Business Organization Notes PDF

B.Com (General and Vocational) E/M, I year – I semester ‘Zaker Ul Oman’M.Com, (PhD), Lecturer in Commerce, Tapasya Degree College (LKPL). Business Organization Unit – 1 Fundamen...

B.Com (General and Vocational) E/M, I year – I semester ‘Zaker Ul Oman’M.Com, (PhD), Lecturer in Commerce, Tapasya Degree College (LKPL). Business Organization Unit – 1 Fundamentals of Business **Concept of Business: A business is an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or nonprofit organizations that operate to fulfill a charitable mission or further a social cause. Business is also the organized efforts and activities of individuals to produce and sell goods and services for profit. Generally, a business begins with a business concept (the idea) and a name. Depending on the nature of the business, extensive market research may be necessary to determine whether turning the idea into a business is feasible and if the business can deliver value to consumers. The business name can be one of the most valuable assets of a firm; therefore, careful consideration should be given when choosing it. Businesses operating under fictitious names must be registered with the state. According to well-known professors William Pride, Robert Hughes, and Jack Kapoor, business is 'the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society's needs.' A business, then, is an organization which seeks to make a profit through individuals working toward common goals. The goals of the business will vary based on the type of business and the business strategy being used. Regardless of the preferred strategy, businesses must provide a service, product, or good that meets a need of society in some way. **Concept of Trade: Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. The most common medium of exchange for these transactions is money, but trade may also be executed with the exchange of goods or services between both parties, referred to as a barter, or payment with virtual currency, the most popular of which is bitcoin. In financial markets, trading refers to the buying and selling of securities, such as the purchase of stock on the floor of the New York Stock Exchange (NYSE). Trade refers to transactions ranging in complexity from the exchange of baseball cards between collectors to multinational policies setting protocols for imports and exports between countries. Regardless of the complexity of the 6dfrtransaction, trading is facilitated through three primary types of exchanges. Trades are executed with the payment of sovereign currency, the exchange of goods and services, or payment with a virtual currency. **Concept of Commerce: Commerce is the activity of buying and selling of goods and services, especially on a large scale or quantity. Commerce is the conduct of trade among economic agents. Generally, commerce refers to the exchange of goods, services or something of value, between businesses or entities. From a broad perspective, nations are concerned with managing commerce in a way that enhances the well-being of citizens, by providing jobs and producing beneficial goods and services. Commerce normally refers to the macroeconomic purchase and sale of goods and services by large organizations at scale. The sale or purchase of a single item by a consumer is defined as a transaction, while commerce refers to all transactions related to the purchase and sale of that item in an economy. Most commerce is conducted internationally and represents the buying and selling of goods between nations. **Classification of Business Activities: Business activities may broadly be classified into two categories namely (A) Industry and (B) Commerce. Industry involves production of goods and services whereas commerce is concerned with the distribution of goods and services. **Industry: The sector where raw material gets converted into useful products is called industry. Activities related to production & processing as well as activities related to rearing & reproduction of animals or other living species are all included in the industry. The purpose of industry is to create form utility by converting raw materials into useful forms of finished products. An industry may produce consumer goods or capital goods. Goods such as bread, butter, cloth, radio, etc. are consumer goods. These goods are directly used by the consumer. Goods such as machinery, cement etc. are called capital goods as these are used further in the production process to make useful products. Industry can be classified into three broad categories.  Primary industry   Secondary industry  Tertiary industry Primary Industry: This is also known as extractive industries. It includes activity connected with the production of wealth directly from natural resources such as water, air, & land etc. Primary industry includes activities like extraction & processing of natural resources etc. These industries are further subdivided as follows:  Extractive industry: These industries extract or draw out products from natural sources. Raw materials that are mostly products of the soil are some basic supply of extractive industries. Manufacturing industries transform these products into many other useful goods. Some of the examples of extractive industries include farming, mining, lumbering, hunting & fishing operation.  Genetic industry: The industries involved in the activities of rearing & breeding of living organism i.e. birds, plants, animals etc. are known as a genetic industry. For example, rearing of cattle for milk, dairy farms, poultry farms, rearing of plants in the nursery, growing fish in ponds etc. are included in the genetic industry. Secondary Industry: This industry is concerned with converting raw material into finishing product. The materials which have already been extracted at the primary stage is the concern of the secondary industry. Such materials are processed to produce goods for final consumption or for further processing by other industrial units in these industries. Secondary industries may be further divided as follows:  Manufacturing industries: These industries are engaged in the process of conversion of raw materials or semi-finished goods into finished goods. These industries create from the utility by changing the form of raw materials into finished products.  Construction industries: These industries are concerned with the construction of buildings, dams, roads etc. These industries use the products of manufacturing industries such as cement, iron & steel, lime etc. Tertiary Industry: These industries are concerned with providing those services which facilitate a flow of goods & services. This industry helps in the activities of the primary & secondary industry. **Commerce: We can refer to commerce as all those activities which help directly or indirectly in the distribution of goods to the ultimate consumer. There will be no use of producing goods unless & until these goods reach the ultimate consumer. Goods are produced at one place & consumers are scattered at different places. Commerce can be classified into two broad categories:  Trade  Aids to trade Trade: Trade is an integral part of commerce. It includes buying & selling of goods & services. The trade segment of commerce brings together the manufacturer & the consumer, i.e. it is a link between the manufacturer & the consumer. Trade can be classified into two types:   Internal trade: It refers to buying & selling of goods or services within the geographical boundaries of a country. It is also known as home trade or domestic trade. Under internal trade, goods & services are bought & sold in the home currency only. The internal trade can be two types: a. Wholesale trade b. Retail trade  External trade: When the buying & selling of goods & services is beyond the geographical limits of the country it is called external trade. It is also known as trade between two or more countries. In external trade, the market is very wide. External trade is of the following types: a. Export trade b. Import trade c. Entreport trade Aids to Trade: The activities which help in the smooth flow of trade are known as aids to trade. These activities make buying & selling of goods easier. These help in removing various hindrances of trade which arises in production & distribution of goods. The common aids to trade are:  Transport & communication  Banking & finance  Insurance  Warehousing  Advertising Difference between Trade, Industry and Commerce **Nature of Business:  Economic Activity: Business is an economic activity, as it is conducted with the primary objective of earning money, i.e. for an economic motive.  Production/purchase of goods and services: Goods and services are produced or procured by business entities, so as to add value and sell them to the consumer. Goods are either manufactured by the company or procured from the supplier, with the aim of selling it further to the consumer, for profit.  Selling of goods and services: Business must involve the transfer of goods to the customer for value, through selling, meaning that if the goods are acquired for personal consumption, then the transaction will not amount to business activity.  Continuity in dealings: Every business requires regularity in transactions, i.e. an isolated transaction of exchange of goods or services will not be considered as business. So, to constitute business, the dealings must be carried out on a regular basis.  Profit earning: The basic purpose of business is to make the profit from its activities. It is the spine of business, which keeps the business going, in the long term.  Element of risk: Risk is the key element of every business, concerned with exposure to loss. Efforts are made to forecast future events and plan the business strategies accordingly. However, the factors that affect business are uncertain and so does the business opportunities, which can be a shift in demand, floods, fall in prices, strikes, lockout, money market fluctuation, etc.  Uncertain return: In business, the return is never predictable and guaranteed, i.e. the amount of money which the business is going to reap is not certain. It may be possible that the business earns a huge profit or suffer heavy losses.  Legal and Lawful: No matter, in which type of business the company is engaged, it should be legal in the eyes of the law, or else it will not be considered as business.  