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Unit 2
Business Structure and Organization

What in this Unit 2 ???
‡ Historical view of business development ‡ Forms of business organization ‡ Definition, meaning, characteristics, advantages and disadvantages of ‡ 1.Sole Proprietorship ‡ 2.Partnership ‡ 3.Joint Stock Companies ‡ 4.Co-operative societies ‡ 5.Public enterprises ‡ Role of government in business activity ‡ Organization charts

Forms of Organizations
‡ Forms based on ownership ‡ Ownership essential for providing the aspects for controlling and enjoying the profit ‡ Based on ownership forms are classified as ‡ 1.Sole proprietorship ‡ 2.Partnership ‡ 3.Co-operative Society ‡ 4.Joint stock company ‡ 5.Public enterprise and ‡ 6.Undivided Hindu family

Characteristics of an ideal form of Organization
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1.Ease of formation 2.Ease of raising capital 3.Limit to liability 4.Direct relationship between ownership, control and management 5.Flexibility of operation 6.Continuity or stability 7.Retention of business secrets 8.Freedom from state regulation 9.Lighter tax liability

Entrepreneur s choice in deciding form of business
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1.Type of business viz trading, manufacturing 2.Expected volume of business 3.Area of operation 4.Degree of direct control over management 5.Finance required for initial requirements and expansions 6.Willingness of owners to assume personal liability for business risks 7.Arrangement for sharing profits 8.Expected life-span of business 9.Tax advantage under different types of ownership 10.Degree of government regulation and the freedom desired by the entrepreneurs

1.Sole Proprietorship
‡ Sole proprietorship is a form of business organisation in which an individual introduces his own capital, uses his own skill and intelligence in the management of its affairs and is solely responsible for the results of its operations ‡ Oldest

Features
‡ ‡ ‡ ‡ ‡ ‡ ‡ Single ownership One man control Undivided risk Unlimited liability No government regulation No separate entity of the firm Useful for a small scale business

Merits
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1.Ease of formation and dissolution 2.Direct motivation 3.Facility of coordination 4.Promptness in decision making 5.Flexibility in management 6.Secrecy 7.Credit standing 8.Freedom from government regulation

Social utility of Sole Proprietorship
‡ 1.Promotes independent living ‡ 2.Develop social virtues ‡ 3.Avoids concentration of economic power

Limitations
‡ ‡ ‡ ‡ 1.Limited finances 2.Limited managerial skill 3.Unlimited liability 4.Uncertainity of duration

Conclusion
‡ ‡ ‡ ‡ ‡ ‡ Useful where 1.The capital required is small 2.Risk is not heavy 3.Quickness of decisions is very important 4.Customers require personal attention 5.Special regard has to be shown to the tastes and fashions of the customers

2.Joint Hindu Family Firm
‡ Belongs to the family members of a joint Hindu family ‡ Not partitioned ‡ Three successive generations in the male line ‡ Hindu Succession Act 1956- Female relative of the deceased eligible ‡ Governed by the rules of the Hindu Law

3.Partnership Organization
‡ ‡ ‡ ‡ More capital required More hands to manage Governed by Indian Partnership Act of 1932 Defined as The relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all

Characteristics of Partnership Organisation
‡ ‡ ‡ ‡ ‡ ‡ 1.Existence of business 2.Plurality of persons (atleast two persons) 3.Contractual relationship 4.Profit motive 5.Principal- agent relationship According to Companies Act 1956, atleast two persons required to start a partnership firm and the maximum limit is 20 ‡ For a banking business the maximum is 10 persons

Legal characteristics of a partnership firm
‡ ‡ ‡ ‡ 1.Unlimited liability 2.Utmost good faith 3.Implied agency 4.Restriction on transfer of interest

Features of Partnership
‡ 1.Formation ‡ Partnership Deed Lays down the terms and conditions of the partnership and the rights, duties and obligations of partners is drafted ‡ Lawyer to draft the deed ‡ This to be registered because the firm cannot fight legally. ‡ Registrar of firms

