International Business & Forms of Business

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Assignment On

Introduction to Business

Course Code: 106

Topics: 1. International Business

2. Forms of BusinessSubmitted ToMD Kafil UddinLecturer, ManagementFaculty of Business Administration

BGC Trust University Bangladesh

Submitted ByMD Kaiser

Roll: 120103429Joynul Abedin

Roll: 120103469MD Rukun Ujjaman

Roll: 120103435Faculty: FBA

Department: BBA

Semester: 1 s t

Section: HDate of the submition: 7th June, 2012


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BGC Trust University Bangladesh

Contribution List

Students name ID ON Percentages Of Contribution

MD Kaiser 120103429 35%Joynul Abedin 120103469 35%Md Rukun Uj jaman 120103435

30%


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Table of contentsSerial

NoContents Page No

Chapter 1International Business 1-11

1.1 International Business 01

1.2 Why do Company Go International 02

1.3 Basics Concept of International Business 03

1.4 Barriers to International Business 06

1.5 Approaches to International Business 08

Reference 11

Chapter 2

Forms of Business

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2.1 Sole Proprietorship 12

2.2 Characteristics of Sole proprietorship 13

2.2 Advantages of Sole proprietor form of business 15

2.3 Disadvantages of Sole proprietor form of business 17

2.4 Suitability of Sole proprietorship 18

2.5 Sole proprietor survival strategies 19

Reference 21

2.6 Partnership 22

2.7 Elements of a business partnership agreement 232.8 The essence of partnership business 24

2.9 Types of partnership 25

2.10 The characteristics of partnership 27

2.11 Partnership agreement 29

2.12 Importance of Partnership agreement 30

2.13 Advantages of Partnership agreement 31

2.14 Disadvantages of Partnership agreement 32

Reference 34

2.15 Joint stock companies 352.16 Characteristics of Joint stock companies 36

2.17 Advantages of Joint stock companies 38

2.18 Disadvantages of Joint stock companies 40

2.19 Types of Joint stock companies 42

2.20 Procedure of formation of a Joint stock companies 43

2.21 Differences between private & public company 46


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2.22 Memorandum & articles of association 47

2.23 Differences between Memorandum & articles of association 47

Reference 49

2.24 Co-operative society 50

2.25 The essential Characteristics Co-operative society 50

2.26 Characteristics Co-operative society 51

2.27 Objectives of Co-operative society 52

2.28 Types Co-operative society 53

2.29 Principle Co-operative society 58

2.30 Advantages Co-operative society 59

2.31 Disadvantages Co-operative society 61

2.32 Limitation Co-operative society 63

Reference 64


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International Business

International Business

International business is a term used to collectively describe allcommercial transactions (private and governmental, sales, investments,logistics and transportation) that take place between two or moreregions, countries and nations beyond their political boundary. Usually,

private companies undertake such transactions for profit; governments

undertake them for profit and for political reasons. It refers to all thosebusiness activities which involve cross border transactions of goods,services, resources between two or more nations. Transaction ofeconomic resources include capital, skills, people etc. for international

production of physical goods and services such as finance, banking,insurance, construction etc.

International business is the performance of business activities acrossnational boundaries. Every nation in the world participates ininternational business to some extent large companies as well as

smaller firms sell their products throughout the world.

Business is the exchange of goods, services and money for mutualprofit or benefit.

International business is the performance of business activitiesacross national boundaries.Every nation in the world participates in

the international business to some extent. Large companies as well assmaller firms sell their products throughout the world.

Example: Coca-Cola, Exxon Mobile, IBM and Prime Computer.


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Why Do Companies Go International?

Companies go international for a variety of reasons, but

the goal is typically company growth or expansion.

Whether a company hires international employees or

searches for new markets abroad, an international

strategy can help diversify and expand a business.

GrowthMany companies look to international markets for growth. Introducing

new products internationally can expand a company's customer

base, sales and revenue. For example, after Coca-Cola dominatedthe U.S. market, it expanded their business globally starting in

1926 to increase sales and profits.

EmployeesCompanies go international to find alternative sources of labor. Some

companies look to international countries for lower-cost

manufacturing, technology assistance and other services in order

to maintain a competitive advantage.

Resources

Some companies go international to locate resources that are difficult toobtain in their home markets, or that can be obtained at a better priceinternationally.

Ideas

Companies go international to broaden their work force and obtain new

ideas. A work force comprised of different backgrounds and culturaldifferences can bring fresh ideas and concepts to help a company grow.For example, IBM actively recruits individuals from diverse

backgrounds because it believes it's a competitive advantage that drivesinnovation and benefits customers.


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Diversification

Some companies go international to diversify. Selling products andservices in multiple countries reduces the company's exposure to

possible economic and political instability in a single country.

Basics Concept of International Business

The field of international business is dynamic, complex, andchallenging, vulnerable to fast-breaking events such as economic shifts,

political turmoil, and natural disasters. This concise and affordabletextbook will help future international business executives acquire theskills to function effectively under these challenging conditions.

Basics of International Business incorporates coverage of the ongoingturmoil in the world financial markets. It's designed to familiarizestudents with the external environments that affect international

businesses, to show them how to recognize the processes in identifyingpotential foreign markets, and to help them understand the functionalstrategies that can be developed to succeed in this highly competitiveenvironment.

Import

The term import is derived from the conceptual meaning as to bring inthe goods and services into the port of a country. The buyer of suchgoods and services is referred to an "importer" who is based in thecountry of import whereas the overseas based seller is referred to as an"exporter". Thus an import is any good (e.g. a commodity) or service

brought in from one country to another country in a legitimate fashion,typically for use in trade. It is a good that is brought in from anothercountry for sale. Import goods or services are provided to domesticconsumers by foreign producers. An import in the receiving country isan export to the sending country.


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Imports, along with exports, form the basis of international trade.

Import of goods normally requires involvement of the customs

authorities in both the country of import and the country of export and

are often subject to import quotas, tariffs and trade agreements. When

the "imports" are the set of goods and services imported, "Imports" alsomeans the economic value of all goods and services that are imported.

Importingis purchasing goods made in another country.

Export

International trade is the exchange of capital, goods, and services

across international borders or territories. In most countries, such trade

represents a significant share of gross domestic product (GDP). While

international trade has been present throughout much of history itseconomic, social, and political importance has been on the rise in

recent centuries. Industrialization,advanced transportation, globalization, multinational corporations, and

outsourcing are all having a major impact on the international trade

system. Increasing international trade is crucial to the continuance

of globalization. Without international trade, nations would be limited

to the goods and services produced within their own borders.

International trade is, in principle, not different from domestic trade as

the motivation and the behavior of parties involved in a trade do not

change fundamentally regardless of whether trade is across a border or

not. The main difference is that international trade is typically more

costly than domestic trade. The reason is that a border typically

imposes additional costs such as tariffs, time costs due to border delays

and costs associated with country differences such as language, the

legal system or culture.

Exporting is selling domestic-made goods another country.

The Balance of Trade

The balance of trade forms part of the current account, which includes

other transactions such as income from the international investment


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position as well as international aid. If the current account is in surplus,

the country's net international asset position increases correspondingly.

Equally, a deficit decreases the net international asset position.

The trade balance is identical to the difference between a country's

output and its domestic demand(the difference between what goods a

country produces and how many goods it buys from abroad; this does

not include money re-spent on foreign stock, nor does it factor in the

concept of importing goods to produce for the domestic market).

Balance of Payments

Balance of payments accounts are an accounting record of all monetarytransactions between a country and the rest of the world. These

transactions include payments for the country's exports and imports ofgoods, services, financial capital, and financial transfers. The Balanceof payments accounts summarize international transactions for aspecific period, usually a year, and are prepared in a single currency,typically the domestic currency for the country concerned. Sources offunds for a nation, such as exports or the receipts of loans andinvestments, are recorded as positive or surplus items. Uses of funds,such as for imports or to invest in foreign countries, are recorded asnegative or deficit items.

