Introduction to Business1

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BusinessIf a man remains busy with an activity which is production oriented is calledBusiness.Production means creation of utility. In a word business is a creation of utility.

Man cant produce anything. Man can only procure resources from nature andcan change its shape, place and time.

Utility: Utility means capacity to satisfy human need or want.Something which has got the capacity to satisfy human need or want, we saythat it has got utility.

Business organization: All organizations all over the world are engaged ineither producing a product or rendering a service or generating an idea. Theseorganizations are popularly known as Business organization.

NEED: Need refers to those goods and services which are essential for ourliving. We cant survive without them. Our existence will be at stake (threatened)without them.Example:

1. Food2. Shelter3. Clothing4. Medical care5. Education and Training.

WANT: Want refers to those goods and services which are not essential for our

living but we require them for a better living. They make our life easy andenjoyable.Example:

1. Mobile2. Computer3. Electricity4. Television etc.

Need is limited but want is unlimited. Need cant be created; it already exists butwant may be created.

Definitions of Business

We all are involved in business in some-way or other. Business is something with which we live.

Business needs people, people also need business.

Business needs people in the form of owner, manager, employee andscustomer.

People form the core of business.


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OWNER: Owner is a person who owns the business, he usually provides thecapital. He sets the objectives, makes decisions. His decision is final in regard tohis business. He takes the risk and enjoys the rewards that the businessprovides.

MANAGER: Manager is a person who is responsible for the operation of abusiness.Managers may be of two types:

1. Owner Manager2. Professional Manager.

Owner Manager: An owner when manages his business himself is an ownermanager. He is a self employed person.

Professional Manager: He is employed by the owner. He is made responsible

for the operation of the whole business as per the desire of his employer that isthe owner.

Some dissimilarities between the owner and the professional manager aregiven below:

1. An owner manager is a self-employed person on the other hand aprofessional manager is employed by the owner.

2. Owner sets the objectives of his business. Professional managers walk toachieve those objectives.

3. A professional manager is constantly evaluated by the owner. If he canachieve the objectives set by the owner, then the owner welcomes him.

Unfortunately if a professional manager fails to do so. The owner managersimply says good bye to him. In other words, he is hired by the owner andhe may also be fired by the owner if he so desires. In fact a professionalmanager is always dictated by the owner. His boundary operation isdecided by the owner.

There are also some similarities between a professional manager and an ownermanager which are given below:

1. Both types of managers want to achieve profit, growth. They work for theirsurvival and in the presented context, they are also aware about theirsocial responsibilities.

Profit: The difference between business income (revenue) and businessexpenses (cost) is called profit.Profit = Revenue - CostBusiness Profit = Selling all costs of making and selling a product includingtaxes.Profit may be of two types such as:

1. Business profit


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2. Economic profit

Economic profit: Economic profit is what remains after expenses andopportunity costs when they are deducted from the income.Economic profit = Selling (Expenses + Taxes + Opportunity cost)

Opportunity Cost: Opportunity cost is the cost of choosing to use resources fora purpose which results in sacrificing the next best alternative for the use ofthose resources.

GROWTH: Growth is the development in the range of economic activities, it mayrelate to human or other resources. Growth is usually measured by productionand productivity.

Production: Production means the creation of utility.Productivity: Productivity is the ratio between input and output. Example as

follows:Jute Mill A Jute Mill BRaw materials : Tk. 100 Raw materials

: Tk. 100Direct labor : Tk. 100 Direct labor : Tk. 100Other expenses : Tk. 100 Other expenses : Tk. 100Total : Tk. 300 Total : Tk. 300

Here Jute mill A produces 20 yards carpet per year but Jute mill B produces 15yards carpet every year.

For A: Production Cost per year = 300/20 = Tk. 15For B: Production Cost per year = 300/15 = Tk. 20

Now if the Maximum Retail Price (MRP) of a carpet in the market is Tk, .17(say)then the jute mill A makes profit tk. 2 but the jute mill B incurs loss of tk. 3 percarpet. So the survival of the Jute mill B will be threatened on the other hand Jutemill A will go on flourishing business in the market.Low productivity leads to high cost of production which ultimately leads to goingout of business.Survival: Survival means state of continuing to exist. It is the primary issue of abusiness.

Social responsibilities: social responsibility has become a popular term in thefield of business now-a-days. Every business activity has got some positiveimpacts as well as some negative impacts. If a businessman is aware of thosenegative impacts then we shall say that he is aware of his social responsibility.

EMPLOYEE: Employees supply skill and ability needed to produce a product orto render a service and thereby to make profit. Employees want fair wages from


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the organization. An organization requires a committed work force to achieve itsobjectives. It is said that an organization should try to maintain a satisfactory andsatisfied work force to achieve its desired objectives. Satisfactory is from thepoint of skills and abilities but satisfied is from the point of view of remunerationpackage that is provided by the employer.

