UNIT-I:

1.1 BUSINESS ORGANISATIONS:

1.2 Business

Characteristics of Business
1. Human activities:
Business cannot be performed without human efforts. The
main aim of business is to produce goods and services to fulfill
the requirement of human being internally associated in the
production or the consumers.
2. Economic activities:
It is concerned with earning profits and generating wealth,
which are measured in terms of money. Economic activities
include production of goods and services, distribution of goods
and services and the benefits generated from them.
3. Production of goods and services:
The main feature of business is to produce goods and
services. Business is concerned with the production of goods
and services to the society. In this process we get goods from
shopkeeper, shopkeeper gets from wholesaler. The
wholesaler gets from manufacturers. The shopkeeper, the
wholesaler, the manufacturer are doing business to earn
profit.
4. Risk and uncertainty:
There is no business if there is no risk but accidents never
knock the door. In future anything may happen. So risk is a
possibility that losses may occur. Introduction of new product,
change in government policies, change in customer taste and
preference etc are the risks
5. Profit motive:
Business has the main aim to earn profit. To get maximum
profit revenue of business should be maximized.  Profit
generation is vital for business survival and expansion.
However, profit should be earned through legal and fair means
and in ethical manner. Profit is the reward for the investors.
6. Continuous process:
 Continuous process means to provide goods and services by
the business to the customers continuously and regularly.  In
business, the exchange of goods and services is a regular
feature. A businessman regularly deals in a number of
transactions and not just one or two transactions.
7. Satisfaction of customers:
The aim of business is to satisfy human demands by
producing quality of goods and also to supply right product in
right time at right place to meet the right needs. Quality goods
should be provided at reasonable price.
8. Finance:
Finance is known as “life blood” of business. Business needs
investment of capital and to run smoothly. For regular and
continuous business finance is needed, finance includes
purchase of raw materials, payment of wages, assets of
business and so in.
9. Organizing:
It means integration of all activities. Co-ordination is very
important for organizing. Allocation of limited resource,
assigning job, authority and responsibility also comes under
organizing.

Requisites of business success:

A. Establishment of objectives:
There must be proper establishment of objectives. Objectives are
the aim of business. It determines the scope of future work.
Objectives must be clearly defined. It provides guidelines for doing
work. Objectives are defined for long term and short term.

B. Proper planning and policy:

Proper planning classifies the works done. Planning and policy
formation should be done in efficient way. There must be clear set
of policies and programs to complete the work. It helps in
minimizing risk and maximizing profit.

C. Proper location layout and size of business:

Proper location layout and size of business is needed for progress
of business. Layout means planting the business in such a way that
production work can be carried out with efficiency and true manner.
It helps in determination of proper size of business. Location also
should be suitable. It must attract the market.

D. Sound organization:
There must be division of work among employees. There must be
effective use of human sills and knowledge. Organization should
help to answer various business problems. It ensures team work. It
must ensure the best communication channels for proper decision-
making.

E. Separate finance:
Finance is the blood of business. Business can’t be established
without sufficient capital. Volume of capital to be invested is
dependent upon size of business firm. Source of capital must be
properly taken into consideration. It must be flexible. It should be
suitable for both long term and short term business.

F. Efficient management:
Its main objective is to manage all activities of human and other
resources. It must perform right job at right time in right place. It
must use effective management technique.

G. Employees morale:
The success of business depends upon employee’s morale. The
business should be used with intensity of employees. Employee
should be encouraged, motivate. They could complete their work
heatedly.

H. Modern technology:
It brings/ uses modern technology. It provides new idea and
methods in production process. There should be proper labor and
capital adjustment.

I. Research:
It helps in improvement of product. It works under the taste, desire
and preference of the customers. In it various marketing, strategies,
skills, knowledge and experts are used. Research and development
is the main way to achieve profit with customer satisfaction.
 Importance of business:
1. Economic development:
Business is important for economic development. Concept of true
business is used in industries and commerce. Industries use men,
money, materials, methods and machines and help to create
employment. Commerce is the concept of exchange goods/services
at national and international levels. It helps to earn foreign currency
by export business too. Therefore, business helps in economic
development

2. Utilizing natural resources

Every country has diverse natural resources. Business must be
directed towards proper and efficient utilization of resources.
Business utilizes the resources like water, minerals,   ores and so to
achieve its own goals. But resources must be utilized without
exploitation.

3. Creation of utility:
Business creates place and time utility. It helps to satisfy the needs
of human beings. Financial utility is to be maximized.

4. Employment:
Business helps to provide job to people. It provides various types of
managerial or technical job. Many types of business houses like
hotels, industries, and transport companies are established for
business which helps to solve the unemployment problem.

5. Revenue generation:
Business is the source of revenue generation. It pays taxes,
royalties, fees, custom duties, and other things which help to
generate government revenue.

6. Earning foreign currency:

It is the source of earning foreign currency. Business can earn
foreign currency through exporting the goods and services.

7. Development of country:
Development of industries helps to utilize natural resources, create
time and place utility, provide employment opportunities, help in
revenue generation and earning foreign currency. All these things
help in the development of the economy of the country and the
economic development is the major factor that can develop the
nation to a wider sense.

