UNIT-1

Forms of Business Organization:

A firm is an ownership organisation which combines the factors of' production (men, materials
and· machines) in a plant for the purpose of producing goods or services and selling them al
profit.
TYPES OF OWNERSHIP
Modern business is carried out by the following types of ownership organisations (forms of
business organisation).

INDIVIDUAL OWNERSHIP (SINGLE PROPRIETORSHIP):

In this type of enterprise, the individual entrepreneur supplies the entire capital (even if he has
to borrow). He organises and manages the business himself, and takes the entire risk.
salient Features of Sole Proprietorship:
Legal Liability: His legal liability covers all his possessions. The creditor can collect his
personal
property.
Applications: Thjs form of ownership is most satisfactory in the following cases:
1. For small scale -business requiring small capital which can be spared by one man, for
example agriculture, small scale industries, cottage industries, retail trade, handicrafts,
professional services, commercial shops etc.
2. Where the risk covered is not too heavy.
3. Where management by one man is possible.
4. Where local market is available.
Advantages:
1. Simple and Easy. This type of' ownership is simple in nature and easy to manage. The
labour knows for whom they are working and to whom they are accountable.
2. Least legal formalities. It does not involve much legal formalities or other complicated
procedure to start the business. (Only a normal licence from the local authority is necessary).
3. Quick Decisions and Prompt Actions. The whole business is controlled by one man,
therefore, he can take and implement the decisions quickly and in right time. Quick decisions
and prompt action enable the entrepreneur to take advantage of business opportunities for
gains.
4. Quality Production. Since the owner takes all the risks, he gives personal attention and
supervision to the products made. This may result in reduction in waste and better quality
products.
5. Better Labour Relationship. Since the business is small, the number of workers are less
and the owner comes in close contact with the workers. This helps to maintain good_ employer-
employee relationship.
6. Personal Attention to Customers. Since the business is small it is possible to pay personal
attention to customers and their requirements and to give them entire satisfactions by
overcoming their complaints about the product.
7. Small Capital. Since capital required is small, talented men of small means can start
independent business of their own and earn living. ·
8. Maintenance of Secrecy. The individual entrepreneur can easily maintain the secrets of the
business as he only knows everything of his enterprise.
9. Incentive. The direct relationship between efforts and rewards acts as an incentive to the
owner to put his best efforts to manage the business efficiently and increase his earning. Self-
interest can be a driving force to secure economy and efficiency.
10. Flexibility. The individual ownership is highly flexible as it is capable of adjustment to the
requirements of changing business conditions.
Disadvantages:
1. Limited Capital. Due to limited capital, it is not possible to expand the business even if it
is much profitable.
2. Unlimited liability. In case the owner is not able to pay the debts, the same can be recovered
out of the sale of his business assets and personal property. The individual owner will have to
think twice before adopting new and risky ventures, latest and new~ methods etc. as his private
property is constantly in danger of meeting the debts and obligations of his business.
3. Personal Limitations. The individual owner has to control all the aspects of his business
alone. He cannot be expert in all techniques like management, sales, engineering, processes
etc. Further growth and expansion of business may not be possible due to want of proper and
adequate organising power.
4. Small Income. Inspite of all efforts, such a business can yield only a small income. The
resources are limited. Many profitable ventures are ruled out.
5. Cannot compete with a big business. Since the business is small it cannot compete with a
big business producing the same articles.
6. Short Life. If the owner dies the business may collapse. Because, his successors may be
incapable or not interested in this type of business. Disability, prolonged illness or death of
owner may result in the business coming to standstill or its closure unless his successors take
the interest and ability to run the bus mess.
7. Division of Labour is not possible. The owner as well as the worker has to perform variety
of activities, therefore they cannot be specialized in a particular activity.
8. No Economies of Large Scale. Economies of large-scale manufacturing buying and selling
cannot be obtained on account of small size organisation.