CUSTOMER: Customers are usually known as purchaser or buyer. A consumeris a person or an organization that purchases goods or takes service for personalor organizational use.Customer is the most important factor of every business. So, a business is to becustomer oriented to become successful. In other words, all the activities of anorganization must be centered on its customer.Note: A research study reads that a satisfied customer talks to at least four (05)persons about the quality of a product. On the other hand, dissatisfied customertalks to at least fifteen (15) persons about the quality of products/services.Buyer/Consumer: A buyer may be a consumer or may not be a consumer. On

the other hand, a consumer may be a buyer and may not be buyer.Silent Consumer: Silent consumer are those who cant pass their comment oropinion about the quality of product or service.Example:

1. Baby2. Oppressed group of people.

Economics: Business originated from the economics. Economics is the motherof business. Understanding economics is essential for understanding business.But there is also no single definition of economics which can satisfy all of us.However, economics is the study, how a society (people) chooses to use its

scared resources to produce goods and services and to distribute them to peoplefor consumption. Resources are very limited and given by nature. Economicsteaches us to use the minimum resources in the maximum field of benefit. Thedefinition of economics covers the following three basic terms such as;

1. Resources2. Goods and Services3. Allocation of Resources.

RESOURCES: Every nation has got some resources. The resources of a nationmay be divided into three main classes as stated below:

1. Natural Resources2. Capital Resources3. Human Resources

Natural Resources: Natural Resources are provided by nature in limited amountsuch as gas, oil, coal, iron, water, forestry and other mineral resources. Naturalresources are to be processed usually to make it a product or to be used toproduce other goods/products.


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Example: Trees are to be processed into lumber (wood) before using them tobuild homes, shopping malls, schools and colleges. Regarding natural resourcesman dont have any control. Man can simply extend its market.

As an example TITAS gas was firstly introduced from Brammanbaria but

nowadays the whole country is consuming it. Man has extended the using field ofTITAS gas usage.

Capital Resource: Capital resources are goods produced for the purpose ofmaking other types of goods. In other words capital is that part of producedwealth which can be used for further production. Some capital resources arecalled current assets. They have got a short life and are used up in theproduction process.For example: Raw material, fuel and money etc.On the other hand some capital resources are called fixed assets. They have gota long life. They are not used up in the production process rather they are used

repeatedly in the production process. For example- Land, Building, Machines etc.

Human Resources: The human talent, skill, competence available in a nation isknown as human resources. Human resource is the most important resource of acountry. Without human resource, no productive use of either natural or capitalresources is possible.

How a county will use its resources it depends on the economic system of thatcountry but the govt. is less prioritized for the proper utilization of resources.Business in every country is dictated and influenced or guided by its economicsystem.

Economic System: An economic system is an accepted process by whichnatural resources, capital resources and human resources of a country areorganized to produce products and to render services. It also includes theprocess of distribution of those goods and services. The following diagram showsvarious economic systems now prevailing in different countries of the world.

Economic System

Planned Economy Capitalism Economy Mixed Economy

Socialism Communism

Planned Economy: Planned economy is an economic system in which the govt.controls all or most factors of production and makes all or most productiondecisions.


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Planned economy may be of two types:1. Socialism2. Communism

Socialism: Socialism is a kind of planned economy. In socialism government

owns and operates the main or basic industries while individuals own andoperate less important industries such as govt. may own and operate banking,transport sector, insurance sector, power sector, public utility sector. On the otherhand individuals may own and operate small business units like a retail store, aclothing store, a stationary shop, a photography shop and a restaurant.

Communism: Communism is also another kind of planned economy. Here govt.owns and operates all industries whether it is small or medium or big it does notmatter.The idea of communism was developed by Karl Marx. He was basically a

German economist.Communism is a system in which all the economic resource of a country iscollectively not individually- owned. Here people are to work to the best of theirability and receive economic benefit according to their need from the state.In other word, the main message of communism is-Eat according to your needand work to the best of your ability.

*** If we want to achieve communism, we are to go through the process ofsocialism.In other words, socialism is the process and communism is the result. It is saidthe apex of socialism is known as communism.

Capitalism: Capitalism is a kind of economic system in which markets decidewhat, when, how and for whom to produce. Unlike planned economy capitalismdepends on market, not on Govt. to decide what, when, how and for whom toproduce.That is why capitalism is also known as market economy. Market economy maybe of two types:

1. Open Market Economy2. Restricted Market Economy

Note: Open market economy challenges the survival to the fittest.

Characteristics of capitalistic economy:

1. Private owner ship2. Decentralized decision making and planning3. Perfect completion among business units.4. Alternative choice on the part of the customers.5. Quality products at low price.6. Business centers on customers.


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Characteristics of Planned Economy:

1. State ownership2. Centralized decision making and planning.

3. Less significant competition in business unit.4. No alternative choice on the part of customer.

We cant think of a circle without its centre. In the same way we cant think ofcapitalism without customer. So if we treat capitalism as a circle then customer isits centre.

Mixed Economy: Mixed economy is an economic system in which theelements/characteristics of both market economy and planned economy arepresent. Bangladesh, Pakistan, India, srilanka are the examples of followingmixed economy.

