BOM 1 SEM (1).pdf

business

1. 1
UNIT-I
INTRODUCTION

Introduction: The word business means “A state of being busy”. Business is an economic
activity. It refers to all those activities which are connected with the production or purchase
of goods and services with the object of earning profits on their sales.
Definition:
‘Business is an institution organized and operated to provide goods and services to society
under the incentive of private gain’.
- B.O. Wheeler
“Business may be defined as human activity directed towards providing or acquiring wealth
through buying and selling’.
- L.H. Haney
Features of business:
1. Entrepreneur: The person who recognizes the need for product of service is known
“Entrepreneur”. He Visualizes, various factors of production and puts them into a going
concern.

2. Economic Activities: Business includes only economic activities. All those activities
relating to the distribution of the goods and services.

3. Exchange of goods and services:
A business must involve exchange of goods and services. The goods to be exchanged may be
produced from other sources.

4. Continuity of Transactions: A single transaction shall not be treated as business. An
activity is treated as business only when it is undertaken continually.

5. Profit: Motive: Earning profit is the primary motive of business. Profits are essential enable
the business to survive, growth and expansion of the business.

6. Element of Risk: In every business, there is possibility of incurring loss. This possibility
of incurring loss is risk. Some risks can be insured and some risks cannot be insured.

7. Financing: Every business enterprise requires fixed and working capital. The availability
of all others factors of production depends upon the availability finance.

8. Consumer Satisfaction: If the consumer is satisfied, then he will purchase some things
again. Otherwise, he will go for an alternative commodity. So, the businessman should try to
satisfy the consumer.

9. Creation of Utility: Business creates various types of utilities in goods. So that consumers
may use them. The utility may be form utility, place utility, time utility etc.,

10. Satisfy Social Needs: The business is a socio-economic institution. It must look to the
public good. Now -a- days a great emphasis is laid social obligations of business.



1. What is business and explain main features of business?

2. 2

Introduction: The word business means “A state of being busy”. Business is an economic
activity. It refers to all those activities which are connected with the production or purchase
of goods and services with the object of earning profits on their sales.

Definition:
‘Business is an institution organized and operated to provide goods and services to society
under the incentive of private gain’.
- B.O. Wheeler

“Business may be defined as human activity directed towards providing or acquiring wealth
through buying and selling’.
- L.H. Haney
Functions of business:
1. Production function : Production refers to conversion of raw materials into finished goods with
the help of various inputs, like labour, machinery, capital, etc., It is performed to get the required
output with improved quality as per time schedule. Its main aim is to control the cost of production,
then it is useful to face competition. The various activities to be performed under the production
function are:
(a) Production planning and control
(b) Plant location
(c) Plant layout and material handling
(d) Analyzing various production methods
(e) Work study
(f) Inventory control
(g) Quality control
(h) Motivating workers.

2. Purchase function: Traditionally, purchase function also treated as a part of production
function. But in bigger organizations, there is a separate department for looking after the purchase
activities. It is also required to focus more attention on this function, which deals with buying raw
materials, machines, and other requirements for the production. The purchase function involves
the following activities.
(a) Identifying various suppliers of raw materials
(b) Inviting tenders from them
(c) Placing order for the required quantity at right time
(d) Maintaining proper flow of inventories
(e) Maintaining records of inventories
(f) Importing raw materials, equipment, and machinery, if required.

3. Marketing function: Marketing refers to the distribution of goods and services produced
by the producer. This function generates revenue to the business organization. The marketing
function is entrusted with various activities, like:
(a) Conducting marketing research
(b) Product decisions
2. What are the functions of business?

3. 3
(c) Branding, packaging, and labeling
(d) Pricing
(e) Segmenting, targeting, and positioning
(f) Distribution of goods with the help of marketing intermediaries
(g) Promotion of products

4. Finance function: Finance is the lifeblood of any business organization and in each stage of
business, finance is required. Normally, the sources of finance for any organization are the owners’
own funds, issuing debentures and taking loans from banks and other financial institutions. Thus,
the finance function involves the following activities:
(a) Financial planning
(b) Capital structure decisions
(c) Capital budgeting decisions
(d) Working capital management decisions
(e) Dividend decisions
(f) Retained earnings decisions.

5. Personal function: It relates to an effective utilization of human resources available with the
business organization. The employees, workers are the human resources of the business
organization. Personal function refers to the recruitment of right person the right job at the
right time. The following are the various activities included in personnel function:
(a) Manpower planning
(b) Recruitment, selection
(c) Placement and induction
(d) Training and development
(e) Pay fixation, remuneration decisions and incentives planning.
(f) Motivating employees,
(g) Performance appraisal
(h) Maintaining employee records
(i) Promotion and transfer decisions.

6. Public relation function : Office is also a part of business, of course it does not directly
involve in manufacturing and distribution of goods. Every business organization should need
information for the purpose of planning and controlling its activities. Office maintains this
information and records for making the plans. The following activities are taken place in the office.
(a) Reception services
(b) Handling telephone calls and providing enquiry services
(c) Handling incoming and outgoing communication
(d) Maintaining records
(e) Improving the procedure and methods of work

7. Research and Development Function: The needs, tastes and preferences of customers are
changing from time to time, so every business organization should start its research from knowing
the changes in tastes preferences of the customers.
The research and development function refer to the systematic investigation aimed with
acquiring new knowledge to bring changes in the existing one.

4. 4
Thus, every organization should change their methods and practices in production, marketing,
human resources, purchases as per the changes in the market.

8. Legal function: Some big organizations will have a separate legal department in order to
advice the management in case of disputes with the customers, suppliers, competitors, workers
and even government.


Introduction: All the human activities engaged in the buying and selling of goods and services
is also known as “Trade”. The object of trade is to may goods available to those persons who
need them and are willing to pay for them.
Trade may be classified as follows:















I. Home Trade: The trade that takes place within the boundaries of a country is called as
home trade or Internal Trade or Domestic Trade. In this trade payments are made in the home
currency and it is not subjected to any restrictions. In the home trade, generally goods are
transported by roadways and railways and therefore risk and transportation costs are
comparatively low. Home trade helps to derive the benefits of specialization within the country.
Its volume depends upon three factors viz size of population, volume of production and banking
facilities. Home trade activities are again classified into two types as:
a) Wholesale Trade
b) Retail Trade

a) Whole sale Trade: Wholesale trader refers to buying of goods to large quantities from the
produces and selling them in small quantities to the retailers. The person who engages in such
type of trade is called as wholesaler. He is the connecting link between the producer and
retailers.




Manufacturer Wholesaler Retailer
TRADE
HOME TRADE
FOREIGN TRADE
WHOLE
SALE TRADE
RETAIL
TRADE
IMPORT
TRADE
EXPORT
TRADE
ENTREPORT
TRADE
3. What is Trade? Explain different types of Trade? What are the aids to Trade?

5. 5
b) Retail Trade: Retail Trade refers to buying of goods in small quantities from the wholesaler
and selling them in required quantities to the consumers. The person who engages in such
type of trade is called as retailer. He is the connecting link between the wholesaler a nd
consumers.




