Cmp-lecture6-business_forms of Business organization .ppt

Business organization

1. Forms of Business OrganizationForms of Business Organization
Joint Stock Companies and Joint Stock Companies and
Banks Banks
Dr. Attaullah Shah Dr. Attaullah Shah

2. Legal Forms of
Business
Sole Proprietorships Partnerships Corporations
General Partnership
Limited Partnership
Master Limited
Partnership
Regular Corporation
Subchapter S
Corporation
(S-Corporation)

3. Sole ProprietorshipsSole Proprietorships
Business owned (and usually operated) Business owned (and usually operated)
by one personby one person
Simplest form of business ownership Simplest form of business ownership
Most popular form of business Most popular form of business
organization – 72.2% of allorganization – 72.2% of all
Most common in:Most common in:
–RetailingRetailing
–ServiceService
–AgricultureAgriculture

4. Sole Proprietorship -- AdvantagesSole Proprietorship -- Advantages
Ease of StartupEase of Startup
–Little legal documentationLittle legal documentation
–No co-owners to consultNo co-owners to consult
Least expensive to startLeast expensive to start
Pride of OwnershipPride of Ownership
Retention of profitsRetention of profits
FlexibilityFlexibility
No Business Income Tax No Business Income Tax

5. Sole Proprietorship -- Sole Proprietorship --
DisadvantagesDisadvantages
Unlimited LiabilityUnlimited Liability
Limited Life – Business ends when owner Limited Life – Business ends when owner
leaves the businessleaves the business
Limited Access to Start-up CapitalLimited Access to Start-up Capital
Limited Access to Credit Limited Access to Credit
Limited Management ExpertiseLimited Management Expertise
Difficulty in Hiring EmployeesDifficulty in Hiring Employees
Proprietor not considered an employeeProprietor not considered an employee

6. PartnershipsPartnerships
Two or more owners Two or more owners
Least numerous form – 7.7% of all Least numerous form – 7.7% of all
businessesbusinesses
Partnership AgreementPartnership Agreement
–Specifies rights and obligations of partnersSpecifies rights and obligations of partners
–If written, called the If written, called the Articles of PartnershipArticles of Partnership
((Articles of Co-partnershipArticles of Co-partnership))

7. Partnership -- AdvantagesPartnership -- Advantages
Greater Access to CapitalGreater Access to Capital
Greater Access to CreditGreater Access to Credit
Retention of ProfitsRetention of Profits
More Management ExpertiseMore Management Expertise
No Business Income Tax No Business Income Tax

8. Partnership -- DisadvantagesPartnership -- Disadvantages
Shared ProfitsShared Profits
Unlimited Liability for “General Partners”Unlimited Liability for “General Partners”
Each partner has “Agency” powerEach partner has “Agency” power
Limited LifeLimited Life
–Business ends when any partner withdrawsBusiness ends when any partner withdraws
Management DisagreementsManagement Disagreements
Frozen InvestmentFrozen Investment

9. Types of PartnersTypes of Partners
General PartnerGeneral Partner
–Unlimited LiabilityUnlimited Liability
–Assumes Management RoleAssumes Management Role
Limited PartnerLimited Partner
–Liability limited to InvestmentLiability limited to Investment
–May not take active managerial roleMay not take active managerial role
Every partnership must have at least one Every partnership must have at least one
general partnergeneral partner

10. Types of PartnersTypes of Partners
General PartnershipGeneral Partnership
–All partners are general partnersAll partners are general partners
Limited PartnershipLimited Partnership
–One or more limited partnersOne or more limited partners
Master Limited PartnershipMaster Limited Partnership
–Owned & managed like a corporationOwned & managed like a corporation
–Taxed like a partnershipTaxed like a partnership
–Shares may be soldShares may be sold

11. CorporationsCorporations
Generally larger than other forms (Except for S-Generally larger than other forms (Except for S-
Corporation)Corporation)
–20.1% of all U.S. Businesses20.1% of all U.S. Businesses
–Account for 87.1% of all U.S. Business IncomeAccount for 87.1% of all U.S. Business Income
Considered a separate legal entityConsidered a separate legal entity
–Owners called “Stockholders” or Shareholders”Owners called “Stockholders” or Shareholders”
Ownership evidenced by “Stock Certificate”Ownership evidenced by “Stock Certificate”
Governed by “Board of Directors”Governed by “Board of Directors”

12. Corporations -- AdvantagesCorporations -- Advantages
Limited LiabilityLimited Liability
Ease of Ownership TransferEase of Ownership Transfer
Unlimited LifeUnlimited Life
Greater Access to CapitalGreater Access to Capital
Specialized Management ExpertiseSpecialized Management Expertise