8. Provide investment opportunities:

Establishment of new industries and commercial fields are the
major source of investment. Further the profit owned by the
investors after the successful operation of business helps to ensure
larger amount of saving which can be invested in the newer future
for pension of current business or establishment of newer business.
Thus, business helps in providing investment opportunities.

9. International relations:
Business is the medium for development of national and
international relationship. It helps to maintain harmonious relation
among the various countries. There can be mutual understanding
and better diplomatic relationship among the countries. Import and
export is the major base for international relationship.

10. Self-sufficiency:
It helps in achieving countries and individuals self-sufficiency. It also
helps in improving the living standard of people by reducing the
dependency.

1.2.1 Concepts of Business,

1.2.2 Trade, Industry and Commerce

Commerce:
It is related with buying, selling and exchanging of goods and
services. It is related to economic activities to earn profit. The role
of bridge between manufacturer and customer is played by
commerce
Evolution of commerce:
It is related with the distribution and exchange of goods and
services. It is related with transportation, communication, Banking,
warehousing import export, trade and so on. It links between
producer and consumer. It gradually develops along with the
development of human and society. There are many stages of
evolution of commerce

A. Self sufficiency stage

It is the initial stage of commercial evolution. The wants are very
limited. In this stage people produced goods themselves to satisfy
their own basic needs. They survived through hunting and gathering
foods. There was no market. There was thus no exchange of
goods. They were independent.,

B. Barter system:
The wants of people increased with development of society. There
was both advancement and civilization of market. Self-sufficiency
stage didn’t remain with advancement. They started to exchange
the goods they produced with goods that other people produced to
fulfill other requirements. This is called barter system. There was
exchange of goods and services with goods and services.

C. Origin of money:
From the beginning of barter, people felt that there was difficulty in
deferred payment, commerce, divisibility and place of exchange.
That’s why money was originated. People developed coins but
there was difficulty in large payment. So paper money was
introduced. Money was used as medium of exchange,
Measurement of value, deferred payment, redistribution of income
and wealth, credit system and many more. After the origin of
money, national and international trade started.

D. National economy:
In this stage, buying and selling of goods and services was done
within the country. The local market converted into regional and city
market. There was division of work and specialization. Then goods
were produce not only for local people but also for national market.
There was also development in banking, advertising, insurance,
warehouse and other auxiliaries.
E. International economy:
International economy s called global economy. The globalization of
trade introduced to speed up the activities of trade in the
international level. It is not possible for a country to produce all
demanded goods according to needs and wants. Therefore, the
countries started to import the goods and other countries exported.
Slowly, import and export was introduced in all counties. Trade
started to extend in world market. WTO (world trade organization)
was also established to control the level of import, export and evils
associated with them.

Types of commerce:
Trade:
Trade is related to buying and selling goods and services for
earning profit. It supplies quality goods with reasonable price.
Those activities which are related to buying, selling and distributing
goods in market is known as trade
Types of trade
1. Home trade:
Home trade means national, domestic or internal trade i.e. Buying
and selling within a nation. In home trade both buyer and seller are
from the same nation. In home trade task is simple than foreign
trade. It is classified into two types they are.
A. Wholesale trade:
When trader buy goods in bulk amount and resell to retail in small
volume is called whole sale trade. In this trade goods are bought
from manufacturer and are sold to retail. It acts as a middleman
between manufacturer and retailer. It deals with special product
B. Retail trade:
When trader buy goods in bulk amount and resell to customer in
small volume is called retail trade. In this trade goods are bought
from wholesaler and are sold to customer. It acts as a middleman
between wholesaler and customer. It deals with various types of
product.
2. Foreign trade:
Foreign trade means international, global, external trade i.e. Buying
and selling is between two or more nation. In foreign trade buyer
and seller are from different nation. In foreign trade task is difficult
than home trade. It is classified into three types they are.
A. Import:
A good or service brought into one country from another is called
import. Along with exports, imports form the backbone of
international trade. The higher the value of imports entering a
country, compared to the value of exports, the more negative that
country’s balance of trade becomes. Buying goods from India, china
is called import.
B. Export:
A good or service sold to another country from one is called export.
Along with imports, exports form the backbone of international
trade. The higher the value of exports exiting a country, compared
to the value of imports, the more positive that country’s balance of
trade becomes. Exporting herbs, garments to Germany, India is the
example of export
C. Entry port:
The trade in which a country purchases the goods from one country
and sells it to another country is called entry port trade. The goods
bought from a country is not used for self benefit but is rather
exported to another country. For example India buys herbs from
Nepal and sells it to china.