PARTNERSHIP ORGANISATION:
Partnership is usually formed to combine capital, labour and varied specialised skills or
abilities.
Partnership business is owned by two or more persons (up to 20) who share the powers,
responsibilities and profits according to an agreement reached amongst themselves.
A person may possess exceptional business ability, experience, talent but no capital, he can
have a financing partner. A financier may need a managerial expert as well as a technical expert
and all of them may combine to set up a business with common ownership and management
by mutual agreement to form a partnership business.
According to Indian Partnership Act 1932, Partnership is defined as, "the relation between two
or more persons who have agreed to share profit of a business, carried on by all or any of them
acting for all".
Formation. Partnership can be formed either verbally or by written agreement but to avoid the
possibility of conflict at a later stage, it is advisable to enter into written agreement. The written
agreement is known as ''Partnership Deed".
The partnership deed contains the terms and conditions relating to partnership and the
regulations governing its internal management.
It also lays down the rights and duties of the partners. The deed is a duly stamped and sealed
document containing the terms of contract is also registered in a Court of Law.
Thus, a partnership deed enjoys legal status and it serves as legal evidence in future to settle
any dispute or differences.
The partnership deed should have the following details:
1. Name of the Firm,
2. Nature of business,
3. Date of starting partnership,
4. Duration of partnership,
5. Rate of interest on capital invested, if any,
6. Money contributed by each partner,
7. Allotment of managerial functions among the partners,
8. Share of profit and losses,
9. Salary if any allowed to managing partners,
l0. The basis for the inclusion of any new partners,
11. The amount which can be withdrawn by each partner,
12. The aim of partnership as well as the manner in which it can be dissolved,
13. Accounts of the firm and authority for signing cheques; bills of exchange, etc.
14. Provision for Arbitration for settling the disputes that may arise in future. In absence of any
agreement, profits and losses are shared equally as per the provisions of the Indian Partnership
Act,1932.
The partners have to prepare a statement which will have the following particulars:
1. Name of the firm,
2. Place of business - principal place and branches, if any,
3. Name and addresses of all partners,
4. Date of joining the firm in case of every partner,
5. Duration, if any.
Types of Partners:
1. General Partners. All the partners who participate in the working of the firm and are
responsible jointly with other partners, for all liabilities, obligations and defects of the firm are
the general partners.
2. Limited partners. The liability for debts of the limited partners is limited to the extent of
their contributed capital. They are not entitled to interfere in the administration of the firm.
3. Active or Managing Partners. Active partners are those who take active part in the
management and formulation of policies. Sometimes they get salaries in addition to the normal
profits as partners.
4. Sleeping and Silent Partners. They do not take any active part in the business. They simply
contribute their capital in the business and get their share in the profit of the firm. They are
liable for all liabilities of the firm as partners.
5. Nominal Partners. They lend their reputed name for the company's reputation. They do not
invest money and do not take any active part in the management.
6. Minor Partners. Minor partners are those whose age is below 18 years and associated with
the business. Such partners can be allowed only with the consent of other partners. Their
liability is limited to their investment only. Within six months of attaining the age of majority,
they have to give public notice about their desire to serve or continue their connection with the
firm. In such case they will be regarded as fulfledged partners with unlimited liability. ·
Advantages:
1.Easy formation. The formation of partnership is easier as compared to joint stock
companies. Voluntary mutual agreement is enough to start the partnership. Procedure for
registration is simple and also registration is not compulsory.
2. More Capital. Two or more partners combine their resources in partnership, therefore, the
amount of capital is larger as compared with individual ownership. ·
3. Diverse Talent. In this type of organisation persons possessing different abilities and skills
may come together. Persons having good ideas and experience of business make partnership
with rich people. Thus, money and knowledge both are combined to earn profit.
4. Less Possibility of Error of Judgement. A problem is examined from more than one point
of view, therefore the decision arrived at is likely to be sounder than in one man business.
5. Prompt Decisions. There are limited number of partners who are in continuous and intimate
touch with each other. Therefore, prompt decisions can be taken. It can decide on a suitable
course of action before it is too late.
6. Large Economics. As compared in individual ownership, the advantage of division of
labour, specialization standardization and economics of large purchasing are more.
7. Personal Factor. Partnership can maintain personal relationship with employees and the
customers.
8. Divisions of Labour. The partners can divide the work among themselves on the basis of
their personal capabilities. Therefore, they can run the business more efficiently.