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2.Financing Contribution in terms of money Some in terms of skills also Borrowing by pledging the property as security ‡ 3.Control ‡ Control with all the partners

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4.Management Depends on the partners Some will be dormant Specific areas will be assigned to specific partners depending on their skill/capability 5.Duration Ends when a partner dies or becomes insolvent If every other partners agree to work in the same way, they can do so The Indian Partnership Act says a firm can be dissolved if it is found illegal or its partners become insolvent A court also can do so 6.Taxation

Types of Partners
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1.Sleeping or Dormant Partners 2.Nominal Partners Do not invest. Only they lend their names 3.Partners by estoppel Behaves mistakenly 4.Partners by holding out Declared to be a partner by another person 5.Minor partners

Requisites of an ideal partnership
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1.Mutual understanding 2.Common approach 3.Good Faith 4.Balancing of skills and talents 5.Adequate long term capital 6.Long duration 7.Written agreement 8.Registration

Partnership Deed
‡ Must for partnership ‡ A form of agreement among the partners ‡ All mutual rights, powers and obligations after discussion are incorporated in the deed ‡ Service of a lawyer ‡ Stamped in accordance with Indian Stamps Act

Points to be covered in the deed
1.Nature of the business 2.Name of the business with address 3.Capital to be contributed by each partner 4.Loans from partners ?If yes rate of interest 5.Duties, powers and obligations of partners 6.Method of preparing accounts and arrangement for audit 7.Appropriation of profit (a) Whether interest allowed on capitals (b) Whether a partner allowed salary or commission for the work (c) Profit sharing ratio 8.Amount to be allowed as private drawings and the interest 9.Method by which a partner retires, settlement for the retired partner and settlements for a deceased partner ‡ 10.Valuation of goodwill on admission or death or retirement of a partner
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‡ 11.Method of revaluation of assets on admission or retirement or death ‡ 12.Whether a partner can be expelled and if yes the procedure for expulsion ‡ 13.Circumstances when the firm will stand dissolution and method of dissolution ‡ 14.Arbitration in case of dispute among partners ‡ 15.Arrangement in case a partner becomes insolvent

Registration of firms
‡ Name of the firm ‡ Place of the business ‡ Other places where the firm will have its business extended ‡ Name and address of the partners ‡ Dates where the partners joined ‡ Duration of the firm ‡ Registration very much essential

Rights of a partner
‡ ‡ ‡ ‡ ‡ ‡ Right to participate in the management Right to enjoy interest on loan given by him Right to inspect the account records Right to retire Right to continue in the firm Right towards share in the profit

Duties and Obligations
‡ To diligently carry the business of the firm ‡ To act in a just and faithful manner towards other partners ‡ To maintain correct records and accounts and allow other partners to inspect them ‡ To protect the firm from loss ‡ Not to carry a business that will bring loss to the present firm ‡ Not to use the property of the firm to his personal interests ‡ To share the losses with others equally ‡ To act within the scope of his authority ‡ Not to assign or transfer his interest in the firm to others

Dissolution
‡ Dissolution of the firm takes place in the following circumstances ‡ 1.When all concerned agree that the firm has to be dissolved ‡ 2.When all the partners become insolvent ‡ 3.When the business becomes illegal ‡ 4.When a partner gives a notice of dissolution ‡ 5.When the court orders the firm to be dissolved

Dissolution by court
‡ 1.When a partner becomes of unsound mind ‡ 2.When a partner becomes permanently incapacitated ‡ 3.When a partner is guilty of misconduct affecting the business ‡ 4.When a partner or partners disagree or disregard the agreement ‡ 5.When a partner assigns or transfers his interests to a third person ‡ 6.When the business cannot be carried on

Advantages of a partnership firm
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1.Facility of formation 2.Larger resources 3.Promptness in decisions 4.Balanced judgement 5.Personal supervision 6.Flexibility 7.Protection of minority interests 8.Reduced risk 9.The wholesome influence of unlimited liability