Aids/Auxiliaries of trade:
It supports or assists the trade activities. It helps to run business
smoothly. It helps for transfer goods from production area to
consumption area. It creates time and place utility.
1. Transportation:
It transfers goods from one place to another. There are many
means of transportation that can assist business and trade
activities. They are air travel. Bus route, sea route, rope route etc. It
delivers right product and right time in right place. It creates time
utility
2. Warehouse:
It is one of the auxiliary of trade. It helps to protect and store goods
until customers uses them. It provides the goods then demand is
created. It also helps to provide unseasonal goods.
3. Insurance:
It acts as nutrition to trading activities. It helps to reduce risk and
uncertainties. It is a contract between organization and their future.
The system that takes the responsibility of compensation of certain
risk is called insurance system.
4. Banking:
Banks are the financial institution that supports for traders. It
provides loan, investment, credits facilities to the trading
companies. It helps for expansion and flexibility of trade.
5. Advertising:
It is a supporter to trade. It provides information to customer about
goods and services. Its aim is for creation of demand. It also acts as
a promotional tool.

Aids or Auxiliaries to Trade

1 Transport and Communication Transport refers to the movement of goods
from one place to another. Communication helps in exchange of
information between producers, consumers and traders etc.
2 Banking and Finance Bank and financial institutions provides credit
facility, loan etc. to provide finance for smooth now of business activities.
3 Insurance Businessmen have to bear various types of risks, Insurance
provides protection from Some kinds of risk such a risk of loss due to fire,
theft, accident etc.
4 Ware Housing Ware housing helps to businessmen to over come the
problem of storage. Ware houses are constructed keeping in mind the
nature of goods.
4 Advertising Practically It IS impossible for a manufacturer and trader to
contract each and every customer. Advertisement helps to over come this
problem.

Industry 
Industry refers to an activity which converts raw material into
useful products. Industry includes activities related to
production and processing as well as activities related to
rearing and reproduction of animals 01′ other living species.
Types of industry
Industries may be divided into three broad categories namely primary,
secondary and tertiary.

(a) Primary Industry These includes all those industries which are

concerned with extraction of natural resources and reproduction of living
species.
These industries can further be classified into two categories

1 Extractive Industries
2 Genetic Industry
(b) Secondary Industry  The secondary Industry makes use of products
which arc extracted and produced by primary industry as their raw
materials and produce finished products. e.g., meaning of iron ore is done
in primary industry but steel manufacturing is done in secondary Industry.
There are two kinds of Secondary Industry

1 Manufacturing Industries These industries are engaged in the

process of conversion of raw materials or semi- finished goods in to
finished products.

2 Construction Industry this industry are concerned with the construction of

buildings, dams. roads etc.

(c) Tertiary 0r Service Industry It is concerned with providing services with

facilitate a smooth flow of goods and services. The various types of
services provided by Tertiary Industry are Transport, Banking. Insurance,
Warehouse and Advertising.

1.2.2 Objectives and functions of Business

Objectives of business
A Economic objectives

The economic objectives are related to earning profit through

customer satisfaction. It is to provide quality goods with reasonable
price. Economic objectives can be defined in terms of money too.
Some of the major economic objectives are:

1. Earning profit:

The main economic function of business is earning profit. It includes

supply of quality goods and services to gain profit. T is done for the
survival of business and it is also rewarded for the investors. It is
required for expansion if business

2. Production of commodities:

Production of goods and services are to be done according to the

customer demand and desired. Supply of commodities is also to be
done according to needs of customer.

3. Creation of market:

Business can provide service only if demand of customers are

fulfilled. When production is made according to the requirements of
the customers then there is creation of new customer which creates
new market. Creation of market helps in enlargement of production
and promotes business expansion too

4. Technical improvement:

Use of modern technology is the base for successful operation o

business. When modern tools, techniques and technologies are
used then there is production of quality goods. Changes are the
basic factor for flexibility and changes in terms of working methods
is the main objective of business

5. Innovation:

New ideas, methods, men, tactics and technology create the ways
of better production and services. It helps in survival of business
too.

  B   Social objectives

 
Business is operated in society and use resource available in
society. This is known social objectives. It fulfills social expectation.
All business operations are established in society, grow in society
and fulfill all its expectation in society. Some of the major social
objectives of business are:

1. Supply quality food:

It provides better quality of goods and services by charging

reasonable price. It provides right product at right time in right
place. It involves in fulfillment of social objective.

2. Utilizing resources:

A business house can’t continue its operation without utilizing the

resources available in the society. But there must be proper
utilization of resources and no any destruction in name of utilization.
Maintenance of environment is must.

3. Providing employment:

There are many people in the society. Human needs are the basic
need for operation of business. Many personnel are required dot
fulfill the job of a business. Therefore, a business house without
nepotism and favoritism must employ the human from the society
and provide employment opportunities to the optimum level.

4. Avoiding social stigma:

Big industries are the cause of environmental pollution. Constant

noise, smoke from the industries produces noise and air pollution.
This is the social objective of the business to control pollution and
wastages. There must be establishment of industries far from
residential areas.

C Human objectives

Human objectives are performed by different human activities. It is

related with satisfaction of employees, investors and other
personnel. Some of the major human objectives are

1. Satisfaction of employees:
The success of business depends on employees’ performance. It
provides better working environment to satisfy the employees. It
provides salary, bonus, provident funds and job security. It also
provides financial and non financial supports.

2. Payment to creditors:

Creditors means supplier who supply goods and services. It is the

objective to make duly payment. Satisfaction of creditors helps in
further expansion of business.