Consumer satisfaction: The aim of business is to supply goods and services to consumers, so as to satisfy their wants, as when the consumer (final user) is satisfied, he/she will purchase the goods or services. But, if they are not, there are chances that they will look for substitutes. The consumer is regarded as the king, and so all the activities of the business are aligned towards the satisfaction of consumers. This can be done by making available quality-riched goods easily available to them, at reasonable prices. **Objectives of Business: Business objectives are something which a business organisation wants to achieve or accomplish over a specified period of time. These may be to earn profit for its growth and development, to provide quality goods to its customers, to protect the environment, etc. Thus, the objectives of business may be classified as; A. Economic Objectives B. Social Objectives  C. Human Objectives D. National Objectives E. Global Objectives Now, we shall discuss all these objectives in detail. A. Economic Objectives: Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objectives, which include creation of customers, regular innovations and best possible use of available resources. (i) Profit Earning: Profit is the lifeblood of business, without which no business can survive in a competitive market. In fact profit making is the primary objective for which a business unit is brought into existence. Profits must be earned to ensure the survival of business, its growth and expansion over time. Profits help businessmen not only to earn their living but also to expand their business activities by reinvesting a part of the profits. In order to achieve this primary objective, certain other objectives are also necessary to be pursued by business, which are as follows: (a) Creation of customers: A business unit cannot survive unless there are customers to buy the products and services. Again a businessman can earn profits only when he/she provides quality goods and services at a reasonable price. For this it needs to attract more customers for its existing as well as new products. This is achieved with the help of various marketing activities. (b) Regular innovations: Innovation means changes, which bring about improvement in products, process of production and distribution of goods. Business units, through innovation, are able to reduce cost by adopting better methods of production and also increase their sales by attracting more customers because of improved products. Reduction in cost and increase in sales gives more profit to the businessmen. Use of power looms in place of handlooms, use of tractors in place of hand implements in farms etc. are all the results of innovation. (c) Best possible use of resources: As we all know, to run any business we must have sufficient capital or funds. The amount of capital may be used to buy machinery, raw materials, employ men and have cash to meet day-to-day expenses. Thus, business activities require various resources like men, materials, money and machines. The availability of these resources is usually limited. Thus, every business should try to make the best possible use of these resources employing efficient workers. Making full use of machines and minimizing wastage of raw materials, can achieve this objective. B. Social Objectives: Social objective are those objectives of business, which are desired to be achieved for the benefit of the society. Since business operates in a society by utilizing its scarce resources, the society expects something in return for its welfare. No activity of the business should be aimed at giving any kind of trouble to the society. If business activities lead to socially harmful effects, there is bound to be public reaction against the business sooner or later. Social objectives of business include production and supply of quality goods and services, adoption of fair trade practices and contribution to the general welfare of society and provision of welfare amenities. (i) Production and Supply of Quality Goods and Services: Since the business utilizes the various resources of the society, the society expects to get quality goods and services from the business he objective of business should be to produce better quality goods and supply them at the right time and at a right price It is not desirable on the part of the businessman to supply adulterated or inferior goods which cause injuries to the customers. They should charge the price according to the quality of e goods and services provided to the society. Again, the customers also expect timely supply of all their requirements. So it is important for every business to supply those goods and services on a regular basis. (ii) Adoption of Fair Trade Practices: In every society, activities such as hoarding, black- marketing and over-charging are considered undesirable. Besides, misleading advertisements often give a false impression about the quality of products. Such advertisements deceive the customers and the businessmen use them for the sake of making large profits. This is an unfair trade practice. The business unit must not create artificial scarcity of essential goods or raise prices for the sake of earning more profits. All these activities earn a bad name and sometimes make the businessmen liable for penalty and even imprisonment under the law. Therefore, the objective of business should be to adopt fair trade practices for the welfare of the consumers as well as the society. (iii) Contribution to the General Welfare of the Society: Business units should work for the general welfare and upliftment of the society. This is possible through running of schools and colleges better education opening of vocational training centers’ to train the people to earn their livelihood, establishing hospitals for medical facilities and providing recreational facilities for the general public like parks, sports complexes etc. С. Human Objectives: Human objectives refer to the objectives aimed at the well-being as well as fulfillment of expectations of employees as also of people who are disabled, handicapped and deprived of proper education and training. The human objectives of business may thus include economic well-being of the employees, social and psychological satisfaction of employees and development of human resources. (i) Economic Well-being of the Employees: In business employees must be provided with tan remuneration and incentive for performance benefits of provident fund, pension and other amenities like medical facilities, housing facilities etc. By this they feel more satisfied at work and contribute more for the business. (ii) Social and Psychological Satisfaction of Employees: It is the duty of business units to provide social and psychological satisfaction to their employees. This is possible by making the job interesting and challenging, putting the right person in the right job and reducing the monotony of work Opportunities for promotion and advancement in career should also be provided to the employees.  Further, grievances of employees should be given prompt attention and their suggestions should be considered seriously when decisions are made. If employees are happy and satisfied they can put then best efforts in work. (iii) Development of Human Resources: Employees as human beings always want to grow. Their growth requires proper training as well as development. Business can prosper if the people employed can improve their skills and develop their abilities and competencies in course of time. Thus, it is important that business should arrange training and development programmes for its employees. (iv) Well-being of Socially and Economically Backward People: Business units being inseparable parts of society should help backward classes and also people those are physically and mentally challenged. This can be done in many ways. For instance, vocational training programme may be arranged to improve the earning capacity of backward people in the community. While recruiting its staff, business should give preference to physically and mentally challenged persons. Business units can also help and encourage meritorious students by awarding scholarships for higher studies. D. National Objectives: Being an important part of the country, every business must have the objective of fulfilling national goals and aspirations. The goal of the country may be to provide employment opportunity to its citizen, earn revenue for its exchequer, become self-sufficient in production of goods and services, promote social justice, etc. Business activities should be conducted keeping these goals of the country in mind, which may be called national objectives of business. (i)Creation of Employment: One of the important national objectives of business is to create opportunities for gainful employment of people. This can be achieved by establishing new business units, expanding markets, widening distribution channels, etc. (ii) Promotion of Social Justice: As a responsible citizen, a businessman is expected to provide equal opportunities to all persons with whom he/she deals. He/ She is also expected to provide equal opportunities to all the employees to work and progress. Towards this objectives special attention must be paid to weaker and backward sections of the society. (iii) Production According to National Priority: Business units should produce and supply goods in accordance with the priorities laid down in the plans and policies of the government. One of the national objectives of business in our country should be to increase the production and supply of essential goods at reasonable prices. (iv) Contribute to the Revenue of the Country: The business owners should pay their taxes and dues honestly and regularly. This will increase the revenue of the government, which can be used for the development of the nation. (v) Self-sufficiency and Export Promotion: To help the country to become self-reliant, business units have the added responsibility of restricting import of goods. Besides, every business units should aim at increasing exports and adding to the foreign exchange reserves of the country. E. Global Objectives: Previously India had very restricted business relationship with other nations. There was a very rigid policy for import and export of goods and services. But, now-a-days due to liberal economic and export-import policy, restrictions on foreign investments have been largely abolished and duties on imported goods have been substantially reduced.  This change has brought about increase in competition in the market. Today because of globalization the entire world has become a big market. Goods produced in one country are readily available in other countries. So, to face the competition in the global market every business has certain objectives in mind, which may be called the global objectives. Let us learn about them. (i) Raise General Standard of Living: Growth of business activities across national borders makes quality goods available at reasonable prices all over the world. The people of one country get to use similar types of goods that people in other countries are using. This improves the standard of living of people. (ii) Reduce Disparities among Nations: Business should help to reduce disparities among the rich and poor nations of the world by expanding its operation. By way of capital investment in developing as well as underdeveloped countries it can foster their industrial and economic growth. (iii) Make Available Globally Competitive Goods and Services: Business should produce goods and services which are globally competitive and have huge demand in foreign markets. This will improve the image of the exporting country and also earn more foreign exchange for the country. **Functions of Business: The various functions of business can be grouped into the following broad categories: 1. Production Function; 2. Marketing Function; 3. Finance Function; 4. Human Resource Function; 5. Management Information Function; 6. Innovation (Research & Development). 7. Personnel Function 1. Production function: Production is the creation of goods and services with the help of certain processes. The production of goods depends essentially on the organisation of men, money, materials, and facilities into a smoothly operating business. In modern organisations, production is highly organised, mechanized, and specialised mass production, and, therefore, its overall charge is entrusted to the Production Manager. A production manager has four basic responsibilities in this regard : (i) to ensure the production of goods and services in specified quantities, (ii) to meet the specified time schedule or delivery dates, (iii) to fulfill the quantity requirements, and (iv) to perform all production operations at the minimum cost. 2. Marketing function: Marketing is the process of getting goods and services into the hands of the consumer with a view to satisfying the needs and desires of consumers and producers. In other words, the marketing function creates a process through which producers and consumers are brought together in an exchange relationship and transfer of ownership takes place.  