9. Simple Dissolution. The partnership business can be dissolved easily. The partnership is
purely voluntary association. It can be dissolved by giving 14 days’ notice to other partners.
10. Cautious and Sound Approach. As the private property of every partner is constantly in
danger of meeting all business obligations of the firm, partners will have to think twice before
undertaking any highly speculative/risky business.
The unlimited liability can also act as the best security for raising loans or advances because
private property of all partners can be used as additional security in addition to the property
and assets of partners organisation.

Disadvantages:
1. Unlimited Liability. Because of unlimited liability any one partner can held liable for the
Whole debt of the firm. This frightens away the moneyed people. They are reluctant to join
those who have ability, skill but no capital.
2. Short Life. After the death or retirement of any one partner, the partnership may come to an
end.
3. Insufficient Capital. If can raise much less capital as compared to joint stock company.
This prevents the expansion of the business to take advantage of increased demand.
4. Disagreement. Sometimes due to misunderstanding friction may arise between the partners
which adversely affects the efficiency and expansion of the business.
5. Less Secrecy. A partner may withdraw from the firm and establish his own enterprise with
the knowledge of the secrets of the business.
6. Non-Transfer of Partnership. No partner can transfer his interest in the firm to anybody
without the unanimous consent of other partners.
7. No direct relation between efforts and rewards. The profits are shared by the partners.
So, there is no incentive for hard working. Sometimes it encourages lavish expenditure.
8. Lack of Public Confidence. As the financial matters are strictly confined to partners only,
and in absence of any strict legal control over the affairs of partnership, there is much less
public confidence in partnership. It creates suspension in the mind of the outsiders who are
dealing with firm.
Suitability of Partnership. Partnership is an ideal form of organisation for small scale and
medium size business where there is a limited market, limited risk of loss and limited capital
and limited specialisation in management is needed.
Examples are wholesale trade, retail trade, commercial forming, small scale industries, local
enterprises, warehousing, transport services, professional services, marketing services etc.
JOINT STOCK COMPANY:
A Company is an artificial person having an independent legal entity and a perpetual succession
with a distinctive name and a common seal having a common capital divided into shares of
fixed value which are transferable and carry limited liability.
The joint stock company is legal business owned by the shareholders having limited liability,
and managed by an elected "Board of Directors". The most important type of business
organisation today is the Joint stock company.
Characteristics of Joint Stock Company
The following are some of the characteristics of joint stock company:
1. A company is created by registering or incorporating an association of persons under the
Company Act.
2. It has a separate legal existence as distinct from its members.
3. Artificial personality enabling it to exercise certain legal powers.
4. Perpetual life and a very stable existence.
5. It has a common seal on which its name is engraved and this common seal acts as its
signature. It is affixed on all important legal documents and contracts.
6. There is a complete separation of ownership from management.
7. Liability of shareholders is limited.
8. Lower tax liability.
9. Easy transferability of shares.
I 0. There is a wide distribution of risk of loss.
11. Large membership.
12. Statutory regulations as provided in the Indian Company Act, 1956.
Formation of Joint Stock Company. An entrepreneur(promoter) prepares a scheme of
business, he secures the co-operation of at least six more persons, because the minimum
number of persons to form a company is seven. The promoters of the company prepare the
following documents:
(a) Memorandum of Association.
(b) Articles of Association.
(c) A List of persons who have consented to be the Directors of the Company along with the
consent in writing of such persons.
(d) A declaration by an advocate to the effect that all the requirements of the Act have been
fulfilled.
(e) Name and address of promoters.
The memorandum of association contains:
1.The name of the Company.
2. Its aim and objectives.
3. The location of head office.
4. The amount of share capital.
5. The kind and value of each share.
6. A declaration that the liability is limited.
Articles of association contains. Rules and regulations governing the internal management of
the company. The rights of the shareholders, Duties, Powers of Directors, Regulations
regarding rights to vote and issue of capital etc.
These documents are then submitted to the Registrar of joint stock company. If the Registrar
is satisfied that the requirements of the law have been fulfilled, he issues a certificate of
incorporation. The company then comes into existence.
Raising-Finance. Funds can be taken from banks arid finance corporations etc. in the form of
loans, or by selling shares and debentures.
Managing the Business. The shareholders elect the directors to manage the business on their
behalf.
The board of directors only lays down the general policy and discusses major issues. The day-
to-day business is carried on by the salaried manager or the Managing Director.