3. Satisfaction of customers:

Production of goods and services are to be done according to the

customer demand and desired. Supply of commodities is also to be
done according to needs of customer. It provides better quality of
goods and services by charging reasonable price

4. Satisfaction of shareholder:

It returns to investors the amount they have invested in business in

the name of profit earn. They should be given reasonable returns of
their investments. The objectives are to provide reasonable rate of
return to shareholder. It also provides the information about plan of
business.

Functions of business
1. Organizing function:

It helps to organize all the activities. It organizes men, Machine, materials, money
and methods. It performs different activities and all activities are organized
properly

2. Financing function:

It is related to money. It helps in maximum utilization of resources. Bank is a

financial company. All the activities related to money are defined in this function.

3. Production function:
The main function of business is to produce goods and commodities and transfer
them to right place at right time. It helps to complete needs of human beings.

4. Distributing function:

It helps in the transfer of goods/services from producers to customers. It transfers

right product at right time in right place.

5. Personnel function:

It deals with human activities. It is related o the utilization of people to perform

different activities. It is also called staffing function. It helps in management of
resources.

6. Managing function:

It helps in management of the business. It includes planning, organizing,

controlling, coordinating, decision making and so on. It helps to make activities of
people effective.

7. Research and development function:

It helps in the improvement of the product. It works under the taste, desire and
preference of the customers. In it various marketing, strategies, skills, knowledge,
and experts are used. Research and development is the main way to achieve a
profit with customer satisfaction

1.2.3 Social Responsibility of a business

The major responsibilities of business are:

A. Employees
I. Provides better working environment to satisfy the employees
II.  It provides salary, bonus, provident funds and job security.
III. It also provides financial and non-financial supports.
IV. Enriches employees’ performance.
V. Provide training to develop their skills.
VI. listen and handle their complaints and issues

B. Creditors:
I. Make duly payment
II. Satisfaction of creditors with proper relationship
III. Helping them to create their own market.
IV. Entrusting the right of proper selling of goods and services of
their goods
V. Copyright and other legal rights.

C. Customers/consumers:
I. Better quality of goods and services by charging reasonable price
II. Supply of commodities is also to be done according to needs of
customer
III. Helps to achieve needs and wants
IV. Provide right goods at right place in right time.
V. Provide proper pre-sale and post sale information
VI. Provide proper information about new products

D. Investors:
I. True information about earning power of business
II. The objectives are to provide reasonable rate of return to
shareholder.
III. Provide the information about plan of business.
IV. Ensure safe investment
V. Promote utilization of resources without leakage
VI. Ensure transparency of business activities

E. Government
I. Increase in tax i.e. Increase in government revenue
II. Fulfill demand of government
III. Non violation of rules and regulation of government.
IV. Avoid unfair trade
V. Provide essential information to the government.
VI. Solve national problems like natural calamities.
VII. Avoid malpractice like black marketing, adulteration, smuggling

F. Society
I. Good environment
II. Employment opportunities generation.
III. Socio-cultural understanding
IV. Apply anti pollution measures.

1.2 Forms of Business Organization

1] Sole Proprietorship
A sole proprietorship is a business owned only by one person.
It is easy to set-up and is least costly among all forms of
ownership. The sole proprietorship form is usually adopted
by a small business entity.

2] Partnership
Here the business is governed by more than one person who
contributes resources to the entity. The partners share the
profit on a pre-decided percentage of share of the business
among themselves.

3] Corporation
The business entity and the owner is different and separate in
a corporation. The share of stock represents the ownership in
a stock corporation. The board of directors controls the
activities of the corporation.

4] Joint Hindu Family Business

This form of business organization is found only in India. All
the members of Hindu Undivided Family manage and control
the business with the direction of the head of the family.
Governing law of this business is Hindu Law. Karta, who is
the eldest member of the family, is the head of HUF (Hindu
Undivided Family).
5] Co-operative Society
The co-operative society is a voluntary association of
members who come together with the motive of mutual
welfare.

1.4 Sole Proprietorship

1.4.1 Meaning,

‘Sole’ means single and ‘proprietorship’ means ownership. It means

only one person or an individual is the owner of the business. Thus, the
business organisation in which a single person owns, manages and
controls all the activities of the business is known as sole proprietorship
form of business organisation. The individual who owns and runs the
sole proprietorship business is called a ‘sole proprietor’ or ‘sole trader’.
A sole proprietor pools and organises the resources in a systematic way
and controls the activities with the sole objective of earning profit.
1.4.2 Characteristic of Sole Proprietorship

Some characteristics of sole trading concern:

1. Single ownership:
A sole proprietorship is wholly owned by one individual. The
individual supplies the total capital from which his own wealth or
from borrowed funds.

2. One man control:

The proprietor alone takes all the decisions pertaining to the
business. He is not required to consult anybody. Ownership and
management are vested in a person.

3. No legal entity:
A sole proprietorship has no legal entity separate from its owner.
The law makes no distinction between the proprietor and the
business. The assets and liabilities of the business and its
proprietor are not different.

4. Unlimited liability:
Proprietor is liable for all the debts of the business. In case the
assets are insufficient to meet the debts, the personal property of
the proprietor can be attached.