In true sense of economic pattern is of mixed economy.

Conclusion: Economic systems differ from one another in terms of theircharacteristic. Different countries of the world are following different patterns ofeconomic system. It is true that every system has got its merits and demerits.There is no single economic system with only merits.

As a result, the fact is that no country in the world has a purely planned economyor a capitalistic economy. In practice, virtually countries are following mixedpattern of economy in which one of the basic economic system dominates butthe characteristics of other systems are present there as well.

In simple words, we can say no country of the world is totally communistic orcapitalistic.

Business means creation of utility. Business has two main branches such as-1. Industry and2. Commerce

Industry: The manufacturing side of business is known as industry. In otherwords business takes the name of industry when it is engaged in production.Commerce: The distribution side of business is known as commerce. In otherwords business takes the name of commerce when it is engaged in distribution.So in conclusion we can say production and distribution are the two importantfunctions of business.Characteristics/Essentials of Business:

1. Creation of Utility: Etymologically business means to be in the world ofbusy. If a man remains busy with an activity, we are supposed to call itbusiness, etymologically. But as a student of business, we are not ready


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to accept this statement. Because a man may remain busy with so manythings which will not come within the scope of business.

For example:1. Busy in gossiping2. Busy in thinking usual things.

To be business in our terms, and activity must be production related. Andproduction means creation of utility. So the essence of business is to createutility.

2. Exchange: Exchange means transfer. In business exchange involves twothings such as-

(a) Physical Transfer of goods and(b) Transfer of ownership title.

3. Recurring sale of goods and services: Buying and selling should occurrecurrently that is again and again. For example Mr. X buys a car at Tk.5lac. And later on he decided to sell it. He got also a customer and the

customer purchased it at Tk. 5 lac 50 thousand. Here Mr. X has made aprofit of Tk. 50 thousand. Still it will not constitute business because he didit for once only. If he does it again and again only then it will constitutebusiness otherwise not.

4. Profit motive: The motive of business must be to make profit. But inattempt to do so there may be a loss. Motive to make a loss does notconstitute business.

5. Risk and Uncertainty: There must be uncertainty and risk in business.There is nothing certain in this world except uncertainty. Business is a

game of uncertainty. So, it is full of risks. In other words in business risksare great and rewards are great too. In simple words we say, if there is norisk, there is no business. Risk = Uncertainty of loss which is miserable interms of money.

Components of business or

1. Extractive Industry

(Mining, lumbering, hunting)

2. Genetic Industry

(Agriculture, forestry and fish hatchery.)

SecondaryPrimary

2. Commerce1. Industry

1. Manufacturing-

(Iron & Steel, Spinning & Weaving, Machine making.)

2. Construction

(Building, bridge, road, canal, dam, etc.)

Classification of Business


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Extractive Industry: These industries are concerned with discovery andutilization of natural resources like, minerals, animals and forests. Someexamples of extractive industries are mining, farming, fishing, hunting.

Genetic Industry: These industries include breeding of plants, seeds, cattlebreeding farms, poultry farms and fish culture. It is to be noted that theseindustries depend on nature mainly. But they require a greater application ofhuman skill for their development in a planned way.

Manufacturing Industry: These industries are engaged in conversion ortransformation of raw materials or partly finished materials. These industries arecarried on a place which is popularly known to us as factory. When we sayindustry, we usually mean manufacturing industry. Some examples ofmanufacturing industries are textile industry, Jute Industry, Iron & Steel Industry,Automobile industry.

Construction Industry: These industries are engaged in the construction ofbuilding, bridge, road, canals, and dams etc. The raw materials used byconstruction industry are the products of manufacturing industry like cement,iron, steel and extractive industry like gas, oil.

Trade: Trade is a branch of commerce. It is concerned with the exchange ofcommodities. For conducting trade may be hindrances have to be removed. Thehindrances may mainly relate to place, time and finance.

Hindrance of Place: Place of production and place of consumption are not thesame. They are different. Goods produced in one part of the world and areconsumed in another part of the world. For example: garments manufactured in

2. Commerce

1. Home Trade

Trade Aids to Trade

2. Foreign Trade I. TransportII. Warehousing

III. Banking

IV. InsuranceI. Wholesale Trade

II. Retail TradeI. Export Trade

II. Import Trade

III. Re-export Trade


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Bangladesh but are consumed by Americans and the Europeans. So goods areto be transported from its place of production to its place of consumption.Transport, banking, insurance, packaging have come forward to remove thesehindrances.

Hindrance of Time: Time of production and time of consumption are not thesame. Goods are produced in one part of a season and are consumedthroughout the season. For example, tomatoes, Potatoes, carrots, jute areproduced in a particular part of the season but they are consumed round theyear. This hindrance of time has been removed by warehousing where goods arestored for future consumption.

Hindrance of finance: Business requires capital. In other words, we cant think ofa business without money. The problem of finance in business has been solvedby banks and other financial institutions.