For this, the marketing manager must make judicious decisions regarding 4 P’s: (i) product (decisions about new product development, packaging, branding, etc.); (ii) physical distribution (decisions about marketing channels, and policies and procedures relating to warehousing, transportation, etc.); (iii) promotion (involving advertising, salesmanship, sales promotion, and publicity); and (iv) pricing (policies and procedures relating to the setting up of profitable prices). 3. Finance function: Finance function of business is basically responsible for three decisions and their proper implementation, viz., (i) investment decisions (financial planning, capital budgeting, etc.) (ii) Financial decisions (capital structure—fixed and working; short and long-term and (iii) dividend decisions. Business maintains relationship with financial markets including institutions and major shareholders and also takes care of other concerns such as share buybacks, capital raising sources of borrowings and risk management. 4. Human Resource (HR) function: The HR function deals with the human side of business. It is concerned with increasing the effectiveness of human performance in any organisation. Specifically stated, the HR function aims at obtaining arid maintaining a capable and effective workforce, motivating the employees individually and in groups to contribute their maximum to the fulfilment of organisational goals. In order to accomplish the goals of dynamic HR management, the HR manager has to undertake the following functions : (i) selection—determination of manpower requirements, job analysis, nature and sources of recruitment, employee selection, and induction and follow-up; (ii) training—human resource development; (iii) promotions and transfers, (iv) employee compensation—wage and salary administration; (v) employee involvement and welfare activities; and (vi) industrial relations—industrial discipline, industrial unrest, trade unionism, and workers' participation in management. For the accomplishment of these functions, the personnel department renders specialised services. 5. Information function: Like production, marketing, finance, and human resource, the information function is equally important in a modern business. It is being increasingly recognised that the modern business cannot be managed without the assistance of efficient information function. The information function is basically concerned with records. The information manager is generally burdened with the following three broad functions: (i) information function (receiving and collecting, recording and preserving, arranging and analysing, and providing information); (ii) operational function (such as systems and procedures, records management, etc.); and (iii) public relations function. 6. Innovation: "An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisation method in business practice, workplace organisation or external relations." Thus, innovation, which means creativity as well, is more of a philosophy and the entire business function needs to adopt it. Innovation often is stimulated by creative thinking on the part of people who are willing to think 'outside the box'. 7. Personnel Function: Personnel function has assumed a prominent place in the domain of business management. No business function can be carried out efficiently unless there is a sound personnel policy backed up by efficient management of personnel. Success or failure of every business activity boils down to the efficiency of otherwise of the men entrusted with the respective function. A sound personnel policy includes proper wage structure, incentives schemes, promotional opportunity, human resource development and other fringe benefits provided to the employees. All these matters affect finance. But the finance manager should know that organisation can afford to pay only what it can bear. The above description clearly explains that these functions of business are (1) basic in nature, and (2) mutually dependent. This will ultimately help realize the overall objectives of the business. This process of one function realizing its own objectives and also contributing to other' objectives is known as the 'End-means Chain'. **Social Responsibility of a Business: Social responsibility of business implies the obligations of the management of a business enterprise to protect the interests of the society. According to the concept of social responsibility is the objective of managers for taking business decisions is not merely to maximize profits or shareholders’ value but also to serve and protect the interests of other members of a society such as workers, consumers and the community as a whole. But in today’s world the interest of other stakeholders, community and environment must be protected and promoted. Social responsibility of business enterprises to the various stakeholders and society in general is considered to be the result of a social Fig. 3.1. Responsibility of Business Enterprises towards Stakeholders and Society in General contract. In the present context the social contract is concerned with the relationship of a business enterprise with various stakeholders such as shareholders, employees, consumers, government and society in general. The business enterprises happen to have resources because society consisting of various stakeholders has given them this right and therefore it expects from them to use them to for serving the interests of all of them. Though all stakeholders including the society in general are affected by the business activities of a corporate enterprise, managers may not acknowledge responsibility to them. Social responsibility of business implies that corporate managers must promote the interests of all stakeholders not merely of shareholders who happen to be the so called owners of the business enterprises. 1. Responsibility to Shareholders: In the context of good corporate governance, a corporate enterprise must recognize the rights of shareholders and protect their interests. It should respect shareholders’ right to information and respect their right to submit proposals to vote and to ask questions at the annual general body meeting. The corporate enterprise should observe the best code of conduct in its dealings with the shareholders. However, the corporate Board and management try to increase profits or shareholders’ value but in pursuing this objective, they should protect the interests of employees, consumers and other stakeholders. Its special responsibility is that in its efforts to increase profits or shareholders’ value it should not pollute the environment. 2. Responsibility to Employees: The success of a business enterprise depends to a large extent on the morale of its employees. Employees make valuable contribution to the activities of a business organisation. The corporate enterprise should have good and fair employment practices and industrial relations to enhance its productivity. It must recognize the rights of workers or employees to freedom of association and free collective bargaining. Besides, it should not discriminate between various employees. The most important responsibility of a corporate enterprise towards employees is the payment of fair wages to them and provides healthy and good working conditions. The business enterprises should recognize the need for providing essential labour welfare activities to their employees; especially they should take care of women workers. Besides, the enterprises should make arrange- ments for proper training and education of the workers to enhance their skills. 3. Responsibility to Consumers: Some economists think that consumer is a king who directs the business enterprises to produce goods and services to satisfy his wants. However, in the modern times this may not be strictly true but the companies must acknowledge their responsibilities to protect their interests in undertaking their productive activities. Invoking the notion of social contract, the management expert Peter Drucker observes, “The customer is the foundation of a business and keeps it in existence. He alone gives employment. To meet the wants and needs of a consumer, the society entrusts wealth-producing resources to the business enterprise”. In view of above, the business enterprises should recognise the rights of consumers and understand their needs and wants and produce goods or services accordingly. The following responsibilities of business enterprises to consumers are worth mentioning: 1. They should supply goods or services to the consumers at reasonable prices and do not try to exploit them by forming cartels. This is more relevant in case of business enterprises producing essential goods such as life-saving drugs, vegetable oil and essential’ services such as electricity supply and telephone services. 2. They should not supply to the consumers’ shoddy and unsafe products which may do harm to them. 3. They should provide the consumers the required after-sales services. 4. They should not misinform the consumers through inappropriate and misleading advertisements. 5. They should make arrangements for proper distribution system of their products so as to ensure that black-marketing and profiteering by traders do not occur. 6. They should acknowledge the rights of consumers to be heard and take necessary measures to redress their genuine grievances. Despite the above responsibilities which are generally regarded as good marketing practices by management experts the business enterprises in India generally do not pay heed to them and as a result consumers are dissatisfied or disappointed in a large number of cases. There has been a growing awareness of consumer rights. 4. Obligation towards the Environment: The foremost responsibility of business enterprises is to ensure that they should not damage the environment and for this purpose they should reduce as much as possible air and water pollution by their productive activities. They should not dump their toxic waste products in rivers and streams to avoid their pollution. Pollution of environment poses a great health hazard for the people and is a cause of several respiratory and skin diseases. In economic theory pollution of environment is regarded as social cost that must be minimized. There is now a growing awareness towards reduction in environment pollution. According to the recent findings the climate change is occurring due to greater emission of carbon dioxide and other pollutants. Therefore, the corporate enterprises should adopt high standards of environmental protection and ensure that they are implemented regardless of enforcement of any environment laws passed by the government. Many countries including India have passed laws to protect the environment but they are not properly and strictly enforced. 