5. No profit sharing:
The proprietor is all alone entitled for all the profits and the losses of
the business. He bears the complete risk and there is nobody to
share the risks, workload or any profit or losses.

6. Small size:
The scale of operation carried out by sole proprietor is generally
small.
 1.4.1 Advantages and Disadvantages of Sole
Proprietorship

1. Easy to start and dissolve:

A sole proprietorship can be setup easily and quickly. No legal
formalities and expenditures are involved in the establishment of a
proprietorship. There is no need to associate others or to enter any
agreement. Only a license may be needed in special cases. The
owner can start business operations as and when he desires.
Similarly, a sole proprietorship can be closed down very easily and
quickly.

2. Motivation to work:
The proprietor is all alone entitled for all the profits and the losses of
the business. He bears the complete risk and there is nobody to
share the risks, workload or any profit or losses. There is direct
relationship with efforts and reward. There is an incentive to work
hard. The proprietor is motivated to make the best possible use of
his skills and resources to maximize the profits.

3. Quick decisions:
The sole proprietor is completely free to take all decisions and to
implement them. He doesn’t need to consult or seek others
approval. Quick decisions and prompt actions are helpful to improve
the efficiency of business operations.
4. Independent control:
The proprietor alone takes all the decisions pertaining to the
business. He is not required to consult anybody. Ownership and
management are vested in a person. There is no governmental
intervention in day to day activities.

5. Business secrets:
The sole proprietor can keep the secrets to himself and these
secrets are not known to competitors or others.

6. Personal contact:
A sole proprietor is in a position to maintain intimate contacts with
his customers and employees. He can enter to the requirements of
each and every customer. Close personal touch increases the
competitive strength of the business.

7. Flexibility:
A sole proprietorship is small in size and has a simple management
functions. Therefore, it can be adapted easily to suit the changing
conditions of the market. The line of business can be easily
changed or modified.
8. Economy:
The management of sole proprietorship is inexpensive. As sole
proprietor himself is the manager, the cost of management is very
low. Borrowing capacity is high owing to the unlimited personal
liability of the owner.

9. Social utility:
Sole proprietorship provides an opportunity for gainful self
employment for the people with limited money. It offers a way of
earning an honorable living for those who do ot ant to work under
other. It also facilitates equitable distribution of income and wealth.

One-man business is the best form of business organisation because of the above-discussed
advantages. However, all types of ownership have some limitations and the sole
proprietorship is no exception. Let us learn those limitations.

i. Limited Capital : In sole proprietorship business, it is the owner who arranges the capital
required for the business. It is often difficult for a single individual to raise a huge amount of
capital. The owner’s own funds as well as borrowed funds sometimes become insufficient to
meet the requirement of the business for its growth and expansion.

ii. Lack of Continuity : The existence of sole proprietorship depends on the owner. The
business may come to an end as and when the sole proprietor so decides or in the event of his
death.

iii. Limited Size : In sole proprietorship form of business organisation there is a limit beyond
which it becomes difficult to expand its activities. It is not always possible for a single person
to supervise and manage the affairs of the business if it grows beyond a certain limit.
iv. Lack of Managerial Expertise : A sole proprietor may not be an expert in every aspect of
management. He/she may be an expert in administration, planning, etc., but may be poor in
marketing

1.5 partnerships

Partnership is a form of business organization which as evolved to

overcome the shortcomings of sole proprietor. As the size of
business expands, one person is unable to provide the necessary
capital and managerial skills. Therefore, two or more than two
persons form a partnership to carry on business by pooling their
financial resources and managerial skills. Thus,  partnership is an
extension of sole trading concern.

1.5.1 Meaning,

1.6 Characteristics of partnerships

1. Unlimited liability

Proprietor is liable for all the debts of the business. In case the
assets are insufficient to meet the debts, the personal property of
the proprietor can be attached.
 2. Difficulty in transfer of shares

Partners cannot transfer their share without the consent of other

partners. There may be conflict when done otherwise.

3. Higher capital

Many partners invest capitals and there is higher flexibility in capital

because new partner can be agreed to be associated and investing
can be increased.

4. Reduced risk

Partners have right to take part in management. They have the duty
to bear risk with proportion too.

5. Association of two or more persons

It must be two or more person to enter into contract. Association of

two or more persons can only create partnership. In association of
two or more persons, maximum and minimum number of persons is
not mentioned.

6. Agreement

It is set up by agreement between partners. It must be written and

legal agreement so that it will reduce dispute.

Differences between sole trading and partnership

firm
Sole trading concern Partnership firm
1. Low capital 1.high capital
2. One man management 2. two or more partners
3.quick and prompt decisions 3. Delay in decisions
4. business secrets can be 4. difficulty in maintaining
maintained business secrets
5. risk and losses are to be born 5. there is reduction of risk and
by a single person losses because they are shared
with proportion of capitals by
partners
6.no chances of conflict 6. Higher chances of conflict
7. lack of managerial ability 7. harmonization of managerial
ability
8.chances of wrong decisions 8. Specialization in decision-
making
 

1.6.1 Advantages and Disadvantages of Partnership

Advantages of Partnership

1. Easy to start and dissolve

A partnership firm can be setup easily and quickly. There is not

much legal formalities and expenditures are involved in the
establishment of a partnership. Similarly, a partnership firm can be
closed down very easily and quickly.