Objectives of business:

1. Economic Objective2. Human Objective3. Social Objective

Economic Objective:1. Earning reasonable profit2. Creation of customers3. Keeping customers creating goodwill4. Research & innovation5. Stability of growth.

Human Objective:

1. Human relation with employees.2. Provision for employees welfare.Social Objective:

1. Production of quality goods.2. Charging reasonable prices.3. Payment of fare wages & other benefits.4. Provision of employment.5. Regular payment of taxes & other dues.6. Fair dealings with suppliers of materials.7. Contribution to community development.8. Attaining social power, recognition and thereby business

leadership.

1. Question: Profit is the sole/absolute motive of business do you agree withthis statement? Justify your opinion.

Answer: We cant agree with the above statement that profit is the sole/absolutemotive of business. It is true; nobody enters into business to regain his lost healthor for the salvation of his soul. Everybody enters into business to make profit. In


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other words, profit is the main incentive for business. Yet, we cant say that profitis the absolute motive of business. The arguments in favor of our opinion areshown below:

1. If we take profit as the only motive of business and then profit

maximization will be our aim. Profit may be maximized by taking nefariouspractices like-a) Exploiting workers;b) Deceiving suppliers;c) Adulterating goods;d) Passing bad quality goods;e) Evading taxes;f) Falsifying utility bills.

The above practices will obviously swell up the profit of a businessman. But canwe call these activities as business activities? The answer is obviously Norather we can call these activities swindling. So, profit should not be the only

motive of business.

2. If we say profit is the only motive of business, it is just like saying eating isthe only motive of living, or blood circulation is the only cause of living. It istrue only blood circulation cant keep us alive. Breathing, digestion, andproper functioning of the nervous system are vitally required for our living.

From these facts of live, we can draw a calculation that only profit cant keep abusiness alive. So, profit should not be the only motive of business.

3. If eating is taken as the only motive of living then we shall obviously go for

over eating and overeating may even lead to death. Similarly impiousprofit may bring an end to the life of a business. Certain minimum food isrequired for our living and work; so certain minimum profit is alsonecessary for the survival of a business.

So, in conclusion we can say that profit cant be the only motive of business.Profit may be the main motive of business but obviously not the only motive. Theonly motive of business should be to create customer and to keep customer. So,it should be the only objective of business.

2. Question is how to do it?Answer: In an attempt to create and to keep customers, a business unit shoulddo the following three things-

1. Produce goods or render services that your customers want.2. To create a good employment condition so that a business can

attract competent managers.3. We usually think that organizations are competing with each other

in terms of their quality of products. But in real life situation they arenot competing in terms of their quality of products. They are rathercompeting in terms of their quality of managers. It is because better


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managers develop better employees and the two together developbetter products. Business should be acceptable to the community inwhich it is operating.

Requisites of a successful business:

Business today is very competitive. It has taken the shape of cut throatcompetition. There has been a race among business units to improve efficiencyand to reduce cost of production. Because existence and prosperity of businessdepend on the cost at which the goods are produced. Further as the customersfor whom goods are meant are scattered over a wide area. It is difficult toestimate the demand for products. In addition, demands are ever changing dueto the influence of fashion and the introduction of substitutes. So, Businesstoday is not a bed of roses rather it is a bed of thorns. The problem has becomevery acute because most the factors are not within the control of thebusinessmen. A business man must be ready to accept these challenges.

However, the requisites for success in a modern bushiness the following issuesmay be considered.1. Objective2. Planning3. Sound Organization4. Adequate finance5. Proper location and lay out.6. Research and innovation7. Efficient and effective management.

Objective: Objective indicates where we are and where we want to go. Objective

bridges the gap between the points where we are and where we want to be.Objective is a target what we want to hit. Objective is a mission or a destinationwhere we want to reach. Objective is a result what we want to achieve. Examplesof objectives:

1. A business man wants to make 25%profit on his capitalemployed in the coming financial year.

2. A student wants to get Grade A+ in his coming term final exam.Objective should be realistic. Realistic means which is not too easy and notimpossible to achieve. It should be understandable to those people who areresponsible for their implementation.Planning: Planning is decided in advanced that are to be done. It is a projectedcourse of action. Planning is a design for tomorrows action. Planning answersthe following three basic questions:

1. Where we are now2. Where do we want to go?3. How can we go there from here?

Sound organization: The firm/organization must be staffed with sufficientnumber of people with required talents and skills. It means right man should beselected for the right job.


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Adequate finance: Finance is the life blood of a business. Business depends onthe availability of the adequate finance. So a business man must correctlyestimate the financial requirements and makes necessary arrangement forsecuring the finance.Proper location and lay out: Location is an important factor for every business.

Customers are very seriously concerned about the location of a business. Choiceof a location depends on multifarious factors.Lay out mainly involves interior decoration of a business including machine,furniture, electrical outlets.Research and Innovation: Research means systematic search for newknowledge. For the keen competition among businessmen and the changingcharacters of demand, there is a need for continuous improvement in quality andquantity. It is possible through research.Efficient and Effective management: Efficient means ability to get things donecorrectly and effective means ability to choose correct objective. It is to be notedthat a manager can do a wrong thing rightly.