Disadvantages of a partnership firm
‡ 1.Lack of harmony ‡ 2.Limited resources in terms of number of partners (10 in case of banking 20 in case of others) ‡ 3.Limited risk taking ‡ 4.Instability ‡ 5.Risks of implied authority ‡ 6.Lack of public confidence

4.Joint Stock Company
‡ Company Definition : A company may be defined as an artificial person (being an association of natural persons) recognised by law with a distinctive name, a common seal, a common capital comprising transferable shares of fixed value carrying limited liability and having a perpetual succession

Distinctive characteristics of a company
‡ ‡ ‡ ‡ ‡ 1.Separate legal entity 2.Limited liability of members Shareholders cannot be held liable 3.Perpetual (uninterrupted) existence 4.Common seal as a substitute for signatures

Features of Company Organization
1.Formation By law Two stages (a) Promotion Process of exploration, investigation and the organisation of necessary resources with the object of initiating business under corporate ownership ‡ (b) Incorporation ‡ Is the legal process through which the separate corporate entity of a company is given recognition by law ‡ The following documents have to be filled with the Registrar of Joint Stock Companies by the promoters ‡ ‡ ‡ ‡ ‡

‡ 1.Memorandum of Association- Charter of the company laying down the objects and capital of the company ‡ 2.The Articles of Association-Rules and By-laws governing the company ‡ 3.Written consents of persons who have agreed to serve as Directors of the company ‡ 4.Notice of the registered office of the company ‡ 5.Statutory declaration by the Secretary of the company

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2.Financing (Private & Public) 3.Control 4.Management (Board of Directors) 5.Duration 6.Taxation

Distinction between a company and a Partnership Firm

Kinds of Companies
1.From the point of view of incorporation (a) Companies incorporated under a special charter Not in use in India, but rarely in England Called chartered companies (b) Companies established by a special act of Parliament Special cases LIC, Air India etc (c) Companies incorporated under the provisions of the Companies Act ‡ The Companies Act 1956 ‡ Large numbers ‡ Called as Registered companies ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡

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2.From the point of view of liability (a) Companies with unlimited liability (b) Companies with liability limited by guarantee (c) Companies with liability limited by shares 3.From the point of view of Nationality (a) National companies (b) Multi National Companies MNCs 4.From the point of view of public interest (a) Private Company (b) Public Company (c) Government Company

Private Company
‡ A private company is defined as a company which by its articles ‡ (a) Limits the number of its members to 50 ‡ (b) Prohibits invitation to the public for subscription to its shares and debentures and ‡ (c) Restricts the transfer of its shares ‡ Minimum number of members is 2 ‡ A private company combines the advantage of limited liability and the facilities of the partnership organisation ‡ Preferred by many businessmen

Public Company
‡ A public limited company does not limit the number of its members to 50,is not prohibited from inviting the general public to subscribe its shares and does not restrict the right of its members to transfer their shares freely ‡ Minimum 7 persons ‡ No limit to maximum persons ‡ Offers its shares to the public at large ‡ Shares can be transferred without any restrictions ‡ Transfer takes place through stock exchanges

Government Company
‡ Called so when the Government (state or central) has a minimum of 51 % share

Also to read
‡ ‡ ‡ ‡ 1.Memorandum of Association 2.Articles of Association 3.Difference between the above two 4.The prospectus

Merits of Joint Stock Companies
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1.Financial strength 2.Scope for expansion 3.Transfering of ownership 4.Limited liability 5.Diffused risk 6.Stability 7.Tax relief 8.Bold management

Drawbacks of Joint Stock Companies
‡ ‡ ‡ ‡ ‡ ‡ 1.Difficulty and cost of formation 2.Possibilities of fraudulent management 3.Lack of personal incentive 4.Oligarchic management 5.Excessive regulation by law 6.Delay in decisions

5.Co-operative Organisations Cooperative Societies

Organisational Structures/Charts

Why Have a Structure?
‡ All businesses have to organise what they do ‡ A clear structure makes it easier to see which part of the business does what ‡ There are many ways to structure a business

Some Key Terms
‡ ‡ ‡ ‡ ‡ ‡ Flat or tall structure Span of control Chain of command Hierarchy Delegation Empowerment

Ways to Structure a Business
‡ By function: arranging the business according to what each section or department does ‡ By product or activity: organising according to the different products made ‡ By area: geographical or regional structure

Ways to Structure a Business
‡ By customer: where different customer groups have different needs ‡ By process: where products have to go through stages as they are made ‡ What are the advantages/disadvantages of different types of business structure?