Types of Joint Stock Company. There are two types of Joint Stock company:
1. Private Limited Company
2. Public Limited Company.
Private Limited Company. This type of company can be formed by two or more members.
The maximum number of members is limited to 50 (excluding the employees). The company
is registered under the Indian Company’s' Act, 1956.
In this the transfer of share is limited to members only and general public cannot be invited to
purchase shares.
Normally, the members of such company are friends or relatives. In this system persons who
want to take the advantage of limited liability and at the same time keep the business as private
forms the private limit d company. Most of the middle-sized industries in this manner.
The company need not circulate the Balance Sheet, Profit and Loss Account etc.

Public Limited Company. As its name indicates, the membership of public limited company
is open to general public. The minimum number of persons required to form a public limited
company is seven, but there is no upper limit. Such companies can advertise, to offer its shares
to general public. Public limited companies are subjected to greater control and supervision or
the Government. This control is necessary to protect the interest of the shareholders und the
members of the public. Shares are transferable without any prior approval. The affairs of the
company are managed by "Board of Directors".

Advantages of Joint Stock Company:

1. Economics of Large Scale. Joint stock company can take advantage of internal and external
economies in buying and selling, lower overhead charges relating to distribution, publicity and
administration, research and experiments etc.
2. Limited Liability. The shareholders have a limited liability. It is limited only to the value
of their shares. In case the company fails the personal property of the shareholders cannot be
attached by the creditors.
3. Huge Capital. The capital of the company is raised by the sale of shores. The value of each
share is low, this attracts all sorts of people, rich and poor to invest their capital. Therefore,
large amount of capital can be raised.
4. Share Transferable. When the shareholder needs money he can get it by selling his shares.
5. Economies Administration. The directors have not to be paid salaries but just a fee for
attending the Board meeting. Thus, the company can get advice of persons of mature wisdom
and good experience at a small cost.
6. Democratic. The directors are elected by shareholders in case the shareholders feel that the
directors are not working properly they can be removed and new directors chosen in their
places.
7. Permanent Existence. Any number of shareholders may leave it, but the company
continues.
8. Legal Control. The Government exercises control over working of the company. The object
is to prevent fraud and to protect the interest of shareholders and the public at large.
9. Risk spread out. There are large number of investors and secondly, an individual investor
can buy shares of different companies and thus widely distribute his risk of loss.
10. Mobilization of Scarce saving. Limited liability, transferability of shares and unlimited
membership makes the joint stock company a very effective instrument for mobilization of
scarce saving of the society towards industrialization.
11. Accelerated economic growth of the country is possible through industrialization.
12. It creates huge employment possibilities.
Disadvantages:
1. Dishonest directors may exploit the shareholders. The transferability of shares kills the
interest of the shareholders; therefore, the directors are all in all, they can deceive the
shareholders.
2. Legal Complexities. Its formation, functioning involves very large legal procedures.
3. It is democratic-in theory only. Due to small capital of each shareholder, transferability of
shares and since the shareholders are from different parts of the country, they do not take active
interest in the affairs of the company. Therefore, the real power to run and manage the business
is in the hands of the directors. The directors, self-elected at first manage to get themselves re-
elected.
4. Delay in Decisions. The Board of Directors manages over affairs of a joint stock company
and hence quick decisions are not possible. Moreover, there may be disagreement among
directors which may hamper the business.
5. Favourisms. The directors may show favourism by selecting their own persons for high
posts.
6. Difficult labour relations. The owners of company have no personal touch with the
employees. There are often labour troubles. Inspite of these disadvantages, business on a large
scale can only be started and run successfully in this manner.
7. Lack of initiative and personal interest. Lack of personal interest on the part of salaried
managers may lead to inefficiency and waste (because there is no direct relation between effort
and income for them).
8. Concentration of economic power and wealth in a few hands.
9. Misuse of internal information. Misuse of internal information by the managing group in
bringing wide fluctuations in the market price of equity shares is possible.
Considering both merits and demerits of the company form of organisation, it can be concluded
that in the present-day world, this form of business organisation is very essential for the
industrial development of a country. In the absence of joint stock principle, the exploration of
a country's natural resources and its economic and industrial development would not have been
possible.
Liquidation. It becomes difficult to run joint stock company if liability becomes much more
than assets and when creditors press for payment of loans. In such circumstances the company
has to dissolve or wind up. This is known as liquidation.
Liquidation may be compulsory or voluntary or under the supervision of court. If the resources
are not adequate to make the payment, then the assets of the company have to be sold. The
amount thus collected is paid to the ·creditors in proportion of the credit. If some amount is left
after payment it is distributed among the shareholders.
COMPARISON BETWEEN PRIVATE AND PUBLIC LIMITED JOINT STOCK
COMPANIES:
CO-OPERATIVE ORGANISATIONS (SOCIETIES)
Definition of Co-operative Organisation. Co-operation is a form of organisation, wherein
persons, irrespective of caste, creed and religion, voluntarily associate together, as human
beings, on the basis of equality for the fulfilment of their common economic interests.
The International, Labour Organisation gave a comprehensive definition of a co-operative
organisation as follows:
"A Co-operative organisation is an association of persons, usually of limited means, who have
voluntarily joined together to achieve a common economic end through the formation of a
democratically controlled organisation, making equitable contributions to the capital required,
and accepting a fair share of risks and benefits of the undertaking".
Distinctive Features/Characteristics of Cooperative Organisation
Main characteristics of co-operative organisation are as follows:
1. Voluntary Organisations. Co-operative society is a voluntary organisation. A member can
contribute his membership as long as he desires and can withdraw his capital and discontinue
his membership by giving a notice.
2. Open Membership. There is no limit to its members. Membership is open to all adults,
whether man or woman, rich or poor without any distinction of caste, creed and religion. Value
of each share is quite less which a poor can also afford.
3. Economic and Democratic Management. The management is based on democratic lines
of equality. Every member can cast only one vote irrespective of the number of shares he may
hold. A man having only one share can become the president of the cooperative organisation.
Generally, the management is honorary.
4. Profit is not important. The objective of co-operative society is to promote self-help and
mutual assistance and thus to serve the members and not to earn profit.
5. Spirit of Co-operation. Under co-operation service is of primary importance and self-
interest is of secondary importance. "Each for all and all for each" is the motto of co-operative
organisation.
6. Unity. Unity of joint action is the basis of co-operation.
7. Common Interest. The members come together to fulfil their common interest. If may be a
so or economy activity such as agriculture trade, finance, manufacturing etc.
8. Co-operative Status. A co-operative society has to be registered under separate legislation.
It gives a separate legal status and certain exemptions and privileges under the act.

Aims and Objectives of Industrial Co-operatives: As already described the main objective
of co-operative society is to promote self-help and mutual assistance and fulfil their common
economic interest. However, some of the objectives of industrial cooperatives may be as
follows:
1. To purchase and supply raw-materials, tools and equipment to members.
2. To secure contracts and execute them with the help of members.
3. To market the finished goods of members.
4. To purchase machinery for giving on hire to members.
5. To borrow funds from members and non-members.
6. To grant loans and advances to members on the security of raw-materials and finished goods
belonging to them.
7. To undertake all such activities as are conductive or incidental to the accomplishment of the
aforesaid objectives and secure material and social progress of all members.
8. From the social point of view, the industrial co-operatives are expected to safeguard the
interest of the poorer sections of community against exploitation by the capitalists and lead to
equitable distribution of wealth and income.
Formation of Co-operative Societies
In our country there is a special legislation governing the registration, working and
management of cooperative organisations. To start a co-operative society an application is
submitted to the Registrar of Cooperative Societies.
The application for registration should provide all essential information e.g. name and address
of the society, its aims and objectives, particulars of share capital etc. The application should
be signed by at least 10 members.
The application should accompany duplicate copies of Bylaws. i.e. rules and regulations
governing the internal organisation and management of the society.
The Registrar after the scrutiny of the application, if satisfied with the soundness will issue a
certificate of registration and the society will be formed. Once the society is duly registered, it
can admit new members and also issue it shares.