5. Responsibility to Society in General: Business enterprises function by public consent with the basic objective of producing goods and services to meet the needs of the society and provide employment to the people. The traditional view is that in performing this function businesses maximize profits or shareholders’ value and doing so they do not behave in any socially irresponsible way. According to Adam Smith whose invisible hand theorem is often quoted that while maximizing their profits, businessmen are led by an invisible hand to promote the interests of the society. To quote him, “An individual or business generally, indeed neither intends to promote the public interest, nor knows how much he is promoting it…. He intends only his own gains, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention … By pursuing his own interest he frequently promotes that of the society more effectively than when he really intends to promote it”. Conclusion: Social responsibility is related to the concept of ethics. Ethics is the discipline that deals with moral duties and obligations. Social responsibility implies corporate enterprises should follow business ethics and work for not only to maximize their profits or shareholders’ value but also to promote the interests of other stakeholders and the society as a whole. **Steps to start a new business: Here are 10 steps that are required to start a business successfully. Take one step at a time, and you'll be on your way to successful small business ownership. Step 1: Do Your Research Most likely you have already identified a business idea, so now it's time to balance it with a little reality. Does your idea have the potential to succeed? You will need to run your business idea through a validation process before you go any further. In order for a small business to be successful, it must solve a problem, fulfill a need or offer something the market wants. There are a number of ways you can identify this need, including research, focus groups, and even trial and error. As you explore the market, some of the questions you should answer include:  Is there a need for your anticipated products/services?  Who needs it?  Are there other companies offering similar products/services now?  What is the competition like?  How will your business fit into the market? Step 2: Make a Plan You need a plan in order to make your business idea a reality. A business plan is a blueprint that will guide your business from the start-up phase through establishment and eventually business growth, and it is a must-have for all new businesses. If you intend to seek financial support from an investor or financial institution, a traditional business plan is a must. This type of business plan is generally long and thorough and has a common set of sections that investors and banks look for when they are validating your idea. If you don't anticipate seeking financial support, a simple one-page business plan can give you clarity about what you hope to achieve and how you plan to do it. In fact, you can even create a working business plan on the back of a napkin, and improve it over time. Some kind of plan in writing is always better than nothing. Step 3: Plan Your Finances Starting a small business doesn't have to require a lot of money, but it will involve some initial investment as well as the ability to cover ongoing expenses before you are turning a profit. Put together a spreadsheet that estimates the one-time startup costs for your business (licenses and permits, equipment, legal fees, insurance, branding, market research, inventory, trade marking, grand opening events, property leases, etc.), as well as what you anticipate you will need to keep your business running for at least 12 months (rent, utilities, marketing and advertising, production, supplies, travel expenses, employee salaries, your own salary, etc.). Those numbers combined is the initial investment you will need.  Now that you have a rough number in mind, there are a number of ways you can fund your small business, including:  Financing  Small business loans  Small business grants  Angel investors  Crowd funding Step 4: Choose a Business Structure Your small business can be a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. The business entity you choose will impact many factors from your business name, to your liability, to how you file your taxes. You may choose an initial business structure, and then reevaluate and change your structure as your business grows and needs change. Depending on the complexity of your business, it may be worth investing in a consultation from an attorney or CPA to ensure you are making the right structure choice for your business. Step 5: Pick and Register Your Business Name Your business name plays a role in almost every aspect of your business, so you want it to be a good one. Make sure you think through all of the potential implications as you explore your options and choose your business name. Once you have chosen a name for your business, you will need to check if it's trademarked or currently in use. Then, you will need to register it. A sole proprietor must register their business name with either their state or county clerk. Corporations, LLCs, or limited partnerships typically register their business name when the formation paperwork is filed. Step 6: Get Licenses and Permits Paperwork is a part of the process when you start your own business. There are a variety of small business licenses and permits that may apply to your situation, depending on the type of business you are starting and where you are located. You will need to research what licenses and permits apply to your business during the start-up process. Step 7: Choose Your Accounting System Small businesses run most effectively when there are systems in place. One of the most important systems for a small business is an accounting system. Your accounting system is necessary in order to create and manage your budget, set your rates and prices, conduct business with others, and file your taxes. You can set up your accounting system yourself, or hire an accountant to take away some of the guesswork. If you decide to get started on your own, make sure you consider these questions that are vital when choosing accounting software. Step 8: Set Up Your Business Location Setting up your place of business is important for the operation of your business, whether you will have a home office, a shared or private office space, or a retail location. You will need to think about your location, equipment, and overall setup, and make sure your business location works for the type of business you will be doing. You will also need to consider if it makes more sense to buy or lease your commercial space. Step 9: Get Your Team Ready If you will be hiring employees, now is the time to start the process. Make sure you take the time to outline the positions you need to fill, and the job responsibilities that are part of each position. The Small Business Administration has an excellent guide to hiring your first employee that is useful for new small business owners. If you are not hiring employees, but instead outsourcing work to independent contractors, now is the time to work with an attorney to get your independent contractor agreement in place and start your search. Lastly, if you are a true solopreneur hitting the small business road alone, you may not need employees or contractors, but you will still need your own support team. This team can be comprised of a mentor, small business coach, or even your family, and serves as your go-to resource for advice, motivation and reassurance when the road gets bumpy. Step 10: Promote Your Small Business Once your business is up and running, you need to start attracting clients and customers. You'll want to start with the basics by writing a unique selling proposition (USP) and creating a marketing plan. Then, explore as many small business marketing ideas as possible so you can decide how to promote your business most effectively. Once you have completed these business start-up activities, you will have all of the most important bases covered. Keep in mind that success doesn't happen overnight. But use the plan you've created to consistently work on your business, and you will increase your chances of success.  Unit – 2 Business Organization **Forms of Business Organisation: A business can be organized in one of several ways, and the form its owners choose will affect the company's and owners' legal liability and income tax treatment. Here are the most common options and their major defining characteristics. Forms of business ownership vary by jurisdiction, but several common entities exist:  Sole proprietorship: A sole proprietorship, also known as a sole trader, is owned by one person and operates for their benefit. The owner operates the business alone and may hire employees. A sole proprietor has unlimited liability for all obligations incurred by the business, whether from operating costs or judgments against the business. All assets of the business belong to a sole proprietor, including, for example, computer infrastructure, any inventory, manufacturing equipment, or retail fixtures, as well as any real property owned by the sole proprietor.  Partnership: A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business. The three most prevalent types of for-profit partnerships are: general partnerships, limited partnerships, and limited liability partnerships.  Corporation: The owners of a corporation have limited liability and the business has a separate legal personality from its owners. Corporations can be either government-owned or privately owned. They can organize either for profit or as nonprofit organizations. A privately owned, for-profit corporation is owned by its shareholders, who elect a board of directors to direct the corporation and hire its managerial staff. A privately owned, for-profit corporation can be either privately held by a small group of individuals, or publicly held, with publicly traded shares listed on a stock exchange.  Cooperative: Often referred to as a "co-op", a cooperative is a limited-liability business that can organize as for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, not shareholders, and they share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.  Limited liability companies (LLC): Limited liability partnerships and other specific types of business organization protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not as protected.  Franchises: A franchise is a system in which entrepreneurs purchase the rights to open and run a business from a larger corporation. Franchising in the United States is widespread and is a major economic powerhouse. One out of twelve retail businesses in the United States are franchised and 8 million people are employed in a franchised business.  A company limited by guarantee. Commonly used where companies are formed for noncommercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise,  they have no economic rights in relation to the company. This type of company is common in England. A company limited by guarantee may be with or without having share capital.  A company limited by shares. The most common form of the company used for business ventures. Specifically, a limited company is a "company in which the liability of each shareholder is limited to the amount individually invested" with corporations being "the most common example of a limited company." This type of company is common in England and many English-speaking countries. A company limited by shares may be a  publicly traded company or a  Privately held company.  A company limited by guarantee with a share capital. A hybrid entity, usually used where the company is formed for noncommercial purposes, but the activities of the company are partly funded by investors who expect a return. This type of company may no longer be formed in the UK, although provisions still exist in law for them to exist.  A limited liability company. "A company—statutorily authorized in certain states—that is characterized by limited liability, management by members or managers, and limitations on ownership transfer", i.e., L.L.C. LLC structure has been called "hybrid" in that it "combines the characteristics of a corporation and of a partnership or sole proprietorship". Like a corporation, it has limited liability for members of the company, and like a partnership it has "flow-through taxation to the members" and must be "dissolved upon the death or bankruptcy of a member".  