13. Corporations -- DisadvantagesCorporations -- Disadvantages
More difficult & costly to formMore difficult & costly to form
–Requires a “Corporate Charter”Requires a “Corporate Charter”
Subject to greater governmental scrutinySubject to greater governmental scrutiny
Diluted earningsDiluted earnings
Double taxationDouble taxation

14. Corporations vs. Corporations vs.
Sole Proprietorships Sole Proprietorships
SPSP CorpCorp
IncomeIncome$1,000,000$1,000,000 $1,000,000 $1,000,000
Expenses Expenses 500,000500,000 500,000500,000
EBTEBT $500,000 $500,000 $500,000 $500,000
(Assume Business Tax Rate = 50%)(Assume Business Tax Rate = 50%)
Business Tax Business Tax 0 0 250,000250,000
Net ProfitNet Profit $500,000 $500,000 $250,000 $250,000
(Assume a 30% Personal Tax Rate)(Assume a 30% Personal Tax Rate)
Personal Tax Personal Tax 150,000 150,000 75,000 75,000
$ to Owners $350,000 $175,000$ to Owners $350,000 $175,000

15. Corporate CharterCorporate Charter
Legal Permission to Operate as a Legal Permission to Operate as a
CorporationCorporation
Issued by state Issued by state
May not conduct business as a May not conduct business as a
corporation without a chartercorporation without a charter

16. Contents of a Corporate CharterContents of a Corporate Charter
Company Name & AddressCompany Name & Address
Names & addresses of IncorporatorsNames & addresses of Incorporators
Purpose of the CorporationPurpose of the Corporation
Maximum amount of stock & Classes of Maximum amount of stock & Classes of
Stock to be issuedStock to be issued
Rights & Privileges of stockholdersRights & Privileges of stockholders
Length of time the corporation is to existLength of time the corporation is to exist

17. Stockholder RightsStockholder Rights
Common StockCommon Stock
–Votes in corporate mattersVotes in corporate matters
–One vote per share ownedOne vote per share owned
Preferred StockPreferred Stock
–No voting rightsNo voting rights
–Dividend claims are paid 1Dividend claims are paid 1
stst

DividendDividend
–Distribution of earnings to the stockholders of Distribution of earnings to the stockholders of
a corporationa corporation

18. Owners/
Stockholders/
Shareholders
Chief Executive
Officer (CEO)
Board of Directors
President
Senior
Vice President
Vice President
Finance
Vice President
Production
Vice President
Marketing
Vice President
Human Resources
Organizational ChartOrganizational Chart

19. Types of CorporationsTypes of Corporations
Government-Owned CorporationGovernment-Owned Corporation
– “ “Public Corporation”Public Corporation”
–Owned & operated by governmentOwned & operated by government
–Post al Corporation, NASA, FIDIC,SNGPL Post al Corporation, NASA, FIDIC,SNGPL
Quasi-Government CorporationQuasi-Government Corporation
– “ “Quasi-Public Corporation”Quasi-Public Corporation”
–Privately owned, government controlled monopolyPrivately owned, government controlled monopoly
–Public utilities, Fannie Mae, Freddie Mac, Sallie Mae Public utilities, Fannie Mae, Freddie Mac, Sallie Mae
Private CorporationPrivate Corporation
–Owned by individuals or other companiesOwned by individuals or other companies

20. Types of CorporationsTypes of Corporations
Not-For-Profit CorporationNot-For-Profit Corporation
–Organized to provide a social, educational, religious, Organized to provide a social, educational, religious,
or other serviceor other service
–Habitat for Humanity, Red CrossHabitat for Humanity, Red Cross
For-Profit CorporationFor-Profit Corporation
Closed CorporationClosed Corporation
–Stock owned by relatively few peopleStock owned by relatively few people
–Stock not sold to general publicStock not sold to general public
Open CorporationOpen Corporation
–Stock is bought and sold on security exchangesStock is bought and sold on security exchanges
–Can be purchased by any individualCan be purchased by any individual

21. Types of CorporationsTypes of Corporations
S-Corporation (Subchapter-S Corporation)S-Corporation (Subchapter-S Corporation)
–Corporate structure designed for small businessCorporate structure designed for small business
–Taxed as a partnership if there are 75 or fewer Taxed as a partnership if there are 75 or fewer
stockholdersstockholders
–No non-resident alien stockholdersNo non-resident alien stockholders
–Only one class of stockOnly one class of stock
Limited-Liability Company (LLC)Limited-Liability Company (LLC)
–Combines the benefits of a corporation & partnershipCombines the benefits of a corporation & partnership
–Not limited to 75 stockholdersNot limited to 75 stockholders

