Module 2

•Nature of Business•Forms of Business Organizations

Human activities involve efforts under taken 1. to satisfy human needs,

2. to earn one’s livelihood, 3. to derive mental satisfaction.

Economic activities are undertaken by people to earn one’s living and for production of wealth.

Non-economic activities are social activities which people undertake to derive personal satisfaction.

Introduction

Activities connected with the production or purchase and sale of goods or services with the objective of earning profit are called Business activities.

Mining, manufacturing, trade, transportation, insurance, banking are business activities.

Thus business may be defined as an economic activity involving regular production or purchase and distribution of goods and services with the objective of earning profits.

Business !!!!! What it is?

Business is an economic activity. It includes the activities of production or

purchase and distribution. It deals in goods and services. It implies regularity of transactions. It aims at earning profits through the

satisfaction of human wants. It involves risk; it is not certain that

adequate profit will be earned. It creates utilities.

Nature and characteristics of Business

Improvement in standard of living Proper utilization of resources Better quality & large variety of goods Creates utilities Employment opportunities Workers' welfare

Significance of Business in Modern Society

There are various forms of business.

Sole Proprietorship Joint Hindu Family Firm Partnership Firm Joint Stock Company Co-operative Society

Forms of Business Organization

Ease of formation Adequacy of Capital Limit of Liability Direct relationship between Ownership,

Control and Management Continuity and Stability Flexibility of Operations

Characteristics of an ideal form of organization

A sole proprietorship or one man’s business is a form of business organization owned and managed by a single person.

He is entitled to receive all the profits and bears all risk of ownership.

Sole Proprietorship

Business is owned and controlled by one person. Risk borne by a single person & hence benefit. Liability of the owner is unlimited No separate legal entity apart from that of the

proprietor, and so the business lacks perpetuity. No legal formalities are necessary, but there may

be legal restrictions on the type of business. The proprietor has complete freedom of action The proprietor may take the help of members of his

Family in running the business.

Features of sole proprietorship

Advantages

Ease of formation Motivation Freedom of Action Quick Decision Flexibility. Personal Touch Business Secrecy Social Utility

Disadvantages

Limited resources Limited Managerial

Ability Unlimited Liability Lack of Continuity: No Economies of

Large Scale

The Joint Hindu Family, also known as Hindu Undivided Family (HUF) is a non-corporate form of business organization.

It is a firm belonging to a Joint Hindu Family. It comes into existence by the operations of

law and not out of contract.

Joint Hindu Family

The business is managed by the Karta or the manager.

Except the Karta, no other member of the family has any right of participation in the management of a JHF.

members of the family cannot question the authority of the Karta.

If the Karta has misused the funds, the co-parceners get to the extent of their share in the property.

For managing the business, the Karta has the power to borrow funds.

co-parceners are liable only to the extent of their share in the business towards the debt.

The death of any member of the family does not dissolve the business of the family

Dissolution of the Joint Hindu Family can take place only though mutual agreement

Features of the Joint Hindu Family

Advantages

Stability Knowledge and

experience No Interference Maximum Interest Specialization Discipline Credit Worthiness:

Disadvantages

No Encouragement Lazy and Inactive Members Initiative Duration Abuse of Freedom:

Section 4 of the Partnership Act, 1932 defines Partnership as “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”

Partnership

Simple procedure of formation Capital Control Management Duration of partnership Unlimited Liability No separate legal entity Restriction on transfer of share.

Features of Partnership

Advantages Ease of formation large resources better organization greater interest prompt decisions Balanced Flexibility Diffusion of risk Protection to

minority interest Influence of

unlimited liability

Disadvantages.

Great risk Lack of harmony Limited resources Tendency to play

safe No legal entity Instability Lack of public

confidence Sustainability

A Joint Stock Company form of business organisation is a voluntary association of persons to carry on business.

Normally, it is given a legal status and is subjectto certain legal regulations. It is an association of persons who generally

contribute money for some common purpose. The money so contributed is the capital of the

company. The persons who contribute capital to the

proportion is entitled is called his share.

Joint Stock Company

Artificial Person Separate Legal Entity Common Seal Perpetual Existence Limited Liability Transferability of Shares Formation Membership Management Capital

Features of JSC

Advantages

Limited Liability Continuity of

existence Benefits of large

scale operation Professional Mgt Social Benefit R and D

Disadvantages

Formation is not easy Control by a Group Speculation &

Manipulation Excessive govt control Delay in Policy

Decisions Social abuses

It functions under the Cooperative Societies Act, 1912 and other State Co-operative Societies Acts.

The co-operatives are formed primarilyto render services to its members. Generally it also provides service to the

society. The main objectives of co-operative society

are: (a) rendering service rather than earning profit, (b) mutual help instead of competition, and

(c) self help in place of dependence.

Co-operative Society

Consumer co-operatives Producers co-operatives Marketing co-operatives Housing Co-operatives Credit Co-operatives Forming Co-operatives

Types of co-operatives

Voluntary association Membership Body corporate Service Motive Democratic Set up Sources of Finances Return on capital

Features of Co-opertives

Advantages

Easy Formation Limited liability Open Membership State Assistance Middleman’s Profit

Eliminated Management

(democratic) Winding up

Disadvantages

Limited Capital Problems in

Management Lack of Motivation Lack of Co-opn Lack of Secrecy Dependence on

Government

Not For Profit Businesses Many charity-based business organisations

are run as ‘not for profit’ operations They typically receive donations

or funds from groups or government Any financial surplus is ploughed back into

the business The organisation does not aim

to generate profits

These forms refer to such aspects as ownership, risk bearing, control and distribution of profit.

Any one of the above mentioned forms may be adopted for establishing a business

usually one form is more suitable than other for a particular enterprise.

The choice will depend on various factors like the nature of business, objective, capital required, scale of operations, control, legal requirements and so on.

Conclusion