An unlimited company with or without a share capital. A hybrid entity, a company where the liability of members or shareholders for the debts (if any) of the company are not limited. In this case doctrine of a veil of incorporation does not apply. Less common types of companies are:  Companies formed by letters patent. Most corporations by letters patent are corporations sole and not companies as the term is commonly understood today.  Charter corporations. Before the passing of modern companies legislation, these were the only types of companies. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks), or modern societies that fulfill a quasi-regulatory function (for example, the Bank of England is a corporation formed by a modern charter).  Statutory companies. Relatively rare today, certain companies have been formed by a private statute passed in the relevant jurisdiction. Note that "Ltd after the company's name signifies limited company, and PLC (public limited company) indicates that its shares are widely held." **Factors influencing the Choice of Suitable Form of Business: The choice of the most suitable form of business organisation is a crucial decision because it affects the rights and liability of the owners. Therefore, the choice should be made with great thought and deliberations.  Each form of business organisation has its own merits and demerits. These merits and demerits should be duly considered before selecting the form of organisation. The factors which affect the choice of the form of business organisation are given below: 1. Nature of business: The nature of business has an important bearing on the choice of the form of ownership. Businesses providing direct services, e.g., small retailers, hair-dressing saloons, tailors, restaurants, etc., and professional services, e.g., doctors, lawyers, etc., depend for their success upon personal attention to customers and the personal knowledge or skill of the owners and are, therefore, generally organised as proprietary concerns. Business activities requiring pooling of skills and funds, e.g., wholesale trade, accounting firms, tax consultants, stock broker, etc., are better organized as partnerships. Manufacturing organisations of large size are more commonly set up as private and public companies. 2. Size and area of operations: Large scale enterprises catering to national and international markets can be organised more successfully as private or public companies. The reason is that large sized enterprises require large financial and managerial resources which are beyond the capacity of a single person or a few partners. On the other hand, small and medium scale firms are generally set up as partnership and proprietorship. Small scale enterprises like hairdressers, bakeries, laundries, workshops, etc., cater to a limited market and require small capital. Similarly, where the area of operations is wide spread (national or international), company ownership is appropriate. But if the area of operations is confined to a particular locality, sole proprietorship or partnership will be a more suitable choice. 3. Degree of control desired: A person who desires direct control of business prefers propri- etorship rather than the company because there is a separation of ownership and management in the latter case. In case the owner is not interested in direct personal control but in large scale operation, it would be desirable to adopt the company form of ownership. 4. Amount of capital required: The funds required for the establishment and operation of a business has an important impact on the choice. Enterprises requiring heavy investment, i.e., iron and steel plants, etc., should be organised as joint stock companies. A partnership has to be converted into a company when it grows beyond the capacity and resources of few persons. Requirements of growth and expansion should also be considered in making the choice. 5. Degree of risk involved: The volume of risk and the willingness of owners to bear it, is an important consideration. A single individual may have large financial resources sufficient for a medium scale enterprise but due to unlimited personal liability he may not like to organise as a proprietorship or a partnership. Due to limited liability and a large number of shareholders, there is maximum diffusion of risk in a public company. But an enterprising individual not afraid of unlimited liability may go in for sole proprietorship. 6. Division of surplus: A sole trader receives all the profits of his business but he also bears all the risks. If a person is ready to bear unlimited personal liability and desires maximum share of profits, proprietorship and partnership are preferable to company form. 7. Duration of business: Temporary and ad-hoc ventures can be organised as proprietorships and partnerships as they are easy to form and dissolve. But they lack continuity and stability. Enterprises of a permanent nature can be better organised as joint stock companies and coopera- tives because they enjoy perpetual succession. 8. Government regulation and control: Proprietorships and partnerships are subject to little regulation and control by the Government. Companies and cooperatives are, on the other hand, subject to severe restrictions and have to publish their accounts. It is also easier to maintain secrecy of business in case of proprietorship and partnership. 9. Flexibility of operations: Businesses which require a high degree of administrative flexibility should better be organised as proprietorships or partnerships. Flexibility of operations is linked with the internal organisation of a business. The internal organisation of sole proprietorship and partnership is much simpler and less elaborate than the internal organisation of a joint stock company. Moreover, the objectives and powers of a company cannot be changed easily or without legal formalities. 10. Tax Liability: Various forms of organization are assessed to income tax on different basis. A company has more tax liability as compared to sole trading or a partnership. We have mentioned above the factors that influence the selection of a suitable form of business organization. It is very important decision because it is very difficult to change the form of organization later on. **Sole Proprietorship: The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only register his or her name and secure local licenses, and the sole proprietor is ready for business. A distinct disadvantage, however, is that the owner of a sole proprietorship remains personally liable for all the business's debts. So, if a sole proprietor business runs into financial trouble, creditors can bring lawsuits against the business owner. If such suits are successful, the owner will have to pay the business debts with his or her own money. Definition: As the name suggests, ‘sole’ means ‘only one’ and ‘proprietorship’ implies ‘ownership’. Hence, a sole proprietorship is a form of business organisation, wherein a single person owns, manages and controls, all the business activities and the individual who operates the business is called as a sole proprietor or, a sole trader. In this business unit, the sole proprietor is exclusively responsible for employing capital to commence business, bearing all the risk of the enterprise and also for managing all the activities single-handedly. And to do so, he/she pools and arranges various resources in an organised way, with the sole aim of earning profit. The owner is exclusively responsible for all the decisions. All the profits earned by the business goes to sole trader’s pocket, and he is solely responsible for the loss suffered. **Characteristics of Sole Proprietorship 1. Single Ownership: It is a type of business unit, in which a single person owns the entire business, i.e. all the assets and property belongs to the proprietor. Accordingly, he bears all the risk associated with the enterprise. Hence, the business ends up at his will or on his demise. 2. No sharing of Profit and Loss: Whatever income generated from the sole proprietorship business, it belongs to the sole proprietor only. Consequently, he alone bears all the losses incurred by the firm. There is no sharing of the business profits and losses. 3. One man’s capital: The capital required to start the business or to continue operations, is arranged and brought to the business by the sole proprietor only, either from his personal resources or by borrowing, i.e. from the bank, financial institutions, friends, relatives, etc. 4. Unlimited Liability: This is one of the major con of sole proprietorship business, i.e. the liabilities are unlimited. In the event of loss, the personal assets of the proprietor along with the business assets can be utilised to discharge the dues of business. 5. Less Legal Formalities: The legal requirements for formation, operation and closure of a sole tradership business is almost nil, even it does not need registration. Although for the purpose of business, it can be registered with local self-government, and obtain a certificate of registration. 6. One man Control: As only one person is in charge of all the activities, he has full fledged control over it. Thus, the sole proprietor takes all the decision and executes it, in the manner he wants. There is no legal distinction between the proprietor and business; they are one and the same thing in the eyes of the law. Sole proprietor uses his own skills, intelligence and expertise to operate the business. **Advantages and Disadvantages of Sole Proprietorship *Advantages of Sole Trading Concern 1. Easy to form: It is very easy and simple to form and organize a sole trader’s business. There are no legal formalities. 2. Simple to manage: It is a small organization. It can be managed easily by the owner himself. 3. Profit incentive: Sole trader enjoys all the profits for himself; This profit motive is an incentive to work hard. 4. Quick decisions: Since he is the sole organizer, he can take quick decisions. He can act promptly according to the changes in the market. 5. Contact with customers: He is the owner and manager of the concern. He will be in a position to study the tastes and needs of customers personally since he establishes good contacts with them. 6. Business secrets: He can maintain the business secrets for himself. Maintenance of secrecy is an important matter in any type of business organization. 7. Smooth running: As he is the sole proprietor there will not be differences of opinions or disputes. It helps smooth running of the concern. 8. Efficiency and economy: The organization is a small one. He can have close supervision. He can reduce the costs of the management and all sorts of waste. Business can be run efficiently. 9. Flexibility: Changes in the business can be adopted at any time. Flexibility is facilitated by small investment. It can be shifted from place to place very easily. 10. Family training: He takes the help from the members of his family in maintaining business. His children get training in the business activities. 11. Self employment: Small scale units can be easily started. Nationalized banks are also helping in this direction. 12. Social advantages: It provides opportunities to a number of individuals. Many can become entrepreneurs with limited resources. 13. Tax advantages: Income tax is imposed on the personal income of the sole trader, but not on the profits of the concern. Hence it is advantageous. *Limitations or Disadvantages of Sole Trading Concern Sole trading business suffers from certain serious limitations (disadvantages) also: 1. Limited capital: Use of limited capital means limited profits only. If there is any necessity to expand business there may not be sufficient resources. 2. Limited skill: As there is only one man the managerial ability is limited. 3. Limited borrowing capacity: The borrowing capacity of a sole trader is limited to the extent of his financial position. 