22. Mergers & AcquisitionsMergers & Acquisitions
Hostile takeoverHostile takeover
Types of mergersTypes of mergers
–Horizontal: Similar products / servicesHorizontal: Similar products / services
–Vertical: Different but related firmsVertical: Different but related firms
–Conglomerate: Completely different Conglomerate: Completely different
industries industries
Merger TrendsMerger Trends
–DivestitureDivestiture
–Leveraged Buyout (LBO)Leveraged Buyout (LBO)

23. FranchisingFranchising
Franchise Franchise
–License to operate an individually owned License to operate an individually owned
business as though it were part of a chain of business as though it were part of a chain of
outlets or storesoutlets or stores
–The business itself The business itself
FranchisingFranchising
–Actual granting of a franchiseActual granting of a franchise

24. FranchisingFranchising
FranchisorFranchisor
–Supplies a known & advertised business nameSupplies a known & advertised business name
–Supplies management skillsSupplies management skills
–Supplies training & materialsSupplies training & materials
–Supplies method of doing businessSupplies method of doing business
Franchisee:Franchisee:
–Supplies labor & capitalSupplies labor & capital
–Operates the franchised businessOperates the franchised business
–Agrees to abide by the franchise agreementAgrees to abide by the franchise agreement

25. Franchising AdvantagesFranchising Advantages
FranchisorFranchisor
–Fast, Selective DistributionFast, Selective Distribution
–Motivated FranchiseeMotivated Franchisee
FranchiseeFranchisee
–Opportunity to start a business Opportunity to start a business
–Business Experience of othersBusiness Experience of others
–Nationally recognized nameNationally recognized name
–National promotional campaignsNational promotional campaigns

26. Franchising DisadvantagesFranchising Disadvantages
Mainly from Franchisee’s Viewpoint:Mainly from Franchisee’s Viewpoint:
–Franchisor’s contract can dictate every aspect Franchisor’s contract can dictate every aspect
of the businessof the business
–Pay for securityPay for security
–Long hoursLong hours
–Competition from same companyCompetition from same company

27. Joint Stock Company: Joint Stock Company:
The limitations of sole-proprietorship and partnership forms of The limitations of sole-proprietorship and partnership forms of
ownership gave birth to joint stock company form of organisation. ownership gave birth to joint stock company form of organisation.
Two important limitations of earlier form of organisation were Two important limitations of earlier form of organisation were
inadequacy of funds and unlimited liability. inadequacy of funds and unlimited liability.
The earlier form of organisation could not meet the increasing The earlier form of organisation could not meet the increasing
demand for funds of organisation. The other limitation which demand for funds of organisation. The other limitation which
hampered the growth of business was the unlimited liability of hampered the growth of business was the unlimited liability of
owners. owners.
Joint stock company was first started in ITALY in THIRTEENTH Joint stock company was first started in ITALY in THIRTEENTH
century.century.
During 17During 17
thth
and 18 and 18
thth
centuries, joint stock companies were centuries, joint stock companies were
formed in ENGLAND under ROYAL CHARTER or ACTS OF formed in ENGLAND under ROYAL CHARTER or ACTS OF
PARLIAMENT.PARLIAMENT.
DEFINITION:-DEFINITION:-
A company is ‘’ a voluntary association of many individuals for A company is ‘’ a voluntary association of many individuals for
profit having limited liability and contribute money or money’s profit having limited liability and contribute money or money’s
worth to a common stock.worth to a common stock.

28. Characteristics of Joint Stock Co. Characteristics of Joint Stock Co.
ASSOCIATION OF PERSONS:- ASSOCIATION OF PERSONS:-
A company is an association of persons joining hands with a common A company is an association of persons joining hands with a common
motive. A private limited company must have at least two persons and motive. A private limited company must have at least two persons and
public limited company must have at least seven members to get it public limited company must have at least seven members to get it
registered. Furthermore, the number of shareholders should not exceed 50 registered. Furthermore, the number of shareholders should not exceed 50
in private companies but there is no maximum limit in a public limited in private companies but there is no maximum limit in a public limited
company.company.
INDEPENDENT LEGAL ENTITY:- INDEPENDENT LEGAL ENTITY:-
The company is created under law. It has separate legal entity apart from The company is created under law. It has separate legal entity apart from
its members. A company acts independently of its members. The company its members. A company acts independently of its members. The company
is not bound by the acts of its members. The company can sue and be is not bound by the acts of its members. The company can sue and be
sued in its own name.sued in its own name.
LIMITED LIABILITY:- The liability of its shareholders is limited to the value LIMITED LIABILITY:- The liability of its shareholders is limited to the value
of shares they have purchased. In case the company incurrs huge of shares they have purchased. In case the company incurrs huge
liabilities, the shareholders can only be called upon to pay the unpaid liabilities, the shareholders can only be called upon to pay the unpaid
balance on their shares. balance on their shares.