A countrys balance of paymentsis total flow of money into and outof the country

Exchange rate

In the retail currency exchange market, a different buying rate andselling rate will be quoted by money dealers. Most trades are to or fromthe local currency. The buying rate is the rate at which money dealerswill buy foreign currency, and the selling rate is the rate at which theywill sell the currency.

The quoted rates will incorporate an allowance for a dealer's margin(or profit) in trading, or else the margin may be recovered in the formof a "commission" or in some other way. Different rates may also bequoted for cash (usually notes only), a documentary form (such as


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travelers cheques) or electronically (such as a credit card purchase).The higher rate on documentary transactions is due to the additionaltime and cost of clearing the document, while the cash is available forresale immediately. Some dealers on the other hand prefer documentary

transactions because of the security concerns with cash.

Barriers to International BusinessFirms desiring to enter international business face several obstacles.

Some much more severe then others. In this section, we examine themost common barriers to effective international business: cultural,

social and political barriers and tariffs and trade restrictions.

Culture and Social Barriers

Culture is one of the biggest barriers while communicating on aninternational level. Effective communication indulging the audience ofdifferent cultures is challenging. The cultures provides the people withthe way of seeing things, way of thinking, hearing and interpreting theworld. So that means, the same words could be having different

meanings to people from different culture even when the language usedis common. If the language is different, that worsens the situation

because of the process of translation used to communicate which leadsto a greater potential misunderstanding.

As a matter of fact, the struggle with language and insufficientadjustments have led to few international students actively participatingin student societies at the universities and other American social life.

Except the language and culture barriers, shyness is another factor that

hinders international students to be more actively involved in Americansocial life. Sometimes, when finding Americans roaming anddiscussing within their groups, international students would feel a little

bit hard to catch up with them and awkward to join the talking.


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Political Barriers

The figure below summarizes information on political barriers forEuropean cities. It suggests that road building and pricing are the two

policy areas which are most commonly subject to acceptabilityconstraints, with around 50% of cities stating that acceptability was asignificant constraint on road building and pricing measures. Publictransport operations and information provision were the least affected

by acceptability constraints. Generally, large and small cities weremore likely than medium sized cities to identify political barriers.Large cities were much more likely to perceive such barriers for roadand rail infrastructure projects; small cities were more likely to identifythem for pricing measures.

Tariffs and Trade RestrictionA tariff is a tax on imports, which is collected by the federalgovernment and which raises the price of the good to the consumer.Also known as duties or import duties, tariffs usually aim first to limitimports and second to raise revenue.

A quota is a limit on the amount of a certain type of good that may beimported into the country. A quota can be either voluntary or legally

enforced.

Scientific tariffwhich to an economist is anything buthas thestated goal of equalizing the price and, therefore, leveling the playingfield, between foreign and domestic producers. In this game, theconsumer loses.

A peril-point tariffis levied in order to save a domestic industry thathas deteriorated to the point where its very existence is in peril. Aneconomist would argue that the industry should be allowed to expire.That way, factors of production used by that inefficient industry couldmove into a new one where they would be better employed.

A retaliatory tariffis one that is levied in response to a tariff levied bya trading partner. In the eyes of an economist, retaliatory tariffs make


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no sense because they just start tariff wars in which no oneleast of allthe consumerwins.

Non-tariff barriers include quotas, regulations regarding product

content or quality, and other conditions that hinder imports. One of themost commonly used non-tariff barriers are product standards, whichmay aim to serve as barriers to trade. For instance, when the UnitedStates prohibits the importation of unpasteurized cheese from France, isit protecting the health of the American consumer or protecting therevenue of the American cheese producer?

Approaches to International Business

Global business management can be defined as the interaction ofpeople from different cultures, societies, and various backgrounds inundertaking various business activities with the aim of achieving theirgoals for example earning profits from their investments. Because ofinvention of advanced technology the world has increasingly become avillage and as a result global business is the modern form of business in

this 21st century. Because of globalization there have been greatdisregard to national borders, governments have lower hand incontrolling the flow of their economies and MNC's are now notrestricted to only one particular country as it was before.

The reality and existence of globalization can be witnessed whenpatterns of trade are considered, for example the general level ofimports and exports in several countries have magnificently increasedover the past few years. Also globalization have led to significant

increase in production of business services for example firms dealingwith Just-in-Time (JIT) ideas have led to customers getting information.e.g. of accounting and auditing conveniently. Also due to globalizationfinancial systems organizations have now been integrated and theywork as one unit thus enhancing the chances of conducting businessglobally for example through the use of Credit Cards and the existenceof flexible exchange control systems in many countries.


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Any company may invest in another country and there are differentapproaches that a manager can employ depending on the factors thatthe respective organizations are considering, for example; the cost ofentering the new market, existing policies in the country of choice, the

rate of technology, foreign currency exchange rate control systemsamong others.

According to John Tomlinson in globalization and culture he arguesthat, globalization lies at the heart of modern culture and cultural

practices lies at the heart of globalization. He says that businessglobalization has led firms that operate and invest in a global scale totransform patterns of trade and shape the interactions between them forexample through mergers. Under this case that we want to createsubsidiaries and invest in the UK, Africa, and China as a seniormanager, I can recommend the following strategies of entering themarket to be suitable.

The first approach to be considered is that of exporting and depends ona number of factors that includes the following; the available resourcesthat a firm is capable of spending, the size of the company, if thecompany posses any past export experience and expertise or it is tryingit for the first time, conditions of conducting business in the selectedabroad market and products nature for example if the products are

perishable or durable.Under exporting there are two methods namely; direct exporting andIndirect exporting. Direct exporting involves the producer of the

products or services dealing directly with a buyer in the foreign countryand often regarded as the difficult method of entry because the owneror the exporter of the product is entirely responsible for the businessundertaking for example researching the suitable market for the

products and establishing the suitable distribution channels to be used.

Therefore this method requires much attention in terms of managementand the resources to be used in the entire exporting process. It is alsoarguably the best method because the exporter may benefit fromreaping maximum profits and may enjoy long-term growth thus thecompany can maintain its base in those countries.


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Generally joint ventures are common where government conditionsdemand so in order to ensure control, nationalism and reduced re-

partition of profits. It will be an ideal situation if the company that amworking for is still young and wish to exploit other markets for their

products since it require fewer resources. However, it has potentialproblems and includes sharing of profits, employment issues, marketcoverage and decision making due to different long-term interest in

partners.

Another relationship based partnership that I can use is licensingmethod of entry, whereby they can be termed as contracts in which aforeign licensor provides a local license with access to know-how inexchange for financial compensation.

Strategic alliance method of entry can also be employed underrelationship based partnership in going international which involvesformal partnership between two or more parties to undertake a common

business with the view of attaining same objective but the partiesinvolved always remains independent to each other. Business resourcesto be shared may include common distribution, channel, knowledge,

products or expertise.

The local people will always feel respected when one of their own isdoing the management job and that will lead to success of the

subsidiaries started. Another case to show that the locals in Africa havedeveloped a negative attitude towards foreigners is when the localresidents in Kenya boycotted to buy Delayer products when the ownerwas accused of murder. In fact they demonstrated and demanded thatthe business be changed to local owners. Another good example is that,in China history shows that they are very conservative people and willalways promote local investors rather than foreigners. It is for thesereason that I will prefer the local people to be managers in order toattract more customers and hence success of the company.

We can therefore conclude that globalization has led to prosperity to alland the main ingredient to it has been international marketing whichhave been employed by firms in order to increase their market shareand profits. Due to modernization and advancement in technology,most businesses are beginning to explore international markets for

better profits and opportunities.