4. Unlimited liability: The creditors can recover their loan amount not only from the properties of the business but also from his personal properties. So his liability is unlimited. 5. Hasty decisions: The sole trader takes all decisions for himself. So there may be hasty and thoughtless decisions. 6. Short life: If the sole trader does not have children, or if his children are not interested in continuing the business, the business would come to an end. There is no guarantee of continuous existence in this type of business. 7. No division of labor: As it is a small unit, it is not possible to introduce division of labour in the management. 8. Dependence on employees: If there is expansion of business, it is inevitable for the proprietor to depend on the paid managers. 9. Limited area of operation: The business is small. So the activities cannot go beyond a certain area. 10. Lack of large scale economies: Sole trader’s business is small scale only. He cannot do his business on large scale due to lack of financial resources. So he cannot enjoy large scale economies of production, buying or selling. **Suitability of Business for Sole Trading Concern Sole proprietorship is suitable for following types of business: (1) Less Capital: those businesses which requires less capital and less use of machinery. (2) Artistic Materials: Ivory work, painting, embroidery work, etc. where personal attention is necessary. (3) Personal Services: Tailoring, hair-cutting, photography, etc. where personal service is more important. (4) Small Industries: Small industries in which small equipment are required. (5) Less Risk: Those business which have less risk in relation to capital employed and work required. (6) Local Market: Vegetables, milk, eggs, etc. which are perishable and have local demand only. **Partnership Business: THE INDIAN PARTNERSHIP ACT’ 1932 Section.4 of the Indian Partnership Act, 1932 defines Partnership in the following terms: “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” "Section 464 of the Companies Act, 2013 empowers the Centre Government to prescribe maximum number of partners in a firm but the number of partners so prescribed cannot be more than 100.The Central Government has prescribed maximum number of partners in a firm to be 50 vide Rule 10 of the Companies (Miscellaneous) Rules,2014. Thus, in effect, a partnership firm cannot have more than 50 members". Definition: A type of business organization in which two or more individuals’ pool money, skills, and other resources, and share profit and loss in accordance with terms of the partnership agreement. In absence of such agreement, a partnership is assumed to exit where the participants in an enterprise agree to share the associated risks and rewards proportionately. Section 4 of Partnership Act, 1932: “The relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.” According to Partnership Act, there must be two or more persons having contractual relationship. It is not necessary that the business should be managed by all the partners but any one or more partners can run the business on behalf of all the persons. Any partner acting on behalf of other partners can bind the firm to third parties. So there is an implied authority for contracting on behalf of other partners. L.H. Haney: “The relationship between persons who agree to carry on a business in common with a view to private gain.” In a broad sense, a partnership is any cooperative endeavor undertaken by multiple parties. These parties can be governments, non-profits, businesses, individuals or a combination, and the goals of the partnership can vary widely. There may or may not be a written agreement governing the partnership, but it is generally a good idea to specify terms at the outset so that disagreements can be settled according to predetermined rules. In some cases such an agreement is legally required. **Features of Partnership 1. Agreement: The partnership arises out of an agreement between two or more persons. 2. Profit sharing: There should be an agreement among the partners to share the profits of the business. 3. Lawful business: The business to be carried on by a partnership must always be lawful. 4. Membership: There must be at least two persons to form a partnership. The maximum number is 20. But in case of banking business the maximum is 10 members. 5. Unlimited liability: The liability of every partner is unlimited, joint and several. 6. Principal-agent relationship: Every partner is an agent of the firm. He can act on behalf of the firm. He is responsible for his own acts and also for the acts done on behalf of the other partners. 7. Collective management: The firm and the partners are one. When a contract is made in the name of the firm all the partners are responsible for it individually and collectively. 8. Non-transferability of shares: A partner cannot transfer his share of interest to others without the consent of the other partners. **Advantages of Partnership It is not same like sole proprietorship, where a single person may take the capital and start his business. In partnership two or persons get together, brings capital, organized the business activities and share the profit and loss as per the agreement and capital ratio. It is formed to meet the need for more capital, division of work, effective supervision and control and spreading of risk in business. Important fundamentals of Partnership Business:   Association of at least two persons.  Contractual relation.  Earning profit.  Mutual agency. The following are the advantages of partnership business: 1. Easy to form: A partnership firm can be formed without any legal formalities and expenses. Even if the fum is to be registered, the expenses are not much compared to company form of organization. 2. Access to more capital: A firm consists of more than one person. Therefore it can secure more capital from combined resources. 3. Skill and talent: Talented persons may be taken as partners. More skill and talent will be available. 4. Division of labor: Division of labor can be introduced which increases the efficiency in the management. One partner may take care of purchases, another sales, a third accounts and so on. 5. Contact with customers: All the partners in a firm may take part in the management of the business. So, they get in touch with the customers during the course of the business. It enables them to study the tastes and needs of the customers. 6. Borrowing capacity: The creditors will lend Loans not only on the basis of the firm’s assets but also based on the personal properties of the partners. So the borrowing capacity of a firm is more. 7. Incentive to work hard: Every partner is liable for the debts of the firm. Also every partner has a share in the profits. This makes them to work hard for the success of the business. 8. Expansion of business: Due to the availability of sufficient finance and skill the business can be expanded very easily. 9. Wise decisions: In partnership, decisions are taken with the consultation of all the partners. So naturally the decisions are wiser and more beneficial. 10. Co-operation between partners: The partnership enables partners to provide mutual help to each other. Partners behave as members in a joint family. 11. Flexibility: Changes in the business can be adopted easily. There are no legal restrictions. 12. Economy in operation: If there is co-operation among the partners the firm can be run efficiently. A good number of economies in management can be derived. 13. Division of risks: All losses and risks of the business are shared by all the partners. So risky ventures can also be taken up. 14. Maintenance of secrets: Business secrets can be maintained easily if the number of partners in a firm are limited. 15. Incidence of tax: Compared with company form of organization the tax payable on the incomes of the partners will be less. **Disadvantages of Partnership The following are the disadvantages of a partnership firm: 1. Division of responsibility: In a partnership the management is divided. As such responsibilities are also divided. Every partner might try to shift the burden on to the shoulders of others; finally none takes the responsibility properly. 2. Delay in decisions: Sometimes the partners may not agree with one another in taking decisions. As a result partners will not be in a position to take quick decisions. 3. Lack of continuity: A partnership gets dissolved on the death, insolvency, insanity or retirement of any partner. So, there is no guarantee for the continuity of the firm. 4. No transferability of share: In a firm the partner cannot transfer his share of interest to others without the consent of the other partners. 5. Lack of secrecy: It may not be possible to maintain secrecy in partnership because of the number of partners. 6. Unlimited liability: The creditors of a firm can recover their loan amounts from the personal properties of the partners when the firm’s sources are not enough. Therefore the personal properties of the partners are not safe.. 7. Joint and several liability: Every partner is jointly and separately liable for the firm’s debts. In case of insolvency of partners, the solvent partners have to pay the debts of the insolvent partners also. 8. Internal conflicts: Differences and disputes among the partners are very common. These conflicts harm the firm as a whole. 9. Misuse of assets: The partners may use the assets of the firm for their personal purposes. Misuse of assets is harmful to business interests. 10. Lack of public confidence: A partnership firm is purely a private organization. It is not controlled or regulated by the Government. As such public may not have confidence in the firm. **Characteristics of Partnership: 1. Membership: At least two persons are required to begin a partnership while the maximum number of members is limited to 100. Further, all the individuals entering into partnership must be legally competent to do so, as they have to enter into a contract to become partners. Thus, minors, insolvent and lunatic persons cannot become members, but a minor can be admitted to partnership, to share profits. 2. Unlimited liability: The members of a partnership have unlimited liability, i.e. they are collectively and individually liable for the firm’s debts and obligations. So, if in case business assets are not adequate to repay liabilities, personal assets of all or any partner can be claimed by the creditors to realise the outstanding amount. 3. Sharing of profit and loss: The main purpose of the partnership is to share profit in the agreed ratio. However, in the absence of any agreement between partners, the business profits or losses are divided equally among all the partners. 4. Mutual Agency: The partnership business is undertaken by all the partners or any of the partner, who acts on behalf of all the partners. So, every partner is a principal as well as an agent. Further, the acts of partners bind each other as well as the firm. 5. Voluntary Registration: The registration of partnership is not mandatory, but it is recommended, as it offers certain benefits, e.g. in case of any conflict among partners, any partner can file suit against other partner or if there is any dispute between firm and outside party, then also the firm can file a case against that party. 6. Continuity: There is a lack of continuity in partnership, like death, bankruptcy, retirement or insanity of any partner can lead the partnership to end. Although, if the remaining partners want to continue operations, they can do so by a fresh agreement. 7. Contractual Relationship: The relation subsisting between partners is due to the contract, which may be oral, written or implied. 