29. COMMON SEAL:-COMMON SEAL:-
A company being an artificial person cannot put its A company being an artificial person cannot put its
signatures. The law requires every company to have a signatures. The law requires every company to have a
seal and get its name engraved on it. The seal of the seal and get its name engraved on it. The seal of the
company is affixed on all important documents and company is affixed on all important documents and
contracts as a token of signature. contracts as a token of signature.
TRANSFERABILITY OF SHARES:-TRANSFERABILITY OF SHARES:-
The shares of the company can be transferred by its The shares of the company can be transferred by its
members. Under ARTICLES OF ASSOCIATION, the members. Under ARTICLES OF ASSOCIATION, the
company can put certain restrictions on the transfer of company can put certain restrictions on the transfer of
shares but it cannot altogether stop it. shares but it cannot altogether stop it.

30. SEPARATION OF OWNERSHIP AND MANAGEMENT:-SEPARATION OF OWNERSHIP AND MANAGEMENT:-
The shareholders of a company are widely scattered. A The shareholders of a company are widely scattered. A
shareholder may like to invest money but may not be shareholder may like to invest money but may not be
interested in its management. The companies are managed interested in its management. The companies are managed
by the board of directors.by the board of directors.
PERPETUAL EXISTENCE:- The company has a permanent PERPETUAL EXISTENCE:- The company has a permanent
existence. The shareholders may come or may go but the existence. The shareholders may come or may go but the
company will go on forever. The continuity of the company is company will go on forever. The continuity of the company is
not affected by death, lunacy or insolvency of its not affected by death, lunacy or insolvency of its
shareholders. shareholders.
CORPORATE FINANCE:- A joint stock company, generally, CORPORATE FINANCE:- A joint stock company, generally,
raises large amounts of funds. The is divided into small raises large amounts of funds. The is divided into small
shares of domination. A large number of persons purchase shares of domination. A large number of persons purchase
shares and contribute to the capital of the company.shares and contribute to the capital of the company.

31. CENTRALISED AND DELEGATED MANAGEMENT:-CENTRALISED AND DELEGATED MANAGEMENT:-
A joint stock company is an autonomous and self A joint stock company is an autonomous and self
governed body. The shareholders being large in number governed body. The shareholders being large in number
cannot look after the day-to-day activities of the company. cannot look after the day-to-day activities of the company.
They elect board of directors in general body meeting for They elect board of directors in general body meeting for
managing the company. All policies of the company are managing the company. All policies of the company are
decided by a majority vote. All decisions are taken in a decided by a majority vote. All decisions are taken in a
democratic way.democratic way.
PUBLICATION OF ACCOUNTS:-PUBLICATION OF ACCOUNTS:-
A joint stock company is required to file annual statements A joint stock company is required to file annual statements
with the registrar of companies at the end of a financial with the registrar of companies at the end of a financial
year. They are available for inspection in the office.year. They are available for inspection in the office.

32. Kinds of Companies: Kinds of Companies: ACCORDING TO INCORPORATIONACCORDING TO INCORPORATION
The companies may be divided into three categories according to The companies may be divided into three categories according to
incorporation.incorporation.
CHARTERED COMPANIES:-CHARTERED COMPANIES:- These type of companies are incorporated These type of companies are incorporated
under ROYAL CHARTER by the king or HEAD OF THE STATE. under ROYAL CHARTER by the king or HEAD OF THE STATE.
Under the charter, certain exclusive rights and privileges are granted Under the charter, certain exclusive rights and privileges are granted
to the company for undertaking certain commercial activities. If the to the company for undertaking certain commercial activities. If the
company violates the rules, the head of the state can close such company violates the rules, the head of the state can close such
companies.companies.
STATUTORY COMPANIES:-STATUTORY COMPANIES:- These companies are formed under special These companies are formed under special
act of parliament or of a state legislature. These companies may or act of parliament or of a state legislature. These companies may or
may not use the word ‘limited’. The EXAMPLES of such companies may not use the word ‘limited’. The EXAMPLES of such companies
are State Bank of Pakistan THE INDUSTRIAL FINANCE are State Bank of Pakistan THE INDUSTRIAL FINANCE
CORPORATION OF Pakistan, STATE TRADING CORPORATION CORPORATION OF Pakistan, STATE TRADING CORPORATION
OF Pakistan, etc.OF Pakistan, etc.
REGISTERED COMPANIES:-REGISTERED COMPANIES:- These are the companies formed and registered These are the companies formed and registered
under the provisions of the companies act. Most of the companies in under the provisions of the companies act. Most of the companies in
Pakistan are registered under the COMPANIES ACT 1956. these Pakistan are registered under the COMPANIES ACT 1956. these
companies may be limited by shares, limited by guarantee or unlimited companies may be limited by shares, limited by guarantee or unlimited
companies.companies.