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Reference:

International Businesshttp://en.wikipedia.org/wiki/International_businessWhy Do Companies Go International?http://www.ehow.com/facts_5256365_do-companies-go-international.html

Basics of International Business

http://www.mesharpe.com/mall/resultsa.asp?Title=Basics+of+International+Business

Import

http://en.wikipedia.org/wiki/Import

Exporthttp://en.wikipedia.org/wiki/Exporting

The balance of trade

http://en.wikipedia.org/wiki/Balance_of_trade

Balance of payments

http://en.wikipedia.org/wiki/Balance_of_payments

Barriers to International Businesshttp://www.infoplease.com/cig/economics/barriers-international-trade.html#ixzz1wjWwhw00

Culture & Social barriershttp://www.blurtit.com/q3209778.htmlhttp://plaza.ufl.edu/ffgao/mmc5015/final/social.html

Approaches To International Businesshttp://www.articleclick.com/Article/Approaches-To-Global-Business-Management/969758

Forms ofBusiness
http://en.wikipedia.org/wiki/International_businesshttp://www.ehow.com/facts_5256365_do-companies-go-international.htmlhttp://www.mesharpe.com/mall/resultsa.asp?Title=Basics+of+International+Businesshttp://en.wikipedia.org/wiki/Importhttp://en.wikipedia.org/wiki/Exportinghttp://en.wikipedia.org/wiki/Balance_of_tradehttp://en.wikipedia.org/wiki/Balance_of_paymentshttp://www.infoplease.com/cig/economics/barriers-international-trade.html#ixzz1wjWwhw00http://www.infoplease.com/cig/economics/barriers-international-trade.html#ixzz1wjWwhw00http://www.blurtit.com/q3209778.htmlhttp://plaza.ufl.edu/ffgao/mmc5015/final/social.htmlhttp://www.articleclick.com/Article/Approaches-To-Global-Business-Management/969758http://en.wikipedia.org/wiki/International_businesshttp://www.ehow.com/facts_5256365_do-companies-go-international.htmlhttp://www.mesharpe.com/mall/resultsa.asp?Title=Basics+of+International+Businesshttp://en.wikipedia.org/wiki/Importhttp://en.wikipedia.org/wiki/Exportinghttp://en.wikipedia.org/wiki/Balance_of_tradehttp://en.wikipedia.org/wiki/Balance_of_paymentshttp://www.infoplease.com/cig/economics/barriers-international-trade.html#ixzz1wjWwhw00http://www.infoplease.com/cig/economics/barriers-international-trade.html#ixzz1wjWwhw00http://www.blurtit.com/q3209778.htmlhttp://plaza.ufl.edu/ffgao/mmc5015/final/social.htmlhttp://www.articleclick.com/Article/Approaches-To-Global-Business-Management/969758


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Have you ever wondered exactly what the difference is between apartnership, a business, and a corporation? Business is the all-inclusiveterm we use to mean, basically, a group of people working together tomake profit.

Here are some of the different forms of businesses:

Sole Proprietorship

'Sole' means single and 'proprietorship' means ownership. It means onlyone person or an individual becomes the owner of the business. Thus,the business organization in which a single person owns, manages andcontrols all the activities of the business is known as sole proprietorshipform of business organization. The individual who owns BusinessStudies and runs the sole proprietorship business is called a sole

proprietor or sole trader.A sole proprietor pools and organizes the resources in a systematic wayand controls the activities with the sole objective of earning profit. Is

there any such shop near your locality where a single person is theowner? Small shops like vegetable shops, grocery shops, telephone

booths, chemist shops, etc are some of the commonly found soleproprietorship form of business organization. Apart from tradingbusiness, small manufacturing units, fabrication units, garages, beautyparlors, etc, can also be run by a sole proprietor. This form of businessis the oldest and most common form of business organization.

According to J. K. Hanson, Sole proprietorship is a type of businessunit where one person is solely responsible for providing the capital,

for bearing the risk of enterprise and for the management of thebusiness.

Characteristics of Sole ProprietorshipThe following are the main characteristics of a sole proprietorship:


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Single ownershipThe most important characteristics of sole proprietorship are that theownership management and control of the organization is vested withthat individual only.

Capital contributionIn this form of business organization, the capital is contributed by thesole proprietor from his own resources. If he requires more finance, itmay be borrowed from his friends and relatives. Thus the invite burdenof capital requirement for this business is the sole responsibility of theowner. He may arrange it from its own or by borrowing of his own risk.

No separate legal existenceNo distinction is made between the enterprise and its owner and both

are looked upon as one any same person. Death or insolvency of thesole proprietor brings his business to an end.

One-man controlThe sole proprietor is personally responsible for the control andmanagement of enterprise. There is no interference from any person inthe management. He has full authority to take decisions for guiding thedestiny of the enterprise. Thus, sole proprietorship is a one-man show.

Unlimited liability

The liability of a sole proprietor is always comprehensive andunlimited. The personal property of the proprietor would also be usedto pay off the debts and loans of any incurred from the outsider if the

business assets one insufficient to meet such of outsiders in caseliabilities of the enterprise cannot be paid out of assets of the enterprise.This provides a check on the reckless actins of the sole proprietor.

Limited area of activitiesAs a result of limited finance and managerial ability, the sole proprietorhas a limited area of operation. Unlimited liability also restricts the

proprietor from taking bold decisions and expands its area ofoperations.

No legal formalitiesThere are no legal formalities in order to start a sole proprietor form of

business. Anybody and everybody can start the business any time anyeverywhere so also they can dissolve the same as per their wishes.


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Because it is subject to minimum legal formalities and governmentrestrictions but full delineation of sole trader.

Freedom of line of businessThe sole proprietor is free to select any business of his choice. It

provides an excellent opportunity for self-employment, especially forthose who have limited amount of finance. He can easily switcher andexpand its business activities. He has the liberty to decide everything ofhis own.

Advantages of Sole Proprietor Form of

BusinessEasy formationThe formation of sole proprietorship business is very easy and simple.

No legal formalities are involved for setting up the business excepting alicense or permission in certain cases. The entrepreneur with initiativeand certain amount of capital can set up such form of business.

Direct motivationThe entrepreneur owns all and risks all. The entire profit goes to his

pocket. This motivates the proprietor to put his heart and soul in thebusiness to earn more profit. Thus, the direct relationship betweeneffort and reward motivates the entrepreneur to manage the businessmore efficiently and effectively.

Better controlThe entrepreneur takes all decisions affecting the business. He chalksout the plan and executes the same. His eyes are on everything andeveryone. There is no scope for laxity. This results in better control ofthe business and ultimately leads to efficiency.

Promptness in decision-makingWhen the decision is to be taken by one person, it is sure to be quick.Thus, the entrepreneur as sole proprietor can arrive at quick decisionsconcerning the business by which he can take the advantage of any

better opportunities.

Secrecy


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Each and every aspect of the business is looked after by the proprietorand the business secrets are known to him only. He has no legalobligation to publish his accounts. Thus, the maintenance of adequatesecrecy leaves no scope to his competitors to be aware of the business

secrets.Flexibility in operationsThe sole proprietorship business is undertaken on a small scale. If anychange is required in business operations, it is easy and quick to bringthe changes.

Scope for personal touchThere is scope for personal relationship with the entrepreneur andcustomers in sole proprietorship business. Since the scale of operations

is small and the employees work under his direct supervision, theproprietor maintains a harmonious relationship with the employees.Similarly, the proprietor can know the tastes, likes and dislikes of thecustomers because of his personal rapport with the customers.

Inexpensive formation and managementThe cost of formation of a sole proprietorship is the minimum becauseno cost is involved in its formation excepting the license fee in certaincases. The management of the business is also inexpensive as nospecialists are normally appointed in various functional areas of the

business which is the added advantages.

Free from Government controlSole proprietorship is the least regulated form of business. Regulatedlaws are almost negligible in its formation, day-to-day operation anddissolution.

Easy dissolutionLike that of formation, the dissolution of the sole proprietorship is alsovery easy. Since the proprietor is the supreme authority and no

regulations are applicable for closure of the business he can dissolvehis business any time he likes.

Socially desirableNew and small entrepreneurs can take up business on small- scalebasis. There will be no scope for concentration of wealth in few hands.


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Sole proprietorship continues its operation in almost each and everyarea of business activity and caters to the need of the society. Further, it

provides ample opportunities for large-scale self-employment for ruraland less skilled personnel. Thus, it is socially desirable.