II. Foreign Trade: The trade that takes place across the boundaries of a country is called as
foreign trade or External Trade or International Trade. In this trade the payments are made in
the foreign currency and it is subjected to many restrictions. In this trade, generally goods are
transported by water ways wherever possible. Therefore, the risk and transportation costs are
comparatively high. Foreign trade helps to derive the benefits of in ternational specialization.
It depends upon the foreign trade policy of the government. Foreign trade activities are again
classified into three types as:
a) Export Trade
b) Import Trade
c) Entrepot Trade

a) Export Trade: When a trader of a country sells goods to another country, then it is called
as an export trade. The term export is derived from the conceptual meaning as to “ship the
goods and services out of the port of the country”.
Eg : India sells diamonds to several countries.

b) Import Trade: When a trader of a country buys goods from another country, then it is
called as an import trade. The term import is derived from the conceptual meaning as to “ship
the goods and services into the port of the country”.
Eg : India buys electronic goods from Japan.

c) Entrepot Trade: When goods are imported from one country not for consumption but to
export to other countries, then it is called as re-export trade.
Eg.: India imports all seeds from USA and exports them to Malaysia.

Aids to Trade:
1. Transport Facilities: The goods produced by the manufacturers must reach the consumers.
It requires transportation. Business succeeds through the route of trade through transport.

2. Banking Facilities: The bank helps the trade in different forms of credit to businessman.
They provide loans payable in installment to the consumers and also payment in the form of
drafts, cheques, discounting of bills of exchange.

3. Ware housing Facilities: Goods whether at raw material stage or final product stage
require storage. They must be placed ware houses until their finally consumed.

4. Insurance: Insurance provides a cover against the loss or damage of goods. The traders
can transfer the risk to the insured.

Wholesaler Retailer Consumer
4. Discuss the Aids to Trade in Detail?

6. 6
5. Advertisements: Goods and services produced by enterprises are made known to
prospective buyers through advertising.

6. Branding: A Brand may be identified the goods and services through name, term, sign or
symbol are a group of these.

Introduction: Industry is concerned with the production of goods and services. Industry is
the part of production is involved in changing the form of goods from raw materials to the
finished products. The industries may be classified under:

I. On the basis of Produce of goods:
a. Genetic Industry: Genetic is related to genetics it is related to the reproducing and
multiplying of certain species of animals and plants with the objective of earning profits from
their sale is also known as “Genetic Industry”.

b. Extractive Industry: It is engaged in rising some form of wealth. The soil, climate, air,
water or from benefit the surface of the earth.
Eg: Nurseries, Fishing etc.,

c. Manufacturing Industry: It is engaging in the conversion of raw-materials and semi-
finished materials into finished products.
Eg: Cement Industry, Textile Industry, Sugar Industry etc,.
These manufacturing industries again can be classified into four types as follows
a. Assembling industries b. Analytical industries
c. Synthetic industries d. Processing industries

d. Construction Industry: It is engaged in the creation of infrastructure for the smooth
development of the company.
Eg: Construction of buildings, roads, canals, bridges.

e. Service Industry: It is engaged in the conversion of essential service to the community is
also known as “Service Industry”.Eg: Banking, Institutions, hospitals, transport etc,.

II. On the basis of size and Investment:
a. Heavy Industry: In this type of industry, the capital invested is only on large scale,
manufacturing process is lengthy and technology used is also called “Heavy Industries”.
Eg: Iron and steel Industry, cement Industry, ship building Industry etc.,

b. Light Industry: In this type of Industry, the capital invested is only small-scale
manufacturing process is also known as “Light Industry”.
Eg: Handcraft Industry, Beedi Industry, etc,.


III. On the basis of ownership:
a. Public Sector Industry: An Industry owned by central or state government is called “public
sector Industry”. Though private Investment is encouraged, majority of shares are owned by
government.
Eg: Lanco Industries ltd, step1 authority of India ltd.

5. What is Industry? What are the classifications of Industry?

7. 7
b. Private Sector Industry: An Industry owned by private ownership is also known as “Public
Sector Industries”.
Eg: Coco-cola Industries pvt.Ltd.

Trade: Trade is a branch of commerce. It is concerned with buying and selling of goods.
Trade is the backbone of commerce as all the important activities such as warehousing,
transportation, insurance, banking, advertising and publicity from a part of Trade.

Commence: Commence is concerned with the exchange of goods, with all that is involved in
Buying and selling of goods at any stage in their progress raw materials to finished goods in
the consumer’s hands.

Industry: It is concerned with the production of goods and services. Industry deals with raw
materials to finished goods to final product.
The relationship between Trade, Commence, and Industry.

Basis Trade Commerce Industry
Meaning:
Buying and selling of
goods.
Distribution of goods. Production of goods.
Scope:
It deals with exchange
of goods (purchases
and sales).
Deals with the process
of transfer of goods from
the place of production
to the place of
consumption.
Concerned with the
conversion of raw-materials
into finished goods.
Capital:
Capital requirement is
high.
Capital requirement is
low.
Very high and substantial
amounts are necessary.
Element of
Risk
Moderate or high. Risk is low. Risk is high.


Employment: Employment is an economic activity that a person has to perform certain work
assigned to him by some other person based on an agreement or rules of service. The person who
assigned work is called “Employer”. The person who performed the work is called “Employee”. The
relationship between two parties is similar to “Master -Servant” relation.

The employee performs the work as per the instructions of employer and in return he will be
paid salary, wage, allowances, and other benefits as consideration. Sometimes the professionals
also may get into employment. People work under agreement in factories, banks, government and
private offices, colleges, shops, salesmen are examples for employment.

Profession: Profession is an occupation in which a person renders his personal services of
specialized nature to others. The services are provided based on professional knowledge, education,
skill, and training that he has in his own specialized field. They charge some fee as professional
6. Explain relationship between Trade, Commerce, Industry?
7. Explain relation Between Employment, Profession and Business?

8. 8
charges from their clients for the services provided. Every professional should be a member of
professional body relating to his discipline. He should follow the code of conduct prescribed by the
professional body.

Business: Business refers to economic activities concerned with production and exchange of goods
and services for customer satisfaction on regular basis with the intention to earn profit. The person
doing business is called as “Businessman”. Business activities are performed with profit motive
(Earning profit is the main intention in business). Business is associated with risk.
The word business has broader meaning. It covers manufacturing activities like
manufacturing clothes, machines, televisions...etc and exchange of goods for value. It also covers
warehousing, transportation, insurance, banking, and market research services. Kirana shops,
medical shops, industries, warehouses, transport institutions are examples for business. We shall
study in detail about this topic in further.

Business Profession Employment
Formation
One person/ group of
persons can start business
by fulfilling legal
formalities.
The persons who have
educational qualifications,
training prescribed by
professional body can
start profession.
Employment starts when
employee gets an
agreement with employer.
Capital/
Investment
Capital depends on nature
and scale of business
operations
Less amount of capital is
required to set up offices
Capital not required.
Objective/
Aim
Profit motive.
Service motive. But he
can charge some fee.
To get livelihood with
regular income.
Nature of
work
It involves the production
and exchange of goods
and services.
It involves rendering
personalized services.
It involves performing the
assigned work
Educational
Qualifi-
cations
Business can be started
without education. But it
is better to have some
education to run business
better.
Specialized qualifications
and training prescribed by
professional body.
Educational qualifications
are based on the nature of
work.
Reward/
Considerati
on
Profit is the reward Fee charged for services
Salary/ wage as per the
terms of job.
Risk Risk element is high Low risk No risk
Code of
conduct
Code of conduct framed
by himself or respective
trade association
Code of conduct
prescribed by professional
body
Code of conduct
prescribed by agreement
of employment

9. 9

ANS: Factors influencing the choice of suitable form of organization from the following given
below.
1. Capital requirement: The need for capital will depend upon the nature of business and
scale of operations. The form of organization should be such that it is able to provide required
funds.