Pros and Cons of Different Structures
‡ This depends on the business type, size and structure used ‡ Let s look at a functional structure:
Chief Executive Board of Directors

Production

Marketing

Accounts

Personnel

IT

Functional Structure
Advantages ‡ Specialisation each department focuses on its own work ‡ Accountability someone is responsible for the section ‡ Clarity know your and others roles ‡ Disadvantages Closed communication could lead to lack of focus Departments can become resistant to change Coordination may take too long Gap between top and bottom

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An Example of Organisation by Product/Activity
Hewlett Packard

Imaging and Printing Group

Personal Systems Group

Enterprise Systems Group

HP Services

HP Financial Services

Organisation by Product/Activity
Advantages ‡ Clear focus on market segment helps meet customers needs ‡ Positive competition between divisions ‡ Better control as each division can act as separate profit centre Disadvantages ‡ Duplication of functions (e.g. different sales force for each division) ‡ Negative effects of competition ‡ Lack of central control over each separate division

Organisation by Area
Hewlett-Packard s Headquarters Worldwide
Hewlett Packard

Americas Houston, Texas

Europe, Middle East, Africa Geneva, Switzerland

Asia Pacific Hong Kong

Organisation by Area
Advantages ‡ Serve local needs better ‡ Positive competition ‡ More effective communication between firm and local customers

Disadvantages ‡ Conflict between local and central management ‡ Duplication of resources and functions

Other Organisational Structures
‡ By Customer: Similar effects to structuring by product ‡ By Process: Similar to structuring by function

DfT ± New High Level Structure

Christopher Muttukumar u Legal Robert Devereux Permanent Secretary (from 1 June) DFT BOARD Strategy Planning & performance Capability Brian Collins Chief Scientific Advisor

NonAnn Executiv Deborah Hemingwa e Williams y NonNon- Executive Executiv e

- City & Regional Networks - Accessibility - National Networks - International Networks - Environment - Safety - Logistics - Service transformation

DG Corporate Resource DG City & Regional Networks Mike Mitchell DG Rail & National Networks

Archie Robertson Chief Executive Highways Agency

Simon Webb DG International Networks & Environment Stephen Hickey DG Safety, Service Delivery & Logistics

Safety, Service Delivery & Logistics Group Structure

Stephen Hickey DG Safety, Service Delivery & Logistics

Vivien Bodnar To be confirmed Transformation, Road & Vehicle Licensing, Safety & Standards Logistics & Sponsorship

Rosemary Thew Driving Standards Agency

Clive Bennett Stephen Driver & Vehicle Tetlow Licensing Agency Vehicle & Operator Services Agency

Paul Markwick Vehicle Certification Agency

Roy Burke Government Car & Despatch Agency

Transformation, Licensing, Logistics & Sponsorship Directorate Structure

Vivien Bodnar Director

Helen Morris Licensing, roadworthiness & Insurance

Stephen Fidler Freight & Logistics

John Poynton Service Transformation

Leslie Gilbert Resources, Planning & Sponsorship

FREIGHT & LOGISTICS DIVISION ± Current Composition of Teams
Divisional Manager (DM)
Stephen Fidler

Deputy Divisional Manager
Cathy Jenkins (from 23 April)

