unsaid or unplanned often leads to unmet expectations, anger and frustration. Partners can clash over countless things, including conflicting work ethics and financial goals, roles in the business and leadership styles. What follows is a primer on how to avoid that and set up — and sustain — a business partnership.
First, ask yourself: Do I really need a business partner to build a successful company? Taking on business partners should be reserved for when a partnership is critical to success — say, when the prospective partner has financial resources, connections or vital skills you lack. You may be better off hiring the other person as an employee or an independent contractor.
Communication is important at every stage of a partnership, and especially so at the outset. A common mistake business partners make is jumping into business before really getting to know each other. You must be able to connect to feel comfortable expressing your opinions, ideas and expectations.
If you haven’t worked together previously, test the partnership out by tackling a small project together that showcases each other’s skills and requires cooperation. This is also a way to learn about each other’s personality and core values. Ideally partners’ professional skills should complement one another, but not overlap too much.
For example, you may be detail oriented and your partner may be a big-picture thinker. Or you may be an expert in marketing and sales, while your partner prefers to stay in the backdrop poring over financials.
To gauge how well you might work together, have a chat with each other’s colleagues and family members. Key questions to answer include:
- Do you and your partner share personal and professional values, ideas and goals?
- Do you trust your partner’s motivations and character?
- In what areas of everyday life and business do you agree?
Other points to consider:
- What if a spouse or kid later wants to join the business?
- How will it be handled if one partner acts unethically?
- What if one partner wants to move out of the country?
Potential partners may want to consider taking a two- or three-day retreat together to go over their individual expectations for the business and partnership, one by one, and compare notes. It can help the conversation to have the partners guess each other’s expectations before revealing them to each other.
Be especially careful when partnering with close friends or family members. Like many marriages, business partnerships can end in bitter divorce. Consider whether you’re willing to risk hurting your relationship if the partnership falls apart.
Approach a partnership with close friends or family as you might with strangers: Thoughtfully plan and prepare for every aspect of it in advance so there’s no question about how difficult situations will be handled.
A note about partnering with a spouse: Working together puts an added strain on a relationship, and couples can quickly discover there is a little too much togetherness. Those who succeed often have learned to set boundaries keep the business from dominating every aspect of their lives. For example, they may have agreed to leave the office at 5 p.m. and put all conversation about work on hold until after the kids are in bed.
Once the decision is made to start a business together, you should create a partnership agreement with help from a lawyer and an accountant. Take this step no matter who your partner is. People with strong personal connections may feel certain that their supposedly unbreakable bond will help them overcome any obstacles along the way. Big mistake… get a written agreement.
Every agreement should address three crucial areas: compensation, exit clauses, and roles and responsibilities. Include who owns what percentage of the business, who is investing what, where the money is coming from, and how and when partners will be paid.
Typically partners set up equal ownership and each contributes 50% of the initial investment. But terms can vary greatly. For instance, one partner might contribute more money if the other partner can bring in expertise or business contacts. As the business grows and changes, adjust compensation accordingly. For example, partners may agree to work initially without compensation, and to get paid after a certain revenue target is reached. In addition, if the business partnership brings on more people or if a particular partner is putting in more or less time, building some flexibility into the contract can let you adjust payments.
The agreement should also cover how you plan to exit the business. Include clauses that spell out cases in which one partner is obliged to buy out the other’s interest — for instance, if one wants to quit the business. For instance, it can state that the other partner must buy him or her out for a renegotiated percentage of the business’s value. If neither partner wants to continue the business, partners can also liquidate and divide all assets. It’s also a good idea to settle on in advance how to assess the total value of the business upon dissolution. The agreement should specify who appraises the business and the methodology to use.
Outline your expectations for how you’ll operate your business. Clearly delineate the roles and responsibilities of the partners based on their skills and desires. This will eliminate turf wars and clearly show employees to whom they should report.
Establish routines for daily communication. For example, agree to talk twice a day at designated times and to re-evaluate their goals on a regular basis. At least once a quarter, sit down and discuss how you envision the future of the business and what steps to take in getting there.
Public Enterprises and their types:
You have learnt about various forms of business organizations, which primarily relate to private enterprises. Traditionally, business activities were left mainly to individual and private organizations, and the government was taking care of only the essential services such as railways, electricity supply, postal services etc.
