Topic: Types of Business organization Sessions-4 (19-05-07)

1. Topic: Types of Business organizationSessions-4 (19-05-07)

2. Question to the class. Identify the following is it a Sole trader/Partnership/Company • 200 sq.feet is the area of Ramoji Provisional stores • 800 sq. feet is the area of HKL & JKL bros • 30000 sq. feet is the area of a newly opened shopping mall by an Indian Businessman in Hyderabad, Bangalore, Pune, Jaipur, Chandigarh. • 25 acres of land has been used by a Indian Businessman to set up a manufacturing unit for Paper.

3. Learning objective Learners be able to give any two differentiations between Sole trader and Partnership firms and Public and Private limited companies correctly.

4. Types of Organization • SOLE TRADER • PARTNERSHIPS • COMPANY-PRIVATE Limited & PUBLIC Limited 4. COOPERATIVE SOCIETIES

5. Sole Trader ☻Simple to set up, no special legal procedures ☻Complete control over business ☻no legal requirements to publish accounts. ☻unlimited liability ☻difficulty in obtaining finance ☻difficulty in competing with large firms

6. Partnerships ☺Members 2 to 20(max) ☺Unlimited liability ☺Deed of Partnership, cheap and easy to make ☺Capital contribution can increase ☺lacks continuity if one partner leaves, Partnership gets dissolved.

7. Actual Partners Sleeping/Dormant partners Nominal Partners Partner by estoppel or holding out Minor partner Types of Partners

8. Active Partner • Actively engaged in the conduct of the business • He is the agent of the other partners in the normal course of businesses • He binds himself and the other partners- in transactions with the third party • He is equally liable along with the other partners for all the debts of the firm.

9. Sleeping/Dormant partner • Does not take active part in the conduct of the business of the firm. • He invests capital and shares the profits of the business. • He is equally liable along with the other partners for all the debts of the firm.

10. Nominal Partner • A Partner who lends his name to the firm, without having any real interest in it. • He does not invest nor does he share the profits • He does not take part in the management of the business • But he along with other partners, is liable to the outsiders for all the debts of the firm.

11. Partner by estoppel or holding out • A partner who is not a partner in a firm may, under certain circumstances, be liable for its debts as if he were a partner. • Conditions • He must have, by words spoken or written or by his conduct, represented himself to be a partner (active representation) • He must have knowingly permitted himself to be represented as a partner to the other person (tacit representation) • The other person must have acted on the faith of such representation, and given credit to the firm.

12. Minor partner • According to sec. 11 of the Indian Contract act, an agreement with a minor is void. He is incapable of entering into a contract of partnership. • But with the consent of all the partners for the time being, a minor may be admitted to the benefits of partnership.

13. Joint stock company Į Owned by shareholders Į Independent legal existence, An artificial person Į Shareholders have limited liability Į Shareholders elect the board of directors and Chairman Į Shareholders no direct say how the company is run. Į Two types-Private limited and Public limited

14. Company Regulated by the companies act Comes into existence after registration under the companies act 1956 A legal personality distinct from that of its members Partnership Governed by the Indian Partnership act Registration not compulsory 3. Not a person in the eyes of law. Company Vs. Partnership

15. Company 4. Limited liability 5. Number of members Min: 2 max: 50 Private ltd Min: 7 max: Unlimited Public company 6. Bound by law to maintain books of account Partnership 4. Unlimited liability 5. Number of members Min: 2 max: 10 Banking max: 20 any other Business. 6. No statutory provision to maintain books of account by law. Company Vs. Partnership

16. Company 7. Share holder not the agent of the company Partnership 7. Each partner agent of the firm. Company Vs. Partnership

17. Private limited √ Privately held shares by a few members. √ Shares of the company are not freely transferable to General Public. √ Shareholders have limited liability to the extent of share value Public Limited √ General public holds shares. √ Shares are freely transferable. √ Shareholders have limited liability to the extent of share value Private vs. Public

18. When does a private company become a Public company • Conversion by default: Where a default is made by a private company in complying with the essential requirements of a private company (viz. restriction on transfer of shares, limitation of the number of members to 50 and prohibition of invitation to the public to buy shares and debentures). If the company law board is convinced.

19. When does a private company become a Public company • Conversion by choice or violation: If a private company so alters its Articles that they do not contain the provisions which make it a private company, it shall cease to be a private company as on the date of alteration. It shall then file with the Registrar, within 30 days. • On the conversion of a Private company into a public company in the above manner, no new company comes into existence and the legal personality of the company is not affected in spite of the conversion. Only the company’s nature and not its identity is changed.