FLD A Operator Licensing & Road Haulage Liaison

FLD B Road Haulage Employment

FLD C International Freight Negotiations

FLD D Sustainable Distribution: Strategy

FLD E Sustainable Distribution: Mode Shift

FLD F Sustainable Distribution: Efficiency & Research
Ian Corfield Ian Turner Khaleda Khatun Chris Gemmel (From 10 April)

David Meredith Hamid Tavassoly Steve Blackmore (from 30 April) Matt Hammond Francis Liston

Andrew Angel Andrew Kelly (until 31 May) Laura Stokes

Paul Hayes Geoff Finch Tim Ward

Duncan Buchanan Peter Bligh

David Glinos Hayley Bowen John Robinson Richard Ah So Leen

Steve Oliver

ORGANIZATION CHART OF BOILER GROUP (MECHANICAL) AS ON 26.11.08

AGM, Boiler, Safety & C&I Sh. H C Madan

Sr. DGM, Boiler Sh. Anil Verma

DGM, Boiler Sh. Jagjit Singh

Dy. Manager, Chemist Sh. S. S. Chauhan

Engineer (Boiler) Sh. Dhruv Garg

E.T. (Boiler) Sh. Rohit Chawla

E.T (Boiler) Sh. Anupam Chatterjee

E.T (Boiler) Sh. Kumar Vikramjeet Singh

E.T (Boiler) Sh. Braj Bhushan Yadav

Functions carried out by Boiler Group ‡ ‡ ‡ Imparting advanced technical education to internal/ external customers. Suggestions to MUs/ PEM/ Region/ Site/ TS(HQ) for improvement in products/ systems Development of expertise within the Group to meet the current and future needs in identified areas. ‡ Technology and Process Improvements for Erection/ Commissioning/ Troubleshooting/ PG/ PE Tests/ Servicing/ R&M/ Performance Monitoring. ‡ ‡ Conduction of program/ workshop for knowledge sharing. Preparation of Technical papers/circulars on the basis of site experiences (Inhouse/ National/ International forum). ‡ ‡ ‡ ‡ ‡ Assistance to sites for Erection/ Commissioning/ Overhauling/PG/PE Tests. Assistance to customers based on performance monitoring reports/ feedbacks. Conductance of Pre-outage survey / health monitoring / condition assessment of ESP. Planning/ Conducting of Milestone for Boiler Light-up. Providing technical expertise to attend critical problems referred by Regions , MUs, Higher Management and internal customers. ‡ Generating failure analysis reports for incorporating improvement in the processes, products and systems. ‡ Responding to Queries by Power Sector/ Industry Sector/ International Operation Marketing

Division w.r.t. order booking. ‡ Addressing technical issues w.r.t. contract closing.

Role of Government In Business
‡ ‡ In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies. Totalitarianism (or totalitarian rule) is a political system where the state, usually under the control of a single political person, faction, or class, recognizes no limits to its authority and strives to regulate every aspect of public and private life wherever feasible.[2] Totalitarianism is generally characterised by the coincidence of authoritarianism (where ordinary citizens have no significant share in state decision-making) and ideology (a pervasive scheme of values promulgated by institutional means to direct most if not all aspects of public and private life).[3] Totalitarian regimes or movements maintain political power through an allencompassing propaganda disseminated through the state-controlled mass media, a single party that is often marked by personality cultism, control over the economy, regulation and restriction of speech, mass surveillance, and widespread use of state terrorism.

‡

Leaders who practiced Totalitarianism

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Doctrine of Laissez Faire State to concentrate only on Law and Order Era of free enterprise Every individual while enjoying the benefits of the position/life should also contribute to the society

‡ Mixed Economy ‡ State to play an active role in the economic affairs of the country ‡ State Regulator of economic activity ‡ State takes over the control and ownership of strategic points in the economy and leaves the rest to private enterprise which works under proper regulation by the state in public interest ‡ India

‡ Totalitarianism ‡ Collapse of USSR and East bloc countries ‡ All control in the hands of the state