2. Liability: In sole trade and partnership business the liability of owners is unlimited. Their
liabilities are not limited to the capital they have invested but their private property.

3. Managerial needs: Managerial and administrative requirements also affect the decision
about form of organization. When the concern is small and to local needs only then one person
will be enough to manage the business.

4. Continuity: This is another factor influencing a decision about the form of ownership. If
the concern is stable and there is known fear of discontinuity. It will attract more investment.

5. Tax liability: A joint stock company has more tax liability as compared to a sole trade
business and a partnership firm. A joint stock company faces double.

6. Government regulations: While deciding about the form of organization, various kinds of
rules and regulation effecting that form will also be considered.

7. Nature of business: The nature of business is another important factor affecting a decision
about the form of organization. If a concern deals with local market, a seasonal product or
perishable goods, then sole trades business will be suitable.

8. Relationship between ownership and management: There is a direct relationship
between ownership and management in sole trade and partnership firms

9. Flexibility: A good form of organization should also provide for flexibility in its operation.

10. Stability: The company form of organization offers the maximum stability as it is not
affected in anyway by the death or insolvency of its members.

Conclusion: Selecting a suitable form of business organization is a very important decision as
it is very difficult to change the form of organization later on. We haves mentioned above the
factors influence the form of organization.
* * *

8.Explain the factors influencing the choice of suitable form of organization?

10. 10

UNIT – II
Forms of Business Organizations

Introduction: Sole trading firm is also known as sole proprietorship, individual proprietorship,
single entrepreneurship. In this organization only one individual is at the helm of affairs he
makes all the investments he bears all risks and takes all profits. He manages and controls
the business himself. The business is generally run with the help of his family members. His
liabilities unlimited. The sole trader is the organizer, manager, controller and master of his
business.
Definition:
“The individual entrepreneurship is the form of organization on the head of which stands
an individual as the one who is responsible, who directs its ope rations, who allow runs the
risks of failure”.
- L.H. HANEY
“The individual proprietor is the supreme judge of all matters pertaining to his business.”
- Kimball and Kimball
Features of sole trading firm:
• Individual initiative
• Unlimited liability
• Management &control
• Secrecy
• Proprietor & proprietorship are one
• Limited area of operations
1. Individual initiative: This business is started by the initiative of single person. He
prepares the blue prints of the venture and arranges various factors of p roduction. All the
profits &losses are taken by the single person.

2. Unlimited liability: The sole trade business liability is unlimited. The proprietor is
responsible for all losses arising from the business.

3. Management and control: The proprietor manages the whole business himself. He
prepares various plans and executed them under his own supervision.

4. Secrecy: All important decisions are taken by the owner himself. He keeps all the business
secrets only to himself. Business secretes is very important for small business.

5. Proprietor & proprietorship are one: Legally, the sole trader and his business are
separate entities loss in his business is his loss. Liabilities of the business are his liabilities.

6. Limited area of operations: A sole trade business has generally a limited area of
operations, the reason being the limited resources and managerial abilities of the sole trader.



1. What is sole trading firm? Explain characteristics, advantages and dis -
advantages of sole trading firm?

11. 11
Advantages of sole trading business:
1. Easy to form: It is very easy and simple to form a sole trading concern. The capital
required is small. Further, there are no legal formalities for starting the business.

2. Quick decisions: The sole trader is the sole dictator of his business. There is no need for
him to consult anybody while taking decisions hence, decision on business matters can be
arrived at quickly.

3. Business secrecy: Since the whole business is handled by the proprietor, his business
secrets are known him only. Hence sole trader can maintain the secrets of his business.

4. Easy to raise finance: An individual entrepreneur is able to create goodwill for his
business. This helps him to establish his credit growthless in the market.

5. Personal relations with customers: In sole proprietorship the scale of operations is small.
The owner can have direct contact with customers and employees. He can know he relations
and the preferences of customers.

6. Flexibility in operations: Change in the business is necessary. The sole trading concern
is dynamic in its nature. The nature of business can be easily changed according to the market
conditions.

Dis-advantages of sole trading firm:
1. Limited resources: The resources of a sole proprietor are limited he has only two sources
of securing capital, personal savings. Hence, he can raise very limited amount of capital.

2. Unlimited liability: The liability of a sole trader is unlimited his private property can also
be assigned for meeting business losses

3. Uncertain continuity: The business continues as per as sole proprietor is there. In case
of his mobility or death, the business is discontinued. The closure of business will cause
inconvenience to the consumers it will also results in social loss.

4. No large-scale economics: A small scale concern cannot economics in purchase,
production and marketing. So, this type of concern cannot enjoy the benefits of large-scale
economics. In a sole trade concern overhead expenses are also more.

5. More risk: A sole proprietor is to take all decisions by himself. So, there is a possibility
taking wrong decision minimized. Lack of counseling may create difficult situations.


Introduction: A partnership is an association of two or more persons formed with the object
of sharing profits arising out of business. The partnership may come into existence either as a
result of the expansion of sole trading concern.
Definition:
“The relation between person who have agreed to share profits of business carried on
by all or any of them acting for all.”
- Indian partnership act 1932
2. What is partnership firm? Explain Features, merits and de merits of partnership
firm?

12. 12

Features of partnership firm:
1. Association of persons/members
2. Agreement
3. Profit motive
4. principal-agent relationship
5. Unlimited liability
6. Restriction on transfer of shares

1. Association of persons: There must be at least two persons to form a partnership. The
maximum number is 10 for a partnership carrying on banking business &20 for a partnership
carrying on any other business. [As Per Sec 464 Companies act 2013, maximum number of
Partners is 50. Whether it is Banking or Non-Banking.]

2. Agreement: Partnership is the result of an agreement. It is created by mutual consent and
voluntary agreement. The contract may be oral or written but in practice written agreement is
made.

3. Profit motive: The purpose of the business should be to make profits & distribute them
among partners. This is one of the basic elements of partnership.

4. principal-agent relationship: The business may be carried on by all or anyone acting on
behalf of all the partners. Each partner is both an agent &principal for himself &others.

5. Unlimited liability: In respect of business debts each partner has unlimited liability. This
means, if the assets of the firm are not sufficient to meet the obligation of the firm, the partners
have to any from their private assets.