2. Higher capital

Many partners invest capitals and there is higher flexibility in capital

because new partner can be agreed to be associated and investing
can be increased.

3. Higher innovation

Many partners use their own ideas and innovation capacity. So

there is unlimited managerial ability

4. Reduction of work load

Partners mustn’t work more to earn more profit. Higher profit

generation is important. So, there is no dull and monotonous work.
In case of monotony, health problem to any partner than other
partners can help and reduce absenteeism.

5. Better decision

There is specialization in decision taking. So there can be fewer

chances of taking wrong decisions

6. Harmonization of different ability

There are many partners in this firm and many partners have
different skills, knowledge and capacity

7. Credit facility

In this liability of partners becomes unlimited. It will help to arrange

more capital. And that’s why it has more credit. It improves more
financial function

8. Close supervision

There is effective management and effective supervision. They look

the business themselves.

9. Flexible

There can be change in management, capital and production. This

change can be made by mutual agreement of partners

10. Reduced risk

Partners have right to take part in management. They have the duty
to bear risk with proportion too.

Disadvantages of Partnership

1. 1No Business secrets

The partner can keep the secrets to himself but these secrets can
be known to competitors or others when there is conflict among the
partners

2. Uncertain existence

Death of any partner can sometime cause death of entire firm.

Dishonesty, conflict and lack of resource also can collapse the firm

3. No Personal contact

A partner can’t be in a position to maintain intimate contacts with his

customers and employees. He cannot be able enter to the
requirements of each and every customer. Then there is no close
personal touch which decreases the competitive strength of the
business.

4. Unlimited liability

Proprietor is liable for all the debts of the business. In case the
assets are insufficient to meet the debts, the personal property of
the proprietor can be attached.

5. Delay in decisions

The partnership firm is completely not free to take all decisions and
to implement the. The partners need to consult or seek others
approval. Delay in decisions reduces the efficiency of business.

6. Danger of conflict

Many persons are the owners of partnership firm. There can be

misunderstanding and jealousy among them and these cause
problems in operation of business and profit making

7. Difficulty in transfer of shares

Partners cannot transfer their share without the consent of other

partners. There may be conflict when done otherwise.

8. Limited resources
There is low investment, may be higher than in sole trading but not
sufficient for large scale production resulting in limited areas of
operation.

Types of partnership
1. General partnership
Partners have equal rights and all of them participate in
management. It is jointly involved to operate the business. There
are the types of general partnership.

A. Partnership at will
It continues up to time of partner. It is dissolved when all partners
want dissolution. They can leave the firm at will. There is no fixation
of duration of firm.

B. Particular partnership
It is established for definite workers at definite period. When task is
finished partnership is dissolved in particular partnership.

2. Limited partnership
A limited partnership is that type of partnership in which there is one
or more partners having limited liability. The liability of limited
partners is limited to their capital invested. They can’t participate in
the managerial activities, but they can advise. They also don’t have
right to make decision and close the firm.

1.5.4 Kinds of Partners

Types of partners: 
1. General partners

They provide capital and play active part in business

2. Inactive partner:

They provide capital to business and share profit and loss to firm
but do not take part in management and day to day activities.

3. Nominal partners:

They act only as a partner and give their name to the firm. They do
not take part in management and day to day activities and share
profit and loss to firm

4. Secret partner:

Their membership is kept secret to the outside world. They can take
part in management

5. Partner in profit only:

They share profit only but no loss is shared. They are generally
inactive but have relation in money and goodwill.

6. Minor partners:

They do not enter into contract and can’t be made partner in real
sense but if there is consent of all partners then their partnership
can be taken into consideration

7. Retrieval partners:

Even if this partner leaves the firm other partners continue to

operate business. They are liable for all debtor and share profit too.
But they do not take part in management and day to day activities.
 8.  Incoming partners:

If there is consent of all partners then their partnership can be taken

into consideration. They aren’t held liable for debt before approval
of all partners.

1.5.5 Partnership Deed

 The written agreement duly signed by the partners is known as

partnership deed. It is also known as agreement or article of
partnership. It is the document, which mentions the rules and
regulations, way of operation of management and way of control of
activities of the firm. It is also required at the time of registration. It
helps to minimize conflict and misunderstanding among the
partners.

Content of partnership deed

1. Name and address of the firm
2. Name and address o the partners
3. Nature of rim’s business
4. Duration of partnership
5. Amount of capital invested by the partners.
6. Interest on capital
7. Division of profit
8. Salary and commission
9. Right and duties of partner
10. Admission and removal of partnership
11. Valuation of capital and goodwill at the time of
admission, death and retirement of partners
12. Accounts and audits
13. Dissolution of partnership.

1.5.6 Concept of Limited liability partnership

 Meaning of Limited Liability Partnership (LLP)

The Law defines LLP as:-

“A corporate business vehicle that enables professional expertise and

entrepreneurial initiative to combine and operate in flexible, innovative
and efficient manner, providing benefits of limited liability while allowing
its members the flexibility for organizing their internal structure as a
partnership”

Features of LLP

1. The LLP has Separate Legal Entity i.e. the LLP and the partners are

distinct from each other.