Disadvantages of Sole Proprietor Form of

Business

The sole proprietorship business is not free from criticism. It suffersfrom certain limitations and drawbacks, because of its very nature andscope of operations. These points may be duly taken care of whileentrepreneur adopting this mode of business.

Limited resourcesThe financial resources of any small entrepreneur as an individual islimited. He mainly finances from his own savings or borrows fromfinancial institutions, friends and relatives as per his capacity. Thus,limited resource is the major drawback of this form of business.

Limited managerial capabilityModern business requires updated managerial skills in each and everysphere of activity. We cannot hope a single individual to possess all themanagerial talents necessary to carry on a business efficiently. Thelimited financial resources of the sole proprietorship is a hindrance tohire the services of managers with expertise in different areas, therebythe growth of the business.

Unlimited liabilitySince the liability of the sole proprietor is unlimited, the private

properties of the proprietor is also at risk. When the business fails, theprivate properties of the owner are utilized to pay off the businessdebts. Thus, the entrepreneur must have to look this aspect carefully.

Uncertainty of continuity


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The continuity of the business is uncertain because the business maycome to an end due to the incapacity or death of the proprietor. Even ifat all the business passes on to the successor of the proprietor, it isunlikely that they may posses the business acumen like that of the

proprietor. The discontinuance of the business is a social loss.

Less scope for economies of large-scaleThe economies of large-scale operation is enjoyed only by a large-scaleenterprise, which the sole proprietorship business normal lacks.Therefore, there is less scope for availing the economies of large-scale.

Not suitable for large-scale business

The limited financial resources, limited managerial capability of theproprietor, risk to the private property etc. makes the so proprietorshipbusiness unsuitable for large-scale business. This system of businesscan not afford for large-scale operation

Difficult to maintain personal contactEven though there is scope for personal touch in sole proprietorship

business, it is unlikely to happen when the business is undertaken indifferent areas. It is not so easy on the part of the proprietor to have

personal contact with customers and suppliers at the same time.

Suitability of Sole ProprietorshipThis form of organization is best-suited to the following types of

business.

Small capital requirements

Business where capital involvement is very small and managerial talent

has hardly and effects onperformance are best suited to this form oforganization. A business must be small indeed topermit the owner toknow and the supervise everything.

Artistic goods and personal attention


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Business which produces artistic of special type of goods and requirespersonal attention of theproprietor are best suited for this form ororganization. Under sole proprietorship, individual skilland talents can

bring.

Personal services

Personal services of professional people such as accountants, solicitors,doctors, architects etc., can be successfully rendered under this system.

Computer services

Business which requires small machines and demands intelligent

handling such as computer service, are best suited to soleproprietorship.

Business requiring cooperation

Business which requires spirits of co-operation are better managedunder sole proprietorship viz., a tailoring shop.

Sole Proprietor Survival Strategies

It is a fact of life that we all get older and along with getting older weface the deleterious effects of aging. Particularly in construction, theknees, wrists, forearms, elbows, shoulders and feet start to rebel if we

tax them too much.The truth be known we own most of that. For years we didnt warm-up

before beginning work, we didnt wear knee pads and we didnt ask forhelp when picking up or carrying heavy things. There were many timeswhen we used the wrong tools for the job because thats what we hadhandy and we often didnt bother with ear plugs, respirators, safety


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glasses, dust masks and gloves for that matter. We just forged aheadand got the job done.

Now, many of us are feeling the pain and we are not alone. The U.S. is

entering a prolonged period the likes of which has never been seen.Various estimates report the birth bubble that occurred between 1945and 1964 produced 76 million children that today account for 28

percent of the population. We are referred to as the baby boomers buttheres nothing baby and certainly nothing booming about us anymore.Were just getting older and various types of people are trying to figureout how to sell stuff to us and pay for the staggering health care coststhat are coming down the pike. Meanwhile huge numbers of us are stillworking but looking down the road and wondering what retirement is

going to end up being like. Each of you has to take it from there andfigure out what direction you should go in.

If you love what youre doing, then keep doing it. Find ways toease the burden of things you are finding to be more challenging.Suppose you decide that what you need is a helper. Think aboutthe things that person could help you do, feel what it would belike to NOT have to run down three flights of stairs to getsomething from the truck. Fix that in your mind and pay close

attention as you go through your days until the perfect personshows up. Then, hire them, pay them fairly, treat them well, andfeel how great it is to not have to take the generator out of thetruck all by yourself. If you hate book work then outsource the

books. The time and energy you save will come back to youtenfold in new business because you will be focusing on thethings that you do best.

If you are weary of what you are doing then select a time whenyou can most afford to put things on hold. Do some creative

scheduling so you open up a window of opportunity for twoweeks away from the business, and then get away. Even if you

just stay home, watch TV and go fishing, take some time to feelwhat its like to NOT be building. If after two weeks yourefeeling antsy and you have renewed vigor then take the adviceabove. Instead, if you are feeling uninspired and dont want to get

back at it then start planning for a different future. Take account


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of all your skills. Consider older skills that you havent used forawhile. Think about what you would rather be doing. Dont letwhat youve been doing become the ONLY thing you can do.Then, imagine doing the new thing, feel what it would be like,

and step out of that corner youve been in. Above all, banish fearand assume (know) you will succeed.


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PartnershipsPartnershipA partnership is the relationship existing between two or more personswho join to carry on a trade or business. Each person contributesmoney, property, labor or skill, and expects to share in the profits andlosses of the business.

A partnership must file an annual information return to report theincome, deductions, gains, losses, etc., from its operations, but it doesnot pay income tax. Instead, it "passes through" any profits or losses toits partners. Each partner includes his or her share of the partnership'sincome or loss on his or her tax return.

Partners are not employees and should not be issued a Form W-2. Thepartnership must furnish copies of Schedule K-1 (Form 1065) to thepartners by the date Form 1065 is required to be filed, including

extensions.

If you are a partnership or a partner (individual) in a partnership, usethe information in the charts below to help you determine some of theforms that you may be required to file.

Section 4 of the Partnership Act defines a partnership as follows:Partnership is the relation between persons who have agreed to sharethe profits of a business carried by all or any of them acting for all. A

partnership, as defined in the Act, must have three essential elements:

1. There must be an agreement entered into by two or morepersons.2. The agreement must be to share the profits of a business.3. The business must be carried on by all or any of themacting for all.


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Elements of a Business Partnership

Agreement

A business partnership that operates without a business partnership

agreement is a disaster waiting to happen. Here are the vital

elements you need to incorporate into the legal paperwork of

your business partnership agreement.

A written partnership agreement is good first step in the formation of asuccessful business partnership.

But a partnership agreement doesn't do much good unless it addresses

the issues and concerns that are most important to the partners aswell as the business itself.

Although there may be other items you want to address in youragreement, the SBA (Small Business Administration) recommendsthat partnership agreements cover the following basic concerns:

Equity Positions. Your partnership agreement has to discuss howmuch equity each partner will be expected to invest in the

business. Some experts suggest avoiding 50/50 equity buy-insbecause equal ownership has the potential to create gridlockwhen it comes to decision making.

Compensation. Partner compensation and ownership shares arepotentially different issues. It's important to describe both thecash and non cash forms of compensation for each partner.

Dispute Settlement. At some point, you will experience conflictin your partnership. What happens then? If you're smart, your

partnership agreement will clearly lay out a process for resolving

conflicts and settling disputes between partners. Profit & Loss Distribution. In a business partnership, profits and

losses are distributed directly to the partners and are reportable ontheir personal income tax returns. Your business partnershipagreement should clearly define profit and loss distribution

percentages in a manner that is acceptable to all of the partners.


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Dissolution. Eventually the partnership will come to an end.When that occurs, business assets will be inventoried anddistributed to the partners. Even if that won't take place foranother thirty years, the asset distribution percentages and

process needs to be addressed in the partnership agreement. Termination. Walking away from a partnership isn't as simple as

walking away from a job. There are a lot of issues to consider --and all of them should appear in your partnership agreement'stermination clause.