33. ACCORDING TO LIABILITY= ACCORDING TO LIABILITY=
According to liability, the companies may be classified into three categories.According to liability, the companies may be classified into three categories.
1.1.COMPANIES LIMITED BY SHARES:-COMPANIES LIMITED BY SHARES:- The companies limited by shares have The companies limited by shares have
a share capital. The capital is divided into shares. The shareholders are not a share capital. The capital is divided into shares. The shareholders are not
liable to pay anything more than the value of shares held by them, whatever liable to pay anything more than the value of shares held by them, whatever
be the liabilities of the company.be the liabilities of the company.
2.2.COMPANIES LIMITED BY GUARANTEE:-COMPANIES LIMITED BY GUARANTEE:- These companies are also formed These companies are also formed
under the companies act with a stipulation in the memorandum clause that under the companies act with a stipulation in the memorandum clause that
members are guaranteed to pay a certain amount of money in case of its members are guaranteed to pay a certain amount of money in case of its
winding up. The amount which members undertake to pay is called the winding up. The amount which members undertake to pay is called the
guarantee money.guarantee money.
3.3.UNLIMITED COMPANIES:-UNLIMITED COMPANIES:- The companies registered without limiting the The companies registered without limiting the
liability of members to the value of shares are called unlimited companies. All liability of members to the value of shares are called unlimited companies. All
members are liable to meet the liabilities of the company to an unlimited members are liable to meet the liabilities of the company to an unlimited
extent. extent.

34. ACCORDING TO TRANSFERABILITY OF SHARES:-ACCORDING TO TRANSFERABILITY OF SHARES:-
1.1.PRIVATE COMPANY:-PRIVATE COMPANY:- A private company can be formed with the A private company can be formed with the
association of at least two members but the maximum number of association of at least two members but the maximum number of
shareholders cannot exceed fifty. A private company restricts by its articles, shareholders cannot exceed fifty. A private company restricts by its articles,
a) the right of members to transfer its shares, b) limits the number of its a) the right of members to transfer its shares, b) limits the number of its
members to fifty, and c) prohibits any invitation to the public to subscribe to members to fifty, and c) prohibits any invitation to the public to subscribe to
is shares and debentures.is shares and debentures.
EXEMPTIONS AND PRIVILEGES OF PRIVATE COMPANYEXEMPTIONS AND PRIVILEGES OF PRIVATE COMPANY
A.A.A private company can be started with just two members whereas a public A private company can be started with just two members whereas a public
company requires at least seven members.A private company is not company requires at least seven members.A private company is not
required to file a prospectus or a statement in lieu of prospectus with the required to file a prospectus or a statement in lieu of prospectus with the
registrar of companies.registrar of companies.
B.B.There is no restriction of minimum subscription as in the case of public There is no restriction of minimum subscription as in the case of public
company. It can directly allot the shares. It can work with just two directors. company. It can directly allot the shares. It can work with just two directors.
A private company is not required to hold a statutory meeting and filing a A private company is not required to hold a statutory meeting and filing a
statutory report.statutory report.
2. 2. PUBLIC COMPANIES:-PUBLIC COMPANIES:- Public company means that public at large is Public company means that public at large is
interested in those companies. A minimum of seven members are required interested in those companies. A minimum of seven members are required
to constitute a public company and to get it registered. There is no to constitute a public company and to get it registered. There is no
restriction on the maximum number of members. Public companies are restriction on the maximum number of members. Public companies are
required to issue a prospectus for inviting people to purchase their shares. required to issue a prospectus for inviting people to purchase their shares.
A public company can start work only after getting ’CERTIFICATE OF A public company can start work only after getting ’CERTIFICATE OF
COMMENCEMENT’ from the ‘REGISTRAR OF COMPANIES’. The COMMENCEMENT’ from the ‘REGISTRAR OF COMPANIES’. The
shareholders are free to sell their shares in the market.shareholders are free to sell their shares in the market.