2. Minimum of 2 partners are required to form a LLP. However, there is

no limit on the maximum number of partners.

3. No requirement of Minimum Capital Contribution.

4. The LLP Act does not restrict the benefit of LLP structure to certain

classes of Professionals only and would be available for use by any

enterprise.

Benefits of forming a LLP

1. The Liability of each partner is limited to his share as written in the

Agreement filed at the time of creation of LLP as compared to Partnership

Firms which have unlimited liability.

2. It has a Low Cost of Formation and is Easy to Form.

3. The Partners are not liable for the acts of each other and can be held

liable only for their own acts as compared to Partnerships wherein they can

be held liable for the acts of their partners as well.

4. Less Restrictions and Compliance are enforced on a LLP by the Govt

as compared to the restrictions enforced on a Company.

5. As a Juristic Legal Person, a LLP can sue in its name and be sued by

others. The partners are not liable to be sued for dues against the LLP.

1.6 Hindu Undivided Family

Meaning, Characteristics, Advantages and Disadvantages of Hindu

Undivided Family

Features of a HUF
1 Membership by birth : Membership of a Joint Hindu family
business is automatic by birth of a male child. It is not created
by an agreement among family members.

2 Management : The management vests in the Karta, the

eldest member of the family. However, the Karta may
associate other members of the HUF to assist him.

3 Liability : The Karta has unlimited liability, i.e. even his

personal assets can be used for payment of business dues.
 Every other coparcener has a limited liability upto his share in
the HUF property.
4 No Maximum limit : There is no restriction on the number
of coparceners of the HUF business. However, the
membership is restricted to three successive generations.

5 Minor members: A male child at the time of birth becomes

a coparcener. Thus, an HUF does not restrict membership to
minors.

6 Unaffected by death : The HUF business continues even

after the death of a coparcener including the Karta. The next
senior most surviving male member of the HUF becomes the
Karta. However, it may come to an end if all the members
notify that they are not members of the Joint Hindu Family.

Advantages of JOINT HINDU FAMILY BUSINESS

1 Economic security and status to the members : The Joint Hindu

Family business provides members a sense of security and
belonging because of the financial stake they possess in it. It also
gives them status in society while dealing with others.

2 . Continuity of business : The business has a continuity. It is not

affected by death or lunacy of members, including the Karta. Till
such time that the members jointly do not decide to terminate it,
the business continuous to exist.

3 Family pride : Members are likely to work with dedication, loyalty

and care, because the work involves the family name. The business is not only an
economic unit but also a matter of family prestige.

Disadvantages of JOINT HINDU FAMILY BUSINESS

 1 Unlimited liability : The Karta is personally liable for all
business obligations. For payment of business debts, his
personal property can be sold if the business assets are
insufficient.

2 Limited access to capital : The Karta has limited scope for

raising capital. Her/his own funds may be insufficient for
expansion. This reduces the scope for business growth.

3 Karta too powerful : An incompetent Karta may ruin the

business since all business decisions are taken by him.

4 This form of business organisation is perhaps the natural

economic extension of the joint Hindu family. It serves to
provide economic security and status to members. It
continues to have an important place in Indian business.

1.7 Co-Operative Organization.

1.7.1 Meaning, of Co-Operative Organization.

Co-operative organization is the form of organization where in

persons voluntarily associate together as business being a basis of
equality for promotion of economic interest of themselves. It is a
voluntary association of persons with same interest. It is guided by
service motive. It is established for economical and social
development of weaker section of the society. It tries to solve
similar problems. In all form of business organizations, the objective
of owner is to make profit. But its objective is to provide services. Its
motto is all for one and one for all. It helps through mental support
too. It can be defined as voluntary association of person usually of
limited means forming together in equal basis for promotion of
certain economic or business interest.
Features of cooperative organizations are as detailed below:

1. Voluntary association and open membership

It is voluntary association in which membership is open for all
people with common interest. People can come together to satisfy
the needs with common effort. In Nepal at least 25 members are
required for establishment of cooperative organization.

2. Equal voting right

It is based on democratic principle. It is based on equality of status
of all members. Decisions and other bills are passed on the basis of
majority votes.

3. Democratic management
Management is always in democratic lines. All member of
organization elect its managing committee. One man can give only
one vote. Managing committee will then work for common benefit of
all members.

4. Service motive
Its objective is to provide service to member. It’s not profit motive.
Its aim is not to earn maximum profit as in all form of organization.
Even though it can earn profit by extending their services to non
members but they collectively work for service.

5. Legal existence
In Nepal, these types of organizations are established under
cooperative act. There must be at least 25 members and they all
must be guided through common objective

6. Cash transactions
In this type of organization transactions are done only through cash.
There are no credit transactions. It eliminates bad debt too.

7. Disposal of surplus
It is service motive. Even though it can make surplus, the surplus
amount is used for extending the surplus facility.
8. Education
The success of organization depends upon the education of its
members. They should be constantly educated with objectives.