A manager should not give more importance either on efficiency or oneffectiveness. He should rather try to bring a balance or he should give equalimportance on efficiency and effectiveness.

Social responsibility of business:

Social Responsibility: Business organizations conduct many activities toproduce product or to render service or to generate ideas and thereby theygenerate profit. The activities of a business firm greatly affect our socioeconomicstructure. Social responsibility is the awareness of the business activities that

have got impact on society and the consideration of that impact by business firmsin making decisions. Social responsibility may relate to:

- customer - employee- environment- and investors.

Social Responsibility of business in regard to customers:

I. The right to safetyII. The right to be informed.

III. The right to chooseIV. The right to be heard.

Right to Safety: the most basic consumer right is the right of safety in regard tothe product or the service, they are going to procure. The product or servicesmust be produced meeting the government guidelines and regulations. Theproduct and services should be safe to possess and use.


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Social Responsibility to Environment: Three important issues for environmentare such as Water

AirLand

These three elements of the environment are polluted by business activities. So,businessmen must be aware regarding the pollution of the environment.

Water pollution: Water pollution is caused by dumping of toxic chemical,sewerage and garbage into rivers and streams. Use of chemical fertilizer andpesticides are the other causes of water pollution. Chemical fertilizer andpesticides has seriously affected our fish industry.

Air pollution: Air pollution is caused by carbon mono-oxide and hydrocarbonsthat comes from motor vehicles and by smoke and pollutants from manufacturingplants.

Land Pollution: Industrial wastes, chemical fertilizer, disposal of garbage, forestfire are some of the causes of land pollution.Land pollution and water pollution are very closely related. It is because landpollution ultimately results in water pollution. It is because toxic wastes areultimately drained to water sources.

Responsibility to investors:

1. Proper management of firm.2. Reasonable return to investors

3. Access to information

Forms of business organization (based on ownership.)1. Sole trader ship2. Partnership3. Cooperative society4. Company5. State enterprise

Sole trader ship: Sole trader ship is the oldest, simplest and most common formof business organization. Probably it came into existence, when people firstrealized the need or exchange. From the very dawn of our civilization, sole tradership form of business has been in operation. And even today, it has remained asmuch important as it was earlier. The individual proprietorship is a business unitwhich is completely owned and controlled by one person. He is one and alone information, management, taking responsibility, providing capital and also insharing profits. It is represented by an individual who is in business by and forhimself. In plain, words, he is the monarch of all he owns. He is the supreme

judge of all matters in regard to his business. That means his decision is final in


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regard to his business matters. In fact, he owns all and risks all. The other namesof sole trader ship are-

1. Sole proprietorship2. Individual entrepreneurship3. Single proprietorship

Professional like solicitors, accountants, auditors, physicians, hair dressers,photographers are some of the examples which fall within this category.

Merits/Strong points of Sole Trader ship:1. Easy to form2. Minimum cost3. Direct motivation4. Absolute control5. Promptness in decision making6. Flexibility in operation.7. Maintenance of business secrecy

8. Good training ground9. Matching of efforts and rewards10.Independent way of life11.Opportunity for self-employment12.Elimination of wastage.13.Diffusion of ownership14.Ease of dissolution

Demerits/weak points of sole trader ship:1. Limited financial resources2. Difficulty in Management3. Unlimited Liability

4. Uncertainty of continuity5. Passing into incompetent hands.6. Restricted growth7. Difficulty in personal contact8. Social life is lost9. No proprietorship for employees

Difficulty in Management: Today business is very competitive and difficult.Diversified knowledge and experiences are required to run a business. Beingalone, the sole trader must give his fingers on everything, but in real life situationit is not an easy job. He carries a staggering load of responsibility which maycrush him under its eight unless he is a giant.

Unlimited Liability: Unlimited liabilities mean availability of personal properly ofa business to beat the liabilities of business in case of need. In other word, whena businessman is required to pay business liability from his personal property.This situation is known as unlimited liability. A man in business for him haseverything to loose if his efforts are not successful. This makes him committed togive his best for the success of his business. The concept of unlimited liability


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becomes a driving force for the sole trader. So, he always works carefully toavoid the burden of unlimited liability.

Partnership is formed with the following four things such as partner, partnership,Firm, Firm Name.

Partner: Persons forming a partnership are individually known as partners.

Firm: Persons forming a partnership are collectively known as firm.

Partnership: Partnership is the relation between partners who have formed apartnership. In other word, the relationship that exists between partners is knownas partnership. This relationship is created by a contract. So, contract is theessence of partnership. In simple word, if there is no contact, there is nopartnership. In other word, partnership is contractual relationship. Contract maytake the following forms-

1. Oral contract

2. Written contract3. Written and registered contract according to the partnership Act.

To avoid future chaos and confusion it is wise to have a written and registeredcontract. It is to be noted that written and registered contract is enforceable to theeye of law.