6. Restriction on transfer of shares: No partner can sell or transfer his share to an outsider
without consent of the other partners.
Advantages of partnership firm :
1. Easy to form
2. Quick decisions
3. Large resources
4. Sharing of risks
5. Contac with customers
6. Secrecy

1. Easy to form: It is very easy and simple to form a partnership firm. There are no legal
formalities to start this business unit. A simple agreement among partners is sufficient to start
a partnership firm

2. Larges resources: The resources of more than on partner are available for the business.
The partner can contribute to start large scale concern. The partnership concern can also
arrange funds from outside sources

3. Quick decisions: The partner meet frequently and they can take prompt decisions. The
firm will not lose any business opportunities because of delay in taking a decision .

13. 13
4. Sharing of risks: The risk of business is shared by more persons the burden of every
partner will be much less as compared to the burden of sole trade .

5. Secrecy: A partnership concern is not expected to publish its profit &loss and balance sheet.
The partners can keep the business secrets to themselves.

6. Contact with customers: The partners can study the customers, like and dis likes taste
and fashions. This helps them in maintaining only such goods that are needed by the
customers.
Dis-advantages of partnership firm:
1. Limited resources
2. Instability
3. Unlimited liability
4. Delay in decisions
5. Limitations on transfer of shares
6. Lack of public faith
1. Limited resources: The business resources are limited to the personal funds of the partners
borrowing capacity of the partners is also limited. A banking company cannot have more than
10 partners and in other business the number of partners cannot exceed 20. So, there is limit
beyond which partners cannot be added

2. Instability: The partnership concern suffers from the uncertainty of duration because it
can be dissolved at the time of death or insolvency of duration because it can be dissolved at
the time of death, or insolvency of a partner. The discontinuity of the business is a social loss
and it causes inconvenience to the customers.

3. Unlimited liability: The unlimited liability is the fundamental drawback of partnership. The
liability of partner extends to their private properties also.

4. Delay in decisions: Before any decision is taken all the partners must be consulted. Hence,
quick decisions may not be taken.

5. Limitations on transfer on shares: No partner can transfer his hare to a third party
without the consent of the other partner. If a partner wants his back, it will not be possible
without the approval of other partners.

6. Lack of public faith: The accounts of partnership concern are not published. So, public un
ware of the exact position of the business. Therefore, a partner may not enjoy public
confidence


ANS: A partnership is the result of an agreement. A partnership deed is nothing but a written
agreement between the partners containing the terms and conditions on which they agree to
carry on their common business and share profits. There is no obligation in l aw to have such
a deed. A partnership agreement may be oral or written. Partnership deed also known as
“Articles of partnership”.
3. What is mean by partnership deed? Describes the contents of the partnership
deed?

14. 14
Contents of partnership deed:
• The name of the firm
• Names of the partners together with their addresses.
• Nature of the business.
• Duration of the partnership.
• The amount of capital to be contributed by each partner.
• Ration for sharing profits and losses.
• Salaries, commissions etc., if any payable to partners.
• Interest allowed on capital.
• Interest charged on drawings.
• The extent to which drawings are permitted.
• Distribution of work among partners.
• Procedure for dissolution.
• The methods of revolution of asset and liabilities on the admission or retirement or
death of a partner.
• Duties, powers and obligation of partners.
• Method of preparing A/Cs and agreement for audit .
• Authority for signing cheques and other important documents .
• How bank A/C are to be kept.
• Agreements in case a partner becomes insolvent .
• Whether loans will be accepted from a partner, and if so at what rate of interest.
• Arbitration clause to settle disputes which may arise among the partners without going
to a court.


Introduction: A joint stock company is an organisation which is owned jointly by all its
shareholders. Here, all the stakeholders have a specific portion of stock owned, usually displayed
as a share.
Each joint stock company share is transferable, and if the company is public, then its shares
are marketed on registered stock exchanges. Private joint stock company shares can be transferred
from one party to another party. However, the transfer is limited by agreement and family
members.
Features of Joint Stock Company:
1. Artificial Person: Like natural persons, a company can own property, incur debts, borrow
money, enter into contracts, sue and be sued but unlike them it cannot breathe, eat, run, talk and
so on. It is, therefore, called an artificial person.

2. Separate Legal Entity: On incorporation, a company acquires a separate legal existence in the
eyes of law. The assets and liabilities of the
company are separate from those of its owners.

3. Formation: The formation of a company is a time consuming, expensive and complicated
process. It involves the preparation of several documents and compliance with several legal
4. Define a joint stock company and explain its features, merits and de -merits?

15. 15
requirements before it can start functioning. Registration of a company is compulsory as provided
under the Indian Companies Act, 2013.

4. Perpetual Succession: Being distinct from the members, the death, insolvency, or retirement
of its members does not affect the life of the company. Member may come and go, but the company
goes on forever. It will only cease to exist only when specific procedure of winding up is followed.

5. Control: The management and control of the affairs of the company is undertaken by the Board
of Directors, which appoints the top management officials for running the business. The
shareholders do not have the right to be involved in the day-to-day running of the business.

6. Liability: The liability of the members is limited to the extent of the capital contributed by them
in a company. The creditors can use only the assets of the company to settle their claims. The
members can be asked to contribute to the loss only to the extent of the unpaid amount of share
held by them.

For example, A is a shareholder in a company holding 2,000 shares of Rs. 10 each on which he
has already paid Rs. 7 per share. His liability in the event of losses or company’s failure to pay
debts can be only up to Rs. 6,000 — the unpaid amount of his share capital (Rs. 3 per share on
2,000 shares held in the company). Beyond this, he is not liable to pay anything towards the debts
or losses of the company.

7. Common Seal: The common seal is the engraved equivalent of an official signature. The Board
of Directors enters into an agreement with others by indicating the company’s approval through a
common seal. Company is bound by only those documents which bear its signature.

8. Risk Bearing: The risk of losses in a company is borne by all the shareholders to the extent of
their shares in the company’s capital. The risk of loss thus gets spread over a large number of
shareholders.

9. Social Benefits: A company is an effective tool of mobilising the scattered savings of the
community and investing them in different commercial and industrial enterprises. It offers
employment opportunities to the people in the society. It produces large quantity of goods and
services of the best quality and provides the same to community at a reasonable price.
It helps improving the standard of living by offering variety of goods and services
to the community. It contributes the largest amount of revenue to the government, through the
direct and indirect taxes.

Merits of Joint Stock Company is as Follows:
1. Large Capital: It is possible for a joint stock company to raise huge financial resources.
There is not maximum limit on membership in a public limited company. Shares issued are
available in small denominations. Therefore, people can invest any small amount as per their
needs and capacity due to the features of limited liability. Free transferability of shares etc.
many investors are attracted to become shareholders of the company. Loans can be taken
from banks and other financial institutions by the company.

2. Democratic Management: Though shareholders elect the Board of Directors, who manage
the business efficiently, the directors are accountable to shareholders, their activities are
supervised and controlled by shareholders indirectly.

16. 16
3. Transferability of Shares: There is free transferability of shares in a public limited
company. No permission is required to be sought from the directors or membe rs of the
company for buying or selling shares. However, a private limited company, does not permit
free transferability of shares.

4. Limited Liability: The liability of a member in a public limited company is limited to the
extent of the unpaid amount of the shares held by him. Since the company has an independent
legal status, its liabilities are its own.

5. Expert Services: Due to large financial resources available with joint stock company, it
can appoint experts for managing each area or functions of the company business, by paying
attractive salaries to them, these brings in a great degree of professionalism and thereby,
efficiency in management of business.