Restrictions. A thorough business partnership agreement willaddress the authority and restrictions of the partners. What iseach partner's purchasing authority? What kinds of decisionsrequire the approval of all the partners? By discussing these kinds

of issues in your partnership agreement, you can prevent conflictsfrom happening down the road.

The Essence of Partnership Business

The choice you make for the structure of your business, whethera LLC or some other form, will have an impact on your business

liability, fund-ability and tax implications. The easiest and most common form of business structure is

the sole proprietorship. A sole proprietorship is a business of onewithout corporation or limited liability status. The individualrepresents the company legally and fully. Common proprietorshipincludes part-time businesses, direct sellers, new start-ups,contractors, and consultants.

Operating a business with a partner appeals to some smallbusiness owners. The road to entrepreneurship can lonely.Greater rewards may result from forming a business partnership.Partnerships offer more freedom for business owners with shared

business tasks and the potential to earn greater profits. A limited liability company (LLC) is a type of business

ownership combining several features of corporation andpartnership structures Owners of a LLC have the liability


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protection of a corporation. All your business losses, profits, andexpenses flow through the company to the individual members.You avoid the double taxation of paying corporate tax andindividual tax.

An S Corporation (Small Business Corporation) is a businesselected for S Corporation Status through the IRS. This statusallows the taxation of the company to be similar to a partnershipor sole proprietor as opposed to paying taxes based on acorporate tax structure.

Creating a C Corporation is more complicated than forming alimited liability company or a sole proprietorship, but there areseveral tax benefits your company could enjoy. A C Corporationhas a more complex structure than a limited liability company

and reports to a board of directors and shareholders.

Each of these business structures are the main choices forentrepreneurs. As your business evolves from start up tomaturity, you should re-evaluate your choice from time to time.

Types of Partnership

A partnership arises whenever two or more people co-own a business,and share in the profits and losses of the business. Each personcontributes something to the business -- such as ideas, money, or

property -- though management rights and personal liability will varydepending on which of three modern partnership forms the businesstakes: general partnership, limited partnership, or limited liability

partnership (LLP).

General partnership

A general partnership involves two or more owners carrying out abusiness purpose. General partners share equal rights andresponsibilities in connection with management of the business, andany individual partner can bind the entire group to a legal obligation.Each individual partner assumes full responsibility for all of the


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business's debts and obligations. Although such personal liability isdaunting, it comes with a tax advantage: partnership profits are nottaxed to the business, butpass through to the partners, who include thegains on their individual tax returns at a lower rate.

Limited Partnership

A limited partnership allows each partner to restrict his or her personalliability to the amount of his or her business investment. Not every

partner can benefit from this limitation -- at least one participant mustaccept general partnership status, exposing himself or herself to full

personal liability for the business's debts and obligations. The generalpartner retains the right to control the business, while the limitedpartner(s) do(es) not participate in management decisions. Bothgeneral and limited partners benefit from business profits.

Limited liability partnership

Limited liability partnerships (LLP) retain the tax advantages of thegeneral partnership form, but offer some personal liability protectionto the participants. Individual partners in a limited liability

partnership are not personally responsible for the wrongful acts ofother partners, or for the debts or obligations of the business.Because the LLP form changes some of the fundamental aspects ofthe traditional partnership, some state tax authorities may subject alimited liability partnership to non-partnership tax rules. The

Internal Revenue Service views these businesses as partnerships,however, and allows partners to use the pass through technique.

Existing partnerships that wish to take advantage of LLP status donot need to modify their existing partnership agreement, though theymay choose to do so. In order to change status, a partnership simply


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files an application for registration as a limited liability partnershipwith the appropriate state agency. All states require disclosure ofthe partnership's name and principle place of business. Some statesalso require, among other things, identification of the number of

partners, a brief description of the business, a statement that thepartnership will maintain insurance and written acknowledgmentthat the limited liability status may expire.

The Characteristics of PartnershipThe main features of partnership are given below:

Agreement

There must be agreement between the parties concerned. This is themost important characteristics of partnership. Without agreement

partnership cannot be formed. "No agreement no partnership." But onlycompetent persons are entitled to make a contract.

There are some provisions contained in the partnership agreement.These are determined clearly before the commencement of business.But it differs from business to business. This documents may be writtenor oral. But it must be written so that disputes may be settled according

to the provisions of agreement.

Number of Partnership

There should be more than one person to form a partnership. But thereis restriction for the maximum number of partners. In case of ordinary

business, the partners must not exceed 20 and in case of banking mustnot exceed 10 (before nationalization).

Business

The object of the formation of partnership is to carryon any type ofbusiness. It may be manufacturing or merchandise type small or largescale business. But it should not be illegal business in the countryconcerned.

Profit motive


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The basic motive of the formation of partnership is to earn profit. Thisprofit is distributed among the partners according to agreed proportion.If there is loss it will be sustained by all partners except the minor.

Conduct of Business

The business of partnership is conducted by all the partners or any orthem acting for all. But each partner is allowed to participate in themanagement by law.

Entity

It has no separate entity apart from its members. It is not independentof the partners. Law has not granted it any legal entity.

Unlimited liabilityThis is the prominent feature of partnership that the liability of each

partner is not limited to the amount invested but his private property isalso liable to pay the business obligations.

Investment

Each partner contributes his share in the capital according to theagreement. Some persons become partners without investing anycapital to the business. But they devote their time, energy and ability to

their business instead of capital and receive profit.

Transferability of share

There is restriction to transfer the share from one partner to anotherperson without the consent of existing partners. So the investment inthe partnership remains confined into few hands.

Position

One partner is an agent as well as principal to other partner. He canbind the other person by his act. In the position of an agent he can makecontract with another person or parties on behalf of his concerned firm.

Mutual Confidence


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The business of the partnership cannot be conducted successfullywithout the element of mutual confidence and cooperation of partners.So the members must have trust and confidence in each other.

Free Operation

There are no strict rules and regulations to control the partnershipactivities in our country i.e. no restriction for the audit of accounts,submission of various reports and other copies to any governmentauthority. So this organization may operate freely without anyinterference

Partnership AgreementHere's a list of the major areas that most partnership agreements cover.

You and your partners-to-be should consider these issues before youput the terms in writing: Name of the partnership. One of the first things you must do isagree on a name for your partnership. You can use your own lastnames, such as Smith & Wesson, or you can adopt and register afictitious business name, such as Westside Home Repairs. If youchoose a fictitious name, you must make sure that the name isn'talready in use and then file a fictitious business name statement withyour county clerk. For more information, see Nolo's

article Registering Your Business Name. Contributions to the partnership. It's critical that you and your

partners work out and record who's going to contribute cash,property, or services to the business before it opens -- and whatownership percentage each partner will have. Disagreements overcontributions have doomed many promising businesses.

Allocation of profits, losses, and draws. Will profits and lossesbe allocated in proportion to a partner's percentage interest in thebusiness? Will each partner be entitled to a regular draw (a

withdrawal of allocated profits from the business) or will all profitsbe distributed at the end of each year? You and your partners mayhave different financial needs and different ideas about how themoney should be divided up and distributed, so this is an area towhich you should pay particular attention.


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Partners' authority. Without an agreement to the contrary, anypartner can bind the partnership (to a contract or debt, for example)without the consent of the other partners. If you want one or all of the

partners to obtain the others' consent before obligating the

partnership, you must make this clear in your partnership agreement. Partnership decision making. Although there's no magicformula or language for making decisions among partners, you'llhead off a lot of trouble if you try to work it out beforehand. Youmay, for example, want to require a unanimous vote of all the

partners for every business decision. Or if that leaves you feelingfettered, you can require a unanimous vote for major decisions andallow individual partners to make minor decisions on their own. Inthat case, your partnership agreement will have to describe what

constitutes a major or minor decision. You should carefully thinkthrough issues like these before you and your partners have to makeimportant decisions.