Firm name: The name under which business of the partnership is carried on isknown as firm name.

Partnership: Partnership is a relation between persons who have agreed to

share the profits of a business carried on by all or any of them active for all.(Indian partnership Act-1932)

Essence of partnership:1. Plurality of persons2. The persons forming a partnership must carry on some business.3. The persons carrying on a business must enter into a contract.4. The contract must be to share profits of a business.5. An agreement to share losses does not constitute a partnership.6. The business must be carried on by all or any one of them active for all.7. Partnership is a contract of utmost good faith.8. One partner can bind the other partner by his deeds.

Partnership Deed:A document which contains the terms and conditions of a partnership is knownas partnership deed. Some important contents of a partnership deed:

1. Name and address of partners2. Firm name of place of business3. Objective of business


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4. Amount of total capital5. Proportion of capital provided by partners6. Distribution of profit.7. Partners salary8. Accounts of partnership

9. Drawings of partners10.Division of work11.Admission of a new partner.12.Retirement or death of a partner.13.Duration of partnership business.14.Mode of arbitration in case of need.15.Dissolution of partnership.

Mode of dissolution of partnership:1. Dissolution by agreement2. compulsory dissolution

3. Dissolution on the happening of certain contingency4. Dissolution by notice by a partner in case of partnership at will.5. Dissolution by the court.

Advantages of partnership:1. Easy to form2. Greater capital3. Combine ability and judgment.4. Matching of efforts & rewards5. Matching of ownership and control6. Protection of minority interest

7. Flexibility in operation8. Better public relations9. Promptness in decision making10.Sharing of loss11.Benefits of divisional of labor12.Indirect advantage of unlimited liabilities.

Demerits/Short comings of partnership:1. Difficulty ion choosing a partner2. Lack of good faith and harmony3. Onerous /precarious/deplorable liability4. Risks from the activities of co-partners5. Non-transferability of interest6. Lack of public confidence7. Instability of business.

Position of a minor as a partner: A minor cant become a partner because heis not eligible to ent4r into a contract and without contract a partnership cant beformed. But a minor may be admitted to the benefits of a partnership firm, with


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the consent of all other partners. A minor may inspects the books of accounting.His liability is not unlimited. His liability is limited to extent of interest; he has gotin partnership business. In case of need, creditors can simply claim his interestsin the partnership. On attaining maturity, within six months, he is to serve a publicnotice specifying his opinion whether he ant to continue as a partner or not. If he

fails to do so within the specified time, it will be assumed that he wants tocontinue as a partner. Under such a circumstance, he will be held liable for debtsand obligations of the partnership firm from the date of his admission to thebenefits of partnership. In other words, his liability will be given a retrospectiveeffect.

Dissolution by the court may happen on the following grounds-1. Insanity of a partner2. If a partner becomes permanently incapable to perform hi duties as a

partner.3. If a partner is found guilty of misconduct in carrying on the business.

4. If a partner willfully commits breach of contract repeatedly and his conductis such that it not possible for other partners to carry on the business withhim.

5. If a partner transfers his interests in the firm to a third party.6. If the court finds that the business of the partnership firm cant be carried

on except at a loss.7. Court can dissolve the partnership firm on any other grounds if it thinks fit.

Company form of organizationOr

Joint stock company

There are three basic and mostly common limitations in sole trader ship andpartnership. To remove these limitations, the idea of company/Joint stockcompany has been introduced. The following steps are required to form acompany-

1. Discovery of an idea2. Investigation and planning particularly financial planning.3. Assembling resources4. Preparation of documents like-

i. Memorandum of associationii. Articles of associationiii. Prospectusiv. Statement in lieu of prospectus

5. List of directors6. Written consent of director to act as directors7. Certificate from an advocate or from a CharteredAccountant


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8. Submission of papers and documents to the Registrar ofJoint Stock Company.9. Obtaining certificate of incorporation10. Obtaining certificate of commencement (In case of publicLtd. Company)

After all the above process is done properly then the company will get a birth cry.

Types of a company

1. Chartered company2. Statutory company3. Registered company

Chartered company: Before enactment of the company Act, the procedure offorming a company was by a means of a royal chartered. At that time, promoters

had to apply to the king/Queen through the parliament for the necessarypermission/Approval. Company formed in this way was known as charteredcompany. East India Company is an example of chartered company.

Statutory company: Statutory Company is formed by a special act of thelegislative body that is the parliament. Usually companies of these types areformed for public utility services. The company is organized and managed by theact which created. In our country this types of companies are popularly known ascorporation.Registered company: Registered companies are those organizations which areformed according to the company Act. In our country registered companies are

formed according to the company act of 1994. Registered companies may be oftwo types such as-1. Private Limited Company2. Public Limited Company

It is to be noted that registered companies are popularly known as joint stockcompanies.A private limited company can start its business as and hen it gets certificate ofincorporation. But a public limited company cant do sol. It is required to obtainanother certificate from the registrar of Joint Stock Company which is known ascertificate of commencement.To obtain certain certificate of commencement a public limited company is toensure the following conditions such as-

1. Ensuring minimum subscription2. Issuing prospectus3. Issuing statement in lieu of prospectus

Minimum Subscription: Ensuring minimum subscription is the minimum amountof capital required to start a business. A public limited company must be able to


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collect minimum subscription. If it cant collect minimum subscription it will not begiven the certificate of commencement by the registrar of the joint stockcompanies. And it will not be allowed to start it business.