8. Transfer of interest: Mutual consent of all the partners is a must for transferring the interest in the firm to any external party. In a partnership, the decision making is done with the mutual consent of all the partners. They share among themselves the decision making and control of the regular business operation. **Types of Partners: There are different types of partners in partnership firm and they may be classified as under: (i) Active Partner: An active partner is one who takes active part in the day-to-day working of the business. He may act in different capacities such as manager, organiser, adviser and controller of all the affairs of the firm. He may also be called a working partner. (ii) Sleeping or Dormant Partner: A sleeping partner is one who contributes capital, shares profits and contributes to the losses of the business but does not take part in the working of the concern. A person may have money to invest but they may not be able to devote time for the business: such a person may become a sleeping partner. Sleeping partner is liable for the liabilities of the business like other partners. He cannot bind the business, i.e., firm, to third  parties, by his acts. He is not known to the public as a partner; so he may be called as a ‘secret partner’. (iii) Nominal Partner: A nominal partner is one who lends his name to the firm. He does not contribute any capital nor does he shares profits of the business. He is known as a partner to the third parties. On the strength of his name, the business may get more credit in the market or may promote its sales. A nominal partner is liable to those third parties who give credit to the firm on the assumption of that person being a partner in the firm. (iv) Partner in Profit: A person may become a partner for sharing the profit only. He contributes capital and is also liable to third parties like other partners. He is not allowed to take part in the management of the business. Such partners are associated for their money and goodwill. (v) Partner by Estoppel or Holding Out: When a person is not a partner but poses himself as a partner, either by words or in writing or by his acts, he is called a partner by estoppel or by holding out. A partner by estoppel or by holding out shall be liable to outsiders who deal with the firm on the presumption of that person being a partner in the business even though he is not a partner and does not contribute anything to the business. (vi) Secret Partner: The position of a secret partner lies between active and sleeping partner. His membership of the firm is kept secret from outsiders. His liability is unlimited and he is liable for the losses of the business. He can take part in the working of the business. (vii) Sub-Partner: A partner may associate anybody else in his share in the firm. He gives a part of his share to the stranger. The relationship is not between the sub-partner and the firm but between him and the partner. The sub-partner is a non-entity for the partnership. He is not liable for the debts of the firm. (viii) Minor as a Partner: A minor is a person who has not yet attained the age of majority. A minor cannot enter into a contract according to the Indian Contract Act because a contract by a minor is voidable. However, a minor may be admitted to the benefits of an existing partnership with the consent of all partners. The minor is not personally liable for liabilities of the firm, but his share in the partnership property and profits of the firm will be liable for debts of the firm. A minor has the following rights and liabilities under the Partnership Act: (a) A minor has a right to such share of property and of profits of the firm as may be agreed upon by all the partners. (b) A minor may inspect the accounts of the firm or take note of the accounts. (c) The personal property of the minor is not liable for the debts of the firm. But his share in property of the firm and profits is liable for the debts and obligations of the firm. (d) So long as a minor remains a partner he cannot file a suit against other partners for the accounts or for the payment of his share in the property or profits of the firm. He can do this only when he wants to severe his relations with the partnership firm.  (e) At any time within 6 months of his attaining majority (i.e., completing 18 years of age) the minor may give public notice of the fact that he has decided to become or not to become a partner in the firm. In case he does not give any such notice within six months, it shall be presumed that he has opted to become a partner. (f) In case minor decides to become a partner, he will be personally liable to third parties for all acts of the firm, since he was admitted to the benefits of the firm. (g) If a minor decides not to become a partner, his rights and liabilities continue to be those of a minor up to the date on which he gives public notice. His share will not be liable for any acts of the firm done after the date of the notice. **Meaning and Contents of Partnership Deed Partnership firm can be established with an agreement between the partners. This agreement may be written or oral. An oral agreement may be the cause of dispute in future. So, it is better to have a written agreement in order to avoid future conflicts. The written agreement duly signed by the partners is known as partnership deed or agreement or Articles of Partnership. It is the written contract between partners. It contains the term and conditions of the partnership. Partnership deed forms the basis of partnership. Partnership deed is a document containing all the matters according to which mutual rights, duties and liabilities of the partners in the conduct and management of the affairs of the firm are determined. Hence, it contains the terms and conditions of the partnership. It is helpful in preventing and resolving disputes among the partners. A partnership deed can be altered at any time with the consent of all the partners. Main Content of Partnership Deed Some of the important clauses to be included in a partnership deed are as follows: (1) Name of the firm and Its Address: The deed should contain of the firm and place of its business. (2) Name and Address of Partners: The deed should also contains the names and address of all partners. (3) Nature of Firm’s Business: The nature of business proposed to be carried and its limitation should be included in it. (4) Duration of Partnership: It the partnership is established for a fixed duration or for a fixed work, it should be stated in it. (5) Partners’ Capitals: The deed should contain the total amount of capital and contributions by each partner. (6) Interest on Capital: If the partners decide to change interest on their capitals, the rate should be mentioned in the deed. (7) Drawing and Interest on Them: The deed should contain the limit of drawings by every partner and the rate of interest to be charged. (8) Division of Profit: Profit and loss sharing ratio should be stated in the deed. If it is not mentioned partners are authorized to share equally according to Partnership Act. (9) Partners’ Salary and Commission: If the partners decide to pay salary and commission to the partners, the deed should contain the amount of salary or commission payable to any partner for the services rendered to the business. (10) Rights and Duties of Partners: If any partner has some special rights and duties regarding to conducts of business or if the liability of any partner is limited to the capital invested by him, these facts should also be mentioned in it. (11) Admission and Retirement of Partners: After the establishment of partnership some new partners may be admitted and some may retire from the business. If any definite procedure is to be adopted at the time of admission or retirement of partner, it should be stated in it. (12) Death of a Partner: The procedure of calculating the amount due to a deceased partner and the method of its payment to his successors, should also be decided and stated in the deed. (13) Valuation of Goodwill: The method of valuation of goodwill at the time of admission, retirement or death of a partner should be also be clearly stated in it. (14) Revaluation of Assets and Liabilities: The method of revaluation of assetsand liabilities on admission, retirement or death of a partner should also be clearly stated in it. (15) Accounts and Audit: The procedure of keeping accounts and their audit should also be stated in it. (16) Dissolution of Partnership: The deed should contain the firm and the method of the final settlement of accounts. (17) Arbitration Clause: In case of disputes the method of appointing arbitrators and their rights should be clearly mentioned. **Rules to be followed in the Absence of a Partnership Deed: 1. The partners are entitled to share the profits or losses equally. 2. Partners are not entitled to interest on their capital. 3. No partner will be allowed salary, or any other remuneration for any extra work done for the firm. 4. No interest will be charged on partners’ drawings. 5. Interest at 6 per cent per annum will be allowed to partners on any loan given to the firm by them. 6. Every partner has a right to take part in the working of the partnership business. 7. No person can be admitted into the firm without the consent of all the existing partners. 8. Every partner should use the partnership property for the benefit of the firm. 9. Every partner has a right to inspect the books of accounts of the firm. **Suitability of Partnership form of business organisation We have learnt that partnership form of business has its own advantages and disadvantages. But at times we find that partnership form of business organisation is most suitable for us to run a small business. Let us look into such instances: a. A partnership firm is suitable in case of business where the capital requirement is medium i.e. it is neither too large nor too small. Business like retail and wholesale trade or small manufacturing units can be successfully started by partners.  b. You learnt that in partnership firm persons having different ability, managerial talent, skill and expertise join together. So it is most suitable for construction business, legal firms etc. where each partner contributes the best as per his specialization. **Limited Liability Partnership (LLP) Definition: “A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liablitiy while allowing its members the flexibility for organizing their internal structure as a partnership”. **Features of LLP 1. The LLP has Separate Legal Entity i.e. the LLP and the partners are distinct from each other. 2. Minimum of 2 partners are required to form a LLP. However, there is no limit on the maximum number of partners. 3. No requirement of minimum capital contribution. 4. The LLP Act does not restrict the benefit of LLP structure to certain classes of Professionals only and would be available for use by any enterprise. **Benefits of Forming a LLP 1. The Liability of each partner is limited to his share as written in the agreement filed at the time of creation of LLP as compared to Partnership Firms which have unlimited liability. 2. It has a low cost of formation and is easy to form. 3. The partners are not liable for the acts of each other and can be held liable only for their own acts as compared to partnerships wherein they can be held liable for the acts of their partners as well. 4. Less restrictions and compliance are enforced on a LLP by the Government as compared to the restrictions enforced on a company. 5. As a juristic legal person, a LLP can sue in its name and be sued by others. The partners are not liable to be sued for dues against the LLP. **Disadvantages of Forming a LLP The only disadvantage of forming a LLP is that it cannot come out with its IPO and raise money from the public which a company form of organisation can easily do. **Difference between LLP and Traditional Partnership Firm  The basic difference between LLP and Partnership is with regard to the Liability of the Partners.  