OBJECTIVES:
After studying this lesson, you will be able to:
- state the meaning of public sector enterprises;
- identify the chief characteristics of public sector organizations;
- distinguish between public sector and private sector;
- describe different forms of organization of public sector enterprises;
- state the features, merits and limitations of Departmental Undertakings, Public Corporations and Government Companies;
- explain the importance of public sector enterprises; and
- outline the current scenario of public enterprises.
Public Enterprises are operated in various forms. Earlier departmental organizations were preferred but as the privatizations policy emerged during 1980s and laissez-faire policy got fame, debate remains in top to find which form is suitable. These days, importance of public enterprises and suitableness of Public Enterprises are categorized depending upon economical, social and political condition of the state. Departmental organizations may be supposed to be better one has to produce arms and ammunitions for the country.
Public Enterprises are categorized on various bases.
Functionally, public enterprises are categorized as:
- Public Enterprises of Industrial types
- Public Enterprises for Service
- Public Enterprises …
- Public Enterprises for public utilities.
But more consciously, Public Enterprises are categorized on the basis of Structure. Structurally, types of Public Enterprises are as follows:-
- Departmental Organizations
- Public or Statutory Corporations
- Government Company
- Other forms (Co-operatives, operating contract etc)
In the following part, each type of public enterprises is explained.
Departmental Organization (PE):
This is the oldest form of managing public enterprises. Such organizations are established as a part of public organizations providing goods and services to its citizens. Public servants are the employees of the enterprises and they are deputed as a part of their job transfer. They may not have specific skill and professionalism but they work for a specific time period. Line ministerial Chain of command is also the chain of command of the organization. Ultimate accountability remains upon the Political but administrative authority carry out the day-to-day function of the organization.
Advantages:
- Administrative authority provides clear and concentrated source of authority so it is easy to run day to day function.
- Accountability remains upon the politician but the actual work is carried out by bureaucrats.
- Ensures high degree of public accountability and work efficiency.
- Government has better control over its fund.
- High level of secrecy maintenance.
- Better inter-agencies co-ordination and cooperation.
Disadvantages:
- The fund is financed by treasury and its revenue is also paid to the treasury.
- Financial and all other activities are kept within annual budget.
- Accountable to government and parliament but not to the public directly.
- Always civil servants, not searching highly competent professionals.
- Lower autonomy because it has to be accountable to the parliament.
- Delay and red-tapism due to bureaucratic hierarchy.
Public or Statutory Corporation:
Public or statutory corporation is an autonomous legal entity established by the Act of the legislature. The public corporations got fame in the post war Britain; the public corporations were the chosen instrument for the management of nationalized industries. Public corporations are established by the specific law, has autonomy regarding almost all functions such as human resource management, financial management and so on. There is flexibility in functioning and has public control over it.
Management of public sector enterprises in India Defining public corporation, Ernest Davis says “A corporate body created by public authority with defined functions and financially independent. It is administered by a board appointed by public authority to which it is answerable.” Similarly, Herbert Maris son says “public corporations.
Characteristics
- Immunity from Parliamentary Scrutiny:
Parliament does not interfere into day-to-day work contrary to departmental organization but it can discuss and determine matters of policies.
- Freedom regarding personnel Management:
Employees of public corporation are not of civil service and not governed by government. Personnel are managed under the provision of the act. Terms of conditions, facilities and other benefit are determined by the same act.
- A body corporate:
It is legal entity and has a separate existence.- Has a distinct relation with the government.
- Independent financial operation and commercial Audit.
- Operation on business principles and on commercial line.
Public corporations were created as of the demand of managerial autonomy. They have autonomy regarding its funds and personnel management. In Nepalese context, Citizens investment trust, employee’s provident fund, Nepal Food Corporation, etc are the example of public corporation.
Advantages
- Managed in business line.
- Autonomy in working.
- Independent in financial matters.
- Public service motive.
- Permanent existence.
- Public accountability.
- Benefits of efficient staff.
- Consistent with national policy
- Operational flexibility
- Representations in various interests
Disadvantages
- Lack of Independent interest.
- Difficultly in changing legislations.
- Divergent interests.
- Limited autonomy
- Excessive accountability
Principles of Public Corporations
- No civil service personnel
- Public service motive
- Self-contained finance
- Autonomy working
- Fixed terms of chairperson
- Judicial control
- Commercial audit.