Management duties. You might not want to make ironclad rulesabout every management detail, but you'd be wise to work out someguidelines in advance. For example, who will keep the books? Whowill deal with customers? Supervise employees? Negotiate withsuppliers? Think through the management needs of your partnershipand be sure you've got everything covered.

Admitting new partners. Eventually, you may want to expandthe business and bring in new partners. Agreeing on a procedure foradmitting new partners will make your lives a lot easier when thisissue comes up.

Withdrawal or death of a partner. At least as important as therules for admitting new partners to the business are the rules forhandling the departure of an owner. You should set up a reasonable

buyout scheme in your partnership agreement. To learn more about

this issue, read Nolo's article Plan Ahead for Changes in PartnershipOwnership. Resolving disputes.If you and your partners become deadlockedon an issue, do you want to go straight to court? It might benefiteveryone involved if your partnership agreement provides foralternative dispute resolution, such as mediation or arbitration.


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Importance of Partnership

AgreementFor many people entering into a business partnership, the onlyagreement they have between them is a handshake and good intentions.They are too busy creating a business plan and brainstorming about thefuture of their venture to care very much about what might happen totheir business relationship in the future. Others are a little more forwardthinking and find themselves a generic, legal sounding partnershipcontract online and print that out and sign it.

The one thing that many new business partners overlook is the

importance of discussion and real honest communication before thepartnership is officially forged and the necessity of creating apartnership agreement that is tailored specifically to their company andaddresses all the issues it needs to.

Creating such an agreement calls for both partners to ask themselves,and each other, a series of rather searching questions and then answerthem honestly. What would happen in the future should one partner wishto sell the business? Who is actually responsible for what? How willdisputes that arise be mediated?

They should also take the time to examine their differences in values,ethics and personality and how those things could affect the success ofthe partnership in the future. Of the 70% of business partnerships thatare born to fail many of them do so due to differences in opinion andunresolved conflicts rather than an actual problem with the businessitself. When drawing up a partnership agreement remember thatalthough you cannot predict the future, you can try to ensure that you

plan for the unexpected as completely as you possibly can.


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The Advantages of a Partnership

AgreementThere are three general forms of business entities: partnerships,corporations and sole proprietorships. Partnerships are a type of

business entity with two or more people working together. During theformation of a partnership, the parties have an option to draft a

partnership agreement, but it is usually not mandatory to do so.

Ability to ContractOne of the fundamental legal rights in the United States is the ability tocontract. Generally, a person can enter a contract under any terms hedesires. There are some restrictions, such as not being able to contract to

commit illegal activities, as well as some protections, such ascontracting with a minor. The ability to contract allows partners to agreein writing to almost anything they want. In the absence of a partnershipagreement, the partnership must follow the laws of the state where the

partnership is based.

Partnership ProfitsGenerally, in the absence of a partnership agreement, the partners split

profits based on each one's ownership percentage. For example, Partner

1 owns 40 percent of Partnership A, and the partnership's income for theyear is $100,000. Partner 1 would receive $40,000. With a partnershipagreement, the partners can decide how to split profits. For example,Partnership A creates a partnership agreement where Partner 1 receives60 percent of profits while he owns 40 percent of the partnership. IfPartnership A's income is $100,000, then Partner 1 receives $60,000.

Partnership LossesIn the absence of a partnership agreement, partnership losses are shared

in the same manner as profits. However profits are split, the partnershipwill share the losses the same way. With a partnership agreement, the

partners can share losses however they see fit. This is advantageousbecause partnership losses are deductible from the partners' individualtax returns.


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DisagreementsIf a disagreement arises in a partnership, it may be difficult to decidehow to resolve the issue. A partnership agreement allows the partners todefine each party's responsibilities and identify procedures, such asarbitration, to resolve problems.

LiquidationState law usually determines how liquidation procedures will occur in a

partnership. However, the partnership agreement can define aspects ofthis process, such as the order of liquidation from partners' capitalaccounts.

The Disadvantages of

PartnershipThe following are the disadvantages of Partnership:

Unlimited LiabilityThe liability of partners is unlimited. They are not only liable for their

business investments but their private properties can also be taken forbusiness liabilities. Partners try to avoid risks and it restricts theexpansion and growth of the business.

Limited ResourcesThere is a limitation in raising additional resources for expansion

purposes. The business resources are limited to the personal funds ofthe partners. Borrowing capacity of the partners is also limited. Thenumber of partners to be added to a business is also limited. A banking

company cannot have more than ten partners and in other businessesthe number of partners cannot exceed twenty. So there is a limit beyondwhich partners cannot be added.


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InstabilityThe partnership concern suffers from the uncertainty of duration

because it can be dissolved at the time of death, lunacy or insolvency ofa partner. The lack of trust among partners can also lead to dissolution.

The discontinuity of the business is a social loss and it causesinconvenience to the consumers and workers.

Mutual DistrustThe mutual distrust among partners is the main cause for thedissolution of partnership concerns. It is difficult to maintain harmonyamong partners because they may have different opinions and may notagree on certain matters. Lack of confidence in each other can be acause for quarrels and it may lead to the dissolution of the firm.

Limitation on Transfer of ShareNo partner can transfer his share to a third party without the consent ofthe other partners. If a partner wants his share back it will not be

possible without the approval of other partners or without dissolution ofthe firm. In case of a company, any shareholder can transfer his shareswithout affecting the working of the business. In partnership, a partneris permanently wedded to it.

Lack of Public FaithThe accounts of partnership concerns are not published. So public isunaware of the exact position of the business. There is a suspicion in

public mind that these concerns earn huge profits at the cost ofconsumers. There is no legal binding for the publication of accounts.So partnership concerns lack public confidence.

Lack of Prompt DecisionAll important decisions are taken by the consent of partners sodecision-making process becomes time consuming. There may be a

possibility of losing business opportunities because of slow decision-

making. The decisions are generally taken by consensus; it may bedifficult to convince all partners for agreeing to a particular decision.


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Reference:

Partnershipshttp://www.irs.gov/businesses/small/article/0,,id=98214,00.html

Definition of Partnershiphttp://www.publishyourarticles.org/eng/articles/partnership-definition-characteristics-and-essential-elements.html

Business Structure Essentialshttp://sbinformation.about.com/od/ownership1/a/llcincorporated.htm

Types of partnershiphttp://smallbusiness.findlaw.com/incorporation-and-legal-structures/types-of-partnerships.html

The Characteristics of Partnershiphttp://i2biz.blogspot.com/2009/09/characteristics-of-partnership.html

Partnership agreementhttp://www.nolo.com/legal-encyclopedia/creating-partnership-agreement-29906.html

The Importance of a Partnership Agreementhttp://successfulbusinesspartnership.blogspot.com/2010/03/importance-of-partnership-agreement.html