35. MERITS OF JOINT STOCK COMPANYMERITS OF JOINT STOCK COMPANY
1.1.ACCUMULATION OF LARGE RESOURCES: -ACCUMULATION OF LARGE RESOURCES: - a company can collect a company can collect
large sum of money from large number of share holder. need for more large sum of money from large number of share holder. need for more
fund arise, the number of shareholder can be increased .fund arise, the number of shareholder can be increased .
2.2.LIMITED LIABILITY:-LIMITED LIABILITY:-The liability of members in a company is limited to The liability of members in a company is limited to
the nominal value the shares the nominal value the shares
3.3.CONTINUITY IN EXISTENCE:-CONTINUITY IN EXISTENCE:-The member of a company may go on The member of a company may go on
changing from time changing from time
to time but that does not affect the continuity of a company. The death or to time but that does not affect the continuity of a company. The death or
insolvency of members does not in any way affect the corporate insolvency of members does not in any way affect the corporate
existence of company. existence of company.

4.4.EFFICIENT MANAGEMENT: - EFFICIENT MANAGEMENT: - In the company form of organization, In the company form of organization,
ownership is separate ownership is separate
from management its enables the company to point expert and qualified from management its enables the company to point expert and qualified
person for managing various business function.person for managing various business function.

5.5.ECONOMIES OF LARGE SCALE PRODUCTION:-ECONOMIES OF LARGE SCALE PRODUCTION:- The availability of The availability of
large resources, the large resources, the
company can organize production on a big scale .The increase in scale company can organize production on a big scale .The increase in scale
and size of business bill result in economics in production, purchase , and size of business bill result in economics in production, purchase ,
marketing and management , etc.marketing and management , etc.

36. 6. TRANSFERABILITY OF SHARES:- A share holder can dispose of his
share at any time when the market condition are favorable or he is in need
of money, the facility of transferring shares encourages many person to
invest.
7.DIFFUSED RISK: - In company form of organization, the number of
contributors is large; so risk is shared by a large number of persons.
8. DEMOCRATIC SET – UP: - Every individual has an opportunity to
become a shareholder. Secondly, the board of directors is elected by the
members. So members have a say indicating the policies of the company.
The Company form of organization is democratic from ownership and
management side.
9. SOCIAL BENEFITS: - The company form of organization mobilizes
scattered saving of the community. These saving can be better used for
productive purposes. Large – scale production enjoy a number of
economics enabling low cost of production

37. DEMERITS OF JOINT STOCK COMPANYDEMERITS OF JOINT STOCK COMPANY
1.DIFFICULTY IN FORMATION1.DIFFICULTY IN FORMATION:- There is no. of stages is involved in :- There is no. of stages is involved in
company promotion. It is both expensive and risky.company promotion. It is both expensive and risky.
2.SEPARATION OF OWNERSHIP AND MANAGEMENT:-2.SEPARATION OF OWNERSHIP AND MANAGEMENT:- ..The ownership The ownership
and management of a public company is in different hands . The management and management of a public company is in different hands . The management
may indulge in speculative business activities.may indulge in speculative business activities.
3.EVILS OF FACTORY SYSTEM:- 3.EVILS OF FACTORY SYSTEM:- The stock company are attribute the evils The stock company are attribute the evils
of factory system like insanitation ,air pollution ,congestion of cities.of factory system like insanitation ,air pollution ,congestion of cities.
4.SPECULATION IN SHARES:-4.SPECULATION IN SHARES:- The joint stock company facilitate The joint stock company facilitate
speculation in the shares at stock exchanges. speculation in the shares at stock exchanges.
5.FRADULENT MANAGEMENT:-5.FRADULENT MANAGEMENT:- The promoters and director may indulge in The promoters and director may indulge in
fraudulent practices due to not invested much in the company.fraudulent practices due to not invested much in the company.
6.LACK OF SECRECY:- 6.LACK OF SECRECY:- Every thing is discussed in the meeting of board of Every thing is discussed in the meeting of board of
directors directors
7.DELAY IN DECISION MAKING:-7.DELAY IN DECISION MAKING:- There is no single individual can make a There is no single individual can make a
policy decision.policy decision.