THE VARIOUS TYPES OF CO-OPERATIVE SOCIETIES

1. Producers co-operative society.
2. Consumers Co-operative society.
3. Housing Co-operative society.
4. Credit Co-operative society etc.
Producers’ co-operative society:
In this form of co-operative, the workers wish to be their own masters the business is owned
by them.
They elect their own managers. They are their own employees. The profit instead of enriching
the few individuals, goes tb the actual workers. The workers are supposed to put in very hard
work. There are no strikes and lock-outs. It prevents the workers from being exploited; and
teaches them how to work in team spirit.
This type of ownership is suitable where large capital and much technical and expert
knowledge is not needed. · · ·
Examples: Agricultural and cottage industries.
Shortcoming:
1. Inadequate capital.
2. Inefficient management.
3. Lack of discipline.
Consumers Co-operative Society:
The consumers living in a particular area combine together. Each contributes a small capital.
store is opened in which articles of common use are stocked and sold at reasonable prices. Such
co-operative stores are found in many colleges and schools in India.
Advantages :
1. Much capital is not needed.
2. The management is simple and honorary.
3. There is legal control and inspection.
Disadvantages :
1. They offer very little selection for costumers.
2. The honorary office bearers do not take much pains, they are sometimes dishonest.
Housing Co-operative Society:
Housing Co-operative societies are formed for the purpose of getting plots or constructing
houses for the needy persons, Government provides great facilities (Providing loans at low rate
of interest etc.) for this purpose.
Co-operative Credit Society:
Its object is to finance the poor cultivators by providing Joans at low rate of interest for the
development of land, purchase of agricultural machinery, fertilizers etc.
A credit co-operative society may be formed by persons working in the same organisation to
provide loans to the members in case of financial difficulties or for purchasing necessities of
their life such as cloth, wheat etc.
Advantages:
1. Co-operative societies protect the interest of the weaker section of the community as under:
(a) Provide better methods and tools of production to small manufacturers and craftsmen.
(b) Help the farmers in farming and marketing their products efficiently.
(c) Provide financial assistance at moderate rate of interest.
(d) Opening of super bazaar types of stores· gives relief to the weaker section of the society
and helps in establishing price level.
2. Elimination of middleman. The commodities are purchased directly from the
manufacturers and supplied to the members. It thus eliminates the profit of middlemen; and the
goods can be sold at cheaper rates.
3. Services motive. The co-operative sector is based on service motive and therefore, there is
no question of profit making, black marketing etc.
4. Democratic nature. Its management is democratic, elected by shareholders.
5. Sense of co-operation. It promotes a sense of co-operation among the members and also
among the people of the locality. Thus it serves the social purpose also.
6. Socially neglected class. Provides occupation and means of earning to socially neglected
class like widows, physically handicapped or poor section of the community.
Disadvantages :
1. Lack of Co-ordination. It may suffer due to lack of co-ordination between various
members. Conflict may _arise in sharing of duties and responsibilities and also in sharing
produce and profit.
2. Chances of undue advantages. Some of the forceful members sometimes try to take undue
advantages and succeed in it.
3. Favourism. The executive committee and the employees favour their friends and relatives
at the cost of other members.
4. Limited Capital. Co-operatives are generally association of low income group people. They
cannot finance expanding business.
5. Inefficient Management. The lack of educated and trained persons practically in villages
badly affects the successful working of the Co-operative Organisation.
6. Political influence. Many a time co-operative are exploited by the politicians for their selfish
gains.

PUBLIC SECTOR ORGANISATIONS

Faster and planned economic development cannot be fulfilled by private sector alone. Hence.
The public sector has lo play a key role to accomplish quick industrialisation and rising
standard of living of the people through developing key and basic industries, e.g. Iron and steel
industries, aircraft, defence industries, fertilizer industries etc. In our country, the expansion of
the public sector was in accordance with Indus trial Policy Resolution, 1948 and 1956 and as
per the directives of our Five-Year Economic Plans.
The objectives of public sector enterprises can be stated as:
I. Equitable distribution of wealth and income.
2. Balanced economic development through dispersal of industrial location.
3. Adequate employment opportunities.
4. Speedy agricultural and industrial development without the growth of monopolies.
5. Self-sufficiency of the nation in modern technology and managerial skills so that in due
course our country need not depend on foreign collaboration in capital technology. skill etc.
Public sector includes (i) State Enterprises and (ii) Public Corporations.

GOVERNMENT UNDERTAKING (STATE OWNERSHIP)

Private ownership causes accumulation of wealth in the hands of few capitalists. These
dominate motive to earn more and more profit has led to economic unbalance and neglect of
the well being of workers and welfare of community as a whole. The exploitation by the
capitalists increased the gap between richer and poorer. The monopolistic tendencies of the
Private ownership necessitated the State's participation in trade and industrial fields.
The State ownership are the business organisations which are owned. managed and run by the
Government or local bodies like municipality. district board etc. This is general1y done in the
case of public utility services like gas. electricity, water supply, bus, railways navigation etc.
The railways, post and telegraph are completely owned by Central Government. Some other
industries such as ship building, steel industry electricity generation. railway engine
manufacture etc. are owned the Government and also by joint stock companies.
The Government either starts or nationalises certain industries to prevent economic inbalance
in the nation. The social benefit is of primary importance while profit motive is given a
secondary consideration.
Advantages:
1. Profits go to the Government, and are utilized for the benefit of the society at large. Nation
building departments can be liberally financed from the increased resources.
2. Purity of supply is guaranteed. There is no incentive for adulteration for a government
undertaking as there is for private business.
3. Government has ample funds and can borrow more, if needed, in the money market at low
rates. This would lower the cost of production.
4. The best talent is attracted towards government service. The Government can, therefore,
engage superior staff. The business, therefore, will run better.
5· Government can afford to wait long for an enterprise to yield profit. Big business ventures
like iron and steel works, heavy electricals, defence projects can be started.
6. Consumer's interests are properly safeguarded.
7. Government enterprise is subjected to greater control. Public cannot be exploited for long.
Disadvantages:
I. Government Officer behaves like a big boss, and a respectable citizen receives no courtesy.
2. The Government servant has not the same incentive to do the best as a man in private service.
In government service promotion is by seniority, and not by merit. Therefore, Government
servants do not work hard.
3. Frequent transfers of Government servants are harmful to the success of the enterprise. There
is no continuity of policy.
4. The Government business is all routine and there is little initiative. Economic progress is
therefore slow.
5. There is little check on extravagance and inefficiency. There are no shareholders to question
the directors in the annual meeting.
In under-developed countries, the public sector (i.e. State enterprise) has to play an increasingly
expanding role. It has a special role to play in creating an infra-structure of social overhead
capital like means of transport, communications etc. These projects need huge capital, but since
they are not productive in the narrow sense private sector is not attracted to them. But they are
of vital importance to the development of the economy hence they have to be undertaken by
the State. Therefore, state enterprise assumes special importance in an under-developed or
developing economy.
Even in the sphere reserved for the private sector, the state can step in, if the private sector is
not showing sufficient progress as required by the country’s needs. There is also a wide field
in which both private and public sector can start enterprise. This policy is being given effect to
by the Indian Five Years Plans.