9. Liability
Liability of member is limited. It should use the word “ltd” after its
name.

10. Government control

The organization must follow the rules and regulations of the
government.

Types of cooperatives:

1. Producer co-operatives: Some co-operatives process and

market their members’ products and services directly while
others may also sell the input necessary to their members’
economic activities. Examples: Agriculture co-operatives,
pooling of equipment, advisory services, etc.

2. Multi-stakeholder co-operatives: The membership of these

co-operatives is made of different categories of members who
share a common interest in the organization. Examples: home
care services, health services, community services, etc.

3. Worker co-operatives: The purpose of these co-operatives is

to provide their members with work by operating an enterprise.
The co-operatives are owned by their employee members.
Examples: forestry, leisure, production and manufacturing,
tourism, communications and marketing, etc.

4. Worker-Shareholder co-operatives: These are incorporated

co-operatives that hold partial ownership of the business in
 which the co-op’s members are employed. Because of its
share capital, the co-operative may participate in the
management of the business and the workers may influence
work organization. Examples: production and manufacturing,
technology, etc.

5.  Consumer co-operatives: They provide their members with

goods and services for their personal use. Examples: Food,
credit unions, housing, insurance co-operatives, etc.

Advantages and Disadvantages of Co-Operative Organization.

Cooperative form of organisation offers the following advantages:

1. Ease of formation:
It is quite easy to form a cooperative society. Any ten adults can
join together and form themselves into a cooperative. Very little
time and money are required to get a cooperative registered. The
legal formalities are very few and simple.

2. Open membership:
Any person having a common interest can become members of a
cooperative society and can leave the society at his own pleasure.
No discrimination is made on the basis of caste, creed, religion or
political affiliation. The cost of a share is low and even poor
persons can buy it.

3. Limited liability:
The liability of every member is limited to the extent of his share
in the society’s capital. Therefore, the risk faced by every member
is limited and known.

4 Continuity and stability:

After registration, a cooperative society becomes a separate legal
entity. The death, lunacy, or insolvency of a member does not
affect its existence. Therefore, it enjoys continuity of operations.

5. Democratic management:
Management of a cooperative society is fully democratic. Every
member has an equal vote or voice irrespective of his capital
contribution. The principle of ‘one man one vote’ is followed. A
small group of members cannot dominate the control of the
society.

6. Internal financing:
A large part of the profit of a cooperative society is transferred to
general reserve every year. Dividend on capital cannot exceed ten
per cent. Therefore, plouging back of profits facilitates the
expansion and growth of the society.

7. Low operating costs:

The office bearers of a cooperative society offer honorary service.
Therefore, cost of management is low. Cash trading avoids bad
debts and there is no need to maintain huge stocks.
As customers are primarily the members themselves there is
saving in advertising and selling expenses. Elimination of
middlemen also adds to economy of operations.

8. Cheaper and better supplies:

Cooperative societies supply better quality goods at cheaper rates.
Due to service motive, the focus is on the welfare of members.
Surplus is also shared by the members on equitable basis.

9. State patronage:

The Government provides several concessions to cooperative

societies in the matter of taxes, finance, etc. A cooperative society
enjoys special privileges and exemptions.

10. Social utility:
Cooperatives are non-competitive organisations. They promote
personal liberty, social justice and mutual cooperation. They help
to prevent concentration of economic power in a few hands.

Cooperative undertakings also serve as a training ground for self-

government. They foster fellow feeling, self help, thrift and moral
values among the members.

Cooperative societies suffer from the following

drawbacks:
1. Limited capital:
A cooperative society is formed usually by people with limited
means. The principle of ‘one man one vote’ discourages members
to invest large amounts in the society. Therefore, a cooperative
society often faces shortage of funds. It is not able to mobilise
adequate capital for large scale operations.

2. Inefficient management:
A cooperative society is managed by a managing committee
consisting of office-bearers elected by the members. These office-
bearers may not be competent and experienced. A cooperative
society cannot afford to employ expert professional managers at
high salaries.

3. Lack of motivation:
Honorary office-bearers of a cooperative society have very little
incentive to work hard for the society. There is no direct link
between effort and reward. Members are often ignorant of the
principles of cooperation. Office bearers may misuse funds for
personal interests. Lack of competition may slacken efforts.

4. Non-transferability of interest:
The shares of a cooperative society are not transferable. A
member who wants to quite the society has to submit his shares to
the society in order to get his money back.
5. Lack of secrecy:
The affairs of a cooperative society are openly discussed in the
meetings of its members. Every member is free to inspect the
books and records of the society; therefore, it becomes difficult to
keep the secrets of business.

6. Excessive government control:

The day-to-day working of a cooperative society is bound by
legal rules and regulations. Keeping of accounts, regular audit and
inspection are essential. Reports have to be submitted to the
Registrar. Time-consuming formalities restrict flexibility and
initiative.

7. Rift among members:

The success of cooperatives depends directly on the loyalty and
cooperation of members. Quite often disputes arise among the
managing committee and the members.

Some members may want to dominate the working of the society.

Members are drawn from different sections of society. There is
often lack of harmony and amity among them.