In a partnership firm, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. However, under the LLP structure, liability of the partner is limited only to his agreed contribution. Further, no partner is liable on account of the independent or unauthorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct. **Hindu Undivided Family Meaning: Joint Hindu Family Business is a different type of organization, which is found only in India. As the name suggests, it is type of organization in which all the members of Hindu Undivided Family manage and control the business with the direction of head of the family. It is not a Partnership. It is just like a Partnership where only the members of the family can take part. It is not even sole trading concern, but it is enlargement of sole trading concern in which continuity is guaranteed. The business is carried on from generation to generation. It comes into existence by the operation of Hindu law. It is the result of Hindu Undivided Family system followed in India. Wherever, there is Hindu Undivided Family, there is the scope of Joint Hindu Family Business. Definition: “When two or more families agree to live and work together, throw their resources and labour with joint stock and share profits and the losses together, then this family is known as composite family.” Joint Hindu Family Business, though is an enlarged form of sole trading concern but it enjoys stability. It is given due recognition by the Income Tax Act, 1961, and by the Joint Hindu Succession Act, 1956, but it lacks legal status. Status of Joint Hindu Family firm and its members is one and the same. Membership: The membership of Joint Hindu Family Business is restricted only to members of the family. Members of the family are called 'co-parceners'. Before 1956, female members of the family were not having equal rights with male members but the Hindu Succession Act, 1956, has its provisions for female members also. The business is controlled by head of the family called as 'Karta'. Karta and co-parceners are usually male members. Management: The management of Joint Hindu Family Business is in the hands of the head of the family who is known as "Manager or Karta". The Karta has to carry on the business with care, he has to protect the interest of the members, he cannot make secret profits. Karta has full authority and control over financial aspects of business. He is called "Custodian of Property". He is fully responsible for business risk, his liability is unlimited. The liability of the co-parceners is limited. The co-parceners have to help Karta in doing the business. Any member is free to get separate from Joint Hindu Family Business. Generally, separation from the Joint Hindu Family is due to the disagreement with the Karta's policies and programs. **Types of Joint Hindu Family Business: There are two types of Joint Hindu Family Businesses. They are as follows:- (1) Mitakshara: Only male members born in the family are eligible to get equal share in the property of the family. This system exists in India except West Bengal and Assam. (2) Dayabhagha: Under this both male and female members get the share in the property of family. This form exists in West Bengal and Assam. From June 22, 1994, the female members also have the co-parcenercy right in the state of Maharashtra. **Characteristics of a Joint Hindu Family Business: The main characteristics of Joint Hindu Family Business are given below: 1. Governed by Hindu Law: The business of the Joint Hindu Family is controlled and managed under the Hindu law.  There are two schools of Hindu law: (i) Dayabhaga, and (ii) Mitakshara. 2. Management: All the affairs of a Joint Hindu Family are controlled and managed by one person who is known as ‘Karta’ or ‘Manager’. The Karta is the senior most male member of the family. He works in consultation with other members of the family but ultimately he has a final say. The members of the family have full faith and confidence in Karta. Only Karta is entitled to deal with outsiders. But other members can deal with outsiders only with the permission of Karta. 3. Membership by Birth: The membership of the family can be acquired only by birth. As soon as a male child is born in family, he becomes a member. Membership requires no consent or agreement. 4. Liability: Except the Karta, the liability of all other members is limited to their shares in the business. The Karta is not only liable to the extent of his share in the business but his separate property is equally attachable and amount of debt can be recovered from his separate property. 5. Permanent Existence: The death, lunacy or insolvency of any member of the family does not affect the existence of the business of Joint Hindu Family. The family goes on doing its business. 6. Implied Authority of Karta: In a joint family firm, only Karta has the implied authority to contract debts and pledge the credit and property of the firm for the ordinary purpose of the businesses of the firm. 7. Minor also a Partner: In a partnership, minor cannot become co-partner though he may be admitted to the benefit of partnership. In a Joint Hindu Family firm minor is a partner. 8. Dissolution: The Joint Hindu Family Business can be dissolved only at the will of all the members of the family. Any single member has no right to get the business dissolved. **Advantages of Joint Hindu Family Business: The chief advantages of Joint Hindu Family Business are given below: 1. Easy to Start: It is very easy to start the Joint Hindu Family Business. No legal formalities are required to be faced, such as registration. It requires no agreement. 2. Efficient Management: The management of Joint Hindu Family Business is centralised in the hands of Karta of family. In this business, Karta takes all decisions and gets them implemented with the help of other member. No other member interferes in his management. 3. Secrecy: In Joint Hindu Family Business, all the decisions are taken by the ‘Karta’ himself. He is in a position to keep all the affairs to himself and maintains perfect secrecy in all matters. 4. Prompt Decision: The Karta is the only person who exercises control and direction over the business. He may not consult anyone in taking decisions. This ensures prompt or quick decisions. Being the sole master, he takes prompt decisions and makes advantage of the opportunity. 5. Economy: For the success of any business, economy is a must. It is well- balanced and maintained in Joint Hindu Family Business. The Karta of family spends money with great caution and economy. 6. Credit Facilities: In Joint Hindu Family Business the credit facilities are more. One reason for this is that liability of the ‘Karta’ is unlimited. Karta is having personal relations with others, which are also helpful in raising credit. 7. Natural Love between Members: In Joint Hindu Family Business, it is the natural love and affection which the members are having for each other. It helps to run the business more efficiently and smoothly. 8. Freedom regarding Selection of Business: The Karta is at freedom to select any business of his choice. He has not to depend on others. **Disadvantages of Joint Hindu Family Business: The disadvantages of Joint Hindu Family Business are given below: 1. Limited Membership: The membership of the business is limited to the members of family only. No outsider can become the member of Joint Hindu Family Business. 2. Limited Sources of Capital: The capital is limited only upto the resources of one family. This is not sufficient to meet the business requirements for expansion. Thus the size of the business remains small. The Karta cannot take the advantage of economies of large size due to limited finance. 3. Limited Managerial Skill: All the managerial functions which are essential for the successful operation of a business are performed by the Karta of the family. The Karta may not be able to perform all managerial functions because of limitation of time, energy and skills. Because of limited scale of operations and financial resources, it may not be feasible to secure the services of experts in different fields like purchasing, production and marketing. 4. Unlimited Liability: The liability of the Karta is unlimited. The Karta is not only liable to the extent of his share in the business but his separate property is equally attachable and amount of debt can be recovered from his separate property. This factor puts a ceiling on the growth and expansion of the business. 5. Misuse of Power: The management of a Joint Hindu Family Business is centralised in the hands of Karta of the family. No other member can interfere in his management. This may lead to the misuse of power and the Karta may use the power for his personal interest. **Cooperative Business Organisation Definition: The International Labour Organisation has defined cooperative organisation as “A cooperative 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 distributions to the capital required, and accepting a fair share of risk and benefits of the undertaking.”  The word ‘co-operation’ stands for the idea of living together and working together. Cooperation is a form of business organisation the only system of voluntary organisation suitable for poorer people. It is an organisation wherein persons voluntarily associate together as human beings on a basis of equality, for the promotion of economic interests of themselves. The cooperative movement has three objectives—Better living, Better business and Better farming. A cooperative organisation always prefers (1) Service instead of profit maximization, (2) Survival of the weakest instead of survival of the fittest, (3) Self-help and self-reliance instead of dependence on external bodies. (4) Development of moral character of members instead of emphasis on pure material development. **Characteristics of Cooperative Organisation: 1. Voluntary Association: A cooperative society is a voluntary association of persons and not of capital. Any person can join a cooperative society of his free will and can leave it at any time. When he leaves, he can withdraw his capital from the society. He cannot transfer his share to another person. The voluntary character of the cooperative association has two implications: i. None will be denied the right to become a member and ii. The cooperative society will not compete anybody to become a member. 2. Spirit of Cooperation: The spirit of cooperation works under the motto, ‘each for all and all for each.’ This means that every member of a cooperative organisation shall work in the general interest of the organisation as a whole and not for his self-interest. Under cooperation, service is of supreme importance and self-interest is of secondary importance. 3. Democratic Management: An individual member is considered not as a capitalist but as a human being and under cooperation, economic equality is fully ensured by a general rule—one man one vote. Whether one contributes 50 rupees or 100 rupees as share capital, all enjoy equal rights and equal duties. A person having only one share can even become the president of cooperative society. 4. Capital: of a cooperative society is raised from members through share capital. Cooperatives are formed by relatively poorer sections of society; share capital is usually very limited. Since it is a part of govt. policy to encourage cooperatives, a cooperative society can increase its capital by taking loans from the State and Central Cooperative Banks. 5. Fixed Return on Capital: In a cooperative organisation, we do not have the dividend hunting element. In a