PUBLIC CORPORATION

A public corporation is a body created by a Law of Parliament with its powers, duties and
liabilities defined in the written law. Public corporations try to combine the public interest of
the Government body and the autonomous management of the public sector. These
corporations have no profit motive and work for the sake of social welfare.
The main characteristics ·of the public corporation are:
(i) It is created by the separate act passed by the Parliament or State Legislative Assembly.
(ii) It is owned by the Government-either Central, State and or local bodies.
(iii) It is managed by the board of directors nominated by the Govt.
(iv) It enjoys complete internal autonomy and is free from parliamentary or political control in
the internal and routine management.
(v) It enjoys financial freedom and can raise financial resources independently. It has not to
depend on budget appropriations. It has borrowing power. Its bond issue is guaranteed by the
govt.
(vi) The employees of the public corporation are not treated as the Civil servants of the
Government. The corporation is empowered to follow its own personal polices for recruitment,
training, transfer and promotion.
(vii) Its primary objective is to serve the public interest and hence it is accountable to the
Parliament for its policy decisions and the resultant functioning.
Public corporation is the best mechanism through which large public enterprise can be
administered. Based on the principle of maximum autonomy, consistent with public
accountability, eliminating bureaucracy it has introduced public service into community
ownership.

Limitations/Disadvantages of Public Corporations:

1. It is suitable only for the management of very big enterprises.
2. It needs special legislation and hence its formation is elaborate and time consuming.
3. It is a rigid form of' organisation as any change in its constitution will require amendment of
the special act.
4. The autonomy of the corporations are only on papers. In reality the Ministers, Government
Officer and Politicians interfere in the working of such corporations.
5. Public corporations possess monopoly and in the absence of competition, these are not
interested in adopting new techniques and making improvements in their working.
At present, Insurance, Finance, Industry, Mining, Transport and Trade in many countries are
carried on through public corporation.
Examples of Public Corporation are: Air India, Food Corporation of India, Oil and Natural gas
Corporation, Road Transport Corporation, Financial Corporation, Industrial Development
Corporation Electricity Board, Damodar Valley Corporation etc.
 INTRODUCTION TO MANAGEMENT

Management is an on-going activity consisting of number of functions. These are:

I. Planning
2. Organising
3. Staffing
4. Directing
5. Motivating
6. Controlling
7. Co-ordinating
8. Communicating

FUNCTIONS OF MANAGEMENT

PLANNING:
"Planning is deciding in advance what to do, how to do it, when to do it and who is to do it.
Planning bridges the gap from where we are, to where we want to go. It makes it possible for
things to occur which would not otherwise happen" - Koontz and O'Donnell.
"Planning is the thinking process, the organised foresight, the vision, based on facts and
experience that is required for intelligent action" -Alfred and Beatty.
"Planning is deciding in advance what is to be done. It involves the selection of objectives,
policies, procedures and programmes from among alternatives" - M.E. Harley.
A careful analysis of these definitions reveals that:
(i) Planning involves visualizing future course of action and putting it in a logical way.
(ii) It involves thinking and analysis of information.
(iii) It is concerned with determination of objectives and goals in the light of future.
(iv) It involves development of alternative courses of acting to achieve such objectives.
(v) It involves decision making i.e. selection of best course of action among these
alternatives.
(vi) Its objective is to achieve better results.
(vii) It is a continuous and integrated process.

ORGANIZING
Organizing involves determining activities needed to fulfil these objectives, grouping
these activities into manageable units or departments and assigning such groups of activities to
managers. Organizing provides a framework of management or a mechanism for positive,
integrated and co-operative action by many people, in a joint effort to implement plan. Planning
decides what management wants to do, while organizing provides an effective machine for
achieving the plan or objectives.
Thus, organizing involves identification and grouping the activities to be performed
and dividing them among the individuals and creating authority and responsibility, relationship
among them. Organization, in fact, is a backbone of management, which establishes
relationship between people, work and resources. It co-ordinates these factors in such a way
that maximum output is obtained effectively and efficiently with minimum total cost.

Steps in Organising:
The Process of organisation involves the following steps:
(i) Determination of activities.
(ii) Division of activities.
(iii) Fitting individuals into jobs
(iv) Developing relationships in terms of authorities and responsibilities.