38. Types of BanksTypes of Banks
On the basis of ownershipOn the basis of ownership
On the basis of domicileOn the basis of domicile
On the basis of FunctionOn the basis of Function

39. Types of Bank on the basis of Types of Bank on the basis of
OwnershipOwnership
The banks are classified on the basis of The banks are classified on the basis of
ownership into two categories.ownership into two categories.
1. Public sector banks1. Public sector banks
2. Private sector banks 2. Private sector banks

40. Types of Bank on the basis of Types of Bank on the basis of
OwnershipOwnership
1. Public sector banks:1. Public sector banks:
The banks owned and controlled by the The banks owned and controlled by the
Government are called Public sector bank. Government are called Public sector bank.
e.g national Bank of Pakistan e.g national Bank of Pakistan
2. Private sector banks:2. Private sector banks:
The banks owned by corporations are called The banks owned by corporations are called
private sector banks. e.g Habib Bank, Bank private sector banks. e.g Habib Bank, Bank
Alfalah etc.Alfalah etc.

41. Classification of banks on the basis Classification of banks on the basis
of domicileof domicile
The banks are divided on the basis of The banks are divided on the basis of
domicile into two categories.domicile into two categories.
1. Domestic banks1. Domestic banks
2. Foreign banks2. Foreign banks

42. Classification of banks on the basis Classification of banks on the basis
of domicileof domicile
1. Domestic banks.1. Domestic banks.
The banks registered and incorporated The banks registered and incorporated
within the country are called domestic within the country are called domestic
banks. e.g. Bank of Punjab, MCB Bank etcbanks. e.g. Bank of Punjab, MCB Bank etc
2. Foreign Banks2. Foreign Banks
The banks which have their origin and head The banks which have their origin and head
offices in the foreign countries are called foreign offices in the foreign countries are called foreign
banks. e.g. Citi bank, Standard Charted Bank etc banks. e.g. Citi bank, Standard Charted Bank etc

43. Classification of Banks on the basis of FunctionClassification of Banks on the basis of Function
1.1.Central Bank:Central Bank:
2.2.Commercial Banks:Commercial Banks:
3.3.Exchange Banks:Exchange Banks:
4.4.Saving Banks:Saving Banks:
5.5. Agriculture Banks:Agriculture Banks:
6.6.Industrial Banks:Industrial Banks:
7.7.Co-operative BankCo-operative Bank
8.8.Mortgage BankMortgage Bank
9.9.Investment BankInvestment Bank
10.10.Merchant BankMerchant Bank
11.11.Consortium BankConsortium Bank
12.12.Export-Import BankExport-Import Bank
13.13.School BankSchool Bank
14.14.Labour BankLabour Bank

44. Classification of Banks on the basis Classification of Banks on the basis
of Functionof Function
1. Central Bank:1. Central Bank:
Central Bank is the bank of banks. Every civilized country now has its Central Bank is the bank of banks. Every civilized country now has its
own central bank.own central bank.
The primary function of the central bank is to regulate the flow of money The primary function of the central bank is to regulate the flow of money
and credit in order to promote efficiency, stability and growth in the and credit in order to promote efficiency, stability and growth in the
country.country.
In Pakistan “State Bank of Pakistan” is the central bank (in England it is In Pakistan “State Bank of Pakistan” is the central bank (in England it is
“Bank of England” and in America it is “The Federal Reserve System”). “Bank of England” and in America it is “The Federal Reserve System”).
Functions of central bank are;Functions of central bank are;
–Sole right of note issueSole right of note issue
–Banker, agent and advisor to the governmentBanker, agent and advisor to the government
–Banker to commercial banksBanker to commercial banks
–Controller of creditController of credit
–Clearing agentClearing agent
–Lender of last resortLender of last resort
–Custodian of foreign exchange reservesCustodian of foreign exchange reserves
–Development RoleDevelopment Role
–Other FunctionsOther Functions

45. Classification of Banks on the basis Classification of Banks on the basis
of Functionof Function
2.Commercial Banks:2.Commercial Banks:
Commercial banks are those banks which are engaged in Commercial banks are those banks which are engaged in
performing the routine duties of banking business.performing the routine duties of banking business.
They collect surplus money and make loans and advances in the They collect surplus money and make loans and advances in the
form of overdrafts, cash credit and discounting bills of exchange.form of overdrafts, cash credit and discounting bills of exchange.
They also provide special financial services and agency services.They also provide special financial services and agency services.
Commercial banks in short are considered the life blood of the Commercial banks in short are considered the life blood of the
economic society.economic society.
Functions of commercial banks are;Functions of commercial banks are;
–Basic FunctionsBasic Functions
–Secondary FunctionsSecondary Functions