Issuing Prospectus: A prospectus is an open invitation done by a company to

the public at a large to purchase the share of that company. In other words,prospectus is an open invitation done by a company to the general public topurchase its shares. It is to be noted that prospectus should be informative, sothat it can attract the prospective investors. Any misrepresentation in theprospectus is a punishable offence.

Statement in lieu of prospectus: It is to be noted that prospectus andstatement in lieu of prospectus are issued by a public limited d company. It is tobe noted that a private limited company cant issue a prospectus or a statementin lieu of prospectus. Because it cant invite public to subscribe for it shares.A public limited company issues a statement in lieu of prospectus when it

decides to collect its minimum subscription from it promoters.

Memorandum of Association: Memorandum of Association is the mostimportant document of a company. It is the charter of the company. It is a basicdocument of the company. It defines the limits power of a company. In otherword, Memorandum of Association describes the permitted range of activities ofa company. It is a public document. It is the constitution of the company. It is thefoundation on which the structure of the company is based. It defines the relationof the company with the outside world and its scope of activities. A companycant do any activity which is not mentioned in its memorandum ofAssociation. If a company does an activity which is not mentioned in its

memorandum of Association, it is known as ultra virus (beyond permission)which is a punishable offence.

Contents of Memorandum of Association

Usually Memorandum of Association contains five clauses which are as follows:1. Name Clause2. Location Clause3. Objective Clause4. Liability Clause5. Capital Clause

Name Clause: It contains the name of the company. The name should not besimilar to those companies which are already in existence that is registered in theregister of the registrar. Usually private Ltd. Company should use the wordprivate ltd and public ltd company should use the word ltd as the last part of theirnames.


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Location Clause: It should be the place where it will be operating. In otherwords, the address under which it has been registered with the registrar of theJoint Stock Company.

Objective Clause: The objective of a company should be broad andcomprehensive. It should cover its present and future plan. It is to be noted that acompany cant do any activity which is not mentioned in its objectives. Moreover,it is very difficult to change the objectives of a company.

Liability Clause: A company must mention its position in regard to its liability.The liability of a company is limited usually to the extent of shares owned by ashare holder.

Capital Clause: The amount of capital should be mentioned clearly in thememorandum of association. It is to be noted that capital of a company is divided

into various divisions. These divisions must also be mentioned clearly in thecapital clause.

Articles of Association: It is the second important document of a company.Articles of Association contain information regarding internal Administration of acompany. Articles of association are subordinate to Memorandum of Association.It can not contain anything which is contradictory to the Memorandum ofassociation. In case of conflict, between these two documents memorandum ofassociation will prevail.

Some contents of Articles of association

1. Number and values of shares.2. Types of shares3. Rules as to call of shares.4. Rules as to transfer of shares5. Benefit and rights associated with the shares6. Forfeiture of shares7. Rules as to dividend8. Rules as to borrowing9. Rules as to reserve10. Rules as to Accounts and Audit.11. Appointment of directors12. Duties and responsibilities of directors.13. Rules as to meeting of the company14. Voting of the company15. Winding up of a company

Difference between Memorandum of Association and Articles ofAssociation


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The memorandum of Association defines and establishes relationship betweenthe company and the outsider. On the other hand, Articles of Association definesthe relationship between the members and the management of the company. Itsmain purpose is to provide Rules and Regulations in regard to the internal

administration of the company.It is to be noted that a public ltd. Company can use Table-A of the companies Actas its Articles of Association. Table-A of companies Act contains Rules andRegulations in regard to the internal administration of a company. But a privateltd company cant use Table-A as its Articles of Association.

Saline features of a company

1. Voluntary Association2. Creation of law

3. Separate legal entity4. Perpetual Succession5. Limited Liability6. Transferability of shares7. Rigidity of objectives8. Diffusion of ownership9. Separation of ownership from control

Voluntary Association: Company is an autonomous body which means it is aself governing or self controlling body within the framework of companies Act.

Creation of law: It is not easy to form a company like that of sole trader ship orpartnership. Formation of a company requires many legal formalities andobtaining of certificates according to the company Act. In short, a company iscreated by law within the framework of company Act.

Separate legal entity: Company has got a legal existence apart from thepersons forming it. Company is like a person in the eye of law. It can holdproperty, incur debts and can sue and can be sued as an individual. In short,company is a person in the eye of law but it is mute and dumb. It is not anordinary person with flesh and blood. It cant walk, it cant talk, it cant marry, itcant divorce, and it is imbecile but it is honest and innocent.

