MODULE 7 Business Organizations - IITs and IISc elearning Courses

Management Science II Dr.T.J.Kamalanabhan

Indian Institute of Technology Madras

MODULE 7

Business Organizations

Business can be undertaken in various forms

• In many instances, ways of doing business are governed by law.

• In others, they are determined by the preferences of the entrepreneurs involved, such as nature of business, tax and personal considerations.

Purpose Of Organizations

• People need to work together to accomplish goals

• Goals are too large, too complex, too expensive to be achieved without cooperation

• By working together, people can produce more & better goods and services



Types Of Organization

• Retail outlet

• Manufacturing

• Service

• Government

• NGO

Retail Organizations

• Food world

• Subhiksha

• McDonald

• Lifestyle

Manufacturing Organizations

• Tata Engineering

• Larsen & Tubro

• Bajaj Auto



• Ashok Leyland

• Ballarpur Industries

Service Organizations

• Infosys

• HDFC

• ICICI

• Appolo Hospitals Ltd.

• The Indian Hotels Company Ltd.

Government Organizations • National Thermal Power Corporation

• ONGC

• MTNL

• Indian Railways

• Administrative Staff College of India

Non-Government Organizations



• Indian Wind Turbine Manufacturers Association

• CRY

• The Banyan

• Udavum Karangal

• Helpage India

Factors Considered In Forming A Business Organization

• Legal restrictions

• Kind of business operation

• Need for capital Tax advantages or disadvantages

• Liabilities assumed

• Decision-making

• Intended division of earnings

• Number of people associated with the venture and their specific roles

• Perpetuation of the business

Factors In The Creation Of A Business Organization

• Costs associated with starting the form of business organization

• Possibility of transferring the interest in the business organization

• Management control

• Initial capital requirements



• Ability of the form of organization to attract additional capital

Types – Legal Classification

• Entrepreneurship / Sole Proprietorship

• Partnership

• Co-operatives / Associations

• Agencies

• Trust

• Corporate bodies

Sole Proprietorship

• Business entity owned and operated by one person.

• This is usually the least costly way of starting a business.



Sole Proprietorship Advantages

• Easiest to get started

• Greatest freedom of action

• Maximum authority

• Income tax advantages in very small firms

• Problems with isolation

Disadvantages

• Unlimited liability

• Death or illness endangers business

• Growth limited to personal energies

• Personal affairs easily mixed or confused

• Social security advantage to owner with business



Partnership

• A partnership is an association between two or more persons who have agreed to operate a business.

• Partnership is where two or more parties cooperate and work together

• A partnership brings together and uses partners' resources more economically, efficiently and effectively.

• Partnerships are a means of achieving outputs and outcomes that are important in relation to the needs of the local community

• Partners develop a commitment to an agenda for joint or co-ordinate action

• The partnership process involves planning each partner's contribution, what is expected of them and how they will benefit.

• The partnership involves the formation of effective leadership of the joint or co-ordinate action being taken.

Contents Of Partnership Deed

• Type of business

• Amount invested by each partner

• Division of profit and loss

• Compensation for each partner

• Distribution of assets on dissolution

• Duration of partnership

Contents Of A Partnership Deed



• Restrictions of authority – expenditures

• Provisions for withdrawals or admission of additional partners

• Dispute settlement clause

• Provisions for dissolving

• Settlement in case of death or incapacitation of any partner

Partnership

Advantages

• Two heads are better than one

• Additional sources of capital

• Better credit rating than corporation of similar size

• Ease of formation

Disadvantages

• Death, withdrawal, or bankruptcy of one partner

• Difficult to get rid of bad partner

• Hazy line of authority.

• Personally liable for business debts



• Divided authority.

Co-Operatives

Cooperative enterprises provide the organizational means whereby a significant proportion of humanity is able to take into its own hands the tasks of creating productive employment, overcoming poverty and achieving social integration. They constitute a model for a people- centred and sustainable form of societal organization, based on equity, justice and solidarity.

Co-Operatives In India



• Co-operative Initiative Panel

• Transport Co-Operative Society

• SARADA

• Amul

• Cooperative Banks

• Sugarcane Growers Cooperative Society

Agencies Under the Indian Contract Act, 1872, agency is a relationship founded upon a contract, either express or implied, by which one of the parties confers on the other the management of some business to be transacted in his name or on his account and by which the other assumes to do business and renders an account of it. A typical agreement would include clauses under the following broad heads:

Contents Of Agency Agreement

1. Appointment 2. Trademark and copyright license and acceptance 3. Term of the agreement



4. The principal's representation of the agent to its customers 5. Commissions 6. Indemnification

Contents Of Agency Agreement

• Quality control

• Relationship of the parties

• Excusable delays

• Assignment

• Third parties

• Modifications

• No waiver

• Governing law

• Notices

• Arbitration agreement

• Agency termination

Corporation



• A voluntary organization of persons, either actual individuals or legal entities, legally bound together to form a business enterprise.

• A corporate body is an artificial being, invisible, intangible and, existing only in contemplation of the law. In other words, a corporation is a distinct legal entity, separate from the individual who owns it.

Corporation Advantages • Limited liability for stockholders (While true for big business, may not be true

for small business)

• Continuity

• Transfer of shares

• Easier to raise capital

• Possible to separate business functions into different corporations

• Transfer of shares

Disadvantages • Gives owner a false sense of security

• Heavier taxes

• Power limited by charter

• Less freedom of activity

• Legal formalities

• Expensive to start

• Increased accounting

Corporate Forms Of Organizations



Types Of Corporate Organizations

The principal forms of business enterprises in India are as follows

Private Corporate Organizations

PRIVATE PUBLIC GOVERNMENT

Private Company

Limited by shares

Limited by guarantee

Unlimited

Public Company

Limited by shares

Limited by guarantee

Unlimited

Holding/ Subsidiary Companies

Subsidiary 1

Subsidiary 2

Subsidiary 3



• Roop polymers Ltd.

• Sundaram Finance Ltd.

• ANL Parcel

Public Corporate Organizations

• Reliance Industries

• Hindustan Lever

• ITC

• ACC

• SPIC

• Philips India

Government Organizations

• Indian Railways

• Air India

• Indian Airlines

• Road Transport Corporations

Structure • The organizational structure defines the formal communication

relationship in the organization

• The organizational structure links various activities of the business through job profiles

• The organizational structure is represented through the organizational chart

Organization Structure

Documents

MODULE 7 Business Organizations - IITs and IISc elearning Courses