20. When does a private company become a Public company • Statement made in the Memorandum of Association • Certain minimum value of shares must be issued (£50,000 in the UK) • Accounts made available to the Public • Listing at the stock exchange making it easy for the share holders to buy and sell shares. • Issue Prospectus-an invitation to the public to buy shares in the company. It is a detailed document giving details of the company’s capital and its plan for the future. The reasons for raising more capital and how it will be spent is fully explained.

21. Conversion of a Public company into a Private company • By passing a special resolution • Special resolution change the Article of the company. • The change in Articles must be approved by the Central Government. • A printed copy of the Articles shall be filed by the company with the Registrar within 1 month of the date of receipt of approval.

22. Incorporation of CompanyDocuments to be filed with the Registrar • The Memorandum of Association • The Articles of Association • The Agreement • A list of Directors • A Declaration

23. Memorandum of Association • Fundamental document in relation to the proposed company. It contains the fundamental conditions upon which alone the company allowed to be incorporated It defines the reason for existence of the company. • Contents: Name of the company, Registered office, Limited liability of the members, Share capital, Limited or Private limited in the end name of the company

24. Articles of Association • Are the rules, regulations, bye-laws for the internal management of the affairs of the company. • Must not violate the Memorandum of Association and the Companies act. • Contents: Share capital, rights of shareholders, variation of these rights, payment of commissions, share certificates, Transfer of shares, Forfeiture of shares, Alteration of Share Capital, General meetings, Voting rights of members, Directors and their appointments, Dividends and Reserves, Capitalization of Profits and Winding up.

25. Any Questions

26. Plenary • Sole trader & Partnership • Private limited & Public limited company

27. Group activity-1refer search engine yahoo.com/google.com Find out any one of the companies given below: • Incorporation- year, capital, promoters, type/s of business, Turnover (Sales) last year (2005-06) and till date, Number of Equity share holders. • Last years Trading, profit & loss account and Balance sheet. • Objectives and aims of the company • Future plans of the company • What have you learnt by this Research? Suggested companies- Private public limited companies

28. Group activity-2refer search engine yahoo.com/google.com Find out any one of the companies given below: • Incorporation- year, capital, promoters, type/s of business, Turnover (Sales) last year and till date, number of equity shareholders. • Last years (2005-06) Trading, profit & loss account and Balance sheet. • Objectives and aims of the company • Future plans of the company • What have you learnt by this Research? Suggested companies- Government Public limited companies.

29. Cooperatives

30. Cooperatives • Owned jointly by members-private individuals or other business organizations. • Exist for the mutual benefit of members • Members share equally in the decision- making and management of the cooperative. • Finance is raised by the members. • Members have share in the profits of the cooperative.

31. Types of Cooperative • Retail Cooperatives: buy goods in bulk at an advantageous price and re-sell them to members as cheaply as possible. • Trading Cooperatives: Formed to distribute and sell the products or services of their members (usually small businesses). • Worker Cooperatives: business owned and run by employees. • Housing Cooperatives: develop, maintain and manage low-cost housing on behalf of their members.

32. Any Questions

33. Other Organizations • Close corporations • Joint ventures • Franchising

34. Close Corporations • Does not exist in U.K. • Similar to a Private sector • Quicker to set up, few rules and regulations.

35. Joint ventures • Two or more businesses agree to start a new project together, • Share the Capital • Share the risks and the profits • Share the knowledge of market and consumer tastes.

36. Franchising - A wide spread form of business operation • Franchisor : Is a business with a product or service idea that it does not want to sell to consumers directly. • Franchises : Use the idea or product and to sell t to consumers. Example: McDonalds.

37. The Public sector • It includes all the businesses owned by the state and local government, public services, such as hospitals, schools and the fire services and government departments. • Main two types, Public Corporations, Municipal enterprises.

38. Public Corporations • Are wholly owned by the state or central government. • Usually have been Nationalized example in India Banks and Air India. • Objectives: Low prices of the services, reduce unemployment and Public services in all areas of the country. • Subsidies are paid by the Government from the taxes received by them. • Corporatisation : of Public corporations means reduce subsidies and work culture more like private companies.

39. Advantages of Public Corporations • Strategic industries like Defence goods and equipments, Infrastructure- Roads and Bridges etc. • To avoid Private Monopolies to take place. • Take loss making companies and secure the jobs of the employees. • Television and Radio broadcasting to broad cast programmes in the interest of the public.

40. Disadvantages of the Public Corporations • Low efficiency • Lack of incentive for profit making • Subsidies can reduce the spirit of competitiveness. • Political interference in the working of the companies.

41. Any Questions