6. Relief Taxation: The companies are required to pay taxes at flat rate. The amount of tax
on a high taxable income therefore may be less for a joint stock company than individuals in
a same tax bracket.

7. Public Confidence: Joint stock company enjoys public confidence. The working of joint
stock companies in India is governed by the provisions of Indian Companies Act, 1956.

8. Scope for Growth and Expansion: There is possibility of growth and expansion in the
company business. The company can raise large financial resources. Attractive salaries can be
paid to engage the services of experts for business expansion and for managing the business
professionally.

Demerits of Joint Stock Company is as Follows:
1. Difficulty in Formation: The formation of the company is in itself a very difficult and
involves too many formalities. Promote rs have to prepare and submit various documents to
the registrar of companies for approval i.e., Articles of Association, Memorandum of Association
etc. the public limited company cannot commence business without obtaining a certificate of
commencement of business. Registration of Joint Stock Companies is compulsory as per Indian
Companies Act, 2013. Thus, the formation is complicated, costly and time consuming.

2. Delay in Decisions: In sole trading concern, and partnership firm decisions can be taken
quickly. Company business is managed by Board of Directors who are not owners of the
company. Therefore, there is no direct motivation for directors to give their best to the
company. Moreover, for taking various decisions and getting them approved f rom
shareholders, they have to hold board Meeting and shareholders meeting, for which a proper
procedure has to be followed. That results into delay in decision making, good business
opportunities may be lost.

3. Excessive Government Control: - There is a lot of government interference in the
working of the company. Various rules and regulation of the companies Act have to be strictly
followed by the company, the non – compliance of any of these provisions results into penalties
for the officers involved.

4. High cost of Management: - The management of joint stock company form of
organization is costly. The formation involves availing of the expert services of many

17. 17
professional-like underwriters, financial and technical experts, share brokers, solicitors ,
bankers etc.

5. Undue Speculation: -since directors are responsible for the management of the company,
they sometime use the confidential information for speculation and for personal gains. This
results in sudden fluctuations in prices of shares in stock exchange, adversely affecting the
public confidence.

6. No Personal Contact: -Due to very large size of the organization, employees feel that
their efforts are not recognized and appreciated, their work -related problems are not taken
care of. as a result, they feel demoralized and their productivity declines.

7. Lack of Secrecy: -There is no business secrecy involved in the company form of
organization since it has to fulfil various statutory requirements, e.g., as per Indian Companies
Act, 2013, every company must publish its annual accounts and certain other documents.

8. No Direct Effort Reward Relationship: -Since the ownership and management are
separate, there is no direct relationship between the efforts and rewards. This can be de
motivating for the owners of the company.


Private Company Public Company
1. Meaning Owned and traded publicly Owned and traded privately.
2. No. of members:
Minimum - 2
Maximum - 200
Minimum - 7
Maximum - Unlimited.
3. Name:
The words ‘private Ltd’ must
be added at the end of its
name.
The word ’Ltd’ must be added at
the end of its name.
4.Commencement of
business:
It can commence business
immediately after securing the
certificate of Incorporation.
It cannot commence business
Unless it gets certificates of
commencement of business.
5. Prospectus:
It cannot issue prospectus for
inviting the public for
subscribe of its shares.
It can issue prospectus for
inviting the public for subscribe
of its Shares.
6. Minimum Subscription:
It need not secure minimum
subscription.
It must secure minimum
subscription.
7. Transfer of shares:
Transfer of shares it cannot be
easily.
Transfer of shares can be easily
and freely.
5.Differences between private and public company?

18. 18
8. Number of Directors:
The minimum number of
Directors is 2.
The minimum number of
Directors is 3.
9. Statutory Meeting:
It need not hold statutory
Meeting.
It must hold statutory meeting.
10. Annual Report:
Final a/c’s are not kept open
to inspection by the public.
Final a/c’s are kept open for
public inspection.
11. Quorum:
Two members form a quorum
for meetings.
5 members form a quorum for
meetings.
12. Retirement of
directors:

Directors need not retire by
Rotation.

1/3
rd
of the directors should
retire by rotation every year.
13. Loans to Directors:
It can grant loan to its
directors without the consent
of the Govt.
It can grant loans to its
directors only with the consent
of the Govt.
14. Issue of Shares:
It cannot issue shares of any
kind including deferred
shares.
It can issue only equity and
preferential shares.
15. Resolution
It need not resolution of
Company.
It must be resolution of
Company.


Introduction: A public sector enterprise may be defined as a commercial or industrial
undertaking owned and managed by the govt. with a view to maximum social welfare and
upholds the public interest. They provide goods and services for the benefits of the community.
They are run by the govt. Public sector enterprises in India are as follows.

1. Departmental Undertakings :
• These businesses are set up as ministry departments and are regarded as extensions or
parts of the ministry.
• They operate through government personnel, and its employees are government
employees.
• These endeavours may be governed by the federal or state governments, and the rules of
the federal or state governments apply.
Example: Railways, Post and Telegraph Department, All India Radio, Door Darshan. etc.,

6. Define Public Sector Enterprises?

19. 19
2. Statutory Corporations:
• A Special Act of Parliament creates statutory corporations, which are public enterprises.
• The Act establishes its powers and functions, as well as the rules and regulations that govern
its personnel and its interactions with government agencies.
• They have government power as well as a significant amount of private -sector operating
flexibility.
Example: Food Corporation of India, Industrial Finance Corporation of India, LIC, Unit Trust
of India, State Trading Corporation. etc.,

3. Government Compan y:
• A government company, according to section 2(45) of the Companies Act 2013, is one in
which the central government, or any state government, or partly by the central government
and partly by one or more state governments, holds at least 51 percent of the paid -up
capital, and includes a subsidiary of a government company.
• Certain restrictions apply to the appointment and retirement of directors and other senior
management professionals.
• The company's shares are purchased in the name of India's President.
• Government corporations are referred to as such, since the government is the majority
stakeholder and has authority over the administration of these businesses.
Example: Hindustan Machine Tools Ltd., Steel Authority of India Ltd., Hindustan Shipyard
Ltd., etc.,


Definition: “MNC is an enterprise whose managerial head quarter is located in one country while
it carries out operations in several countries”.
- ILO.
Ex: Coco cola, Samsung are the MNC's of other countries.
Infosys, Airtel are MNC's of India.

Advantages of MNCs for the host country:
➢ The investment level, employment level, and income level of the host country increases.
➢ The industries of host country get latest technology from foreign countries.
➢ The host country's business also gets management expertise from MNCs.
➢ The domestic traders and market intermediaries of the host country gets increased business
from the operation of MNCs.
➢ Domestic industries can make use of R & D outcomes of MNCs.
➢ The host country can reduce imports and increase exports due to goods produced.
➢ This helps to improve balance of payment.
➢ Level of industrial and economic development increases due to the growth of MNCs in the
host country.

Advantages of MNCs for the home country:
➢ MNCs create opportunities for marketing the products produced in the home country
throughout the world.
➢ They create employment opportunities to the people of home country.
➢ It gives a boost to the industrial activities of home country.
7. Define MNC and explain the advantages and disadvantages of MNCs?