STAFFING
Staffing involves filling the positions needed in the organization structure by appointing
competent and qualified persons for the jobs.
The staffing involves (i) Recruitment (ii) Selection (iii) Placement (iv) Training (v)
Development of personnel (vi) Developing system for remuneration of personnel and
evaluating their performance.
The Board of Directors of a company undertakes staffing function by selecting, helping,
developing and appraising the chief executive who in tum performs these functions in relation
to the heads of various divisions or departments of the enterprises. The departmental heads also
select, train and appraise, their assistants and so on. This function is very important since people
differ in their intelligence, knowledge, skills, experience physical condition. age and attitudes.
Therefore, management must understand in addition to the technical and operational
competence, the sociological and psychological structure of the work force. This will enable
them to select right man for the right job and train and motivate them to increase the
organisational effectiveness and productivity.
DIRECTING
Directing involves motivating, guiding and supervising subordinates towards company
objectives. Good planning may ensure the achievement of the predetermined objectives only
when human efforts, largely diverse are coordinated, guided and directed for the
accomplishment of the objectives. This however, is difficult task, since manpower resources
are difficult to manage. In fact, the directing ability of the manager in the organization
determines its effectiveness. Therefore. the person who directs must have dynamic leadership.
This work is done by the Director or General Manager or Managing Director.
The steps in directing function are as follows:
1. Issue of orders and instructions.
2. Guidance and training of subordinates.
3. Supervision of subordinates' work.
Supervision is necessary in order to ensure that:
(a) the work is going on as per the plan established.
(b) the workers (or subordinates) are doing work as they were directed to do.
MOTIVATING
As mentioned by Dalton McFarland, "The concept ol' motivation is mainly
psychological. It relates to those forces operating within the individual employee or subordinate
which imputes him lo act or not active, in certain ways".
Motivation and leadership arc the master keys to ·successful management of any
enterprise. They are also responsible to ensure productivity of human resources. Motivation
can set into motion a person to carry out certain activity. Motivation assumes unique
importance in modern business management. Democratic leadership heavily relies on
motivation of employees, through financial and non-financial incentives. Effective
communication and participation enhance the power of motivation. Feedback of information
(upward communication) is necessary for effective motivation and direction.
CONTROLLING
Introduction. In management literature, the word "Control" has a special meaning. It means
setting standards, measuring actual performance, and taking corrective action. It is more than
mere evaluation, appraisal or correction. It measures performance against goals and plans,
indicates where deviations exist and helps accomplishment of objectives. It serves to determine
personnel responsible for deviations to take necessary steps to improve performance. In short,
control means setting standards measuring performance and corrective action with a view to
achieve best results.
Definitions:
Ernest Dale in his book 'Theory and Practice of Management' has stated that –
"The modern concept of managerial control envisages a system that not only provides
historical record of what has happened to the business as a whole but also pin points the reasons
why it has happened and provides data that enable the chief executive or the departmental head
to take corrective steps if he finds, he is on the wrong truck".
CO-ORDINATING
Definition of Co-ordination:
Co-ordination may be defined as on-going process whereby a manager develops an
integrated, orderly and synchronized pattern of group effort among his subordinates and tries
to attain unity of effort in the pursuit of a common purpose.
"Co-ordination is the orderly arrangement of group effort, Lo provide unity of action in
the pursuit of common purpose" -Alan C. Reiley and James D. Mooney.
The need for co-ordination by management arises particularly because of the existence of:
(i) Numerous persons at work.
(ii) Subdivisions and complexity of work.
(iii) Delegation of authority and responsibility.
(iv) Chances of difference between executives and specialists.
(v) Human nature and their problems.
(vi) Growth in size of organization
COMMUNICATING
The term communication is derived from the Latin word 'communis' that means
'common' and thus if a person affects communication he establishes a common ground of
understanding. Literally, communication means to inform, to tell, to show or to spread
information.
Thus communication may be interpreted as an interchange of thought or information to
bring about understanding and confidence for good industrial relations. It brings about unity
of purpose, interest and efforts in an organisation.
Definition.
The term communication is derived from the Latin word 'communis' that means
'common' and thus if ·a person affects communication he establishes a common ground of
understanding. Literally, communication means to inform, to tell, to show or to spread
information.
DECISION-MAKING
A decision can be defined as a course of action consciously chosen from available
alternatives for the purpose of a desired result.
Decision-making means to decide the future course of action for the organization, over
short or long terms. It is necessary to take decisions throughout the business cycle, for
achieving maximum returns on the assets of the business enterprise; Decision making is
necessary to solve business problems; for example, Inventory control decisions, Marketing
decisions, deciding volume or production, capital investment decisions, stock decisions etc.