Perpetual Succession: Company has got a permanent life. Death, retirement,insolvency of share holders doesnt affect the life of the company. It can only bedissolved by going through legal formalities according to the company Act.

Limited Liability: The most important feature of the company and its highestadvantage lies in the fact that the liability of the company is limited. In otherwords, a share holder is liable usually to the extent of shares owned by him.


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Cooperation means to get together to bring about a result. The other members ofthe human body could not like the luxurious life of the belly and they entered intoa conspiracy to cut of its supplies. The hand refused to carry food, mouth toswallow it, teeth to chew it. As a result, all of them began fake and fail. And entire

body started to pine away. The other members of the body then realized theirfoolishness and they could understand the truth that we must cooperate witheach other for our survival.Getting together may be of two types-

1. conscious cooperation2. unconscious cooperation

It is to be noted that cooperative society always relates to conscious cooperation.Cooperative society is an association of human being wherein persons of limitedand moderate means, voluntarily associate on a basic of equality for thepromotion of their common economic, social, moral interest. In other words,

cooperative society is formed by persons voluntarily for their mutual benefits.

Types of Cooperative Society

Cooperative Society may be divided into different classes from the point of viewof their formation. Some examples are shown below:

1. Cooperative Society according to functions-a. Productive societyb. Auxiliary society

2. Cooperative Society according to legal status-a. Registered Cooperative Societyb. Unregistered Cooperative Society

3. Classification on the basic of area of operation-a. Urban Cooperative Societyb. Rural Cooperative Society

4. Classification on the basic of sector of economy-a. Agricultural Cooperative Societyb. Small scale industry/ Cooperative Societyc. Retail and whole sale trade Cooperative Societyd. Service Trade Cooperative Society (Banking,

Insurance, Transportation)

5. Classification on the basis of its members***a. Producers Cooperative Societyb. Consumers Cooperative Society

6. Classification on the basis of level-


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a. Primary Cooperative Society (Local)b. Secondary Cooperative Society (Regional)c. Tertiary Cooperative Society ( National)d. Apex Cooperative Society ( International)

***Producers Cooperative Society: It is an association of the workers in alocality for collecting production of goods. Usually society produces goods for theconsumption of its own members. It may also produce for sale at a profit to theoutsiders. Members provide the capital and they also manage the society.Example: Society formed by Jute producers of Mymensingh

Society formed by Tobacco producers of RangpurWe can also say that MILK vita is also an example of producer CooperativeSociety.***Consumers Cooperative Society: It is an association of consumers. Itensures the daily requirement of its members. The main purpose of consumersCooperative Society is to reduce the role played buy the middleman.

Example: Society formed by DU studentsConsumers Cooperative Society formed by DU personnel.

Features/Principles of Co-operative Society:

1. People join Co-operative Society as human being. In a company, people joinas a capitalist.

2. Equality: Members of Co-operative Society join together on the basis ofequality. Let us recollect here, the worth saying of Mahkima Ghandi, he saidThere is swiftness in cooperation, no one is big or small here, it is equal tothe other.

3. Voluntary Association of Co-operative Society: Co-operative Society is avoluntary Association because members form such a society voluntarily.4. Mutual Benefit: The main objective of a Co-operative Society is the mutual

benefit of its members. Members join together consciously for their mutualbenefits in a Co-operative Society.

5. Open membership: The membership of a Co-operative Society is open toall. People from all walks of life can form such a society for their mutualbenefits.

6. One man one vote policy: In a company, number of votes depends onnumber of shares. But in a Co-operative Society it does not depend onnumber of shares. Here one man one vote policy is followed. Capital is notallowed to have a controlling voice.

7. Patronage rebate: The rebate depends on the amount of use of society byits members. It means if a member purchases more from a society, he will getmore discount. All for each and each for all is the sprit of Co-operativeSociety. The driving force of Co-operative Society does not depend on anyindividual interest rather it depends on group interest. Every member is verymuch careful to protect the interest of the group members.


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Strength of Co-operative Society:

1. It renders services to its members only.2. There is economy in operation as it is usually run by itsmembers.

3. It provides goods at cheap price, because the middle manis not present there.4. More selling is possible because its members are itscustomers. It helps to solve unemployment problem to some extent.5. Harmonious labor management relationship is therebecause no servant master relationship is there. Members are equal on thebasis of their status.6. It increases savings and consumption. It speaks for democracy.7. It is a platform for the weaker section of the community.8. It teaches us virtues like self help, self confidence, honesty

and fellow feeling.

Weak point of Co-operative Society:

1. Lack of financial strength2. Lack of business experience and managerial skills of members3. Lack of sprit of cooperation in the long run.4. Internal conflict and rivalry.5. The area of operation of a Co-operative Society is very limited.6. Large scale of business is difficult to organize under a Co-operative Society.7. Co-operative Society cant face price fluctuations

8. Principles of Co-operative Society sound very high theoretically but practicallyit is very difficult to implement.

Documents

Introduction to Business1