20. 20
➢ MNCs help to maintain favourable balance of payment of the home country in the long run.
➢ Home country can also get the benefit of foreign culture brought by MNCs.

Disadvantages of MNCs for the host country:
➢ MNCs may transfer technology which has become outdated in the home country.
➢ As MNCs do not operate within the national autonomy, they may pose a threat to the
economic and political sovereignty of host countries.
➢ MNCs may kill the domestic industry by monopolising the host country's market.
➢ In order to make profit, MNCs may use natural resources of the home country
indiscriminately and cause depletion of the resources.
➢ A large sums of money flows to foreign countries in terms of payments towards profits,
dividends and royalty.

Disadvantages of MNCs for the home country:
➢ MNCs transfer the capital from the home country to various host countries causing
unfavourable balance of payment.
➢ MNCs may not create employment opportunities to the people of home country if it adopts
geocentric approach.
➢ As investments in foreign countries is more profitable, MNCs may neglect the home countries
industrial and economic development.


Definition: “MNC is an enterprise whose managerial head quarter is located in one country while
it carries out operations in several countries”.
- ILO.
Ex: Coco cola, Samsung are the MNC's of other countries.
Infosys, Airtel are MNC's of India.

Characteristics:
1. Easy Entry: MNC’s can easily enter into the international markets, because of their abundant
financial resources, technology, managerial skills.

2. Dominant position & status: MNC's can enjoy dominant position & status in the host countries
due to their large-scale operations in several countries.

3. Global Operations: MNC's carry production and marketing operations in several countries of
the world.

4. Giant size: The size of assets and sales of MNC's are very large.

5. Centralized Control: The headquarter of MNC's is located in their home country whereas the
branches are maintained in several countries. All the branches are controlled from the headquarter.

6. Sophisticated Technology: MNC's have sophisticated technology at their disposal and it
enables them to provide quality products.

7. Higher profits: The operations of MNC's are large in size. Therefore, they can enjoy the
economies of large-scale operations and can earn huge profits.
* * *
8. Explain the Characteristics of MNCs?

21. 21
UNIT – III
Company Incorporation

Introduction: Incorporation involves the registration of the company under the companies’
act 2013. It is the legal process through which a company is recognized a legal entity. The
promoters of a company must prepare and file the following documents with the register of
companies of the state in which the registered office of the company is started to be situated.
The following documents are prepared and filled with the register.
1. Memorandum of Association.
2. Articles of Association.
3. List of directions.
4. Written consent of directions.
5. Authorized capital.
6. Statutory declaration.

1. Memorandum of Association: The memorandum of association is the most important
document of the company. It is to be filled with the register for obtaining certificate of
incorporation. It is constitution of the company. It establishes the relationship between the
company and the outside public. Memorandum of association has prescribed a particular
procedure for making a change in the document. The procedure provides for different clauses
given below:
a. Name clause
b. Situation clause
c. Object clause
d. Liability clause
e. Capital clause
f. Subscription clause

2. Articles of Association (AOA): AOA is a document containing a set of rules and
regulations for the internal management of the company. The AOA lays down the regulations
aimed at the realization of those objectives the articles are sub-ordinate to the memorandum.
It implies that the articles cannot contain anything which goes against the memorandum.

3. List of Directors: The list contains the names, addresses and occupations of persons who
have agreed to act as the first directions of the company. There must be at least 3 directions
in the case of public company and 2 directions in the case of a private company.

4. Written consent of Directors : A Consent in writing of the directions to act as directions.
Who have agreed public and private companies first directions of the company.

5. Authorized Capital: The amount of capital required by the company is started also called
“Authorized capital or registered capital”. The company must mention the number and kinds
of shares issued and the value of each share.

1. How is a company incorporated? Explain processor for the incorporation of a
company? (or) What are the important documents issued by a company?

22. 22
6. Statutory Declaration: A statutory declaration starting that all requirements as to
registration have been complete with. This declaration is to be given by an advocate who is
engage in the formation of a company.


Introduction: The MOA is the most important document of the company. It is to be filled with
the register for obtaining certificate of incorporation. It is the constitution of the company. It
establishes the relationship between the company and the outside public. MOA h as prescribed
a particular procedure for making a change in the document. The procedure provides for
different clauses given below:

1.Name clause: In this clause, the name of the company should be stated. The company is
can choose any name it likes. The name of the company must end with the word ‘ Ltd’ if it is a
public limited company or with the words ‘Pvt Ltd’ if it is a private limited company.

2.Office clause or situation clause: It is also known as situation clause. The place and the
state in which the registered office is to be situated must be mentioned. Registered office
means a place where the common seal, statutory books, accounts books etc., are kept. For
inspection by the general public.

3.Object clause: This is the most important clause of the memorandum. This gives out the
various objects for which the company is formed. The objects of the company must be legal
and be every clearly defined. The purpose of the object clause is to describes the nature of the
business.

4.Liability clause: This clause clearly states that the liability of members is limited to the
extent of the face value of the shares held by them.

5. Capital clause: The amount of capital required by the company is started also called
authorized capital or registered capital. The company must mention the number and kinds of
shares issued and the value of each share.

6.Subscription or association clause: It contains the names of members to the
memorandum. The memorandum must be signed by at least 7 members in case of public
company and by at least 2 members in case of private company. The full addresses and
occupation of subscribers and the witness are also given.


Introduction: The AOA is the second document to the prepared for the incorporation of a
company. Articles means rules and regulations for the internal management of the company.
The memorandum lays down the objectives of the company. The art icles of association
lays down the regulations aimed at the realization of those objectives. The articles are
subordinate to the memorandum. It implies that the articles cannot contain anything which
goes against the memorandum.
Contents of AOA:
Generally, the AOA contain provisions relating to the following.
2. What is memorandum of association? Explain various clauses of memorandum
of association?
3. Define Articles of Association? what are the contents of articles of association?

23. 23
• Share capital and its division into different classes of shares.
• Payment of under writing commission.
• Making calls on shares.
• Transfer and transmission of shares.
• Issue of shares warrants.
• Accounts and audit.
• Meetings and resolution.
• Dividend and reserves.
• Forfeiture and reissue of shares.
• Directors their powers, duties, qualifications, remuneration etc.
• Common seal.
• Borrowings powers of the company.
• Alteration of share capital.
• Investments.
• Capitalization of profit.
• Adoption of preliminary contracts.
• Duties and rights of manager.
• Winding up of the company.
• Conversion of shares into stock.


MOA: The memorandum of association is the most important document of the company. It is
to be filled with the register for obtaining certificate of incorporation. It is the constitution of
the company. It establishes the relationship between the company and out side the public. MOA
has prescribed a particular procedure for making a change in the document.

AOA: AOA is the second document to be prepared for the incorporation of a company. Articles
means rules and regulations for the internal management of the company.

MOA AOA
Scope
This is a fundamental document acting
as a charter of the company. it defines
the objects and scope of the company.
This is a secondary document
framed in the orbit of MOA.
Compulsion
it is compulsory for all companies to fill
this document with the register for the
purpose of incorporation.
Public companies need not file a
Separate set of articles. They may
adopt table ‘A’ of schedule ‘1’ as its
articles.
Provisions
It is governed by the companies act
only.
Itis governed both by the companies
act and the memorandum.
4. What are the differences between MOA and AOA?