The Advantages of a Partnership Agreement

http://www.ehow.com/about_6498754_advantages-partnership-agreement.htmlThe Disadvantages of Partnershiphttp://www.publishyourarticles.org/knowledge-hub/business-studies/what-are-the-disadvantages-of-partnership.html
http://www.irs.gov/businesses/small/article/0,,id=98214,00.htmlhttp://www.publishyourarticles.org/eng/articles/partnership-definition-characteristics-and-essential-elements.htmlhttp://www.publishyourarticles.org/eng/articles/partnership-definition-characteristics-and-essential-elements.htmlhttp://sbinformation.about.com/od/ownership1/a/llcincorporated.htmhttp://smallbusiness.findlaw.com/incorporation-and-legal-structures/types-of-partnerships.htmlhttp://smallbusiness.findlaw.com/incorporation-and-legal-structures/types-of-partnerships.htmlhttp://i2biz.blogspot.com/2009/09/characteristics-of-partnership.htmlhttp://www.nolo.com/legal-encyclopedia/creating-partnership-agreement-29906.htmlhttp://successfulbusinesspartnership.blogspot.com/2010/03/importance-of-partnership-agreement.htmlhttp://successfulbusinesspartnership.blogspot.com/2010/03/importance-of-partnership-agreement.htmlhttp://www.ehow.com/about_6498754_advantages-partnership-agreement.htmlhttp://www.publishyourarticles.org/knowledge-hub/business-studies/what-are-the-disadvantages-of-partnership.htmlhttp://www.publishyourarticles.org/knowledge-hub/business-studies/what-are-the-disadvantages-of-partnership.htmlhttp://www.irs.gov/businesses/small/article/0,,id=98214,00.htmlhttp://www.publishyourarticles.org/eng/articles/partnership-definition-characteristics-and-essential-elements.htmlhttp://www.publishyourarticles.org/eng/articles/partnership-definition-characteristics-and-essential-elements.htmlhttp://sbinformation.about.com/od/ownership1/a/llcincorporated.htmhttp://smallbusiness.findlaw.com/incorporation-and-legal-structures/types-of-partnerships.htmlhttp://smallbusiness.findlaw.com/incorporation-and-legal-structures/types-of-partnerships.htmlhttp://i2biz.blogspot.com/2009/09/characteristics-of-partnership.htmlhttp://www.nolo.com/legal-encyclopedia/creating-partnership-agreement-29906.htmlhttp://successfulbusinesspartnership.blogspot.com/2010/03/importance-of-partnership-agreement.htmlhttp://successfulbusinesspartnership.blogspot.com/2010/03/importance-of-partnership-agreement.htmlhttp://www.ehow.com/about_6498754_advantages-partnership-agreement.htmlhttp://www.publishyourarticles.org/knowledge-hub/business-studies/what-are-the-disadvantages-of-partnership.htmlhttp://www.publishyourarticles.org/knowledge-hub/business-studies/what-are-the-disadvantages-of-partnership.html


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Joint-Stock

CompaniesAjoint-stock company is a business entity which is owned

by shareholders. Each shareholder owns the portion of the company inproportion to his or her ownership of the company's shares (certificatesof ownership).[1] This allows for the unequal ownership of a businesswith some shareholders owning a larger proportion of a company than

others. Shareholders are able to transfer their shares to others withoutany effects to the continued existence of the company.

In modern corporate law, the existence of a joint-stock company isoften synonymous with incorporation (i.e. possession of legal

personality separate from shareholders) and limited liability (meaningthat the shareholders are only liable for the company's debts to thevalue of the money they invested in the company). And as aconsequence joint-stock companies are commonly knownas corporations or limited companies.

Some jurisdictions still provide the possibility of registering joint-stockcompanies without limited liability. In the United Kingdom and othercountries which have adopted their model of company law, these areknown as unlimited companies. In the United States, they are,somewhat confusingly, known asjoint-stock companies.

Joint Stock CompanyProf. L. H. Haney - "A Joint Stock Company is a voluntary associationof individuals for profit, having a capital divided into transferableshares, the ownership of which is the condition of membership."
http://en.wikipedia.org/wiki/Joint-stock_company#cite_note-0http://en.wikipedia.org/wiki/Joint-stock_company#cite_note-0


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Characteristics of Joint Stock CompanyThe analysis of above definitions reveals the following characteristicsof a company:

Association of persons

A company is a voluntary association of persons established for profitmotive. A private company must have at least two persons and the

public limited company must have at least seven persons to get itregistered. The maximum number of persons required for theregistration in case of private company is fifty and in case of publiccompany there is no maximum limit.

Artificial personA company is an artificial person. It is created by law. Like that of thenatural person, it can own property, incur debts, file suits, enter intocontracts with others under its own name. It can be sued and fined butcannot be imprisoned.

Separate legal entity

A company being created under law has a separate entity from its

members. Any of its members can enter into contracts with others. Amember cannot bind a company by his acts or dealings with the third

parties. The company can file a suit against its members and itsshareholders can also sue the company. Further, a shareholder is notliable for the acts of the company even though he may be holding allthe shares of that company.

Limited liability

The liability of the members or shareholders is limited to the extent ofthe value of shares held or the amount guaranteed by them. Theshareholders are not personally liable for the debts of a company

beyond that limit.

Transferability of shares


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The shares of a public limited company are freely transferable and canbe purchased and soldthrough the stock exchanges. A shareholder of apublic limited company can transfer his shares without the consent ofother shareholders. But there are certain restrictions on transferability

of shares in case of private limited company.

Common seal

Since a company is an artificial person, it cannot put its signature onany document. Therefore, it is statutory for every company to have aseal on which the name of the company is engraved. Affixing of seal onany document signifies the signature of the company. Of course twodirectors have to sign as witnesses in such .cases.

Separation of ownership from managementThe shareholders are the owners of the company. They areheterogeneous group of people who are widely scattered throughout thecountry and abroad. The shareholders elect their representatives calleddirectors to manage the company. Thus, the company is managed bydirectors rather than the shareholders. This results in separation ofownership from management.

Perpetual succession

The company enjoys a continuous existence. Its existence is notaffected by death, lunacy or insolvency of its shareholders or directorsas the case in partnership or sole proprietorship. The company can only

be dissolved by the operation of law.

Investment facilities

A joint stock company raises its funds through issue of shares togeneral public. Due to the small denomination of the shares, thecompany provides investment opportunities to all sections of peoplewho want to put their surplus money in the company's share.

Accountability


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A joint stock company has to function as per the provisions of theCompanies Act. The accounts are to be audited by qualified auditors.Such accounts and exports are published for the information of allstakeholders. Regular and timely reports are to be submitted to the

Government.

Restricted action

A company cannot go beyond the powers mentioned in the abjectclause of the Memorandum of Association. Therefore, its action islimited.

The Advantages of Joint Stock

Company

While opting company form of business, the entrepreneur shouldclearly gone through the distinction between company with partnershipform of business. The next step arises a regard to why to go forcompany form of business. The following points depicts theadvantageous points of this form of business.

Huge resourcesA company can raise large amount of resources from the genera public

by issuing shares. Since, there is no maximum limit of the number ofshareholders ii case of public company, fresh shares can be issued tomeet the financial requirement. Capita can also be obtained by issuingdebentures and accepting public deposits.

Limited liability

The liability of the shareholders is limited to the extent of the facevalue of the shares held by them or guarantee given by them. Theshareholders are not liable personally for the payment of debt of thecompany. Thus, limited liability encourages the investors to put theirmoney in the shares of the company.

Transferability of shares


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The shares of the public company are transferable without anyrestriction. A shareholder can sell his shares at any time to anybody inthe stock exchange Therefore, the conservative and cautious investorsare also attracted to invest in the shares of public company. This brings

liquidity to the investors.

Stability of existence

A joint stock company enjoys perpetual succession. It continues for along period of time because it is unaffected by the death, insolvency ofthe shareholders directors. Change of ownership and management alsodoes not affect the continuity of the business.

Efficient management

A company can hire the services of professional manager for itsfunctional areas because of its financial strength. The directors wholook after the management of the company are generally experiencedand persons of business acumen Therefore, the management of acompany is sure to be efficient.

Scope for expansion

A company can generate huge financial resources by issuing shares and

debentures to finance new projects. Companies also transfer a portionof their profit to reserve which can be utilized for future expansion. Themanagerial capabilities a the disposal of a company helps it for

planning the future expansion and growth.

Economies of large scale production

The company is in a position to undertake large scale operation becauseof its huge financial resources. When the scale of operations i large, theeconomies in buying, selling, production etc. are enjoyed by theundertaking. The economies of large scale enables the company to

produce goods at lower cost and supply the same to the consumers atcheaper prices.

Public confidence


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A company submits required information to the Government and otherauthorities at regular intervals. The accounts of the company areaudited by chartered accountants and also published for the informationof the stakeholders and others. This enables a company to enjoy the

trust and confidence of the public.

Social benefits

A joint stock company provides a number of benefits to the society. 1creates employment opportunity, investment opportunity, utilizes theunutilized natural resource of the nation, supplies quality products andservices at cheaper rate and generates revenue for the Government andalso undertakes many infrastructural developmental programmers inthe country.