46. Classification of Banks on the basis Classification of Banks on the basis
of Functionof Function
3. Exchange Banks:3. Exchange Banks:
Exchange banks are mainly deal with international trade. These Exchange banks are mainly deal with international trade. These
banks takes the responsibility of settlement of foreign exchange banks takes the responsibility of settlement of foreign exchange
and arrange the foreign businesses.and arrange the foreign businesses.
In Pakistan commercial banks have been allowed to do the In Pakistan commercial banks have been allowed to do the
business of Exchange Bank. business of Exchange Bank.
American Express bank, Rupali bank, bank of Oman are some American Express bank, Rupali bank, bank of Oman are some
examples of exchange banks. examples of exchange banks.
There functions are;There functions are;
–Currency exchangeCurrency exchange
–Providing information for international businessProviding information for international business
–Providing finance for international businessProviding finance for international business
–Bank drafts and Bill of exchangeBank drafts and Bill of exchange
–Letter of creditLetter of credit

47. Classification of Banks on the basis Classification of Banks on the basis
of Functionof Function
4. Saving Banks:4. Saving Banks:
Saving banks are those banks which collect and keep the small Saving banks are those banks which collect and keep the small
savings of the public. They are called thrift promoting institutions.savings of the public. They are called thrift promoting institutions.
The Saving banks invest the funds in the safest government The Saving banks invest the funds in the safest government
securities and offer reasonable rate of profit on saving accounts.securities and offer reasonable rate of profit on saving accounts.
Students, government employees and household women are Students, government employees and household women are
usually opening such accounts.usually opening such accounts.
A prior notice to bank is necessary for withdrawal of huge amount A prior notice to bank is necessary for withdrawal of huge amount
(More than Afs 15000)(More than Afs 15000)
National Saving bank in England and Post office saving bank in National Saving bank in England and Post office saving bank in
Pakistan are examples of saving banks.Pakistan are examples of saving banks.
There Functions are;There Functions are;
–Accepting deposits of people for savingAccepting deposits of people for saving
–Investing the money of people in safe means of investmentInvesting the money of people in safe means of investment

48. Classification of Banks on the basis Classification of Banks on the basis
of Functionof Function
5. Agriculture Banks:5. Agriculture Banks:
The bank is responsible for the development of agriculture sector of The bank is responsible for the development of agriculture sector of
the country.the country.
Agriculture banks are set up to provide financial assistance to the Agriculture banks are set up to provide financial assistance to the
agriculturists and agro-based industries.agriculturists and agro-based industries.
Agricultural Development bank of Pakistan, Agricultural Mortgage Agricultural Development bank of Pakistan, Agricultural Mortgage
Corporation in England and Federal Land Bank of USA Corporation in England and Federal Land Bank of USA
There functions are;There functions are;
– Providing long term advances for buying tractors etcProviding long term advances for buying tractors etc
–Short term loan for purchasing seeds and fertilizersShort term loan for purchasing seeds and fertilizers
–Introducing modern techniques in farming Introducing modern techniques in farming
–Making awareness in farmers by seminarsMaking awareness in farmers by seminars
–
Medium term loans for construction of tube Medium term loans for construction of tube wellswells

49. Classification of Banks on the basis Classification of Banks on the basis
of Functionof Function
6. Industrial Development Banks:6. Industrial Development Banks:
The Industrial banks provide medium and long term credit to the The Industrial banks provide medium and long term credit to the
industries. The growth of industries depends on these banks.industries. The growth of industries depends on these banks.
There functions are:There functions are:
–Granting loans to set up new companiesGranting loans to set up new companies
–Long term loans for machinery and construction of buildingLong term loans for machinery and construction of building
–Loans for modernization and replacement of business unitsLoans for modernization and replacement of business units
–Short term loan for purchase of raw material and payment of daily Short term loan for purchase of raw material and payment of daily
expenses. expenses.

50. Assignment: Assignment:
Compare and contrast the various forms of Compare and contrast the various forms of
business forms in terms of their advantages and business forms in terms of their advantages and
disadvantages. ( Group-1) disadvantages. ( Group-1)
Explain the role of Joint Stock Companies in the Explain the role of Joint Stock Companies in the
capital formation. Describe five major joint stock capital formation. Describe five major joint stock
companies of Pakistan. (Gp-2) companies of Pakistan. (Gp-2)
Describe the role of State Bank in the monetary Describe the role of State Bank in the monetary
control of Pakistan economy.(Gp-3) control of Pakistan economy.(Gp-3)