Forms of Government Regulation
‡ 1.General direction and regulation of investment activity in the private enterprise ‡ This is achieved through economic planning at the national level and through industrial policy ‡ 2.Regulation of investment, location, size and expansion of individual enterprises and specific industries through industrial licensing ‡ 3.Regulation of prices of commodities and industrial products through legislative authority and systematic investigations into cost structure and mark-ups ‡ 4.Regulation of monopolies and unfair or restrictive trade practices through legislation

‡ 5.Regulation of wages and bonus for employees in the private sector to minimise exploitation, ensure reasonable standards of living and maintain peace and harmony in industry ‡ 6.Regulation of corporate management ‡ 7.Regulations of specific forms of business activity like speculation in shares and commodities or imports/exports etc

General Regulation of Business Activity Economic Planning
‡ In totalitarian economies the state is responsible for complete and detailed planning of production and patterns of consumption ‡ Inn democratic mixed economies the government assumes an active role in determining the broad objectives of economic and industrial activity ‡ Prioritizes the industrial development ‡ Defines the role that the private and public sectors shall play in implementing industrial programmes ‡ FIVE YEAR PLANS

Industrial Policy in India
‡ ‡ ‡ ‡ Pre independence period Post independence period Industrial Policy Resolution, 1948 New Industrial Policy, 1991

Public Enterprise
‡ In certain countries all activities pertaining to the economic and commercial carried over by the state ‡ In countries like ours, the government selects certain areas where it has its control and leaves the other areas to the private players ‡ The enterprises owned , managed and controlled by the state on behalf of the public at large collectively constitute the public enterprise or the public sector

Rationale/Uses/Advantages/Roles of Public Enterprise
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Public ownership and control Government takes over, it becomes nationalisation 1.Abolition of monopoly 2.Promotion of public welfare 3.Greater economy and coordination 4.Balanced regional development of the industry 5.Assistance in economic development 6.Fuller employment 7.Better deal to workers

Objectives of the Public Enterprise
‡ 1.Assissting in accelerating the pace of economic growth ‡ 2.Increasing opportunities for employment ‡ 3.Improving the standard of living ‡ 4.Contributing to reduction in disparities in income and wealth ‡ 5.Preventing monopolies ‡ 6.Paving the way for diffusion of economic power ‡ 7.Mobilising and canalizing public savings

Limitations/Weaknesses of the Public Enterprise
‡ ‡ ‡ ‡ 1.Lack of efficiency 2.Political interference 3.Exposure to public censure 4.Rigid financial control

Organisation of Public Enterprise
‡ Public enterprise in the manufacturing field have been organised in three forms : ‡ 1.As departments of Government ‡ 2.As public corporations ‡ 3.As mixed ownership corporations or government companies set up under the Companies Act

Departmental Organisation
‡ ‡ ‡ ‡ ‡ ‡ Run by a Govt department with a minister at the top Ex : Railway ICF Produce for the government Manned by the civil servants Financed by the govt

‡ ‡ ‡ ‡ ‡ ‡

Disadvantages 1.At the mercy of the political parties 2.Civil servants lack business acumen 3.Workings always subjected to scrutiny 4.Lacks flexibility 5.Red tapism, delay and inadequate delays

Public Corporations
‡ Combines public interest with the flexibility of operation characteristic of a company in the private sector ‡ Features ‡ 1.Corporate body created by special statute of the parliament ‡ 2.Owned wholly by the state ‡ 3.It has its own legal entity ‡ 4.Enjoys financial autonomy ‡ 5.Exempted from regulations ‡ 6.Management entrusted to a board appointed by the minister ‡ 7.Works as service as the motive, not the profit

Mixed ownership corporation or government companies
‡ 51 % share held by the government ‡ Ownership with the government and participation by the public also

Problems of administration
‡ ‡ ‡ ‡ 1.Form of organisation 2.Autonomy of management 3.Composition of board of directors 4.Public accountability

Problems of public sector enterprise
‡ ‡ ‡ ‡ ‡ ‡ 1.Poor project planning 2.Heavy overheads HPF 3.Over capitalisation 4.Faulty production planning 5.Poor man power planning