24. 24
Ultra-virus
Any act of the company which is ultra-
Virus the memorandum is void and
cannot be rectified by the shareholders.
Any act of the company which is
ultra-Virus the articles about intra
virus the memorandum also void but
can be rectified by the shareholders.
Relationship
It defines the relationship between the
Company and the outsiders.
It defines relationship between the
Company and its members and also
the relationship among the
members them Selves.
Alterability
It can be altered only under special
Circumstance and inv0lves many
Formalities.
Its alteration is not difficult. It can
be altered by passing special
resolution.


Introduction: Prospectus is a circular inviting the public to subscribe to the capital of the
company. it is issued by the public companies with a view to raising necessary funds from the
investors. It will be in the form of an appeal describing the prospectus of the company.

Definition:
“Any notice, circular, advertisement or other invitation offering to the public for subscription
or purchase of any shares or debentures of a body corpo rate.”
- Companies act 2013 sec 2(70).

Significance of prospectus: The prospectus is a vital document as for as the company is the
concerned. It is the indispensable instrument for procuring the capital. The prospectus should
revel truth and things as it is, without conveying any false impression.

Contents of prospectus:
➢ Name and full address of the company.
➢ Name address and occupations of Board of Directors.
➢ The names and addresses of signatures of MOA & no. of shares taken by them.
➢ The name and addresses of auditors.
➢ The addresses of underwriters.
➢ The amount of minimum subscription.
➢ The amount of preliminary expenses.
➢ The details of property acquired.
➢ The time of opening of subscription list.
➢ The capital structure of the company.
➢ The amount payable on application, allotment & calls.
➢ Particulars regarding voting rights.
➢ Management perception of risk factors.
➢ “Disclosure of investors”, grievances and redressal system etc.


5. What is mean by Prospectus? What are the contents of prospectus?

25. 25

UNIT – IV
Management


Introduction: Management is the important part of business as brain in human body .
management keeps all the factors of production in working and converts the objectives of
enterprise into reality.

Definition:
To manage is to forecast and plan, to organize, to command, to coordinate and to control
- HENRY FAYOL
Characteristics or features of management :
1. Management in a group activity: Management is the essential part of group activity.
Management makes the people to realize objectives and direct their efforts towards the
achievement of goals.

2. Management is a goal oriented : Management aims to achieve some definite goals.it is
concerned with the establishment and accomplishment of this goals.

3. Management is a social process: Management involves dealing with people . The efforts
of human beings have to be directed.co-ordinated and regulated management.

4. Management is a system of authority : Authority is a right to give orders management
cannot be performed in the absence of authority.

5. Management is a dynamic function : Management is a dynamic process and it has to be
performed continuously.

6. Management is profession : Now a day’s management is a recognized as a separate
profession .it has systematic and specialized body of knowledge and can be thought as a
separate subject.

7. Management is an art as well as science: Management is a science because it has
developed certain principles which are universally acceptable.


Introduction: Principle is a fundamental truth, which establishes ideal relationship between
cause and effect. Henry Fayol, a Famous French industrialist has stated 14 principles of
management.

1. Division of Work: Henri believed that segregating work in the workforce amongst the
worker will enhance the quality of the product. Similarly, he also concluded that the division
of work improves the productivity, efficiency, accuracy and speed of the workers. This principle
is appropriate for both the managerial as well as a technical work level.

2. Authority and Responsibility : These are the two key aspects of management. Authority
facilitates the management to work efficiently, and responsibility makes them responsible for
the work done under their guidance or leadership.
1. Define Management? what are the characteristics (or) features of management?
2. Explain Henry Fayol’s 14 principles of management?

26. 26

3. Discipline: Without discipline, nothing can be accomplished. It is the core value for any
project or any management. Good pe rformance and sensible interrelation make the
management job easy and comprehensive. Employees good behaviour also helps them
smoothly build and progress in their professional careers.

4. Unity of Command: This means an employee should have only one boss and follow his
command. If an employee has to follow more than one boss, there begins a conflict of interest
and can create confusion.

5. Unity of Direction: Whoever is engaged in the same activity should have a unified goal.
This means all the person working in a company should have one goal and motive which will
make the work easier and achieve the set goal easily.

6. Subordination of Individual Interest: This indicates a company should work unitedly
towards the interest of a company rather than persona l interest. Be subordinate to the
purposes of an organization. This refers to the whole chain of command in a company.

7. Remuneration: This plays an important role in motivating the workers of a company.
Remuneration can be monetary or non -monetary. However, it should be according to an
individual’s efforts they have made.

8. Centralization: In any company, the management or any authority responsible for the
decision-making process should be neutral. However, this depends on the size of an
organization. Henri Fayol stressed on the point that there should be a balance between the
hierarchy and division of power.

9. Scalar Chain: Fayol on this principal highlight that the hierarchy steps should be from the
top to the lowest. This is necessary so that every employee knows their immediate senior also
they should be able to contact any, if needed.


10. Order: A company should maintain a well -defined work order to have a favourable work
culture. The positive atmosphere in the workplace will boost more pos itive productivity.

11. Equity: All employees should be treated equally and respectfully. It’s the responsibility of
a manager that no employees face discrimination.

12. Stability: An employee delivers the best if they feel secure in their job. It is the duty of
the management to offer job security to their employees.

27. 27
13. Initiative: The management should support and encourage the employees to take
initiatives in an organization. It will help them to increase their interest and make then worth.

14. Esprit de Corps: It is the responsibility of the management to motivate their employees
and be supportive of each other regularly. Developing trust and mutual understanding will lead
to a positive outcome and work environment .


Introduction: A level of management refers to the arrangement of managerial position in an
organization. There is no fixed number of management levels for a particular organization. It
all depends upon the size, technology and the range of production of the organization.
Management levels determine the authority relationship in an organization. There are three
managements:
• Top-Level Management
• Middle-Level Management
• Lower-Level Management

1. Top Level Management: Top Level Management is the head of an organization. It consists
of the board of directors and the chief executive and the managing director. In the operation
of an organization, top management is the final source of authority. It establishes policies,
plans and objectives.

2. Middle Level Management: Middle Level Management generally consists of functional
departments. It is concerned with the task of implementing the policies and plans laid down
by the top-level management. It is also a link between the top-level management and lower-
level management.

3. Lower (or) Supervisory Management: Supervisory Management is the lowest level in
the hierarchy of management. It consists of supervisors, foremen, accounts officer, sales
officers and so on. They are directly concerned with the control of the performance of the
operative employees.


Management: Management may be defined as the process of planning, organising, directing and
controlling to accomplish organizational objectives through the co-ordinated use of human and
material resources.

Administration: Administration is very frequently referred to as higher levels of management
group who determine major aims and policies.
3. Explain Levels of Manag ement?
4. Differences between Management and Administration.