3. Government Company
Government Company is a legal entity established under ordinary company act of the country. Majority of the ownership of Government Company remains with the government. This is the one of the most used form of Public Enterprises. Defining Government Company Professor A.M. Hanson says, “State Company is an enterprise established under the ordinary company law of the land /country, concerned in which the government has a controlling interest through its ownership of all or some of the share”.
Characteristics
- Employees are not of civil service like that of departmental PE, they have their own policies regarding pay and promotions etc. but the persons who managed the deputation are of civil service.
- Established under company act of the country.
- Created by executives' decision.
- Has independent financial management and economic motive.
- It is managed by independent governing board government
Advantages
- Operated under company act as that of private sector.
- Not intended to earn profit in first sense.
- Facilitates participation of private sector through share.
- Has its own charter like public corporations and has autonomy of operation.
- It has its own legal entity.
- Self contained finance and personnel management system.
- Managed by professionals not by civil servants
- Facilitates nationalizations.
Disadvantages
- It is created by executive decisions and action not by legislature.
- Government control lack of accountability.
Changing Business Environment in Post-liberalization scenario:
Introduction
The rapid scientific technological advancements are reshaping the world. Developments in information and communication technology have revolutionized every activity, be it scientific or business and commerce or individual and personal. For business and commerce, they have facilitated improvements in productivity and bottom-line of the business and commerce besides opportunities for better customer service. The productivity improvements come out of the increased speed, accuracy and ability to handle big volumes that technology offers. For the financial sector and banking, the developments in information technology have spelt very special benefits.
In today’s globally competitive market, knowledge constantly makes itself obsolete with the result that today’s advanced knowledge is tomorrow’s ignorance. One has to be on the learning curve and continuously move up. All the knowledge workers have to leverage intellectual capital for growth—creative destruction—keep on innovating— otherwise someone else will be at the top of the pecking order. Companies function in a world of exponentially shortening product and service life cycles where customer preferences and technologies change in a discontinuous and non-linear fashion and business paradigms and rules become obsolete. The future winners will be those business organizations who escape from the gravitational pull of the past on the fuel of innovation.
In the opinion of some experts the twenty first century competition is characterized by at least three fundamental paradigms shifts, viz. -
(a) Ability of organizations and individuals to network globally and seamlessly;
(b) Ability to communicate, transmit, store and retrieve large amounts to information including voice, data, video; and
(c) Mobility of capital to feed good projects around the world.
With the battle for market share and mind-share deepening, companies are increasingly resorting to non-traditional resources (like knowledge) and innovative means (like quick response) to create sustainable competitive advantage.
Why Corporate Governance?
From the beginning corporate governance has acquired connotation of policing the thieves. Major reason for ‘confrontationist’ undertone is that managers remain unconvinced that corporate governance is a powerful tool for transparent, prudent and participative management that could be fair to all stakeholders and still enhance value of an enterprise as well as reward them commensurate with performance. Consequently, several managers observe corporate governance because it would be difficult to openly object accountability to shareholders, who have risked their capital and responsibility to other stakeholders, whose livelihood depends upon prudent management.
Environment is bringing the best out of managers as a class. Corporate governance has become a contentious issue because while empowering boards and shareholders to deal with incompetent and corrupt managers is a relatively easy matter, dealing with brutal violation of spirit of corporate governance by ‘excellent managers, who have created great shareholder value, is one the biggest challenges.
In the context of fast changing corporate and socio-economic landscapes, fast paced technology and emergence of multilateral trading system, the following factors underscore the need for good corporate governance:
(i) Globalization, privatization, deregulation, causing revolution of rising expectations;
(ii) Advancements in Information Technology and E-Commerce.
(iii) Strategic alliances, mergers and acquisitions.
(iv) Intellectual Property Rights.
(v) Social responsibility, social audit and societal concerns.
(vi) Business and professional ethics.
(vii) Sustainable development.
(viii) Energy audit, environmental up gradation.
(ix) Need for excellence to cope up with fierce international competition.
(x) Need to strike a balance between compliance with rules and company’s need to perform, so that company’s performance is not stifled by over regulation.
Published date : 19 Aug 2015 02:32PM