Scientific Management

Definition - Scientific management may be defined as the "Art of knowing exactly what is to
be done and the best way of doing it".
Principles of Scientific Management
Taylor through his principles of scientific management initiated a system in which there would
be an effective and fruitful co-ordination and co-operation between the management and the
workers.
1. Development of science for each element of work. Analyse the work scientifically, rather
than using thumb rule. It means that an attempt is made to find out what is to be done by a
particular worker, how he is to do it, what equipment will be necessary to do it. This
information is provided to the worker so s to reduce wastage of time, material etc. and improve
the quality of work.
2. Scientific selection, placement and training of workers. This principle states that select
the workers best suited to perform the specific tasks, and then train them within the industry in
order to attain the objectives of the enterprise. This eliminates the possibility of misfits in the
organisation and ensures belter working. Workers should also be trained from time to time to
keep them informed of latest development in the techniques of production.
3. Division of Labour. (Separation of planning function from doing function). Division of
work in smaller tasks and separation of thinking element of job from doing element of the job.
This is the principle of specialisation. It is essential for efficiency in all spheres of activities as
well as in supervision work. To be more effective and efficient, Taylor, the founder of scientific
management introduced functional organisation, in which one foreman was made in charge for
each function.
4. Standardization of methods, procedures, tools and equipment. Standardisation helps in
reducing time, labour and cost of production. The success of scientific management largely
depends upon standardization of system, tools, equipment, and techniques of production.
5. Use of Time and Motion Study. Taylor introduced time and motion study to determine
standard work. Taylor undertook studies on fatigue incurred by the workers and the time
necessary to complete the task.
Taylor suggested that for increasing production rate, the work of each person should be planned
in advance and he shall be allotted a definite work to complete by a given time by using a
predetermined method.
6. Differential Wage System. Taylor's Differential Piece Rate Scheme provides an incentive
for a worker to achieve high level of optimum output. It distinguishes the more productive
workers from less productive workers and motivates them to produce more. Taylor believed
that if labour is suitably rewarded and is satisfied with job, he will work whole heartedly to
achieve the objectives of the enterprise.
7. Co-operation between Labour and Management. Scientific management also strives to
get the thinking of management changed so as to make the management feel that mutual respect
and cooperation between the workers and the management helps in providing proper and
effective leadership. The labour starts thinking that it is their work and they must put their heart
and soul in the work assigned to them. In fact the main job of scientific management is to
revolutionize the mind of both workers and management for mutual benefit and also for the
benefit of the enterprise.
8. Principle of Management by Exception. In order to make effective utilisation of time of
top managers, Taylor suggested that only major or significant deviations between the actual
performance and standard performance should be brought to the notice of top management.
Top management should pay more attention to those areas of work where standards and
procedures could not be established and where there is a significant variation between standard
performance and actual performance.

Modern Principles of Management

ADMINISTRATIVE MANAGEMENT THEORY (HENRI FAYOL AND OTHERS)

In 1916, H. Fayol described a number of Management/Organisation principles in his book-
General and Industrial Management. These principles constitute the theory of management or
administration of business enterprises. They are as described below:
1. Division of Work. This is the principle of specialization. Division of work should be
according to work, department, job etc. Both technical and managerial activities can be
performed in the best manner only through division of labour and specialization. It can ensure
maximum productivity and efficiency in all spheres of activity.
2. Authority and Responsibility. The right to give order, the right to command, is called
authority. The obligation to accomplish objectives or expected results or performance is called
responsibility. They are inter-related and exist together. In any management process, delegation
of power, utilisation of authority and fixation of responsibility are key to success.
3. Discipline. No organisation can work smoothly without discipline. it is the very core of
administration. The rules, regulations, policies and procedures must be honoured by all the
members of organization. Discipline is imposed by administration. It requires good superiors
at all levels for agreement on rules, regulations, procedures. There must be penalties
(punishment) for non-obedience or indiscipline.
4. Unity or Command. In order to avoid confusion and conflict, each individual should receive
Orders and instructions only from one superior and should be accountable to one superior only.
Unity of command provides responsible leadership, better guidance and direction, good co-
ordination and disciplined performance.
5. Unity of Direction. All members of an organisation must work together to accomplish
common or same objectives. Their efforts shall be directed towards one common super goal.
6. Emphasis on Subordination of Personal Interest to General or Common Interest. It
means that the common interest of the organisation must be given more importance than the
interest of the individual. The organisation will collapse when personal interest become
supreme than the general interest.
7. Adequate Remuneration to Personnel. The persons working in the organisation should be
paid suitably and adequately. This will help to maintain their interest in the work and the
enterprise. Exploitation of employees in any manner must be eliminated. A wage policy should
be based on adequate financial and non-financial incentives.
8. Centralisation. The decision for centralisation would naturally vary from organisation to
organisation. However, there must be a good balance between centralisation and
decentralization of authority and power. Extreme centralization and decentralisation must be
avoided.
9. Scaler Chain or Line of Authority. An organisation chart should be prepared for better
communication and effective co-ordination. It shows the flow of authority and responsibility
from top to bottom.
10. Order. "A place for everything and everything in its place" is a best norm for material
management, which also holds goods from management of men also, that is, 'a place for
everyone and everyone in his place'. This is essential for successful execution of orders
received from the top. Order or system alone can create a sound organisation and efficient
management.
11. Equity. An organisation consists of human beings, a group of people working together for
some common objectives of the enterprise. Hence, there should be equity, justice and kindness
on the part of managers to create loyalty and devotion among, subordinates. Unbiased,
meaningful and equal treatment should be the motto of a management in its relations with
employees.
12. Stability of Workers. Security of income and employment is a pre-requisite of sound
organisation and management. This will reduce unnecessary labour turnover, and increase
efficiency by having stable working force.
13. Initiative. This principle allows subordinates to utilize their initiative. Initiative is a
freedom to think plan and to execute. The employees should be allowed to take initiative, of
course, under watchful eyes. Initiative brings self-confidence in a worker which is essential for
improving efficiency of the organisation.
14. Esprit de Corps (Team spirit). According to this principle "Union is strength".
Management should not adhere the principle of ‘divide and rule’ instead it should try to achieve
co-operation and team spirit in the employees. Pride, loyalty, and sense of belonging is essential
for working and the prosperity of the organisation.