Diffused risk

The entire business risk of a company is distributed over a largenumber of shareholders. Thus, the risk is reduced for each shareholder.

No shareholder is burdened with more than what he has paid as theprice of shares hold. No personal property will be attached for thesame.

Tax benefits

As a separate entity, companies pay income tax at a flat rate. Becauseof this, the company's tax burden on higher income is less incomparison to other forms of business organization. Companies alsoavail tax exemptions deductions and concessions for undertaking theiroperations in specific areas, dealing with nature of goods and servicesand others.


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Disadvantages of Joint Stock CompanyDespite the above advantages, the company form of organization alsosuffers from certain demerits. The following are some of the important

demerits of a company which every entrepreneurs should know whilegoing for selection of type of business.

Difficulty in formation

The formation of a joint stock company is very difficult, time takingand expensive as compared to any other form of organization.Conceiving the very idea and getting it implemented is very difficult

process. Preparation of the basic documents like memorandum ofAssociation and Articles of Association, fulfilling legal formalities as

per the Act and getting the business registered needs lot of time, moneyand expertise.

Oligarchic management

The management of company is democratic in theory but oligarchic inpractice. It is controlled by a small group of Board of Directors whohardly protect the interest of other shareholders. They may manipulatethe things with an intention to be re-elected as directors. That is why it

is said that shareholders do nothing, know nothing and get nothing.

Delay in decision-making

The Board of Directors of the company decides about the policies andstrategies of the company. Certain decisions are taken by theshareholders. The meeting of the directors or the shareholders cannot

be held at any time as and when required. Thus, the decision makingprocess is usually delayed. The delay in decision-making may result inlosing some business opportunities.

Separation of ownership and management

The company is not managed by the shareholders but by the directorswho are the elected representatives of the shareholders. The directorsand managers may lack the personal initiative and motivation to


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manage the company efficiently as the shareholders (owners)themselves would.

Lack of secrecy

Each and every business strategy is discussed in the meeting of theBoard of Directors. The annual accounts are published and complianceto Government, Tax authorities etc. are made at regular intervals.Therefore, it is very difficult to maintain business secrecy in a companyform of organization in comparison to sole proprietorship and

partnership.

Speculation in shares

When profit is earned by manipulating the prices of shares withoutactually holding the shares, it is considered as speculation. A company

provides scope for speculation and the directors and managers mayderive personal benefit out of this. It is harmful to the innocent smallshareholders who invest their hard earned money with a view to gethigher rate of return.

Fraudulent management

The possibility of starting a bogus company, collecting huge sums of

money and subsequently bringing liquidation of the company is notruled out. The promoters with an intention to defraud may indulge insuch practices. The directors and managers may function for their

personal gain overlooking the interest of the company.

Concentration of economic power

The company form of business gives scope for concentration ofeconomic power in the hands of a few through multiple directorshipand creation of subsidiary companies. Some persons are elected asdirectors in a number of companies. These directors formulate policiesof the company which will safeguard and promote their own interest.Majority shares of other companies are purchased to create subsidiarycompanies.


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Excessive Government regulations

A company functions under too much of regulations of theGovernment. Reports are to be filed and compliance are made at

regular intervals to appropriate authorities failing which penalty isimposed. A considerable time and money of the company is involved inthe process of regular compliance.

Evils of Factory system

Due to large scale operation, the company may give rise to insanitation,pollution, congestion and some social evils like migration from villagesto towns, shifting from agriculture to industry etc. They cause instancesin the society.

Types of Join Stock Company

1. Chartered Company

The companies that form by the order of the king of England are calledthe charter company. These companies were formed before 1844. Forexample, East India Company, Chartered Bank of England, the charterof the British South Africa Company, given by Queen Victoria (Moreinformation here)


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2. Statutory Company

Companies that are formed by the order of the President, or by theLegislative Committee or by bill of Parliament are called StatutoryCompany. These Companies are operated by those laws. For example,

municipal councils, universities, central banks and governmentregulators, Central Bank. (More information here)3. Registered Corporation

Companies that are formed under the prevailing law of the companyare called the registered company. The corporation that has filed aregistration statement with the SEC prior to releasing a new stock issue.It is two types-i) Unlimited Company: The liabilities of the shareholders of thiscompany are unlimited. For example, British all-terrain vehicle

manufacturer Land Rover, GlaxoSmithKline Services Unlimited.ii) Limited Company / limited corporation: The liabilities of theshareholders are limited. For example, Charitable organisations,Financial Services Authority. This liability of a company can be of twotypes.a) By Guarantee

b) By share value. The company limited by share can be of two types.

Private Limited Company, where the number of shareholder ranges

from two to fifty. The share of these companies cant be traded in thestock market. Public Limited Company, where the number of shareholder rangesfrom seven to share limitation. The share of the public limited companyis traded in the stock market.

Procedure of Formation of a Joint StockCompany

In "Bangladesh" perspective (but the moreover same process all overthe world) Joint Stock Company is formed, registered and guided bythe Companies Act 1994. The promoters by themselves or by their


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appointed person (advocate, consultancy firm, or consultant) undertookthe task of formation. However, the task of formation could bediscussed in steps.

1. Promotional Steps:

The person who undertook the task of formation is called promoter orentrepreneur. For Public Limited Company there should be at leastseven (7) and for Private Limited company, there should be at least two(2) promoters. These promoters undertook the following tasks:

a) Planning: Here the promoters decide about the objectives, area,type, capital structure of the new business. Based on these factors, the

promoters go forward.b) Feasibility Analysis: Here the promoters undertook the feasibility

analysis for the new venture: both from existing and potential viewpoint. Promoters undertook different tools like SWOT (Strength,Weakness, Opportunity and Threat) Analysis; Competitive Analysis,etc. Being assured of the potentiality of the business the promoters gofor the further.c) Naming the Company: The name of the company should be suchthat is not used by any other existing company; it is not a name of theKing or Queen or President. The Public Limited Company should use(pvt.) Limited and the Public Limited Company must use Limited at the

end of the company name. The promoter upon deciding the name, theysubmit the name in black and white for Clearance in the registraroffice. The registrar upon verifying the uniqueness of the proposedname gives clearance of using the name.2. Registration or Incorporation:

To incorporate the new company the promoters needs go through thefollowing steps:

a) Collecting Registration Form and Filling it up: The promoters

have to collect the registration form and other papers for a fee from theregistrar office. Then they should fill up it by them selves or shouldtake the help of the consultants or advocates.b) Preparing Documents and Submitting for Registration: The

promoters have to submit the filled-up form with fees and the followingdocuments in the registrar office: Memorandum of Association


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Articles of Association

Capital Structure of the proposed Company

List of Directors and the amount of the sponsored share they

purchased

Declaration regarding the proposed name of the company

Declaration of an advocate or chartered accountant or any director ofa proposed company that the company has followed all the rules andregulations of Company Act 1994.

The registrar being satisfied on the paper submitted for the proposedcompany issues' Certificate of Incorporation. On getting that certificate

the Private Limited Company can start its business but the PublicLimited Company has to go to another step to start its business.

c) Obtaining Certificate of Commencement: Here the promotersshould make the Prospectus for the company. This prospectus needs to

be published in the daily newspaper. To get the Certificate ofCommencement, the promoters need to submit the followingdocuments to the registrar: A copy of Prospectus

Name, address, designation, occupation, etc. of Directors Directors written Letter of Agreement that they want to work asdirector of that company.

Declaration that the directors have fully paid the minimum amount ofsponsor share.

Declaration by the company secretary or other authorized person thatthe above affairs have maintained all rules and regulation of CompanyAct 1994.

The registrar being satisfied on the paper submitted for the proposedcompany issues' Certificate of Commencement. On getting thatcertificate the Public Limited Company can start its business.


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3. Flotation Stage

If the sponsor directors are unable to provide the adequate capital,public limited company can float their share in the capital market(Stock Exchange) to get required capital. By this time, the company

can do its other functions.

The