28. 28


Management Administration
It means getting things done through and with
people.
It is concerned with the formation of
objectives, plans and policies.
It is a ‘doing’ function. It is a ‘thinking’ function.
It is a lower-level management. It is a top-level management.
It makes decisions within the framework of
administration.
It makes the major policy decisions.
Its decisions are influenced by internal factors
such as values, beliefs and opinions.
Its decisions are influenced by external
factors such as social, political, legal etc.
The term management is widely used in business
world.
The term administration is often associated
with govt. policies.

* * *

29. 29
UNIT – V
Functions of Management


Introduction: Management an activity and process composed of some basic functions, for getting
the objective of any enterprise accomplished through the efforts of its personnel. Wherever and
whenever objectives are to be achieved through organised and co -operative endeavour,
management becomes essential for directing and unifying the group efforts towards a common
purpose.

Definition:
To manage its to forecast and plan, to organise, to command, to co-ordinate and to control
- Henry Fayol
Functions of Management:

1. Planning: Planning is a process of ‘thinking before doing’. Planning involves the definition
of objectives and planning the operations in terms of policies, plans and budgets which will
establish most advantages, course for business enterprise. It means the determi nation of what
is to be done, how and where it is to be done, who is to do it and how results are to be
evaluated.

2. Organizing: It is systematic arrangement of different aspects of business operations to
achieve planned objectives. It involves assemblin g of raw materials, tools, mobilization of
capital, selection of personnel and determination of duties and responsibilities of men in
different sections of enterprise.

3. Staffing:
Management consists of getting things done through the people, people woul d be called
dynamic element of management. Hence management must attempt to fill the organization
with suitable people will be known as staffing. It includes manpower, planning, recruitment,
selection, training and promotion.

4. Directing: Management is essentially the art of getting things done. This is the managerial
function of direction. The function of direction has three essential components i.e., issuing
orders and instructions, guiding and teaching the subordinates in proper method of supervising
the subordinates to ensure that their performance in according to plans.

1. Explain the functions of Management?

30. 30
5. Controlling: Managerial function of control consists of steps taken to ensure that the
performance of the organization confirms to plans. A manager is responsible for controlling t he
work for which is accountable. The manager can study the past and avoid unprofitable in future.

According to ‘Luther Gulick’, he gave a formula to indicate the functions of management i.e.
POSDCORB.
P - Planning
O - Organizing
S - Stuffing
D - Directing
Co - Co-ordinating
R - Reporting
B - Budgeting


Introduction: Planning is a process of thinking before doing planning involves the definition
of objectives and planning the operations in terms of policies, plans and budgets which will
establish most advantages course for business enterprise .it means the determination of what
is to be done how and where it is to be done. Who is to do it and how results are to be
evaluated.

Definition: the selection from among alternatives, for future course of action, for the
enterprise as a whole and each department with it.
- “KOONTZ ‘O’ DONNELL”
Characteristics of planning:
• Planning contributes to objectives
• Primacy importance of planning
• Forward looking process
• Pervasive
• Efficiency in operations
• Continuous choice
• Planning is an intellectual process
• Flexibility
• Foundation of successful action
• Co-ordination and co operation
• Future and goal oriented
• Aims at efficiency

Advantages /Importance of planning:
1. Attention on objectives: Planning helps in clearly laying down objectives of the
organization. the whole attention of management is given towards the achievement of these
objectives.
Minimizing uncertainties: Planning is an effort to foresee t he future and plan and plan the
things in a best possible way planning certainty minimizes future uncertainty.

2. What are the features merits and de merits of planning?

31. 31
2. Better utilization of resources: All the resources are first identified and then operations
are planned. 2All resources are put to best possible use.

3. Economy in operations: There are various alternative operations for achieving different
business objectives. when the operations are b etter selected among possible alternatives,
there is economy in operations.

4. Better coordination: Planning will lead to better co-ordination in the organization, the
duplication of efforts is avoided.

5. Encourages innovations and creativity : A better planning system should encourage
managers to a devise new way of doing the things.

6. Facilities control: Planning helps in setting the objectives and buying down performance
standards. under the process of control, the management has to check t he performance of sub
ordinates.

De-merits /Limitations of planning:
• Planning creates rigidity
• Planning does not work in a dynamic environment
• Planning reduces creativity
• Planning involves huge costs
• Planning is a time-consuming process
• Planning does not guarantee success


Introduction: Organization is the rational coordination of the activities of a number of people
for the accomplishment of some common goals, through a division of laser and function,
through hierarchy of authority and responsibility.

Principles of organization:
1. Principle of delegation of authority: Principle of delegation means every superior has to
delegate some of his authorities along with responsibilities, to make him accountable for that
work.

2. Principle of coordination: This principle advocates the coordina tion of various
departments and groups in the organization .

3. Principle of continuity: The business environment changes rapidly. so, every business
must bring necessary changes in the organization to absorb changes effectively.

4. Principle of responsibility: A sound organization must define duties, responsibilities,
authority and responsibility relationship so that any deviation is failure can be located easily.

5. Principle of specialization: There should be an efficient breakup of activities into varies
departments according to their qualifications and skills.

6. Principle of flexibility: There should be flexibility in the organization structure to adjust
for the social, political, economic and technological changes.

3. Explain the principles of organization?

32. 32
7. Principle of span of control: Span of control of means number of workers that a superior
can handle effectively. For effective supervision 5 to 8 subordinates should be under a superior.

8. Principle of unity of command: It means that, a particular employee must get orders
from a particular officer only. If he gets confusion. he cannot discharge his duties properly.

9. Principle of unity of direction: This principle implies that one head and one plan for a
group of activities having some objectives.

10. Principle of scalar chain: It is a chain of superiors changing from the ultimate authorities
to the lowest rank and it is necessary for unity of command and effective communication.


Line organization: Line refers to these positions and elements of the organization which
have the responsibilities and authority and are accountable for the accomplishment of primary
objectives.

Staff organization: Staff elements are those which have responsibilities and authority for
providing advice and service to the line in the attainment of objectives.


Merits of line & staff organization:

1. Specialization: Persons with specialized knowledge are appointed to help line managers.
Planning in undertaken by staff.

2.Better discipline: Work gets commands from the line officers. Accountable directly to lone
personal. It creates better a understanding and discipline.

3. Balanced and prompt decisions: The staff can be used to investigate and advice cans
interdepartmental relationship. Line officers can take balanced and quick decisions.
4.Explain merits and de merits of line and staff of organization?

33. 33

4. Growth and expansion: The burden of line and staff organization is eased by the
appointment of specialists.

5. Development of employee: The separation of functions like planning and doing helps in
creating more job opportunities promotional chances for those who deserve.

6. Quick actions: The line officers will have sufficient time to take various decisions. The
type of situation helps in solving may issues which have created differences.

De merits of line & staff organization:
1. Conflict Between Lines Staff Personnel: The responsibility lies with line officers, whereas
the staff officers only advices. line o fficers’ complaints on staff personals regarding
interference in day-to-day work.

2. Lack of responsibility: The staff personnel are not responsible for the actual results. this
may tempt them to give rash and theoretical advices.

3. Ineffective staff: The staff officers do not have any power. hence, they will feel
unimportant themselves and the quality of life is adversely affected.

4. Expensive: Large numbers of specialists are appointed. Specialist demand higher
remuneration. Hence small and medium organization cannot offer for line and staff
organization.

* * *